Ethics and Business

Suyanto, PhD., CA
Faculty of Economics and Business
"Mohon maaf karena kecelakaan kerja paling banyak
terjadi di Waskita Karya. Saya 35 tahun di finance jadi yang
ada di belakang kepala saya adalah kalau mau jadi
perusahaan besar maka cari proyek sebanyak-banyaknya
dan sediakan uang secukupnya untuk memulai proyek. Itu
membuat K3 sedikit terlupakan,"
Dirut Waskita, 28/02/2018

Sumber: https://properti.kompas.com/read/2018/02/28/220000621/dirut-waskita-akui-abaikan-k3-demi-raup-proyek-besar.
MVV MM FEB UGM
MVV Proposed
Mission Enriched by our vibrant international network but rooted
in local wisdom, we develop strategic business leaders
with integrity, creativity, and knowledge needed to serve
society
Vision To be the leading graduate business school in Indonesia in
advancing knowledge of business and promoting
sustainable and ethical business practices by rising to the
international challenges
Values • Integrity
• Professionalism
• Objectivity and Fairness
• Academic Freedom
• Social Concerns
4
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.
– 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.
But, don’t confuse with
 Etiquette

 Law

 Professional codes of ethics

 “Legality should not be confused
with morality. Breaking the law isn’t
always or necessarily immoral, and
the legality of an action doesn’t
guarantee its morality”
Ethicality and Legality

Legal, Legal
but and
unethical ethical

Illegal Illegal,
and but
unethical ethical
Moral vs Nonmoral Standards

 “Do not harm other people”  “Do not eat with your mouth open”
 “Do not lie to other people”  “Do not chew gum in class”
 “Do not steal what belongs to others”  “Do not wear sox that do not match”

So, moral standards…

• Concern behavior that seriously affects human well-being
• Take priority over other standards.
• The soundness of moral standards depends on the adequacy of the reasons that
support them.
Six Characteristics of Moral Standards

• Involve significant wrongs, injuries or benefits

• Not established by authority figures
• Should be preferred to other values including self-interest
• Based on impartial considerations
• Associated with special emotions and vocabulary
• Felt to be universal, “even kids know it”
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
behavior.
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?

• YES View #1: corporations, like people, act intentionally and have moral
rights, and obligations, and are morally responsible.
• NO 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.
• Mixed 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.
Efficiency + Effectiveness = Profit

Source: Batson and Neff, 2012

 Efficiency + Effectiveness = Profit

Efficiency + Effectiveness + Ethics = Profit + Long-term Stability

Source: Batson and Neff, 2012

Corporate Social Responsibility
• Corporate social responsibility refers to a corporation’s
responsibilities or obligations toward society.
• Shareholder vs. Stakeholder Theory
• Business ethics is both a part of corporate social responsibility
and part of the justification for corporate social responsibility.
New Issues in Business Ethics
• Advances in technology
 IT : risks, privacy, and property rights.
 Nanotechnology: risk, spread of dangerous products
 Biotechnology (genetic engineering): new varieties of animals,
plants (and humans?)
• Globalization: inequality, cultural losses, introduction of
inappropriate technologies into developing countries.
• Difference among nations: do managers should follow local
standards or their home?
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.
• Ex: nepotism in US vs Thailand, polygamy, slavery
• 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.
– Human rights principles, principles of justice
– 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.
– Father and son take on a common wife (Tibet), a married
woman must be companied by her husband when traveling
(Saudi and several other Arab countries)
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.
Kohlberg’s Three
Levels of Moral
Development
Giligan’s Theory of Moral Development
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, justifying our actions, advantageous comparisons,
displacement of responsibility, diffusion of responsibility, distorting the harm,
and dehumanization, and attribution of 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

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.
 The Heinz dilemma

 A woman was near death from a unique kind of cancer. There was a
drug that might save her. The drug cost Rp50.000.000 per dosage. The
sick woman’s husband, Heinz, went to everyone he knew to borrow
the money and tried every legal means, but he could get together only
about Rp25.000.000. He asked the doctor who discovered the drug for
a discount or to let him pay later. But the doctor refused.

 Should Heinz break into the doctor’s laboratory to steal the drug for his wife?
Why steal or why not steal?
 The Heinz dilemma
Stag
Why should Heinz steal? Why should Heinz not steal?
e
He will be caught if he breaks into the
He will be in trouble if his wife dies. He will
1 laboratory.
be blamed for her death.
He will end up in jail.
If he’s caught and does some time in jail, he
His wife will probably die before he gets out,
2 will still have his wife to be there for him
so it will do him no good to steal.
when he gets out.
If he lets his wife die, everyone will think he If he steals the drug, everyone will think he is
3
is a terrible person. a terrible person.
It is his duty to save her. He promised to It is against the law to steal – people cannot
4
look after her when he married her. just break the law to suit themselves.
He must respect the doctor’s right not to be
5 Life is more important than property.
stolen from.
He would always condemn himself if he let
He would condemn himself for stealing, even if
6 her die, for not living up to his own
others did not blame him.
standards of conscience.
The Heinz Ethical Dilemma and Taiwan

Taiwan to ignore flu drug patent

Taiwan has responded to bird flu fears by starting work on its own version of
the antiviral drug, Tamiflu, without waiting for the manufacturer’s consent.
Taiwan officials said they had applied for the right to copy the drug, but the
priority was to protect the public. ‘We have tried our best to negotiate with
[the manufacturer]. But to protect our people is the utmost important thing.’
Source: McPhail and Walters (2009, 26)
The Six Ethical Dilemmas Every Professional Faces
 Dilemma 1: Worthwhile Work
 Family doctor vs specialist
 Dilemma 2: Work vs. Family
 Dilemma 3: Going Along With the Crowd
 Following whatever the group is doing or independent from uglier side of the group
 Dilemma 4: When Leaders Mislead
 Dilemma 5: Being a Change Agent
 Dilemma 6: Careers and the Common Good

Source: The Six Ethical Dilemmas Every Professional Faces (Hanson, 2014)