The Advantages of Ethical Behavior in Business

Ethical people are those who recognize the difference between

right and wrong and consistently strive to set an example of good
conduct. In a business setting, being ethical means applying
principles of honesty and fairness to relationships with coworkers
and customers. Ethical individuals make an effort to treat
everyone with whom they come in contact as they would want to
be treated themselves.
Build Customer Loyalty
Consumers may let a company take advantage of them once, but if they believe
they have been treated unfairly, such as by being overcharged, they will not be
repeat customers. Having a loyal customer base is one of the keys to long-range
business success because serving an existing customer doesnt involve marketing
cost, as does acquiring a new one. A companys reputation for ethical behavior can
help it create a more positive image in the marketplace, which can bring in new
customers through word-of-mouth referrals. Conversely, a reputation for unethical
dealings hurts the companys chances to obtain new customers, particularly in this
age of social networking when dissatisfied customers can quickly disseminate
information about the negative experience they had.
Retain Good Employees
Talented individuals at all levels of an organization want to be compensated fairly
for their work and dedication. They want career advancement within the
organization to be based on the quality of the work they do and not on favoritism.
They want to be part of a company whose management team tells them the truth
about what is going on, such as when layoffs or reorganizations are being
contemplated. Companies who are fair and open in their dealings with employees
have a better chance of retaining the most talented people. Employees who do not
believe the compensation methodology is fair are often not as dedicated to their
jobs as they could be.

Positive Work Environment

Employees have a responsibility to be ethical from the moment they have their first
job interview. They must be honest about their capabilities and experience. Ethical
employees are perceived as team players rather than as individuals just out for
themselves. They develop positive relationships with coworkers. Their supervisors
trust them with confidential information and they are often given more autonomy
as a result. Employees who are caught in lies by their supervisors damage their
chances of advancement within the organization and may risk being fired. An
extreme case of poor ethics is employee theft. In some industries, this can cost the
business a significant amount of money, such as restaurants whose employees steal
food from the storage locker or freezer.
Avoid Legal Problems
At times, a companys management may be tempted to cut corners in pursuit of
profit, such as not fully complying with environmental regulations or labor laws,
ignoring worker safety hazards or using substandard materials in their products.
The penalties for being caught can be severe, including legal fees and fines or
sanctions by governmental agencies. The resulting negative publicity can cause
long-range damage to the companys reputation that is even more costly than the
legal fees or fines. Companies that maintain the highest ethical standards take the
time to train every member of the organization about the conduct that is expected
of them.

Business Ethics
Some commentators, such as Milton Friedman, believe that the "primary and only responsibility
of business is to make money" while abiding by the law. Supporters of this point of view argue
that companies' self-interested pursuit of profit benefits the whole of society. Profitable
businesses clearly benefit shareholders, but other commentators, such as Edward Freeman, argue
that businesses should also benefit other stakeholders. Stakeholders are people and groups with
whom the business has a relationship. This includes shareholders, but extends out to include
employees, their families, the community within which the business operates, customers and
suppliers.

Advantages
Business ethics offer companies a competitive advantage. Consumers learn to trust ethical brands
and remain loyal to them, even during difficult periods. In 1982, Johnson & Johnson spent over
$100 million dollars recalling Tylenol, its best-selling product, after someone tampered with
bottles of the painkiller. The company followed its credo, a set of ethical organizational values,
and the result was a boost in consumer confidence, despite the contamination scare. Society
benefits from business ethics because ethical companies recognize their social responsibilities.

Disadvantages
Business ethics reduce a company's freedom to maximize its profit. For example, a multinational
company may move its manufacturing facility to a developing country to reduce costs. Practices
acceptable in that country, such as child labor, poor health and safety, poverty-level wages and
coerced employment, will not be tolerated by an ethical company. Improvements in working
conditions, such as a living wage and minimum health and safety standard,s reduce the level of
cost-savings that the company generates. However, it could be argued that the restrictions on
company freedom benefit wider society.

People, Planet, Profit

Companies increasingly recognize the need to commit to business ethics and measure their
success by more than just profitability. This has led to the introduction of the triple bottom line,
also known as "people, planet, profit." Companies report on their financial, social and
environmental performance. The Dow Jones Sustainability Index benchmarks companies who
report their performance based on the triple bottom line. This type of performance reporting
acknowledges that companies must make a profit to survive, but encourages ethical and
sustainable business conduct.

The Social Contract Theory in a Global

Context
Jason Neidleman, Oct 9 2012
The social contract was introduced by early modern thinkersHugo Grotius, Thomas Hobbes,
Samuel Pufendorf, and John Locke the most well-known among themas an account of two
things: the historical origins of sovereign power and the moral origins of the principles that
make sovereign power just and/or legitimate. It is often associated with the liberal tradition in
political theory, because it presupposes the fundamental freedom and equality of all those

entering into a political arrangement and the associated rights that follow from the principles of
basic freedom and equality. From that starting point, often conceptualized via the metaphor of a
state of nature, social contract theory develops an account of political legitimacy, grounded in
the idea that naturally free and equal human beings have no right to exercise power over one
another, except in accordance with the principle of mutual consent.
The social contract captures a consensus, sometimes built on explicit consent, sometimes on tacit
consent, and sometimes it operates as a hypothetical account of what associates ought to consent
to if they are reasoning well. Jean-Jacques Rousseau captured the hypothetical account of
consensus with his idea of the general will (where associates reach consensus by privileging
their collective interest over their particular interest) and the will of all (where the particular
interests associates are aggregated without regard for the collective interest). Much more
recently, John Rawls continued building on Rousseaus argument by making an analogous
argument through what he calls the veil of ignorance (behind which associates derive
principles of justice without any knowledge the social, political, or economic status they may
hold in the society they are envisioning). For both Rousseau and Rawls, these concepts are
intended not as empirical accounts of how human beings reason but as normative accounts of
how they ought to reason. In his adaptation of social contract theory to the international contest,
Rousseau wrote, Doubtless, this is not to say that the Sovereigns will adopt this Plan; (Who can
answer for anyone elses reason?) but only that they would adopt it if they consulted their true
interests[1] Likewise, in his account of the domestic social contract, Rousseau concedes that
citizens may subvert the general will in favor of their particular will: the general will is always
right. But it does not follow that the peoples deliberations always have the same
rectitude.[2]
I. Historical Origins of Social Contract Theory
Social contract theory follows from the principle of basic freedom and equality, but the ideas
genealogy originates as an alternative to critique the dominant theory of political legitimacy in
medieval Europe. Prior to the work of Hobbes, Grotius, and Locke, the predominant view of
political legitimacy drew on the patriarchal power of fathers over their children, going all the
way back to the power granted by God to Adam. When Adam died, his eldest descendant
inherited his authority by primogeniture. As ensuing generations were born, power continued to
be passed on in this manner, from each head of household to his eldest descendant. Eventually,
peoples divided and nations were formed, but all power continued to be derived from God and
the principle primogeniture remained the standard by which sovereign power could be deemed
legitimate. This account of sovereign power was articulated most prominently by Robert Filmer
in his Patriarcha, published posthumously in 1680. For Filmer, the basic premise of social
contract theorythat people were born free and equal, no one with authority over anotherwas
both fiction and inconsistent with the word of God.[3]
According to Filmer, political relationships and obligations flow from historical and familial
relationships and customs. Locke took on this argument directly in the first treatise of his Two
Treatises of Government, published in 1689. In the second half of the text, Locke went on to
describe an alternative to the Biblical, Filmerian account of political legitimacy. On Lockes
model, and on the model of all social contract theorists, individuals are extracted from the socio-

historical constraints that Filmer emphasized and placed in an artificial construct, usually called a
state of nature. From this starting point, social contract theory asserts the principle of consent
in the place of primogeniture as the basis of political legitimacy.
II. Elements of the Social Contract
There are two principal elements to the social contract. The first is an initial pre-political
situation called a state of nature by the modern philosophers and the original position by
Rawls, the most significant contemporary exponent of social contract theory. In this initial
situation, all individuals are equal, they are all situated symmetrically relative to one another, and
they all have some incentive to leave the initial situation in favor of some relative advantage
gained by entry into civil society. The second element is a normative characterization of the
parties to the contract. The parties are described as (1) motivated by self-interest, in as much as
they will only agree to the contract if they perceive that they will benefit from social interaction;
(2) concerned for the welfare of others, if only because they recognize that the advantages they
expect to derive from the social contract will be conditional on their willingness to guarantee the
same advantages to their counterparts; and (3) rational or reasonable with respect to the way they
understand their own interests, the interests of others, and the just or moral principles that ought
to govern their pursuit of those interests.
III. Questions Addressed by Social Contract Theory
As noted above, social contract theory has an empirical dimension and a normative dimension.
The empirical dimension, which will be referred to as the question of Origins offers a
historical account of the origins of the state. The normative dimension of social contract theory
is an account of the principles of justice that make the state legitimate. Within the normative
dimension of social contract theory, it is useful to distinguish between two more specific
questions typically addressed in social contract theory: (1) What are the principles of justice that
bind citizens in their relations with one another?; and (2) Under what conditions may the state
legitimately act as the ultimate arbiter in relations among citizens? The social contract theory
answers to both of these questions builds on consent, applied first to the principles of justice that
govern in society and then to the establishment of a sovereign or state endowed with legitimate
powers of coercion. In the rest of this article, the former will be addressed as the question of
Justice and the latter as the question of Legitimacy.
While social contract theory begins, most notably in the work of Hobbes and Locke, as an
account of the origins and legitimacy of the state, later thinkers like Rousseau, Immanuel Kant,
and John Rawls have applied social contract theory to the international arena as well (drawing in
part on Grotiuss outline of international justice in On the Laws of War and Peace). In these
applications, states replace citizens as the parties to the social contract. The Justice component
of social contract theory can be useful in thinking through the terms of international treaties, such
as the Geneva Convention on the Treatment of Prisoners of War (in which states mutually
consent to the humane treatment of prisoners) or the UN Declaration of Human Rights (in which
states commit themselves to work toward the realization of a variety of human rights). The
Legitimacy component of social contract theory can be used to justify the alienation of power to
the International Criminal Court or even to the UN itself.

IV. Application to the International Arena: Rousseau and Kant

The social contract offers an appealing justification of political power, because it reconciles the
power of the state with the freedom and equality of each associate. For this reason, some have
asked whether the social contract could be generalized beyond relations between the citizens of a
single state to relations among states. Rousseau argues that states, like individuals, have an
incentive to enter into a contractual relationship when there is no common and constant rule for
judging the claims made by one against another.[4] Rousseau calls this contract a
confederation, in which each party relinquishes any aspiration it may have for conquest in
exchange for a guarantee that they will not be attacked by any of the contracting parties: it is
good for [the Powers of Europe] to renounce what they desire in order to secure what they
possess.[5]
For Kant, states are situated toward one another as moral persons, who are living with and in
opposition to another state in a condition of natural freedom, which itself is a condition of
continual war.[6] This mirrors almost perfectly the seminal account of the state of nature
presented by Hobbes. And, just as reason compels the individuals in Hobbes state of nature to
form some type of union under a social contract, so too are states incentivized to leave their state
of nature and enter into some kind of union of states, which he describes as a juridical state of
affairs, that is, a state of distributive legal justice.[7] The precise nature of this union of states
remained an open question for Kant. The act of contracting then occurs for Kant sequentially, on
two occasions: first as a contract among associates instituting sovereign power and the principles
by which it may be legitimately exercised, and second as a contract among states instituting an
analogous set of principles and an analogous sovereign authority, this time in the form of a
federation of free states.[8]
Rousseau was ultimately skeptical about the chances of an empirical realization of the
confederation he imagined. Kant too acknowledged that states would be reluctant to surrender
sovereign power to a world republic, but he was more optimistic that, over the course of time, the
persistent application of moral reasoning would ultimately make the concept of right effective,
as he put it in Perpetual Peace[9]
V. Rawls The Law of Peoples
In 1971, John Rawls spurred a renewed interest in social contract with the publication of A
Theory of Justice. He later extended the model developed in A Theory of Justice to the
international arena in The Law of Peoples. Rawls uses a social contract model, which he calls
justice as fairness in the domestic context and the law of peoples in the international arena.
[10] Rawls account is purely normative and does not have pretense to be an accurate descriptive
account of how nations actually engage one another. He describes his argument as ideal theory
in pursuit of a realistic utopia.[11]
In Rawls version of the social contract, associates begin from an original position, in which
they are imagined to reason behind a veil of ignorance, meaning that they do not know what
their relative social status will be in the society they are hypothetically constituting. The concept
of the veil of ignorance gives Rawls an instrument to theorize principles of justice within a

context of equality. Having arrived at principles of justice in the domestic context, Rawls goes
on to imagine a second-stage original position, whose parties are representatives of different
nations who must choose together the fundamental principles to adjudicate conflicting claims
among states. They know that they represent nations each living under the normal
circumstances of human life, but they know nothing about the particular circumstances of their
own nation, its power and strength in comparison with other nations. In this second stage, as
in the first, parties to the contract do not have knowledge of their relative status, so as to bracket
what Rawls refers to as the contingencies and biases of historical fate.[12]
Rawls takes as a condition of the contract that states will adhere in varying degrees to basic
principles of justice. Outlaw states, as Rawls calls them in The Law of Peoples, which do not
adhere to the principles of justice domestically, will not be party to the law of peoples. However,
Rawls does make provision for states that fall short of the liberal principles articulated in A
Theory of Justice but that cannot be considered tyrannical or dictatorial regimes. Rawls refers to
these societies as decent and makes space for their inclusion in the law of peoples on the
grounds that an exclusionary law of peoples would not itself honor liberalisms principle of
tolerance for dissenting but reasonable perspectives.
VI. The Question of Origins
At the domestic level, social contract theory is perhaps most susceptible to criticism with respect
to the question of Origins. Because no living person has ever experienced an initial situation like
the state of nature or the original position, there is good reason to be skeptical about the state of
nature as a literal account of the origin of sovereign power. This objection, most prominently
associated with David Hume, holds that the initial situation of social contract theory can only be
sensibly invoked as a hypothetical situation, as a thought experiment that establishes a context
within which the parties to an agreement are most likely to act rationally or reasonably.[13] It
was in this vein, that Hegel characterized the social contract as following from principle (pure
thought), which he distinguished from the historical conditions under which the state and its laws
developed. How a state was created Hegel maintained, has nothing to do with philosophy.[14]
One of the striking features of the relations between states, as opposed to the relations between
associates within a state, is the extent to which they occur in a context that seems to more closely
resemble the state of nature metaphor. While, as we will see, the problems associated with social
contract theory on the questions of Justice and Legitimacy are only exacerbated by extending
social contract theory to the international context, the international context actually has some
advantages with respect to the question of Origins in general and to the Humean objection in
particular. Prior to the establishment of international laws or treaties, states are situated toward
one another in two ways that mirror the Lockean or Hobbesian state of nature. First there is no
authority that stands above the parties to any putative treaty or international agreement. Second,
the enactment of any such agreement is based on the explicit consent of the relevant parties, not
the tacit consent that Locke was forced to have recourse to in response to the problem identified
at the beginning of this section, Every Man, that hath any Possession, or Enjoyment, of any part
of the Dominions of any Government, doth thereby give his tacit Consent, and is as far forth
obliged to Obedience to the Laws of that Government.[15]

VII. The Questions of Justice and Legitimacy

While the international arena is better suited to social contract theory with respect to the question
of Origins, it poses particular challenges with respect to the questions of Justice and Legitimacy.
In particular, the international arena violates the basic presupposition of the social contract theory
that individuals be as Locke put, promiscuously born to all the same advantages of nature, and
the use of the same faculties, should be equal one amongst another.[16] The social contracts
arguments for Justice and Legitimacy presuppose that the parties to the contract will be relatively
equally and symmetrically situated with respect to one another. It is this constraint that ensures
that the substantive principles that inform the contract will be reasonable, equitable, symmetrical,
and so forth. Likewise, it is this constraint that ensures that any authority empowered by virtue
of the contract will exercise its authority without favor or prejudice.
This problem is particularly acute at the international level, by consequence of the vast
differences between states, especially with respect to their relative wealth and power.
However many critics of social contract theory have argued that the problem occurs at the
domestic level as well. Particularly noteworthy are those arguing from the feminist perspective
(e.g. Carole Patemans The Sexual Contract) or from the perspective of critical race theory (e.g.
Charles Mills, The Racial Contract). These critics argue that racist or patriarchal assumptions
are built into social contract theorys claims with respect to the nature of rationality or the
substantive principles of justice.
Earlier critics of social contract, such as Rousseau and Karl Marx raised concerns about the
assumptions of equality and reciprocity that give the social contract its appeal. Rousseau
originally referred to the social contract as the rich duping the poor (though he later articulated
his own egalitarian version). Marx describes it as part of the ideology of capitalism, used to
legitimize the ongoing exploitation of the working class by the bourgeoisie. Because the
assumption of equality is so problematic at the international level, the attempt to apply social
contract theory to that arena serves to further illuminate critiques like Rousseaus and Marxs,
which emphasize how the morality of the contract is subverted when agents are not equally and
symmetrically distributed.[17]
The problem of asymmetry becomes particularly acute at the international level, where there is
and, for much of recorded history, has been a tremendous discrepancy in power among parties to
any putative law of peoples. Rawls avoids this problem by beginning from an assumption of
rough equality between the parties to the second level original position, an assumption which is,
of course, highly questionable, particularly in the current geopolitical context, in which one state
exerts tremendous power over most, if not all, of the others.
Beyond the problem of inequality, there are other obstacles to using states as proxies for moral
persons in the process of enacting an international social contract. Many states, for example, do
not adhere to fundamental moral principles with respect to the way they treat their own people.
This makes it unlikely that they would reason in accordance with the principles outlined in
Section II. If tyrannical regimes treat their citizens shabbily or cannot or will not represent all of
their citizens equally at home, it is unlikely that they will carry norms of equity and reciprocity
into international relations.

Finally, there is the problem of the high degree of interdependence that characterizes, even
constitutes, nations long before they enter into discussion about international laws or treaties.
When Rawls, for example, imagines the initial situation of nations enter into a negotiation, he
makes the assumption that the proposed society of nations will be a closed system isolated from
other societies.[18] Historical alliances, informal relationships, along with more formal
organizations such as the EU, OPEC, and ASEAN, put the lie to the assumption that the nations
of the world can be regarded as autonomous agents.
VIII. An Alternative International Social Contract
Just as Rousseau dismissed traditional theories of the social contract only to later propose his
own, so too have contemporary philosophers such as Martha Nussbaum, Thomas Pogge, and
Charles Beitz introduced a qualitatively different version of the international social contract, one
that they believe overcomes some of the problems of that contract, as articulated by Rousseau,
Kant, and Rawls.[19]
The fundamental difference in this alternative approach to an international social contract lies in
the nature of the parties to the contract. Whereas for Rousseau, Kant, and Rawls, the parties to
the international social contract would be states or peoples, for Nussbaum, Pogge, and Beitz,
social contract theory makes the most sense at the international level when the parties to the
social contract are imagined to be individual human beings. Only when imagined in these terms,
these writers argue, will the social contract be construed so as to meet basic liberal principles of
justice. On this account, the two-stage model favored by Rawls is replaced with a single original
position, in which individual human beings contract to a series of human rights that are not
constrained by the contingencies of any particular conception of the state.
This approach overcomes the problem of asymmetry identified above (VI), ensuring that any
forward-looking regime of international justice will not reinstitute hierarchies that exist among
states in the status quo. The disadvantage of this approach is that it deviates so dramatically
from contemporary practices, in which nation-states dominate international politics. Indeed, it is
quite possible that this alternative international social contract will require the wholesale
reconceptualization of the state and the corresponding consideration of alternative modes of
social organization. In spite of these difficulties, however, the social contract persists as political
theorists most viable tool for conceptualizing principles of global justice.

Social Contract Theory

The passions that incline men to peace, are fear of death; desire of such things as are necessary
to commodious living; and a hope by their industry to obtain them. And reason suggests
convenient articles of peace, upon which men may be drawn to agreements. These articles...are
called laws of nature. Thomas Hobbes (1588-1679), from Leviathan (1651)

Hobbes held that morality is not founded on religion or culture. He is a kind of egoist - how far is
a matter of dispute. His basic position is that ethics is a kind of by-product of the fact that society
needs rules to survive and people need to follow those rules if they are to flourish.
To get into the spirit of Social Contract Theory, imagine what would happen tomorrow if the
government, police, and courts all disappeared tomorrow. Hobbes called such anarchy the state
of nature. He famously said life for a human being in a state of nature would be "solitary, poor,
nasty, brutish, and short." (p.81)
For Hobbes, what produces such grim prospects in the state of nature are four basic facts about
human life and nature.
1. We all have equality of need.
2. There is scarcity of resources.
3. Humans are basically equal in power.
4. Humans have only limited altruism.
Given these facts about human life and nature, Hobbes held that we must find a way to
cooperate, else we will suffer and die. To escape the state of nature we form social contracts.
Morality is comprised of such contracts or rules. Morality consists in the set of rule, governing
behavior, that rational people will accept, on the condition that other accept them as well. (p.83)
The Prisoner's Dilemma
This material was discussed at length in terms of classic prisoner's dilemma, nuclear arms race,
natural resources, and consumerism. Note: you are responsible for this material. (see pp.85-87)
Lessons from the Prisoner's Dilemma
1. People's interests are affected not only by what they do but by what other people do as well.
2. Everyone will end up worse of if they pursue, like a short-sighted ethical egoist, their own
individual interests that if they pursue mutually beneficial interests.
3. Social contracts, if they are to work, must be enforceable.
4. An individual who does not uphold the social contract is a free rider and will be met with
condemnation.
Some Advantages of the Social Contract Theory
1. It suggests what moral rules we should follow and how those rules are justified.
2. It tell us why we should follow the rules: mutual benefit and fear of punishment.
3. It indicates when it is rational to break the rules: namely, we agree to obey the rules on the
condition others obey them as well. (see pp.90-92)
4. It preserves the distinction between dutiful acts and supererogatory acts.
Difficulties for the Social Contract Theory
1. Does the Social Contract Theory adequately account for our ordinary sense of morality? It
seems to define "goodness" in egoistic terms and then asks us to be strategic about how we
achieve our goals.
2. What about vulnerable humans and non-human animals. How are they accounted for under the
social contract theory? After all, they can't make contracts or retaliate against us

Moral Relativism and Objectivism

1. Moral Relativism: The view that what is morally right or wrong depends on what someone
thinks. (To which the claim that opinions vary substantially about right and wrong is usually
added.) We can think of this position as coming in two flavours:
(a) Subjectivism: What is morally right or wrong for you depends on what you
think is morally right or wrong, i.e., right or wrong is relative to the individual.
The 'moral facts' may alter from person to person.
(b) Conventionalism: What is morally right or wrong depends on what the
society we are dealing with thinks, i.e., morality depends on the conventions of
the society we are concerned with. The 'moral facts' may alter from society to
society.
Moral Relativism has become an increasingly popular view in the latter part of this
century. Why?
A couple of possible reasons: (i) The Decline of Religion: Religion seems to
offer the possibility that morality was independent of us. With a turning away
from religion there seems to have come a certain amount of doubt about the
possibility of objective morality. As Dostoevsky famously wrote "If God doesn't
exist, everything is permissible".
But does it make sense to say that if there's no God, there's no such thing as
morality?
Not really. Think back to the Euthyphro problem. What we saw in
thinking about it is that it's not as though believing there is a God makes it
obvious why some things are right and others are wrong. If we join
Euthyphro in saying that God loves the things He does because they are
good, then we are saying that things are good (or bad) independently of
God (and so, presumably, independently of whether God exists or not).
(ii) Observing Cultural Diversity: Most of us are aware that the world contains
many different cultures and that some of those cultures engage in practices very
different from our own. Some people, notably the anthropologist Ruth Benedict
(1887-1948), have argued that given all this diversity, we should conclude that
there is no single objective morality and that morality varies with culture.
Is this a good argument for moral relativism?

Again, not really. First of all, we might dispute whether there is really as
much diversity of belief about morality as folks like Benedict say. But
even if there is, notice that it is a mistake to conclude based upon
differing opinions about morality, that there are no facts about
morality.
Imagine this argument being offered approximately 500 years ago: "There
is widespread disagreement about the shape of the earth. Some people say
it's flat, others say it's spherical, some have even suggested it's a cube.
What can we conclude, except that there is really no fact of the matter
about what the shape of the earth is?"
The lesson to take from all this is that, while moral relativism might be a correct theory, if
it is, it isn't for either of these reasons. You need to do more work than this if you want to
be a moral relativist. In particular, you need to confront:
2. Moral Objectivism: The view that what is right or wrong doesnt depend on what anyone
thinks is right or wrong. That is, the view that the 'moral facts' are like 'physical' facts in that
what the facts are does not depend on what anyone thinks they are. Objectivist theories tend to
come in two sorts:
(i) Duty Based Theories (or Deontological Theories): Theories that claim that what
determines whether an act is morally right or wrong is the kind of act it is.
E.g., Immanuel Kant (1724-1804) thought that all acts should be judged according
to a rule he called the Categorical Imperative: "Act only according to that
maxim [i.e., rule] whereby you can at the same time will that it become a
universal law." That is, he thought the only kind of act one should ever commit is
one that could be willed to be a universal law.
(ii) Consequentialist Theories (or Teleological Theories): Theories that claim that what
determines whether an act is right or wrong are its consequences.
Utilitarianism is the best known sort of Consequentialism. Its best known
defender is John Stuart Mill (1806-1873). Essentially, utilitarianism tells us that,
in any situation, the right thing to do is whatever is likely to produce the most
happiness overall. (The wrong thing to do is anything else.)
Who's right here? That's clearly a very difficult question to answer. But here's what we can
conclude: it's intellectually lazy (and perhaps false) to say 'morality is all just a matter of
opinion'.
Moral objectivism
Objectivism is a philosophical concept that can be a bit difficult to fully understand. However,
the main focus of objectivism is that the greatest possible moral good in life is happiness and that

people have certain, specific ways that they can go about obtaining this ultimate good.
Ultimately though, the true happiness results from doing what is best for the individual.

Basics About Objectivism

What It Is

Objectivism is a philosophical idea that was created by the author Ayn Rand. An objectivist is a
person who follows certain moral guidelines such as:

Not taking what he/she does not deserve

Developing a sense of self sustainability

Respecting the rights of other human beings

Ultimately, the objectivist achieves true happiness through his or her works, attitudes and
behaviors.
As an atheist, Rand posed her theory in opposition to God and religion. She claimed that her
moral guidelines and rules were based on reason and humanity as opposed to emotion and faith
Objectivism in Everyday Life

A person who works hard on a farm his entire life to be completely self
sustaining.

A person who rejects the rules of religion and ultimate happiness with God
and instead focuses on his own ultimate happiness.

A woman who carves out a plan for the rest of her life that includes the
principles of reason, purpose and self esteem.

A corporation that, while using ethical business practices, still has the main
goal of being the absolute best in the field.

Engaging in actions that will lead to long term happiness as opposed to short
term pleasure.

Making decisions that are based on reason as opposed to emotions and that
which cannot be seen.

If a person is attacked they should use any force or weapons available to stop
the attacker.

A person who is opposed to slavery and the practice of owning another

human being.

A person who tells a lie in order to protect his or her family, friends or other
people.

Believing in the concept that all of knowledge is reached through reasoning.

Believing that people feel and know what is right, wrong, moral, ethical in the
world.

People develop their concepts of reality through language and abstract

thoughts.

Believing in the idea that there are no contradictions in the real world.

While some of these ideas may seem a bit abstract, they tend to have common themes behind
them.

Common Threads in Objectivism

Some of the concepts of objectivism can be a bit hard to grasp, particularly in a world that is
dominated by religious and political morals.
What is common amongst these different scenarios is the idea that the greatest good in the world
is to be happy. Each individual person should be working toward what makes him or her happy,
as long as it is not done at the expense of another person or people.
Additionally, objectivism does focus on there being a truth in the world. However, in general, the
objectivist theory or followers of objectivism will say that the greatest truth is not God or any
other concepts having to do with religion.

Moral relativism
Introduction
Moral Relativism (or Ethical Relativism) is the position that moral or ethical propositions do not reflect
objective and/or universal moral truths, but instead make claims relative to social, cultural, historical
or personal circumstances. It does not deny outright the truth-value or justification of moral statements
(as some forms of Moral Anti-Realism do), but affirms relative forms of them. It may be described by the
common aphorism: When in Rome, do as the Romans do.
Moral Relativists point out that humans are not omniscient, and history is replete with examples of
individuals and societies acting in the name of an infallible truth later demonstrated to be more than
fallible, so we should be very wary of basing important ethical decisions on a supposed absolute claim.
Absolutes also tend to inhibit experimentation and foreclose possible fields of inquiry which might lead
to progress in many fields, as well as stifling the human spirit and quest for meaning. In addition, the
short term proves itself vastly superior in the ethical decision-making process than the relatively
unknown long-term.

Relativistic positions may specifically see moral values as applicable only within certain cultural
boundaries (Cultural Relativism) or in the context of individual preferences (Ethical Subjectivism). A
related but slightly different concept is that of Moral Pluralism (or Value Pluralism), the idea that there
are several values which may be equally correct and fundamental, and yet in conflict with each other
(e.g. the moral life of a nun is incompatible with that of a mother, yet there is no purely rational measure
of which is preferable).
An extreme relativist position might suggest that judging the moral or ethical judgments or acts of another
person or group has no meaning at all, though most relativists propound a more limited version of the
theory. Some philosophers maintain that Moral Relativism dissolves into Emotivism (the non-cognitivist
theory espoused by many Logical Positivists, which holds that ethical sentences serve merely to express
emotions and personal attitudes) or Moral Nihilism (the theory that, although ethical sentences do
represent objective values, they are in fact false).
Moral Relativism generally stands in contrast to Moral Absolutism, Moral Universalism and to all types of
Moral Realism, which maintain the existence of invariant moral facts that can be known and judged,
whether through some process of verification or through intuition.

History of Moral Relativism

Back to Top

The early Sophist Greek philosopher Protagoras provides an early philosophical precursor to modern
Moral Relativism in his assertion that "man is the measure of all things". The Greek historian
Herodotus (c. 484 - 420 B.C.) observed that each society typically regards its own belief system and way
of doing things as better than all others. Plato also pointed out that much of what is believed to be fact
is actually opinion. Even earlier, Indian Jainism espoused as one of its basic principles the
Anekantavada principle that truth and reality are perceived differently from different points of view,
and that no single point of view is the complete truth.
In the early Modern era, Baruch Spinoza notably held that nothing is inherently good or evil. The 18th
Century Enlightenment philosopher David Hume is often considered the father both of modern
Emotivism and of Moral Relativism, although he himself did not claim to be a relativist. He distinguished
between matters of fact and matters of value, and suggested that moral judgments consist of the
latter because they do not deal with verifiable facts obtained in the world, but only with our sentiments
and passions. He famously denied that morality has any objective standard, and suggested that the
universe remains indifferent to our preferences and our troubles.
However, Moral Relativism is essentially a 20th Century creation, and the main impetus came from
cultural anthropologists such as Franz Boas (1858 - 1942), Ruth Benedict (1887 - 1948) and
Margaret Mead (1901 - 1978). The Finnish philosopher and anthropologist Edward Westermarck (1862
- 1939) was one of the first to formulate a detailed theory of Moral Relativism. He portrayed all moral
ideas as subjective judgments that reflect one's upbringing. He pointed to the obvious differences in
beliefs among societies, which he said provided evidence of the lack of any innate, intuitive power and
of any universal or absolute beliefs.

Criticisms of Moral Relativism

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Some Moral Absolutists criticize Moral Relativism on the grounds that it may lead to immorality, because
it abandons an absolute standard of right and wrong. Moral Relativists counter that the inflexibility of

Moral Absolutism is just as likely to lead to immoral acts (e.g. the absolute beliefs of medieval
Christianity which led to what we now consider atrocities).
Others argue that anyone who claims that no moral absolutes exist undermines their ability to justify
their own existence, being unable to argue against the discontinuation of their own lives at the hands of
another individual who adheres to a different set of values. However, the Moral Relativist claims just as
much moral justification to defend himself as the attacker does to attack.
Similarly, it has been argued that Moral Relativists cannot justify intervening in other cultures' practices,
since that would be to impose their own morality, and thereby they may be culpably unwilling to resist
evil in some cases.
It is difficult for a Moral Relativist to explain what happens when a society has a collective change of
heart (e.g. the rejection of slavery as a morally permissable policy), or when an individual undergoes a
personal moral improvement or admits that an attitude they used to hold was wrong. For them, there is
no external standard to judge against so, while their attitudes change, they cannot really be said to
improve or decline. Thus, there is a circularity in the process of judging one's values according to
one's values.
There are also difficulties in putting a boundary on a "society" or "culture", especially as what people feel
to be their social or cultural groupings may well not align with legal and national groupings, and a person
holding "minority" moral views within their society or culture may consider their "culture" more aligned
with that minority (e.g. religious communities, homosexual cultures) than with the larger state or national
society which determines what is lawfully acceptable. Therefore, it is argued, Moral Relativism is
meaningless since one could probably find a society that condones whatever one wishes to do (and
similiarly an individual could adopt different principles at different times), and ultimately any belief is
equally as valid as any other.
Some commentators have argued that Moral Relativism is not a positive ethical theory at all, because it
is not normative (indicative of how things ought to be), and because it effectively reduces to mere
societal law or custom, or to mere personal taste and preference.
Moral Relativism inevitably conflicts with the tenets of absolute morality as taught by almost all world
religions. Some Catholics and Buddhists, for example, have attribute the perceived post-war decadence
and permissiveness of Europe to the displacement of absolute values by Moral Relativism.
A rather flippant criticism is often levelled at Moral Relativism, that it is logically impossible, because, by
saying "all things are relative", one is stating an absolute and therefore a logical contradiction.

FEATURES OF GOOD ETHICS PROGRAMME

The following factors indicate the success of an ethics programme :

Leadership: that executives and supervisors care about ethics and values as much as they do
about the bottom line.

 Consistency between words and actions: that top management practises what it preaches.
This is more important than formal mechanisms such as hotlines for people to report
wrongdoing.
Fairness: that it operates fairly. To most employees, the most important ethical issue is how
the
organization treats them and their co-workers.
Openness: that people talk openly about ethics and values, and that ethics and values are
integrated into business decision-making
Just rewards: that ethical behaviour is rewarded. This has greater influence on the
effectiveness of
an ethics programme that the perception that unethical behaviour is punished.
Value-driven: that an ethics and compliance programme is values-driven. This has the most
positive effect on ethics and compliance programme and results in:
lower observed unethical conduct;
stronger employee commitment;
a stronger belief that it is acceptable to deliver bad news to management

Corporate Ethics Programs

What are they?

A systematic approach to raising ethical awareness of employees,

providing guides and education on ethics and having resources available
to assist in identifying and resolving ethical issues

Components of a program
Code of ethics
Ethics training for employees
A means for communicating with employees
Reporting mechanism
Audit system
Investigation system
Not every program will contain all of these components, and the emphasis on
each will vary

Compliance Strategy

 Tries to prevent

criminal conduct, violation of government regulations, and self-interested

behavior by employees (e.g., conflicts of interest)

Imposes standards of conduct and tries to compel acceptable behavior

Relies more on corporation lawyers and compliance officers

Integrity Strategy

Seeks to create conditions that support right action

Communicates the values and vision of the organization
Aligns the standards of employees with those of the organization
Relies on the whole management team, not just law and compliance personnel

Benefits of an Ethics Program

Prevent ethical misconduct

Monetary losses and losses to reputation

o Sears - loss of $60M and customer trust

Adapt the organization to rapid change

Regulatory changes, new technologies, mergers & acquisitions, and global

competition can require new ways of doing business
o What are the rules?

Managing relations with stakeholders

Informs suppliers about a companys own standards

Reassures other stakeholders of the companys intent

Corporate Codes of Ethics

Three approaches

Statement of specific rules or standards

o Often called codes of conduct, or statements of business standards
or practices

Statement of core values or vision

o Often called a credo or mission statement
o Johnson & Johnsons Credo

Statement of corporate philosophy that describes the beliefs guiding a

particular company
o Hewlett Packard - The HP Way

Who writes the codes?

General Counsel 84%

CEO 77%
Senior HR Executives 75%
Chairman 58%
Senior Financial Executives 42%
Employee Representatives 15%
Consultants 9; 8%

Reasons given for adopting codes

Generate discussion of what is ethical conduct
Help achieve consensus on ethical conduct
Enhance commitment to company ethical conduct
Communications tool
Discover core principles

Problems
Over emphasis on rules at the expense of judgment

Employees might conclude that anything not forbidden is permitted

Heavy focus on actions that harm the company may lead to cynicism about
the purpose of the code

 Other approaches
Focus on a strong corporate culture and leadership, rather than on a written
code
Rely upon extensive government regulation and internal auditing

Problems with Ethics Programs

Some evidence that misconduct occurs because of organizational

pressures and peer behavior, not because of ignorance over ethical
standards

This suggests that ethics programs include goal-setting and reward systems

Ethics programs may be adopted as "window dressing", rather than focus

on real solutions

Large companies already have "effective" compliance programs - but small

companies might invest too much in them, when other approaches would
be better

Top 10 Benefits of Business

Ethics Program

Many people are used to reading or hearing of the moral benefits of attention to business
ethics. However, there are other types of benefits, as well. The following list describes
various types of benefits from managing ethics in the workplace.
1. Attention to business ethics has substantially improved society
A matter of decades ago, children in our country worked 16-hour days. Workers limbs
were torn off and disabled workers were condemned to poverty and often to starvation.
Trusts controlled some markets to the extent that prices were fixed and small businesses
choked out. Price fixing crippled normal market forces. Employees were terminated
based on personalities. Influence was applied through intimidation and harassment. Then
society reacted and demanded that businesses place high value on fairness and equal
rights. Anti-trust laws were instituted. Government agencies were established. Unions
were organized. Laws and regulations were established.
2. Ethics programs help maintain a moral course in turbulent times
Attention to business ethics is critical during times of fundamental change times much
like those faced now by businesses, both nonprofit and for-profit. During times of

change, there is often no clear moral compass to guide leaders through complex conflicts
about what is right or wrong. Continuing attention to ethics in the workplace sensitizes
leaders and staff to how they want to act consistently.
3. Ethics programs cultivate strong teamwork and productvity
Ethics programs align employee behaviors with those top priority ethical values preferred
by leaders of the organization. Usually, an organization finds surprising disparity between
its preferred values and the values actually reflected by behaviors in the workplace.
Ongoing attention and dialogue regarding values in the workplace builds openness,
integrity and community critical ingredients of strong teams in the workplace.
Employees feel strong alignment between their values and those of the organization.
They react with strong motivation and performance.
4 Ethics programs support employee growth and meaning
Attention to ethics in the workplace helps employees face reality, both good and bad
in the organization and themselves. Employees feel full confidence they can admit and
deal with whatever comes their way. Bennett, in his article Unethical Behavior, Stress
Appear Linked (Wall Street Journal, April 11, 1991, p. B1), explained that a consulting
company tested a range of executives and managers. Their most striking finding: the
more emotionally healthy executives, as measured on a battery of tests, the more likely
they were to score high on ethics tests.
5. Ethics programs are an insurance policy they help ensure that policies are legal
There are an increasing number of lawsuits in regard to personnel matters and to effects
of an organizations services or products on stakeholders. As mentioned earlier in this
document, ethical principles are often state-of-the-art legal matters. These principles are
often applied to current, major ethical issues to become legislation. Attention to ethics
ensures highly ethical policies and procedures in the workplace. Its far better to incur the
cost of mechanisms to ensure ethical practices now than to incur costs of litigation later.
A major intent of well-designed personnel policies is to ensure ethical treatment of
employees, e.g., in matters of hiring, evaluating, disciplining, firing, etc. Drake and
Drake (California Management Review, V16, pp. 107-123) note that an employer can be
subject to suit for breach of contract for failure to comply with any promise it made, so
the gap between stated corporate culture and actual practice has significant legal, as well
as ethical implications.
6. Ethics programs help avoid criminal acts of omission and can lower fines
Ethics programs tend to detect ethical issues and violations early on so they can be
reported or addressed. In some cases, when an organization is aware of an actual or

potential violation and does not report it to the appropriate authorities, this can be
considered a criminal act, e.g., in business dealings with certain government agencies,
such as the Defense Department. The recent Federal Sentencing Guidelines specify major
penalties for various types of major ethics violations. However, the guidelines potentially
lower fines if an organization has clearly made an effort to operate ethically.
7. Ethics programs help manage values associated with quality management, strategic
planning and diversity management this benefit needs far more attention
Ethics programs identify preferred values and ensuring organizational behaviors are
aligned with those values. This effort includes recording the values, developing policies
and procedures to align behaviors with preferred values, and then training all personnel
about the policies and procedures. This overall effort is very useful for several other
programs in the workplace that require behaviors to be aligned with values, including
quality management, strategic planning and diversity management. Total Quality
Management includes high priority on certain operating values, e.g., trust among
stakeholders, performance, reliability, measurement, and feedback. Eastman and Polaroid
use ethics tools in their quality programs to ensure integrity in their relationships with
stakeholders. Ethics management techniques are highly useful for managing strategic
values, e.g., expand market share, reduce costs, etc. McDonnell Douglas integrates their
ethics programs into their strategic planning process. Ethics management programs are
also useful in managing diversity. Diversity is much more than the color of peoples skin
its acknowledging different values and perspectives. Diversity programs require
recognizing and applying diverse values and perspectives these activities are the basis
of a sound ethics management program.
8. Ethics programs promote a strong public image
Attention to ethics is also strong public relations admittedly, managing ethics should
not be done primarily for reasons of public relations. But, frankly, the fact that an
organization regularly gives attention to its ethics can portray a strong positive to the
public. People see those organizations as valuing people more than profit, as striving to
operate with the utmost of integrity and honor. Aligning behavior with values is critical to
effective marketing and public relations programs. Consider how Johnson and Johnson
handled the Tylenol crisis versus how Exxon handled the oil spill in Alaska. Bob Dunn,
President and CEO of San Francisco-based Business for Social Responsibility, puts it
best: Ethical values, consistently applied, are the cornerstones in building a
commercially successful and socially responsible business.
9. Overall benefits of ethics programs
Donaldson and Davis explain in the book Business Ethics? Yes, But What Can it Do for
the Bottom Line? (Management Decision, V28, N6, 1990) that managing ethical values
in the workplace legitimizes managerial actions strengthens the coherence and balance of
the organizations culture, improves trust in relationships between individuals and groups,
supports greater consistency in standards and qualities of products, and cultivates greater
sensitivity to the impact of the enterprises values and messages.

10. Last
And most formal attention to ethics in the workplace is the right thing to do.

steps
The 12 elements of a best-practices ethics program include the following. Each element is
described in reference to the pressure-to-perform scenario.
1. Vision statement. A vision statement defines the long-term, most desirable future state
for the organization. The vision gives employees and managers a first screening test for
decisions. They should ask themselves: "Will this decision or action move the
organization closer to its vision?"
Example: When setting performance goals HR should question whether the goals further
the vision. But this alone is an insufficient test of the appropriateness of a set of goals.
For example, "stretch" goals can further the vision in ways that are inconsistent with
company values. A better measurement of the appropriateness of a goal would be: If
meeting the goal will require unethical actions, the goal should be rejected.

2. Values statement. A values statement defines general principles of required behavior. It's
the standard against which decisions and actions are evaluated to determine if they meet
the company's and employees' requirements.
Example: An organization that adopts the simple values of fairness, honesty and integrity
would set only those goals that employees can achieve through honest means, and would
require that employees refrain from "gaming the system" and that communication among
all parties be truthful.

3. Organizational code of ethics. A code of ethics gives organization-specific definitions of

what's expected and required. The code of ethics should clarify the organization's
expectations. The code also defines the consequences for failure to meet the standard.
Example: In detailing the values of honesty or integrity, the code of ethics would specify
that reporting of sales and work times be accurate and truthful, and that failure to meet
this standard can be cause for dismissal.

4. Ethics officer. An ethics officer ensures that the ethics systems are in place and
functioning. This person monitors the organization to determine if it's making a good
faith effort to abide by its stated values, that the code of conduct supports those values
and that violations of those values are prevented or detected and addressed. The ethics

officer usually oversees the ethics communication strategy and mechanisms for
employees to obtain guidance and report suspected wrongdoing.
Example: In the pressure-to-perform case, the ethics officer should encourage and receive
communication from employees about the performance standards and determine whether
or not those standards constitute an impetus to violate the organization's values and code
of ethics.

5. Ethics committee. The ethics committee oversees the organization's ethics initiative and
supervises the ethics officer. It's the final interpreter of the ethics code and the final
authority on the need for new or revised ethics policies. Early in the ethics initiative, it
also may act as an ethics task force, creating the infrastructure it will eventually oversee.
Example: The ethics committee receives information regarding any patterns or trends in
employee comments about goal-setting, measurements and rewards, as well as instances
of reported misconduct. It's responsible for initiating the organization's response to those
patterns and trends, which likely includes a review of the goal-setting guidelines and a
test of the reasonableness of current goals. The committee also initiates steps to reverse
the pressure to violate the code of ethics to meet artificially high performance standards.

6. Ethics communication strategy. If employees are to know what's expected of them and
what resources are available to them, the ethics officer must create a cohesive ethics
communication strategy. This strategy ensures that employees have the information they
need in a timely and usable fashion and that the organization is encouraging employee
communication regarding the values, standards and the conduct of the organization and
its members.
Example: Employees require information about what's expected and how to safely raise
their concern if the goals, as set, are unattainable by any means that the organization
would condone.

7. Ethics training. Ethics training teaches employees what the organization requires, gives
them the opportunity to practice applying the values to hypothetical situations and
challenges, and prepares them to apply those same standards in the real world.
Example: Ethics training enables employees to recognize the ethical dilemma of
unreasonable goals and ensures they know what resources are available for safely raising
the issue. It also makes it evident to the managers setting those standards that doing so
creates an unacceptable condition in the workplace.

8. Ethics help line. Help lines aren't just for reporting unethical conduct. They also make it
easier for the organization to provide guidance and interpretation of its expectations when
the intent of an ethics policy is unclear.
Example: In the pressure-to-perform scenario, a call to a help line alerts the organization
to the problem and ultimately leads to restoring reasonableness to the sales and
performance objectives.

9. Measurements and rewards. In most organizations, employees know what's important

by virtue of what the organization measures and rewards. If ethical conduct is assessed
and rewarded, and if unethical conduct is identified and dissuaded, employees will
believe that the organization's principals mean it when they say the values and code of
ethics are important.
Example: Appropriate rewards and measures prevent the unreasonable goals that are the
motivation for the lying, cheating and stealing.

10. Monitoring and tracking systems. It isn't enough to track and monitor employee
behavior. It's also critical to assess the extent to which employees accept and internalize
the organization's values and ethics code. Do they agree with their importance and
appropriateness? Do they believe they apply to all employees at all levels?
Example: If employees suspect that managers know employees are cheating to reach
goals and are looking the other way, this may suggest that looking good on the sales
reports is more important to managers than doing the right things in the right ways.

11. Periodic evaluation. It's important to assess periodically the effectiveness of any
initiative, especially an ethics program. Is the commitment still there? What has been the
impact of recent changes? Are ethics-related goals and objectives being met? What new
challenges are emerging?
Example: With periodic ethical climate evaluations the pressure to improve sales and
service performance can be anticipated, preventing an ethical mess to follow.

12. Ethical leadership. The bottom line is that ethics is a leadership issue. Leaders set the
tone, shape the climate and define the standards. If managers are trustworthy and trusted,
if their motivations are honorable and their expectations crystal clear, and if they're
paying attention to ethics as an integral element of every business decision, then ethical
problems will be rare. Problems arise when the leaders are distracted by other elements of
running the organization and fail to ensure that the ethical systems are in place and are
effective.
Example: The pressure-to-perform scenario can develop because managers are

sidetracked by competition and inadvertently communicate that nothing is more

important than sales. The message they should be communicating is that sales, honestly
made and honestly reported, are crucial, but that dishonest sales dishonestly reported
serve no one.
These 12 best practices can prevent the vast majority of ethics violations, large and small, if
they're systematically and systemically applied. Nothing has proven effective in preventing the
rogue employee from perverting any system. But these practices can ensure that an organization
is doing nothing to encourage good people to do bad things.
Ethics builds on our six core values by providing greater detail about expected ethical
behaviors Explain Compliance Based Business Ethics
of all employees. The Code of Business Ethics provides this detail through a series of
actiSimply put, compliance-based business ethics have some rules attached to them, either by
law or as company policy. In either case, employees are obliged to comply with those rules.
Some of these laws (like Securities and Exchange regulations) apply only to publicly-traded
companies. Others, such as occupational safety and health laws, apply to public and private
companies. Compliance-based is not the only category of business ethics; values-based ethics
comprise another category
on statements associated with each core value that describe how we expect all
employees and cControl
Regardless of how an ethics policy is conceived, ethics programs are developed as
organizational control systems, the aim of which is to create predictability in employee
behavior, according to Ferrell and Fraedrich in Business Ethics: Ethical Decision Making and
Cases. (See References 1)

Values versus Compliance

Ferrell and Fraedrich describe two types of ethics programs, compliance and values-based (also
known as integrity based). The compliance-based system uses legal terms, training, rules of
conduct, and penalties for noncompliance. The values-based system relies upon self-policing and
motivation, rather than coercion. The companys values are seen as something to which people
willingly aspire, note Ferrell and Fraedrich. Ethicists sometimes refer to these two forms of
ethics as the carrot and stick. Values-based ethics are a "carrot" that the organization pursues
willingly, while compliance-based ethics are a "stick" used to beat ethics into the organization.
ontractors to behave in relation to specific circumstances.

Balance
Neither form of ethics by itself ensures an ethical corporation. Consider that in the rash of
corporate scandals in 2002 featuring Enron, WorldCom and Tyco, all three companies were selfpolicing. A successful example of a balance between compliance and values-based ethics is

displayed at the software-as-a-service (SaaS) company salesforce.com. Salesforce Chief

Executive Officer Marc Benioff built ethics into the organization from its founding. His 1-1-1
model dedicated 1 percent of employees time; 1 percent of profit; and 1 percent of product to
philanthropic efforts. Before the company went public on the New York Stock Exchange in
2003, it practiced compliance for a year, hiring a finance officer and an accounting firm to
monitor it closely. (See References 2)

Tactical Transparency
A key element of compliance-based ethics is transparency. Do auditors, and shareholders, have
the ability to police the company and get straight answers? Companies like ExxonMobil and
Monsanto not only conform with regulations on transparency, but also practice tactical
transparency. Anyone, shareholder or not, can attend an ExxonMobil annual meeting and
question executives. Monsanto, which takes heat from activists and non-government
organizations for its products, allows executives to be accessible by email or telephone. They
have no choice but to be open and accountable as possible, said Dominic Jones of the investorrelations publication IR Web Report. Without that, they are not going to be trusted. (See
References 3)

Sarbanes-Oxley
The 2002 Sarbanes-Oxley Act (SOX) is a strong example of compliance-based ethics. Congress
enacted this legislation in response to the 2002 financial practices at Enron and Worldcom that
enriched executives and defrauded stakeholders. SOX outlines specific rules for corporations,
including separating the roles of board chairman and chief executive officer (CEO); requiring
CEOs to certify financial statements; defining prison terms and fines for falsified statements; and
requiring ethics codes be registered with the Securities and Exchange Commission (SEC). The
downside of this legislation is its cost, which estimates that a $5 billion corporation will spend
nearly $5 million to initiate compliance, and $1.5 million a year thereafter.

Difference Between Code of Ethics &

Conduct
Codes of ethics and conduct have proliferated in part because of increasing public
concern about the way companies do business. Codes of ethics, which govern
decision-making, and codes of conduct, which govern actions, represent two of the
most common ways that companies self-regulate. Although often associated with
large companies, these codes provide direction to employees and establish a public
image of good behavior, both of which benefits businesses of any size.

Code of Ethics
A code of ethics is a document, usually issued by a board of directors, that outlines a set of
principles that affect decision-making. For example, a code of ethics might stipulate that XYZ
Corporation is committed to environmental protection and green initiatives. The expectation is
that individual employees, when faced with the option, will select the greenest solution. The
Caux Roundtable, a business-ethics think tank, argues for codes of ethics by noting that, "The
self-interested pursuit of profit, with no concern for other stakeholders, will ultimately lead to
business failure and, at times, to counterproductive regulation. Consequently, business leaders
must always assert ethical leadership so as to protect the foundations of sustainable prosperity."

Code of Conduct
A code of conduct typically is issued by a board of directors; however, it outlines specific
behaviors that are required or prohibited as a condition of ongoing employment. A code of
conduct might forbid sexual harassment, racial intimidation or viewing inappropriate or
unauthorized content on company computers. These are rigorous standards that usually are
tightly enforced by company leaders. Ethics consultant Cornelius von Baeyer notes that, "There
is considerable information that codes, along with other measures, have helped pull some
companies out of the morass of scandal, and have helped many companies build a healthier work
climate and reputation."

Similarities
Both codes are similar insofar as they attempt to encourage specific forms of behavior by
employees. Ethics guidelines attempt to provide guidance about values and choices to influence
decision-making, whereas conduct regulations assert that some specific actions are appropriate or
inappropriate. In both cases, the company's desire is to obtain a narrow range of
acceptable behaviors from employees.

Differences
The codes attempt to regulate behavior in very different ways. Ethical standards generally are
wide-ranging and non-specific, designed to provide a set of values or decision-making
approaches that enable employees to make independent judgments about the most appropriate
course of action. Conduct standards generally require little judgment; you obey or incur a
penalty, and the code provides a fairly clear set of expectations about which actions are required,
acceptable or prohibited.

Codes in Harmony
Large corporations often have both types of behavior code, or they are combined into a general
ethics document that mixes principles for the right action with a list of actions that are required
or prohibited. Occasionally, large companies such as hospitals experience tension when the
corporate compliance leadership issues a "code of ethics" that essentially is a code of conduct

and another business unit (such as the medical staff) issues a genuine code of ethics. This tension
lessens for small businesses, because it is easier for all employees to share the same basic
expectations.

Small-Business Implications
Many smaller businesses can survive without a formal code of ethics or code of conduct.
However, these documents help shape a cultural expectation about behavior that is useful for
employees and serves as a solid marketing tool for potential business partners or clients, who
may be pleased to do business with a company that appears to take business ethics seriously.

Difference Between Code of Ethics & Code of

Conduct
The difference between a code of ethics and a code of conduct is often blurred in day to day
usage, but there is a difference. Codes of conduct are derived from codes of ethics whether the
ethical code is a written code or unwritten and understood by members of the organization
developing the code.

Codes of Ethics

An ethical code in its formal sense is an attempt by an organization to codify the values
of the group -- a statement of overarching principle telling members what is right and
what is wrong as a guide to all decision making within the organization. Codes of ethics
set out general principles, often social or moral, that guide rather than dictate behavior.

Codes of Conduct

Codes of conduct are specific rules designed to outline specific practices and behaviors
that are to be encouraged or prohibited under the ethical code of an organization or
individual. Codes of conduct lay out guidelines and procedure to be used to determine
whether violations of the code of ethics have occurred and delineate the consequences for
such violations. Conduct codes govern things like conflicts of interest or acceptance of
gifts and what penalties should be imposed for specific infractions.

Codes of Practice

Codes of conduct and codes of ethics are often confused with codes of practice. A code of
practice is a document designed to provide a clear example of what is correct, ethical or
right behavior in any circumstances. A code of practice generally implies that violation of
these codes of practice can result in disbarment or expulsion from the organization.

Similarities

Codes of ethics and codes of conduct are designed to promote ethical behavior among
members of a group or in an individual. Both help to identify what is acceptable behavior
and what is not and to promote higher standards of behavior within the group. Both help
establish a framework for evaluating the behavior of the individual or group member and
both help identify those who subscribe to these codes as members of a specific group.

Differences

Ethical codes are focus on broader issues and are often framed as a belief statement
regarding the organization's mission, its values and expectations for its members. A
conduct code is designed to translate the ethics code into specific do and don't guidelines
and to promote adherence to the code of ethics by providing specific examples of real
world applications of the code of ethics. The code of ethics is very broad and
theoretically can be used to guide decision-making in all areas of member behavior. A
code of conduct only covers what specific incidents and situations the composers think to
put into the code. Should behavior occur which is not covered under the conduct code,
members would have to refer to the code of ethics in order to revise the code of conduct
to cover the omitted behavior or situation.

Communicating Ethical Values

A communications strategy for the ethics programme would aim to raise awareness of the
organisations values, its code of ethics, what ethical practices look like and why they are
important for the success of the business.
It will also guide employees towards sources of advice and where to raise concerns, and it will
provide examples of how the organisation is living up to and being challenged on its values.
The IBE's Good Practice Guide: Communicating Ethical Values Internally offers indepth
assistance with case studies from leading companies.

1. Provide a copy of the code, or a summary of it, to all employees in the

company and to new employees as part of induction. Some companies
require staff to acknowledge receipt of the code.
2. See that the code is translated for use in overseas operations and businesses
where English is not the principal language. Ensure that the code is
communicated in a way that is compatible with local culture. See Globalising
Your Business Ethics Programme for more information.

3. Use all communication channels to raise awareness of and promote the

values and code. For example, in internal newsletters and staff meetings use
cases of ethical issues and dilemmas faced by the organisation and its
employees and how they were resolved. Developing and Using Business
Ethics Scenarios has more information.
4. Make copies of the code available to business partners (including suppliers
etc.) and explain its significance to your organisations relationship with
them.
5. Consider the use of desktop and other gimmicks to remind staff of ethical
values.
6. Consider how best to use web based media beyond hosting downloadable
pdfs - discussion forums, blogs, FAQS etc. Can you provide access to subject
matter experts?
7. Ensure that employees are aware of the consequences of breaching the code.
8. Ensure that employees are aware of how to make enquiries or to report
suspected breaches of the code, and the support they can expect when doing
so

Its not easy to embed business ethics throughout an organization, because its not always easy to
define the right thing to do especially when different people define right and wrong in
different ways. To add to the problem, employees personal ethics usually dont align perfectly
with the business ethics of a company.
But those complexities are exactly why its so important for leaders to establish and enforce a
code of conduct for the entire business. And fortunately, the benefits of building an ethics
program largely outweigh the hurdles.
Its true, many companies already include ethics training as a key component of the onboarding
process for new employees, but ethics training is seldom offered on an ongoing basis meaning
employees can lose sight of an organizations code of conduct along with the definition of the
right thing to do. Because ethics training initiatives require funding and support, many
companies offer a static program without updates, case studies, or examples of unethical
situations.
A truly dynamic ethics training program should focus on embedding the companys code of
conduct into daily worklife. To build an ethics training program that sticks, use these nine
guidelines to make it work.

1. Make it specific. Ethics programs should target specific behavior and should be
reinforced by action. Case studies and clear examples of ethical breaches should
be well-defined, and employees should be prompted to describe how they would
handle the situation.

2. Make it a two-way conversation. Programs should include a

process for asking questions and getting management to correct
apparent weaknesses in procedures. Employees must be assured of
confidentiality during training sessions to allow open discussions about
ethical concern
3. Make it interactive. The most effective programs are interactive so
employees can learn firsthand how to make better ethical decisions,
and they often include a roadmap of the steps to follow when facing an
unethical situation.
4. . Make it memorable and situational. Many companies offer online
training programs with quizzes to test the employees understanding,
or ask employees to perform the behaviors described during training to
better commit it to memory. In some cases, an employee is required to
repeat the training if they do not do well on the quiz.
5. Make it relatable. Whether through case studies or interactive
presentations, participants should be provided with examples of good
and bad ethical behavior along with an understanding of the impacts of
such behaviors. For example, I had an opportunity of working with MCI
(formally WorldCom) as part of the internal controls team that was
chartered to rebuild the company. Besides the usual ethics training
programs and webinars, we wanted to implement an interactive
training initiative so that employees had an opportunity to apply their
understanding of ethics. It included an ethics board game where
participants had opportunities to react to case studies and define next
steps.
6. Reinforce it. In a live training environment, training instructors
should review and positively reinforce behaviors learned by
participants through consistent messaging. Observations from ethics
training sessions should be shared with the companys management
team, including any trends or concerns.
7. . Repeat it. Training program participants should experience the
commitments associated with ethical behavior. This is a good test of
ones personal ethics and integrity, and reinforces the employees
ability to adhere to the companys code of conduct. Ongoing ethical
training programs are critical, because ethical dilemmas are dynamic.
Ethical dilemmas can range from suspected employee fraud, to

potential financial statement fraud, to management coercion, or even

to possible collusion with suppliers. To ensure employees are
comprehensively trained, some companies offer training on a quarterly
basis and require proof of attendance.
8. Make it visible. The general principles in codes of conduct should be
an integral part of a companys strategic planning process, with goals
and metrics in place to ensure success. This commitment to ethics and
the code of conduct must be communicated during training sessions
and can be repeated during an employees performance review.
9. Enforce the ethics hotline. While a good training program can
actually prevent calls to a companys ethics hotline, the hotline should
still be reinforced throughout all training initiatives. When employees
are armed with the proper tools and can clearly define a violation of
the code of conduct, they are in a better position to use the hotline to
report the real ethical dilemma.

These nine steps will help embed the companys code of conduct throughout the
organization. The cost and commitment required for a dynamic ethics training program
certainly outweigh the risk of ongoing unethical behavior and potential fraud. A wellimplemented program should align an employees personal and professional ethics with
the expected business ethics of his or her company. Using these steps will help set the
right direction, but ethics training that sticks requires everyones commitment and
attention not just once, but throughout the year.

What is an integrity pact?

A written agreement between the government/government department and all bidders to refrain
from bribery and collusion
Bidders are required to disclose all commissions and similar expenses paid by them to anyone in
connection with the contract. If the written agreement is violated then the pact describes the
sanctions that shall apply. These may include:

Loss or denial of contract;

Forfeiture of the bid or performance bond and liability for damages;

Exclusion from bidding on future contracts (debarment); and

Criminal or disciplinary action against employees of the government.

A monitoring system that provides for independent oversight and increased government
accountability of the public contracting process
In most cases, monitors are members of civil society or experts appointed by (and reporting to)
the TI Chapter and its civil society partners. The independent monitoring system aims to ensure
that the pact is implemented and the obligations of the parties are fulfilled. The monitor performs
functions such as:

Overseeing corruption risks in the contracting process and the execution of

work;

Offering guidance on possible preventive measures;

Responding to the concerns and/or complaints of bidders or interested

external stakeholders;

Informing the public about the contracting processs transparency and

integrity (or lack thereof).

Why use an integrity pact?

Companies can abstain from bribing safe in the knowledge that

o

A) their competitors have provided assurances to do the same, and

B) government procurement, privatisation or licensing agencies will

follow transparent procedures and undertake to prevent corruption,
including extortion, by their officials

Governments can reduce the high cost and distorting impact of corruption
on public procurement, privatisation or licensing in their programmes, which
will have a more hospitable investment climate and public support.

Citizens can more easily monitor public decision-making and their

governments activiti

Who can use it?

The integrity pact can be used by government officials and agencies, private companies (the
bidders) and civil society. The initiative to include pacts in a public contracting process can come
from any of these actors.

So far, integrity pacts have been led by civil society -mainly through the TI chapters, sometimes
with other civil society partners- which allows them to share the experience of past projects.
When can an integrity pact be used?

Integrity pacts are adaptable to many settings. They are flexible tools that can be applied to:

Construction contracts;

Goods and services supply contracts;

State asset privatisation programmes (the buyer/recipient of state property);

Consultants (engineering, financial, architectural, for example);

State licences or concessions and extraction rights (oil or gas exploration and
production, mining, fishing, logging, for example);

Government-regulated services such as telecommunications, water supply

and waste collection services.

Whenever possible, an integrity pact should cover the entire project from start to finish; needs
assessment and justification, bidder pre-selection, bidding, awarding the contract and
implementation.

How do integrity pacts work?

1. The starting point is an agreement for the implementation of the pact
between the government procuring agency and the civil society organisation
leading the monitoring. This agreement confirms the political will to
implement the pact, defines the contracting processes and describe the
activities, roles and responsibilities of each of the parties involved.
2. Maximum transparency at every phase of the contracting process leading to
the award of the contract and the projects implementation. Public hearings
and the internet help provide public access to all the relevant information
including: needs assessment, design, bidding documents, pre-qualification of
contractors, bidding procedures, bid evaluation reports, contract terms and
conditions, contract implementation and supervision reports.
3. The content of the integrity pact should be agreed upon by the civil society
organisations and the government. As a contract between the government
office inviting the public tender and the bidders, it should be one of the
bidding documents.
4. The main elements of the pact are:

An undertaking by the government that its officials will not demand or

accept any bribes, gifts etc., with appropriate disciplinary or criminal
sanctions in the case of any violation;

A statement by each bidder that it has not paid, and will not pay, any
bribes in order to obtain or retain the contract;

An undertaking by each bidder to disclose all payments made to

anyone in connection with the contract in question (including agents
and other middlemen as well as family members etc.);

The explicit acceptance by each bidder that the no-bribery

commitment and the disclosure obligation, as well as the
corresponding sanctions, remain in force for the winning bidder until
the contract has been fully executed;

Bidders are advised to have a company Code of Conduct (clearly

rejecting the use of bribes and other unethical behaviour) and a
compliance programme for the implementation of a Code of Conduct
throughout the company;

The use of arbitration as a conflict resolution mechanism, and

acceptance that the arbitration panel can decide and impose
sanctions;

A pre-agreed set of sanctions for any violation by a bidder of any part

of its commitments or undertakings within the pact, including (some or
all):

Denial or loss of contract,

Forfeiture of the bid security and/or performance bond,

Liability for damages to the principal and the competing bidders,

and

Debarment of the violator by the principal for an appropriate

period of time.

5. The civil society organisations must select the independent monitor(s): The
monitor should be highly respected people of unquestionable integrity, who
possess professional expertise in the area of the contract. The monitor should
not have any links to the procuring agency or bidding companies. The
monitor preferably reports directly to the civil society organisations.

Monitors should have free access to all relevant government documents,

meetings and officials, and to all documents submitted by the bidders. They
should review the tender documents, the evaluation reports, the award

selection decision and the implementation supervision reports (technical as

well as financial).

Monitors regularly inform the leadership of the government office of any

corruption risks or possible irregularities detected. The monitors should
suggest preventive/corrective measures to all parties.

Where any corruption risks or possible irregularities are reported by the

monitor to the government office and no steps have been taken (or such
steps are inadequate) within a reasonable period of time, then the Monitor is
entitled to inform the public and/or the public prosecutors office about this
situation. In addition, the civil society organisations must be entitled to
withdraw from the pact process and explain in a public statement the reasons
for the withdrawal.

What wider benefits does an integrity pact bring?

Enhanced access to information, which increases the level of transparency

and integrity in public contracting.

Greater confidence and trust in public decision-making foster changes in

the perception of citizens & bidders about the presence of corruption in public
procurement.

Less litigation on procurement processes.

Contract values that match or are below original budget estimates reducing
the cost of public contracting

More bidders compete for public contracts

Induce greater media coverage of anti-corruption activities resulting in

increased public awareness.

Encouragement of institutional changes such as the introduction of eprocurement systems, simplification of administrative procedures, use of
bidders rosters, effective regulatory action, and new practices by public
officials such as using codes of conduct or ethics agreements.

What challenges does an integrity pact face?

Lack of real political will:

Governments should make clear commitments to demonstrate that a pact is

not just a show of transparency. Civil society must follow-up closely to ensure
government compliance.

Political changes:

Building relationships and securing commitment at several levels of

government ensures changes in positions do not undermine a pact.

Limited technical expertise within TI Chapter or civil society group on the sector covered by the
contracting process:

External experts can support the technical review of the procurement

process. Local independent experts are important, but international experts
should fill in if none are available.

Insufficient access to timely and reliable information on the contracting process:

There should be clear provisions on how and when information should be

disclosed, and specify that non-compliance will be a cause for civil societys
withdrawal from the monitoring.

Insufficient interest of the media to report on the results:

The media typically likes stories about scandals more than stories on anticorruption efforts. Efforts can be made to build an alliance with a strong actor
within the media who understands the concept of the pact, will champion its
work and report on the results of pacts. Training of journalists is another
option.

- See more at:

http://archive.transparency.org/global_priorities/public_contracting/integrity_pacts#s
thash.amc13wAD.dpuf

Aretology
That part of moral philosophy which treats of virtue, its nature, and the means of
attaining to it.

Aretaic Ethics
From the Greek 'aretai' meaning 'virtue' or 'excellence': this Normative Ethical Theory is more
commonly known as 'Virtue Ethics'. As a normative theory, it is usually attributed to Aristotle,
and maintains that normative evaluations are rooted in the character of a moral agent rather than
the consequences of an action (contra Consequentialism) or some intrinsic feature of an action
itself (contra Deontological Ethics). Contemporary adherents contrast Virtue Ethics with

traditional normative theories by saying the latter focus on 'doing' while the former on 'being'.
The fundamental question of ethics, they believe, is not "What should I do?" but rather "What
kind of person do I want to be?"

Difference Between Aretaic & Deontic Ethics

Ethics are moral principles that regulate behavior, including the philosophical study
of right and wrong, which is often divided into three parts. Descriptive ethics talks
about what people do. Normative ethics is concerned with sets of rules that guide
people to know what they should do; it may prescribe action or character or
consequences. Metaethics thinks analytically about the meaning, cultural relevance,
proofs and rationality of normative ethics. Aretaic and Deontic ethics are two
systems of normative ethics.

The Basics of Aretaic and Deontic Ethics

Aretaic comes from the ancient Greek word "arte," which means goodness, excellence
of function or virtue. Aretaic ethics, sometimes called virtue ethics, emphasizes character
over actions or consequences. Deontic (or deontology) comes from the ancient Greek
word "deon," meaning obligation or duty. Like aretaic ethics, deontic ethics puts
consequences second but emphasizes duty over character as a basis for determining
action.

Aristotle and the Aretaic

The ancient Greek philosopher Aristotle (384 BC to 322 BC) was the first leading
proponent of aretaic ethics. In his view, ethics is agent-centered, as opposed to actioncentered. That is, assessment of right and wrong depends on a person's character or
virtues. In Aristotle's time, for instance, valued moral virtues were courage, moderation
and justice. A person who placed intrinsic value in these virtues would, by nature, act in
such a way as to promote them. The result of acting virtuously was to promote
"eudaimonia" (happiness or living well), which Aristotle saw as being man's highest end.

Kant and the Deontic

The German philosopher Immanuel Kant (1724 to 1804) is credited with the development
of the idea of deontic ethics. He felt that morality should be defined as categorical rather
than hypothetical. That is, it should be universally agreed upon; it should not depend
upon individual taste or abilities. He put forward the idea of the "categorical imperative,"
a requirement, based on human reason, that is unconditionally authoritative and requires

that certain action be taken. Action is based solely on duty and looks at the input rather
than the outcome. If an action adheres to duty, it is morally right. If not, it is morally
wrong. Consequences, according to Kant, do not matter.

Aretaic vs. Deontic Ethics

Aretaic ethics asks the question, "What sort of person should I be?" It defines virtues and
says right acts are those that are performed by virtuous people, regardless of the
consequences. Deontic ethics asks: "What should I do, and what should I not do?" Right
and wrong depend upon a set of principles based on human reason or a religious
platform, such as the Ten Commandments. Doing the right thing is more important than
its consequences. In some cases, however, dire consequences may result from acting
purely out of duty, in which case Kantian absolutism may need to be abandoned in favor
of "threshold deontology," where the mitigation of wrong consequences becomes more
important than strict adherence to duty.

About Aristotle's Ethics

The Nicomachean Ethics, Aristotle's most important study of personal morality and the ends of
human life, has for many centuries been a widely-read and influential book. Though written
more than 2,000 years ago, it offers the modern reader many valuable insights into human needs
and conduct. Among its most outstanding features are Aristotle's insistence that there are no
known absolute moral standards and that any ethical theory must be based in part on an
understanding of psychology and firmly grounded in the realities of human nature and daily life.
In addition, the book vividly reflects Aristotle's achievements in other areas of philosophy and is
a good example of his analytical method, which must be considered the ultimate basis of all
modern scientific research.
People have not changed significantly in the many years since Aristotle first lectured on ethics at
the Lyceum in Athens. The human types and problems he discusses are familiar to everyone. The
rules of conduct and explanations of virtue and goodness that he proposes can all help modern
man to attain a fuller and more satisying understanding of his responsibilities as a member of
society and the purpose of his existence. For this alone Aristotle's book is still worth reading.
Main Points of Aristotle's Ethical Philosophy
1. The highest good and the end toward which all human activity is directed is happiness,
which can be defined as continuous contemplation of eternal and universal truth.
2. One attains happiness by a virtuous life and the development of reason and the faculty of
theoretical wisdom. For this one requires sufficient external goods to ensure health,
leisure, and the opportunity for virtuous action.

3. Moral virtue is a relative mean between extremes of excess and deficiency, and in general
the moral life is one of moderation in all things except virtue. No human appetite or
desire is bad if it is controlled by reason according to a moral principle. Moral virtue is
acquired by a combination of knowledge, habituation, and self-discipline.
4. Virtuous acts require conscious choice and moral purpose or motivation. Man has
personal moral responsibility for his actions.
5. Moral virtue cannot be achieved abstractly it requires moral action in a social
environment. Ethics and politics are closely related, for politics is the science of creating
a society in which men can live the good life and develop their full potential.

Ethics Audit
An ethical audit is a thorough formal examination of the labour
practices of a particular workplace or company. It is a verifiable
process to understand, measure, report on, and help improve an
organisation's social and environmental performance .
Ethics Audit
An investigation into how well (or poorly) a company conforms to the ethical
standards of its industry or society generally. An ethics audit may consider the
company's own practices, how it redresses grievances, how it discloses its finances,
whether it punishes whistleblowers, and even the general cultural surrounding its
business dealings. Some companies may formally adopt a code of ethics and
conduct periodic ethics audits to see how closely they follow their own rules.

How to Conduct an Ethical Audit

Audits are designed to dig deep into company records to ensure
reliability and accuracy in areas like accounting systems, financial
reporting and legal compliance. Audits generally deal with
quantitative, easily measurable data. Ethical issues, on the other
hand, are more often qualitative or subjective in nature. A number
of qualitative research techniques make an ethical audit possible,
but an ethical audit still necessarily functions differently from any
kind of financial audit. Considering multiple perspectives to gain a

big-picture understanding of a company's commitment to ethics is

the key to an ethical audit.
Step 1
Review the company's formal codes of ethics, ethics training programs and
compliance policies for legal and industry guidelines regarding ethics. A
commitment to ethics begins with formal policies in the employee handbook.
Although having such policies in place does not guarantee real-world compliance,
it is a vital first step in building a culture of strong ethics, and it can show how
serious management is about ethical issues. Make sure ethics policies cover the full
range of common issues in business, including discrimination, equal employment
opportunity, financial management, sourcing, customer relations and the impact of
company operations on the environment, the community and the world.
Step 2
Look into past breaches of ethics through company records and archived online
news sources. Begin by asking the business owner or an executive to discuss any
legal issues the company has experienced, but do not let on that you intend to
investigate on your own. If you find something the company representative tried to
hide, it can be a large red flag pointing to a culture of dishonesty. When searching
past news releases, look for any negative press about the company, and scrutinize
the story for breaches of ethics. If any previous ethical lapses have occurred, speak
with the company owner or an executive about what the company has done to
prevent similar incidents from occurring since then and in the future.
To make this information more measurable, create a timeline listing each past
incident of a public breach of ethics, and analyze the frequency, rate and
momentum of the occurrences.
Step 3
Speak with employees regarding their impressions of the company's commitment
to ethics. Take this opportunity to ask them to share their experiences about coworkers, managers and executives. Make sure all employees know their interviews
are confidential and that honest answers will help to improve their organizations.
Insiders know a large amount of information that the public, the press and
government regulators are not aware of. Not every breach of ethics is illegal,
either, and employees can be an insightful source of information on legal breaches
of ethics occurring on a regular basis.

To make this information more quantitative, look for patterns in the responses you
receive and record the number of times specific issues come up. If you find
employees frequently speaking about management's rude treatment of females, for
example, note the number of times the issue came up and calculate the percentage
of interviewees who mentioned it.
Ethical dilemma
An ethical dilemma is a complex situation that often involves an apparent mental
conflict between moral imperatives, in which to obey one would result in
transgressing another. Sometimes called ethical paradoxes in moral philosophy,
ethical dilemmas are often invoked in an attempt to refute an ethical system or
moral code, or to improve it so as to resolve the paradox.

How to Resolve Ethical Dilemmas in the

Workplace
Employees make decisions at all levels of a company, whether at the top, on the front line or
anywhere in between. Every employee in an organization is exposed to the risk of facing an
ethical dilemma at some point, and some ethical decisions can be more challenging to fully
understand than others. Knowing how to resolve ethical dilemmas in the workplace can increase
your decision-making effectiveness while keeping you and your company on the right side of the
law and public sentiment

Step 1
Consult your company's code of ethics for formal guidance. This simple act may be able to
resolve your dilemma immediately, depending on how comprehensive and specific your
company's ethics statement is. Your code of ethics can provide a backdrop on which to weigh the
pros and cons of business decisions, giving you a clearer picture of which decision is more in
line with the company's ethical commitments.
Step 2

Share your dilemma with your supervisor to take advantage of her experience. Front-line
employees can face a number of ethical dilemmas in their jobs, such as deciding whether to give
out a refund that does not specifically adhere to company policies or whether to report suspicions
of internal theft which cannot be proven. Taking ethical questions to supervisors can keep
employees out of trouble in addition to resolving conflicts.
Step 3
Discuss your dilemma with other executives if you are at the top of your organization.
Executives and company owners make some of the farthest-reaching decisions in any
organization, adding weight and additional challenges to ethical dilemmas. As an executive, it is
important to show your competence at solving problems on your own, but there is nothing wrong
with asking for help from time to time. Other executive team members should appreciate your
commitment to making the right decision and should be able to provide unique insights into your
problem.
Step 4
Speak with peers and colleagues from other companies if you can do so without divulging
company secrets. If you are a sole proprietor, you may not have any other top-level managers to
consult with. Seek out someone you trust from a business networking group, a previous
employer or your college years to gain insight from others. Consider speaking with friends from
diverse cultural backgrounds to gain an even wider range of insights.
Step 5
Read past news articles about other companies faced with your specific dilemma. Determine how
others have dealt with your challenge before and take note of the outcome of their decisions.
News outlets like to cover certain large company decisions, such as laying off workers,
endorsing political candidates and bending accounting rules, which can have ethical impacts in
society. Reading what happened to others after making their decisions can give you a glimpse
into what to expect if you make a similar decision.
Framework for resolving ethical problems

A framework to help resolve ethical problems starting with identifying the problems and parties
involved to implementing the course of action and monitoring its progress.
When trying to solve an ethical problem, you may find it useful to refer to the following
framework, which is based on the framework included in ICAEW's Code of Ethics.

ICAEW framework - how to resolve ethical problems

1) Gather the relevant facts and identify the problems

Do I have all the facts relevant to the situation?

Am I making assumptions? If so, could facts be identified to replace these

assumptions?

Is it really your problem? Can anybody else help?

2) Identify the affected parties

Who are the individuals, organisations and key stakeholders affected?

In what way are they affected?

Are there conflicts between different stakeholders?

Who are your allies?

3) Consider the ethical issues involved

Have you referred to ICAEW's Code of Ethics?

What are the professional, organisational and personal ethics issues?

Would these ethical issues affect the reputation of the accountancy

profession?

Would these ethical issues affect the public interest?

4) Identify which fundamental principles are affected

What are the threats to compliance with the fundamental principles of:

Integrity

Objectivity

Professional competence and due care

Confidentiality

Professional behaviour

Have you considered the following threats?

Self interest

Self-review

Advocacy

Familiarity

Intimidation

If so, are the treats to compliance with the fundamental principles clearly
insignificant?

Are there safeguards which can eliminate or reduce the threats to an

acceptable level? Safeguards can be created by:

Profession, legislation and regulation

Work environment

Individual

5) Refer to the employing organisation's internal procedures

Does your organisation's policies and procedure provide guidance on the

situation?

How can you escalate concerns within the organisation? Who should be
involved, in what role and at what stage?

Does the organisation have a whistleblowing procedure?

At what point should you seek guidance from external sources such as ICAEW

6) Consider and evaluate alternative courses of action

You should consider:

Your organisation's policies, procedures and guidelines

Applicable laws and regulation

Universal values and principles generally accepted by society

Consequences

Test your proposed course of action. Ask yourself the following questions:

Have all the consequences associated with the proposed course of action
been discussed and evaluated?

Is there any reason why the proposed course of action should not stand the
test of time?

Would a similar course of action be undertaken in a similar situation?

Would the suggested course of action stand to scrutiny from peers, family
and friends?

7) Implement the course of action and monitor its progress

When faced with an ethical issue, it may be in your best interests to document your thought
processes, discussions and the decisions taken. Written records will be useful if you need to
justify your course of action.
- See more at: http://www.icaew.com/en/technical/ethics/framework-for-resolvingethical-problems#sthash.HErNwVFI.dpuf

The Importance of Ethics in Human

Resources
Paying attention to business ethics is an important part of any business owner or manager's job.
The human resources function deals with a variety of ethical challenges; being the department
that deals directly with people employed by a company, HR includes numerous ethical pitfalls
that can damage a company's reputation or financial sustainability if not handled properly.
Understanding the importance of ethics in human resources is crucial for any business owner,
whether in a local startup or a multinational powerhouse.

Legal Considerations
Breaches of ethics in human resources can lead companies into a world of legal trouble, in both
the civil and criminal arenas. Breaches of ethics in the HR department are more likely to be
reported by victims to the Better Business Bureau, the Equal Employment Opportunity
Commission or other regulatory agencies than those committed in other areas, such as product
development or accounting. Companies with comprehensive ethics programs in place can avoid
costly trouble regarding discrimination and hostile-work-environment issues, resulting in lower
costs for litigation and out-of-court settlements.

Company Reputation
In the business world, legal trouble can introduce additional challenges to employers, as news
outlets and ethics watchdog organizations spread the word about companies' misdeeds.
Discrimination issues, sexual harassment and unfair employment policies can land companies on

the front page of consumer- or business-focused publications, damaging a company's reputation

among consumers, potential strategic partners and potential future employees.
Gaining a reputation as an ethical employer can help to attract the top talent in your industry
from a wider area, as employees seek to find the most beneficial employment relationships they
can. The opposite holds true, as well; if job applicants see your company as an unethical
employer, the most skilled, experienced, creative and productive applicants are likely to put their
resumes in elsewhere.

Employee Loyalty
Treating employees ethically can garner long-term employee trust and loyalty, which conveys a
range of distinct benefits to employers. Loyal employees gain more experience working with
their employers, allowing them to master production processes and more fully understand the
inner workings of the firm. This can increase employees' productivity and efficiency over time in
addition to keeping recruiting and training costs under control.
Sellers of consumer goods can gain marketing advantages from loyal employees, as well. Loyal
employees often act as champions for a company's products, purchasing goods from their
employer and spreading positive word-of-mouth advertising to friends, family and acquaintances
over the years.

Promoting Ethics
A solid reputation as an ethical employer does not happen on its own. Savvy, ethics-conscious
business owners put comprehensive ethics programs in place to display a firm commitment to
ethics in every area of business, including human resources. Put HR ethics policies in place
regarding discrimination, sexual harassment and the treatment of employees, and put each of
your managers and supervisors through ethics training programs to make sure they are fully
aware of your expectations. Most importantly, lead by example in your organization to create a
culture of mutual respect and dignity, where ethical decision-making is valued and rewarded.

What is Ethical Marketing?

Ethical marketing is less of a marketing strategy and more of a philosophy that informs all
marketing efforts. It seeks to promote honesty, fairness, and responsibility in all advertising.
Ethics is a notoriously difficult subject because everyone has subjective judgments about what is
right and what is wrong. For this reason, ethical marketing is not a hard and fast list of rules,
but a general set of guidelines to assist companies as they evaluate new marketing strategies.

Principles of Ethical Marketing

All marketing communications share the common standard of truth.

Marketing professionals abide by the highest standard of personal ethics.

Advertising is clearly distinguished from news and entertainment content.

Marketers should be transparent about who they pay to endorse their

products.

Consumers should be treated fairly based on the nature of the product and
the nature of the consumer (e.g. marketing to children).

The privacy of the consumer should never be compromised.

Marketers must comply with regulations and standards established by

governmental and professional organizations.

Ethics should be discussed openly and honestly during all marketing

decisions.

There are distinct advantages and disadvantages to ethical marketing. Unethical advertising is
often just as effective as it is unethical (See also Black Hat Marketing). And since unethical
behavior is not necessarily against the law, there are many companies who use unethical
advertising to gain a competitive advantage.
Many people buy diet pills even though they are rarely, if ever, effective. This is because some
diet pill companies use exaggerated and manipulative claims to essentially trick customers into
buying these products. If that same company committed to using ethical advertising they would
probably go out of business. However sneaky their business model may be, it is not illegal and it
is keeping their doors open.
For companies looking to improve the image of a brand and develop long-term relationships with
customers, this kind of unethical behavior can quickly lead to failure. Customers do not want to
feel manipulated by the brands they like. Companies can use ethical marketing as a way to
develop a sense of trust among their customers. If a product lives up to the claims made in its
advertising, it reflects positively on the entire company. It can make the consumer feel like the
company is invested in the quality of the products and the value they provide customers.
It is impossible to claim that any company is completely ethical or unethical. Ethics resides in a
gray area with many fine lines and shifting boundaries. Many companies behave ethically in one
aspect of their advertising and unethically in another.

Dove soap, for instance, ran a widely seen ad campaign featuring real models. The ad was
meant to promote realistic body images and encourage girls to love the way they looked even if
they were not supermodels. However, other Dove ads both during and since featured
stereotypically beautiful models whose images have been altered to hide imperfections. Dove
marketed ethically in one campaign and unethically in another. This illustrates how difficult it is
to do the right thing in all circumstances. What is most important for any company that claims to
practice ethical advertising is to make it a fundamental feature of their marketing process. With
every decision they must ask themselves will this sell and is this the ethical way to sell it?
(See also Consumer Psychology)
Who Employs Ethical Marketing?

Every company has the opportunity to engage in ethical marketing. Any business, from the
smallest mom and pop store to the biggest multinational corporation can choose to be open,
honest, and fair when they advertise to their customers. When done in a thoughtful way, ethical
marketing can be an economical and effective form of advertising. Similarly, unethical
advertising doesn't guarantee higher sales or lower advertising costs.
Some companies operate according to lofty personal principles. For these companies, advertising
in an ethical way is a natural and necessary extension of their corporate character. Corporate
responsibility can be a major selling point to consumers who are interested in more than just
price and quality. Companies that are known for treating workers fairly, sourcing sustainable
materials, environmental stewardship, and charitable donation have to reflect these principles in
their marketing efforts. .
For other companies, ethical marketing will be little more than an opportunity to boost their
credibility. Domino's pizza, for example, carried out a well known advertising campaign in
which they showed consumers pictures of real Dominos pizzas without the studio photography
that makes them look so perfect. This was a refreshing look behind the artifice of much
advertising, but this did not signal a more open and honest relationship between Domino's and
the pizza buying public. The campaign was considered an attention seeking stunt at best.
Types of Unethical Advertising

Surrogate Advertising In certain places there are laws against

advertising products like cigarettes or alcohol. Surrogate advertising finds
ways to remind consumers of these products without referencing them
directly.

Exaggeration Some advertisers use false claims about a product's quality

or popularity. A Slogan like get coverage everywhere on earth advertises
features that cannot be delivered.

Puffery When an advertiser relies on subjective rather than objective

claims, they are puffing up their products. Statements like the best tasting
coffee cannot be confirmed objectively.

Unverified Claims Many products promise to deliver results without

providing any scientific evidence. Shampoo commercials that promise
stronger, shinier hair do so without telling consumers why or how.

Stereotyping Women Women in advertising have often been portrayed as

sex objects or domestic servants. This type of advertising traffics in negative
stereotypes and contributes to a sexist culture.

False brand comparisons Any time a company makes false or misleading

claims about their competitors they are spreading misinformation.

Children in advertising Children consume huge amounts of advertising

without being able to evaluate it objectively. Exploiting this innocence is one
of the most common unethical marketing practices.

How is an Ethical Marketing Plan Developed and Implemented?

Ethical marketing doesnt refer to a plan in and of itself, but offers tools for companies to
evaluate the marketing strategies they use in the past, present, and future. If a company decides
that an ethical marketing strategy can increase their profits or advance their public image, they
can take steps to revise their existing marketing (See also Public Relations Specialist). In some
cases this involves minor changes; in others it will require entirely new ad campaigns.
Any ethical marketing effort will begin with a careful analysis of the company, its customers, and
the markets it operate within. Ethical marketing has many advantages, but few companies would
undertake an ethical marketing strategy if it reduces profits. Careful research is the best way to
predict the effects of a change in strategy. If ethical marketing proves to be cost prohibitive,
many companies will abandon the effort.
A company will then decide which features of their advertising to perform in ethical ways. As
previously mentioned, the field of ethics is notoriously abstract. What is right to one may be
wrong to another. Marketing professionals must reach an agreement about how they want to
deliver their campaigns. They might decide to focus on making honest claims, avoiding
marketing to children, or falsely criticizing competitors. A delicate balance has to be struck
between the truth of the ad and its ability to persuade the customer.
Finally, ethical marketers need to make difficult choices about how to leverage the capitol of
their ethical decisions. For most companies, the simple knowledge that they are doing the right
thing will not be enough of a motivating factor. Ethical marketing often highlights the ethical
choices a company has made in order to improve their public reputation. This can be a powerful
way to connect with customers, but it also runs the risk of seeming self congratulatory. Any

effort at ethical marketing has to balance a companys self interest with their social
responsibility.
One company which embodies the spirit of ethical marketing is The Body Shop, a worldwide
chain of bath and body stores. Since their inception they have been committed to treating
workers fairly, avoiding animal testing, using organic products, and promoting healthy body
images. These values are often at the center of their marketing efforts. The ethical nature of the
company is highlighted as a way to differentiate themselves from their competitors in the
cosmetics industry.