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Lecture Notes for Business Ethics & Social Responsibility

A. Definitions 1. The term ethics is derived from the Greek word ethos which means character and from the Latin word mores which means customs; the following definitions should also be helpful in understanding the concept: a. Ethics can be defined as the reflective process by which individuals, social groups and social institutions evaluate their actions from the perspective of moral principles and values; or 1) The branch of philosophy that defines what is good for individuals and society and establishes the nature of obligations that members of society owe to themselves and other members of society. b. Business Ethics: The reflective process whereby businesses evaluate their actions, policies and decision-making processes. 1) Managers regularly face two types of ethical issues: a) Micromanagement issues including conflicts of interest, accepting or giving gifts and the fairness of performance appraisals. b) Macromanagement issues including layoffs and down-sizings, employee screening tests and employee privacy rights. . B. Categories of Ethical Dilemmas 1. Taking things that don't belong to you 2. Saying things you know are not true 3. Giving or allowing false impressions 4. Buying influence or engaging in conflict of interest 5. Hiding or divulging information 6. Taking unfair advantage 7. Committing personal decadence 8. Perpetrating interpersonal abuse 9. Permitting organizational abuse 10. Violating rules 11. Condoning unethical actions 12. Balancing ethical dilemmas C. The Language of Ethical Dilemmas 1."Everybody else does it." 2."If we don't do it, someone else." 3."That's the way it has always been done." 4."We'll wait until the lawyers tell us it's wrong." 5."It doesn't really hurt anyone." 6."The system is unfair." 7."I was just following orders."

D. Approaches to Ethical Decision Making

2 1. While a wide variety of approaches exist to provide guidance on how to make ethical decisions, those approaches can be placed in the following categories: a. Philosophy based approaches to ethical decision making. 1)Teleological Theories: These approaches emphasize the consequences of actions and policies; Often associated with philosophers Jeremy Bentham (1748-1832) and John Stuart Mill (1806-1873) and utilitarianism. a) Utilitarianism posits that a decision is ethical to the degree that it promotes the greatest good for the greatest number of stakeholders; "good" includes material goods as well as various forms of pleasure.

b) Each stakeholder counts once and only once. c) This approach allows for degrees of right and wrong. d) The shortcomings of utilitarianism include: 1) It is difficult and quite subjective to quantify pleasures in a cost/ benefit analysis. 2) It is not always clear beforehand what the outcome of a decision will be, nor who will be affected by it. 3) The calculation required to determine what is right is both complicated and time consuming; many occasions will not permit the time and many individuals may not even be capable of the calculations. 4) The greater good may be achieved under conditions that are harmful to some individuals as long as that harm is balanced by a greater good. 5) The theory's tendency to condone inequitable distributions and even abuse of minorities has led it to be labeled as elitist. 2) Deontological Theories : These theories are often associated with philosopher Immanuel Kant (1724-1804) who attempted to discover the "categorical imperatives" against which all other ethical decisions would be evaluated. a) The categorical imperatives applied the following two concepts: 1) Universalizable: Always act in such a way that you can also will that the maxim of your action should become universal law. 2)-Respect for persons: Always act so that you treat humanity, both in your own person and in that of another, always as an end and never merely as a means (similar to the golden rule). b)This approach identifies certain interests or rights that must be respected; these rights include many of the freedoms recognized in the U.S. Constitution. c) Simplified this approach says an action or policy is morally right only if those persons affected by the action or policy are not used as instruments for advancing some goal, but are fully informed and have their fundamental human rights honored and protected. d) Shortcomings of Kants approach include: 1) It creates moral dilemmas when duties come into conflict but provides no mechanism for resolving such conflicts.

3 2) It yields only absolutes and thus recognizes no gray areas; rigid lines often result (i.e. lying is unethical so that even a "polite lie" is wrong). e) In deontology its how you play the game and not whether you win or lose (i.e. the decision making process is more important than the outcome of the process); while in utilitarianism winning is everything (i.e. outcomes are more important than processes). 3) Virtue ethics theory: This theory is normally associated with the Greek philosophers Aristotle and Plato. This theory suggests a way of being rather than a rule for doing. a) Virtue ethics theory posits that what one needs to do to make ethical decisions is to cultivate virtuous character traits since virtuous people are more inclined to both be ethical and to make ethical decisions. b) This theory defines virtues as fixed traits or habits to do what is morally commendable. c) honesty. d) Aristotles list of virtues included courage, self-discipline and Criticisms of the virtue ethics approach include: 1) It is not practical in a society like ours in which wealth and success are so highly valued. 2)It is not useful for evaluating the desirability of actions (i.e. are they right or wrong). 3)The fact that a virtuous person chooses a certain course of action does not guarantee that the action is ethical since even saints are fallible. b. Religious based approaches such as the Golden Rule which posits an action or policy is ethical to the it treats the other stakeholders the way the decision makers would want to be treated (i.e. do unto others as you would have them do unto you. Business based approaches such as Warren Buffets Front-Page-of-the-Newspaper Test in which he suggests: 1) When contemplating any business act, an employee should ask him/herself whether he/she would willing to see it immediately described by an informed and critical reporter on the front page of his/her local newspaper, there to be read by his/her spouse, children and friends. d. Ethical relativism is the theory that holds that morality is relative to the norms of one's culture. That is, whether an action is right or wrong depends on the moral norms of the society in which it is practiced. The same action may be morally right in one society but be morally wrong in another. 1) For the ethical relativist, there are no universal moral standards. 2) Most ethicists reject the theory of ethical relativism.

c.

4 3) Perhaps the strongest argument against ethical relativism comes from those who assert that universal moral standards can exist even if some moral practices and beliefs vary among cultures. In other words, we can acknowledge cultural differences in moral practices and beliefs and still hold that some of these practices and beliefs are morally wrong.

E. Key reasons why managers act ethically (per HBS survey results) 1.Personal moral values prevent doing it; 2.The action would hurt the organization or someone in it; 3.Not doing it enhances personal satisfactions; 4.The organization is fair, so why take advantage of it; 5.The punishment if caught is severe; 6.There is a high risk of getting caught. 6 F. Key reasons why managers act unethically ( per HBS survey results) 1. Belief that the act would not hurt the organization or its members; 2. Belief that act would advance personal economic well-being; 3. Absence of moral constraints not to do it; 4. Top management acts this way or condones such acts; 5. Other workers do it, accept it, or put pressure on others to do it; 6. There is little risk of getting caught or punished. G. Teaching ethics: How morality develops in humans 7 1. Lawrence Kohlberg, in his book Moral Stages and Moralization, proposes that moral standards of behavior 8 are developed over time, as children mature into adults. 9 2. There are six stages, grouped into three major levels termed "preconventional," "conventional," and 10 "postconventional." a. Level 1-Preconventional : This is the level of most children under 9 years old, some adolescents up to age 20, and many adolescent and adult criminal offenders. individuals at this level do not understand or accept societal rules. 1) Stage I- Individual benefits. Avoid breaking rules backed . by punishments. Think only in terms of your own interests. Do not recograze the interests of others. Morality, in short, is doing what's right for you. 2)Stage 2- Interpersonal exchanges . Avoid breaking rules backed by rewards. Still focus on your own interests, but recognize that others have interests too. Morality is an exchange, a deal, an agreement on what's right for both. b.Level 2-Conventional : This is the level of most adolescents and adults within our society and within other societies as well. Individuals at this stage accept societal rules just because they are society's rules, conventions, expectations. 1) Stage 3- Interpersonal expectations. Live up to what is expected of you in a small family group; follow the roles as a son or daughter that make the family function. Morality is behaving as expected by others close to you. 2) Stage 4- Social expectations. Live up to what is expected of you in larger social groups to keep those institutions going. Obey the law as a set of written social rules. Morality is behaving as expected by others similar to you.

5 e. Level 3-Postconventional: This is the level that is reached by only a minority of adults. Individuals at this stage accept societal rules, but acceptance is based upon recognizing the general ethical principles that underlie those rules. 1) Stage 5- Social contract . Follow the law which is a reciprocal agreement to protect the rights and welfare of all citizens. Recognize that others have different morals and values, but that you have all agreed to honor such basic goals as the right to life, liberty, and property. 2) Stage 6- Social principles. Follow self-chosen ethical principles. Obey the law only when it does not violate those principles. Believe in the validity of rational ethical principles on such issues as justice, equality, and respect for the worth of individual human beings.

11 H. Actions to Promote Ethical Behavior in a Business Organization 1. Develop and distribute a written code of ethics. a. The primary function of a code of ethics is to provide guidance to provide guidance to employees faced with ethical dilemmas, especially ambiguous ones. 1) Some professional associations have developed highly detailed and enforceable Codes of Ethics for their membership. 2) For example, the Model Rules of Conduct of the American Bar Association (ABA) contains eight sections, construed according to 138 ethical considerations and implemented by a comparable number of parallel disciplinary rules. a). Other professions with Codes of Ethics include medicine, dentistry, engineering, accounting, psychology, journalism, advertising, architecture, banking and real estate. b) Since some of these professions are not licensed, it is more difficult to obtain recourse for a claim of unethical conduct. 3) The Computer Ethics Institute in Washington, D.C. has developed a code-like Ten Commandments of Computer Ethics which includes: 1-Thou shalt not use a computer to harm other people. 2-Thou shalt not interfere with other peoples computer work. 3-Thou shalt not snoop around in other peoples computer files. 4-Thou shalt not use a computer to steal. 5-Thou shalt not use a computer to bear false witness. 6-Thou shalt not copy or use proprietary software for which you have not paid. 7-Thou shalt not use other peoples computer resources without authorization or proper compensation 8-Thou shalt not appropriate other peoples intellectual output. 9-Thou shalt think about the social consequences of the program you are writing or the system you are designing. 10-Thou shalt always use a computer in ways that insure consideration and respect for your fellow humans. 2. 3. Support and reinforce the code through the actions of top management. Hire an ethics advisor to serve a role similar to a legal advisor.

6 4. 5. Establish an ethics audit committee. Institute an open door policy to encourage employees to seek advice on ethical issues.

I. The Caux Roundtable Principles: An International Code of Ethics 1.The Caux Round Table was created in 1994. The principles form an international code of ethical conduct for global firms and were created through collaboration with business leaders in Europe, Japan, and the United States.

2.These principles are rooted in two basic ideals: kyosei and human dignity. a) The Japanese concept of kyosei means living and working together for the common good-enabling cooperation and mutual prosperity to coexist with healthy and fair competition. b) Human dignity refers to the sacredness or value of each person as an end, not simply as a means to the fulfillment of others' purposes. I. The Doctrine of Social Responsibility of Business 1. Singular Purpose Viewpoint - corporations benefit society by maximizing profits and should not respond to the social environment. Arguments bolstering this viewpoint include: a. is For-profit corporations are chartered under state law to operate a business to benefit the shareholders (Milton Friedman, noted economist, believes the sole responsibility of business to increase profits and any actions undertaken for other purposes are subversive). b. Corporate social actions may undermine what is the proper role of government, giving business too great a role in our society. c. Corporate social actions are inefficient and may result in resource misallocation d. Corporate social actions make corporations less competitive compared to foreign competition. 2. Plural Purpose Viewpoint - Corporations should maximize profits and also respond to the external social environment. Arguments bolstering this viewpoint include: a. Socially responsive acts are proper corporate activities when they benefit the firm, even though in an indirect or general way. b. Business benefits when it contributes toward a stable, market-oriented environment. c. Business is more efficient in administering for the social good than government. By undertaking social action, business can correct social problems before government regulates their business operations. d. Social responsiveness can generate indirect long-term profits which are difficult to quantity. e.Business is a major institution in our society, so it has an obligation to provide public service. 3. The Social Responsibility Triangle developed by Professor Archie Carroll of the University of Maryland suggests that the doctrine of social responsibility is a multifaceted and complex doctrine

7 a) His theory suggests that being socially responsible involves satisfying four types of responsibilities: economic; legal; ethical; and philanthropic. 1) Economic responsibilities enjoy the highest priority and are the foundation upon which all other responsibilities rest. 2) Legal responsibilities enjoy the second highest priority; the law is societys codification of what is right and what is wrong (i.e. ethical or unethical). 3) Ethical responsibilities have the third highest priority and include the obligation to be fair and avoid harming others. 4) Lastly, philanthropic responsibilities require good citizenship especially in terms of reinvesting in ones community to improve the quality of life for all citizens.