Business Ethics

Concepts & Cases

Manuel G. Velasquez
 Chapter One

Basic Principles: Ethics and Business

 Ethics and Morality
• Ethics is the study of morality.
– Morality = The standards that an individual or a group has
about what is right and wrong, or good and evil.
• Example: B.F. Goodrich A7-D Fraud
– Moral Standards = norms about the kinds of actions that
are morally right and wrong, as well as the values placed
on what is morally good or bad.
– Non-Moral Standards: The standards by which we judge
what is good or bad and right or wrong in a non-moral way.
 Moral Norms & Moral Values

• Moral Norms : usually expressed as general

rules about our actions

• Moral Values : usually expressed with

statements about objects or features of
objects that have worth
 Moral Norms & Nonmoral
(Conventional) Norms

• Group One
– “Do not harm other people”
– “Do not lie to other people”
– “Do not steal what belongs to others”
• Group Two
– “Do not eat with your mouth open”
– “Do not chew gum in class”
– “Do not wear sox that do not match”
Six Characteristics of Moral Standards
• Involve serious wrongs or significant benefits
• Should be preferred to other values including
self-interest
• Not established by authority figures
• Felt to be universal
• Based on impartial considerations
• Associated with special emotions (e.g. guilt,
shame) and vocabulary (e.g. obligation,
responsibility).
 What is Business Ethics?
• Broadly, ethics is the discipline that examines
one’s moral standards or the moral standards
of a society to evaluate their reasonableness
and their implications for one’s life.
• Business ethics is a specialized study of moral
right and wrong that concentrates on moral
standards as they apply to business
institutions, organizations, and activities.
 Types of Ethical Issues
• Systemic—ethical questions about the social,
political, legal, or economic systems within
which companies operate.
• Corporate—ethical questions about a
particular corporation and its policies, culture,
climate, impact, or actions.
• Individual—ethical questions about a
particular individual’s decisions, behavior, or
character.
 Can ethical qualities be attributed to
corporations?
• View #1: corporations, like people, act intentionally
and have moral rights, and obligations, and are morally
responsible.
• View #2: it makes no sense to attribute ethical qualities
to corporations since they are not like people but more
like machines; only humans can have ethical qualities.
• View #3: humans carry out the corporation’s actions so
they are morally responsible for what they do and
ethical qualities apply in a primary sense to them;
corporations have ethical qualities only in a derivative
sense.
Arguments Against Business Ethics
• In a free market economy, the pursuit of profit
will ensure maximum social benefit so
business ethics is not needed.
• A manager’s most important obligation is
loyalty to the company regardless of ethics.
• So long as companies obey the law they will
do all that ethics requires.
Arguments Supporting Business Ethics
• Ethics applies to all human activities.
• Business cannot survive without ethics.
• Ethics is consistent with profit seeking.
• Customers, employees, and people in general
care about ethics.
• Studies suggest ethics does not detract from
profits and seems to contribute to profits.
 Corporate Social Responsibility
• Corporate social responsibility refers to a
corporation’s responsibilities or obligations
toward society.
• Business ethics is both a part of corporate
social responsibility and part of the
justification for corporate social responsibility.
• Shareholder vs. Stakeholder Theory
 New Issues in Business Ethics
• Advances in technology often create new
issues for business ethics.
– Currently, advances in information technology are
creating new issues in business ethics.
• Increasing connections between the economic
and social systems of different nations, known
as “globalization”, has also created new issues
in business ethics.
 New Ethical Issues for Business
• The agricultural and industrial revolutions
introduced new ethical issues
• Information technology raises new ethical
issues related to risk, privacy, and property
rights
• Nanotechnology and biotechnology raise new
ethical issued related to risk and to the spread
of dangerous products
 Globalization
• To a large extent driven by multinationals
• Beneficial in that it has brought great benefits
to developing countries including jobs, skills,
income, technology, a decrease in poverty,
specialization
• Blamed for many ills including rising
inequality, cultural losses, a “race to the
bottom”, introduction of inappropriate
technologies into developing countries
 Differences Among Nations
• Include differences in laws, governments,
practices, levels of development, cultural
understandings
• Raise the question whether managers in
foreign countries should follow local standards
or their home standards
 Resolving Cross-Cultural Ethical
Differences
• Moral Relativism = the theory that there are no
ethical standards that are absolutely true and
that apply or should be applied to the companies
and people of all societies.
• Objections to Moral Relativism:
– Some moral standards are found in all societies;
– Moral differences do not logically imply relativism;
– Relativism has incoherent consequences;
– Relativism privileges whatever moral standards are
widely accepted in a society.
 Resolving Cross-Cultural Ethical
Differences
• According to the Integrative Social Contracts
Theory (ISCT), there are two kinds of moral
standards:
– Hypernorms: those moral standards that should
be applied to people in all societies.
– Microsocial norms: those norms that differ from
one community to another and that should be
applied to people only if their community accepts
those particular norms.
 Kohlberg’s Three Levels of Moral Development
• First Level: Pre-conventional Stages
– Stage One: punishment and obedience orientation
Right action is taken to avoid punishment
– Stage Two: instrumental and relative orientation
Right action is taken to serve own needs
• Second Level: Conventional Stages
– Stage One: interpersonal concordance orientation
Right action is taken so others will view you as a good
person
– Stage Two: law and order orientation
Right action is taken to abide by laws and authority
• Third Level: Post-conventional Stages
– Stage One: social contract orientation
Right action is taken to abide by social contracts
– Stage Two: universal principles orientation
Right action recognizes principles of justice, fairness, and universal
human rights
 Moral Reasoning
• The reasoning process by which human
behaviors, institutions, or policies are judged
to be in accordance with or in violation of
moral standards.
• Moral reasoning involves:
– The moral standards by which we evaluate things
– Information about what is being evaluated
– A moral judgment about what is being evaluated.
 Moral Reasoning
Moral Reasoning should

• Be logical
• Rely on evidence or information that is
accurate, relevant, and complete
• Be consistent
Four Steps Leading to Ethical Behavior
• Step One: Recognizing a situation is an ethical
situation.
– Requires framing it as one that requires ethical
reasoning
– Situation is likely to be seen as ethical when:
• involves serious harm that is concentrated, likely, proximate,
imminent, and potentially violates our moral standards
– Obstacles to recognizing a situation:
• Euphemistic labeling, rationalizing our actions, diminishing
comparisons, displacement of responsibility, diffusion of
responsibility, distorting the harm, dehumanizing the victim,
and redirecting blame.
Four Steps Leading to Ethical Behavior
• Step Two: Judging the ethical course of action.
– Requires moral reasoning that applies our moral
standards to the information we have about a
situation.
– Requires realizing that information about a
situation may be distorted by biased theories
about the world, about others, and about oneself.
Four Steps Leading to Ethical Behavior
• Step Three: Deciding to do the ethical course
of action.
– Deciding to do what is ethical can be influenced
by:
• The culture of an organization—people’s decisions to
do what is ethical are greatly influenced by their
surroundings.
• Moral seduction—organizations can also generate a
form of “moral seduction” that can exert subtle
pressures that can gradually lead an ethical person into
decisions to do what he or she knows is wrong.
Four Steps Leading to Ethical Behavior
• Step Four: Carrying out the ethical decision.

– Factors that influence whether a person carries

out their ethical decision include:
• One’s strength or weakness of will

• One’s belief about the locus of control of one’s actions

• One’s willingness to obey authority figures
 Moral Responsibility
• Three Components of Moral Responsibility
– Person caused or helped cause the injury, or
failed to prevent it when he or she could and
should have (causality).
– Person did so knowing what he or she was doing
(knowledge).
– Person did so of his or her own free will
(freedom).
 Factors that Mitigate Moral
Responsibility
• Minimal contribution
– In general, the less one’s actual actions contribute to the
outcome of an act, the less one is morally responsible for that
outcome.
• Uncertainty
– A person may be fairly convinced that doing something is wrong
yet may still be doubtful about some important facts, or may
have doubts about the moral standards involved, or doubts
about how seriously wrong the action is.
• Difficulty
– A person may find it difficult to avoid a certain course of action
because he or she is subjected to threats or duress of some sort
or because avoiding that course of action will impose heavy
costs on the person.
 Most Ethical Companies 2019
by Ethisphere Institute
• Ethisphere Institute, a global leader in
defining and advancing the standards of
ethical business practices

• In 2019, 128 companies are recognized for

exemplifying and advancing corporate
citizenship, transparency and the standards of
integrity
 Most Ethical Companies 2019
https://www.worldsmostethicalcompanies.com
• The honorees span 21 countries and 50 industries
and includes 16 first-time honorees and 8 companies
that have been named to the list every year since
2007
• Some of the companies are:
– 3M (Industrial Manufacturing, US)
– Canon (Imaging Technology, US)
– Colgate-Palmolive (Consumer Products, US)
– Dell (Technology, US)
– DTGO Corporation (Real Estate, Thailand)
– Eastman (Chemicals, US)
– Ecolab (Chemicals, US)
 Most Ethical Companies 2019
https://www.worldsmostethicalcompanies.com

• Some of the companies are:

– H & M (Apparel, Sweden)
– Hewlett Packard (Technology, US)
– Hilton (Lodging & Hospitality, US)
– Intel (Semiconductors, US)
– IBM (Information Technology Services, US)
– Kao (Health & Beauty, Japan)
– L’OREAL (Health & Beauty, France)
– Master Card (Payment Services, US)
 Most Ethical Companies 2019
https://www.worldsmostethicalcompanies.com
• Some of the companies are:
– Microsoft (Technology, US)
– Pepsico (Food, Beverage & Agriculture, US)
– Prudential (Financial Services, US)
– Royal Caribbean Cruises Ltd. (Leisure & Recreation, US)
– Schneider Electric (Diversified Machinery, France)
– Sony (Conglomerate, Japan)
– Texas Instruments (Semiconductors, US)
– Visa (Payment Services, US)
– Volvo (Automotive, Sweden)
 The 8 Most Ethical Companies
https://www.worldsmostethicalcompanies.com
Each of the companies below have made Ethisphere’s
list not once, not twice, but throughout all thirteen
years (2007-2019) that the awards have been running.
• Aflac (Insurance, US)
• Ecolab (Chemicals, US)
• Fluor (Engineering & Design Services, US)
• International Paper (Forestry, Paper & Packaging, US)
• Kao Corporation (Health & Beauty, Japan)
• Milliken and Company (Industrial Manufacturing, US)
• Pepsico (Food, Beverage & Agriculture, US)
• Texas Instruments (Semiconductors, US)
 Most Ethical Companies
https://www.worldsmostethicalcompanies.com
The Ethisphere Institute rates companies with its
proprietary rating methodology called Ethics Quotient
(EQ) that weighs the scores reached by companies
evaluated in five categories:
1. Company Ethics and Compliance, weight 35%
2. Corporate Citizenship and Responsibility 20%
3. Culture of Ethics 20%
4. Governance 15%
5. Reputation 10%