Business ethics

What is ethics?
Ethics is the study of what is right or
good for human beings. It systematically
attempts to determine the rules that
ought to govern human conduct, the
values worth pursuing and the character
traits deserving development in life;
Business ethics is a subset of ethics:
what is right and good in business
settings: moral issues that arise from
business practices, institutions and
decision making;
 Law vs. ethics (why ethics matters)
Both law and ethics are strongly affected by moral
concepts; in fact, laws are meant to express some
moral view as well (remember natural law?)
Example is criminal laws. Laws are moral rules
critical to the maintenance of the social fabric,
social institutions and broad concepts of common
good; Ethics is moral ideal;
Law and ethics are not the same: 1) If something
is legal, it does not necessarily mean that the
same action is ethical; 2) if something is illegal, it
does not necessarily mean that the same action is
unethical;
Law is enforced by punishment, whereas ethics
not;
 Scenarios
You watch a blind man walk off a cliff and
keep silent. Are you legally obliged to warn
him? Does it seem ethical to not warn him?
A US company wants to export products
banned in the United States to some
developing countries where they are not
prohibited. Is it legally allowed to do that?
Does it seem ethical to do that?
Nazi edicts prohibited sheltering Jews
during World War II. Did those who violated
the law and help Jews act morally?
 Why be ethical?
Despite it can earn company short term
profits, unethical behavior might hit the
company in the long run; eg. Arthur
Andersen LLP (the story of how
aggressive accounting tactics and
unethical behavior hit one of the largest
accounting firms in the world)
Ethical companies tend to have better
reputation (associated with goodwill),
more creative employees and higher
returns than those engage in
wrongdoing;
 Utilitarianism
Doctrine that assesses good and evil in
terms of the consequences of actions.
Something is right if sum of utilities out of
that act for majority or society is greater
than that of any other acts. Utilitarianism
in effect is cost-benefit analysis.
Act utilitarianism- assesses each separate
act according to whether it maximizes
overall utility;
Rule utilitarianism- supports rules that on
balance produce greatest satisfaction.
 Continued
Criticism: a) it is very hard to measure
utility accurately, at least in a way one
would measure distance, for instance.
b) it is very difficult to predict benefit
and harm; c) it ignores justice:
maximizes pleasure of the majority at
great social cost to minority;
 Scenario
A wealthy old Buffet has several
chronic illnesses. He is such a bad
person that everyone who knows him,
hates him. If he were to die, all his
heirs would benefit tremendously from
the money that they inherited from
him, including a disabled grandchild
who then could afford medical care
that would improve his life
dramatically. Would it be ethical to kill
Buffet? Analyze from both act and rule
utilitarian point of view.
 Deontology
Certain underlying principles are right or wrong
regardless of calculations regarding pleasure or
pain; some acts are morally obligatory (duties)
regardless of consequences; what makes a
choice right is its conformity with a moral norm;
To act morally, a person not only must achieve
just results but also must employ the proper
means- motives that led to consequences are
very important;
Kantian deontology: a) act as if how you act will
become a universal law (categorical
imperative); b) act as never to treat another
human being merely as a means to an end;
 Scenario (criticism)
Ted hides a terrified wife from her angry,
abusive husband, falsely denying that the
wife is hiding at Teds house. Did Ted act
ethically? Analyze from deontological point of
view.
Georges lovely wife (they have been happily
married for 10 years) dresses up for their
dinner in a fancy restaurant. Before leaving
for the dinner she asks George: How do you
like my dress? George actually thinks that it
is horrible and does not look good on his wife,
but nevertheless replies Gorgeous. Did
George act ethically?
 Virtue ethics
Unlike utilitarianism and deontology
(ethics of conduct), virtue ethics is ethics
of character, i.e. everyone should have
the kinds of virtues which reason
determines are best;
The right thing to do is what a virtuous
person would do in the situation;
Companies can and some of them do
have principles and virtues that they
abide by;
According to Michael Josephson, there are
6 core values in our modern society:
 Ethical decision model?
Josephsons Core Values Model: after
collecting all the needed information, the
decision process is as follows: a) identify
stakeholders (potential gainers and losers);
b) identify the reasonable options you have;
c) consider which stakeholders gain or lose
with each option; d) which decision
satisfies the greatest number of core
values; e) if cannot achieve (d), try to
determine which decision delivers the
greatest good to the various stakeholders
(it is important to determine which
stakeholders group is the most important);
 XYZ Motor Corp. whos slogan is Customers
first! begins to get customer complaints about
2 models of its automobiles. The problem is
with sudden acceleration, which almost
exposed some of the customers to death. It is
voluntary to report these incidents to National
Highway Traffic and Safety Administration, but
the company thinks that it will wait awhile and
see if there are more complaints. According to
cost-benefit analysis, recalling all the vehicles
now and inspecting for the defect would be too
expensive and would materially worsen
companys financial situation. Based on this
analysis company waits until there are more
accidents and nearly fifteen fatalities. Even
after these events, company institutes only a
 To sum up
Suppose it is obvious that someone in
need should be helped. A utilitarian will
point to the fact that the consequences
of doing so will maximize well-being, a
deontologist to the fact that, in doing so
the agent will be acting in accordance
with a moral rule such as Do unto others
as you would be done by and a virtue
ethicist to the fact that helping the
person would be charitable or
benevolent.
 Social ethics
The central question is what special obligations
arise from the social nature of human being and
what is the fair way of distributing goods among
groups of people;
Social egalitarianism (e.g. Marxism)- society
should provide all persons with equal amounts
of goods and services regardless of
contributions each makes;
Social contract theory- people give up certain
rights and freedoms to government in exchange
for security, common benefits and protection of
their other rights; elements of this theory is very
explicit in stakeholder approach to CSR;
 Corporate Social Responsibility
Two differing views about to which group a
corporation owes its duties: 1) Milton Friedmans
shareholder approach; 2) stakeholder theory;
Who are stakeholders?- they are parties that have
some kind of interest in the enterprise; major
stakeholders of a corporation are government,
employees, customers, suppliers, creditors,
community, trade unions and shareholders
(owners).
Shareholder approach- the only moral duty of a
corporation is to make the most possible money, or
to maximize profits, for its stockholders within the
rules of the game (disregards other stakeholders,
short termism, willingness to take greater risks)-
Sears Auto Center case;
 Continued
Stakeholder approach: Corporations must pay
attention not only to the bottom line
(maximizing profits for shareholders), but also
to their overall affect on the community and
other stakeholders: corporations duties are
owed to all the stakeholders, not just to
shareholders;
Critique: a) who are stakeholders (conflicting
criteria and definitions); b) almost impossible to
balance divergent interests of stakeholders;
c)non-shareholder stakeholder interests are
already protected by contract and law; d)
stakeholders have no remedy to enforce such
type of broad obligations;
 Conscious Capitalism

Attempt to integrate shareholder and

stakeholder theories: profit and prosperity
can and must go hand in hand with social
justice and environmental stewardship.

The conscious business has a purpose

that goes beyond maximizing profits. A
corporation should deliver value to all its
stakeholders, harmonizing at best it can
the interests of consumers, partner,
investors, the community and the
environment.
 Scenario
How would a shareholder value
proponent approach the XYZ
Corporations decision making
process above? How about a
stakeholder value proponent?