Distance Learning Centre

Ahmadu Bello University Zaria

Individual Assignment
By
Unachukwu Sopuluchukwu N.
ABUMBA2017010273

Masters in Business Administration

(Finance & Investment)

BUAD 821: Business Ethics & Corporate Governance

E-Tutor: Lawal Aliyu Mustapha

2018/2019 Academic Session

July 2019

Questions:

(1) Trace the Evolution of Business Ethics.

(2) Managers in Organisation face Ethical Issues every day of their lives. (Discuss).

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Q1: EVOLUTION OF BUSINESS ETHICS

1.0 Introduction
The history of “business ethics” depends on how one defines it. Although the term is used in several senses
and varies somewhat for different countries, its current use originated in the United States and became
widespread in the 1970s. The history of business ethics in the United States can be viewed as the intersection
of three intertwined strands. Each of these in turn can be divided into at least two related branches.
The first strand is the ethics-in-business strand, the second strand is the development of an academic field,
which has been called business ethics while the third strand is the adoption of ethics or at least the trappings
of ethics in businesses. Business ethics was introduced into Europe and Japan in the 1980s although the
term did not translate easily, and the development in each country varied from that in the United States
because of socio-political-economic differences. It then spread in a variety of ways to other parts of the
world, each time with a different local emphasis and history.

2.0 Historical Developments of Business Ethics

For the historical development of business ethics, it is important to start with a definition of business ethics
in a global context.
Business ethics can be defined from a managerial perspective as ‘decisions about what is right or wrong
(acceptable or unacceptable) in the organizational context of planning and implementing business activities
in a global business environment to benefit: organizational performance, individual achievement in the
workplace, social acceptance and approval of peers and coworkers in the organization as well as responding
to the needs and concerns of relevant internal and external stakeholders.’ The goal of proactive ethical
organizations is to develop an ethical organizational culture. This requires strategies, systems, and
procedures to ensure that the firm’s ethics and compliance program are in place and operating effectively
with continuous assessment and improvement.

2.1 Business Ethics Before the 1960s

Although we will attempt to trace the history since 1960, it is appropriate to start by tracing the origins of
business ethics thought over the past 100 years. The first managerial textbook on business ethics was
Business Ethics by Frank Chapman Sharp and Phillip D. Fox (1937).
Frank Chapman Sharp and his associate Philip G. Fox were the first true business ethics scholars to develop
a textbook with the focus on micro/descriptive concerns of business. Frank Chapman Sharp was a
philosophy professor at the University of Wisconsin from 1893 until his retirement in 1936. He taught what
is believed to be the first business ethics course in the world at the University of Wisconsin in 1913-14.

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2.2 Business ethics from 1960 to 1990
The rise since the 1970s of what is called business ethics followed the tumultuous period of the 1960s.
At the end of World War II the United States was the only large power remaining that had not suffered
serious devastation. As a result, American business flourished and developed a world-wide reach. With
large industry, especially the enormous growth of chemical petroleum- based industries, pollution on a large
scale became a problem. Environmental groups sprang up to attack business. Those who saw the global
reach (e.g. Barnet 1974) of American business as exploitative added their voices to the critics of big
business. Many of the criticisms were couched in moral terms, and when in the late 1970s the academic
field of business ethics arose, it provided a vocabulary and overarching framework that the critics seized
on and that soon spread to the media and to general culture.
According to an account by Norman Bowie, the first conference on business ethics was held in 1974 (Bowie
1986) and the papers were published as Ethics, Free Enterprise and Public Policy (De George and Pichler
1978). About the same time Richard De George developed a course in business ethics and circulated a
ninety-page course curriculum to 900 interested professors in business schools and philosophy departments.
In l979 the first texts in business ethics appeared: three anthologies—one by Tom Beauchamp and Norman
Bowie, another by Thomas Donaldson and Patricia Werhane, and a third by Vincent Barry—followed by
two single authored texts in 1982—one by Richard De George and the other by Manuel Velasquez.
During the 1980s, there were many centers of business ethics established in educational institutions. The
leader and role model in center activities and leadership in bridging business and academic interests was
the Bentley College, Center for Business Ethics in Boston, MA.
Perhaps the biggest impact on the practice of business ethics in the 1980s was the Defense Industry
Initiatives (DII) which was developed to guide corporate support for ethical conduct. In 1986 eighteen
defense contractors drafted principles for guiding business ethics and conduct (Yuspeh, 1995).
2.3 Institutionalization of business ethics (1990 – Date)
The first developments occurred in the 1980s, but the institutionalization of business ethics through public
policy moved rapidly through the 1990s and 2000s. Organizational ethics programs in the U.S. were
developed in public corporations as ethics became more institutionalized by the Federal Sentencing
Guidelines for Organizations, especially the 2004 amendment and the Sarbanes-Oxley Act (2002).
In Europe, the European Union has a strong Directive on Data Protection (1995) and anticompetitive
legislation that is being strictly enforced to prevent price fixing. The Federal Sentencing Guidelines for
Organizations (FSGO), approved by Congress in November 1991 set the tone for organizational ethical
compliance programs in the 1990s. The guidelines, which were based on the six principles of the DII, broke
new ground by codifying into law incentives to reward organizations for taking action to prevent

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misconduct such as developing effective internal legal and ethical compliance programs (Conaboy, 1995)
Provisions in the guidelines mitigate penalties for businesses that strive to root out misconduct and establish
high ethical and legal standards (United States Code Service, 1995).
In the 2000s, the interest in business ethics has accelerated rapidly. To address the loss of confidence in
financial reporting and corporate ethics, the U.S. Congress in 2002 passed the Sarbanes–Oxley Act, the
most far-reaching change in organizational control and accounting regulations since the U.S. Securities and
Exchange Act of 1934. The new law made securities fraud a criminal offense and stiffened penalties for
corporate fraud. The 2004 amendment to the FSGO requires that a business’s governing authority be well
informed about its ethics program with respect to content, implementation, and effectiveness. This places
the responsibility squarely on the shoulders of the firm’s leadership, usually the board of directors.
Presently, most firms are developing formal and informal mechanisms to have interactive communication
and transparency about issues associated with the risk of misconduct. It is important that the shift has been
away from trust in individuals to do the right thing based on moral judgment to formal ethics programs
based on values and culture.
Conclusion
The history of business ethics provides an important background for understanding business ethics today.
The perspectives on the history of business ethics focuses on the micro/macro, as well as
normative/descriptive impact of ethical decision making. The collective or aggregate ethical decisions of
organizations affect key stakeholders in society. On the other hand, one company’s ethical decisions such
as Enron or Royal Ahold, can damage shareholders, employees, and communities on a macro level.

Q2: DISCUSSION ON DAILY ETHICAL ISSUES FACED BY MANAGERS

1.0 Introduction
The ethical issues managers confront cover a wide range of topics; but most arise due to a potential conflict
between the goals of the organization, or those of individual managers, and the fundamental rights of
important stakeholders. Stakeholders have basic rights that should be respected, and it is unethical to violate
those rights. Stakeholders include shareholders, customers, employees, suppliers, competitors, regulators
such as the government and host communities, etc.
Unethical behavior tends to arise when managers decide to put the attainment of their own personal goals,
or the goals of the organization, above the fundamental rights of one or more stakeholder groups. The most
common examples of such behavior involve self-dealing, information manipulation, anti-competitive
behavior, opportunistic exploitation of suppliers and distributors, the maintenance of sub-standard working
conditions, environmental degradation, and corruption.

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2.0 Daily Ethical Issues Faced by Business Managers
2.1 Self-Dealing: Self-dealing occurs when managers find a way to feather their own nests with
corporate funds. Classic examples of this behavior include:
 Senior managers who treat corporate funds as their own personal treasury, raiding them to support a
lavish lifestyle;
 Senior managers who use their control over the compensation committee of the board of directors to
award themselves multi-million-dollar pay increases or stock option grants that are out of proportion
with their contribution to the corporation; and
 Instances where individual managers award business contracts not to the most efficient supplier but to
the one that provides the largest kickback.
In these cases managers are not acting in the best interests of their shareholders and are instead consuming
funds that should legitimately go to shareholders. Some of this behavior is illegal; some is technically legal
but unethical because it violates the basic right of shareholders to a fair return on their investment.
2.2 Information Manipulation: Information manipulation occurs when managers use their control
over corporate data to distort or hide information to enhance their own financial situations or the competitive
position of the firm. Many of the accounting scandals that swept through American companies in the early
2000s involved cases of information manipulation. For example, the now-bankrupt energy trading firm
Enron hid significant debt from shareholders in off–balance sheet partnerships. This practice misled
investors about the level of risk Enron had assumed and supported a much higher stock price than was
justified. When the scale of hidden debts was finally revealed, Enron quickly collapsed into bankruptcy,
resulting in losses of over $100 billion for shareholders. Information manipulation is unethical because it
violates the right of investors to accurate and timely information.
2.3 Anticompetitive Behavior: Anticompetitive behavior includes a range of actions aimed at harming
actual or potential competitors, most often by using monopoly power to enhance the prospects of the firm.
For example, in the 1990s the Justice Department claimed that Microsoft used its monopoly in operating
systems to force PC makers to bundle Microsoft’s Web browser, Internet Explorer, with Windows and to
display Internet Explorer prominently on the computer desktop.
The alleged aim of the action, which is an example of tie-in sales (illegal under antitrust laws), was to drive
a competing browser maker, Netscape, out of business. The courts ruled that Microsoft was indeed abusing
its monopoly power in this case, and in a 2001 consent decree the company agreed to stop the practice.
2.4 Substandard Working Conditions: Substandard working conditions arise when managers
tolerate unsafe working conditions or pay employees below-market rates to reduce costs of production. The
most extreme examples of such behavior occur when a firm establishes operations in countries that lack the
workplace regulations found in developed nations such as the United States.

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2.5 Environmental Degradation: Environmental degradation occurs when managers take actions that
directly or indirectly result in pollution or other forms of environmental harm. Environmental degradation
can violate the rights of local communities and the general public to clean air and water; land that is free
from pollution by toxic chemicals or excessive deforestation that causes land erosion and floods; and so on.
2.6 Corruption: Corruption can arise in a business context when managers pay bribes to gain access
to lucrative business contracts. A recent example of corruption concerns the allegation that the Texas-based
energy company Halliburton participated in a consortium that made $180 million in illegal payments to
government officials (that is, bribes) to secure a $4.9 billion contract to build a liquefied natural gas plant
in Nigeria.
3.0 Behaving Ethically
Many of the most vexing ethical problems arise because they contain real dilemmas and no obvious right
course of action. Nevertheless, managers can and should do many things to ensure that basic ethical
principles are adhered to and that ethical issues are routinely inserted into business decisions.
Here we focus on seven things that a business and its managers can do to make sure that ethical issues are
considered in business decisions:
3.1 Favor hiring and promoting people with a well-grounded sense of personal ethics.
3.2 Build an organizational culture that places a high value on ethical behavior.
3.3 Make sure that leaders within the business not only articulate the rhetoric of ethical behavior, but also
act in a manner that is consistent with that rhetoric.
3.4 Put decision-making processes in place that require people to consider the ethical dimensions of
business decisions.
3.5 Develop strong governance processes.
3.6 Appoint ethics officers.
3.7 Act with moral courage.

Summary/Conclusion
All the steps summarized above can help ensure that when managers make business decisions,
they are fully cognizant of the ethical implications and do not violate basic ethical precepts. But
we must remember that not all ethical dilemmas have a clean and obvious solution; that is why
they are dilemmas. At the end of the day, there are clearly things that managers should not do and
things they should do; but there are also actions that present true dilemmas. In these cases a
premium is placed on the ability of managers to make sense out of complex messy situations and
make balanced decisions that are as just as possible.

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