What is Business Ethics?

Business Ethics

The application of general ethical concepts to the unique situations confronted in business. It asks what is right or wrong behavior in business and what principles or rules can be used as guidance in business situations.

Two Characteristics

Tells people what they ought to do Set of principles or rules

Why Study Ethics?

Will not make you more ethical

Help in trying to do the right thing

What is Ethics?

Ethics and Religion Ethics and Social Responsibility

Ethics - two levels of concernindividual

organizational Soc. Responsibility - Win -Win Ethics - Don’t do things that may be in your

own self interest

Relativism

Egoism

Utilitarianism

Deontologism

TheThe 44 ConceptsConcepts ofof

EthicsEthics

Concepts of Ethics

Developed by moral philosophers over generations

Used to distinguish ethical from unethical behavior

Each has problems

Relativism

There is no universal standard by which morality can be judged

What is correct for one society may be wrong for another

Ethics and morality are relative

What do you think of this?

Relativism - Problems

There are no absolutes - murder, slavery, torture, rape OK

What is meant by a society?Sub-societies

Leads to conclusion - each person’s opinion is correct

Nothing that anyone does is morally wrong

Egoism

One ought to act in his or her own self interest

Ethical behavior is that which promotes one’s own self interest

Does not mean should not obey laws - only do so if in self interest

Egoism

What do you think of this concept?

Problem - Externalities associated with private actions - OK to dump toxic wastes as long as don’t get caught

Utilitarianism

The morality of an action can be determined by its consequences

An action is ethical if it promotes the greatest good for the greatest number

Benefits and Costs of an Action to Whomsoever They AccrueB1 + B2 + B3 + . .+Bn> C1 + C2 + C3 + . . .+Cn

Then the Action is Ethical

B1 + B2 + B3 + . .+Bn< C1 + C2 + C3 + . . .+Cn

Then the Action is Unethical

Utilitarianism Example

Harry Truman and Decision to Drop Bomb on Japan

What do you think of this concept? How do you quantify benefits and costs? How do you value benefits and costs? Can lead to unjust consequences Restrictions against the majority to protect a

minority is not utilitarian

Deontologism

Derived from the Greek word for Duty Actions are not justified by their

consequences. Factors other than good outcomes determine the rightness of actions

Utilitarianism Vs. Deontologism

Utilitarianism - The ends justify the means

Deontologism - It is the means which are important

Catagorical Imperative

Developed by Immuel Kant “I ought never to act except in such a way

that I can also will that my maxim should become a universal law”

Are you willing to permit everyone to adopt the action?

Yes - Moral No - Immoral

Guidance in Dealing with People

People should never be treated as a means to an end, but as ends in themselves

To treat people as ends requires respect for persons

Reject slavery Deals with murder, rape, etc How to deal with employees

General Ethical Behavior

Builds security, friendliness, cooperation and trust in a society

These are public goods created by generally ethical behavior

What are Characteristics of Public Goods? Not subject to exclusion - cannot exclude

people from consumption even if they do not contribute

Joint Supply - Provide for one individual, provide for all

Free Rider Problem

Catagorical Imperative and Public Goods Security, Friendliness, Cooperation and

Trust Not Subject to Exclusion Joint Supply Free Rider Problem

Examples

Is it Ethical to Rob Banks?

Is it Ethical to Give Everyone in this Class an A?

What Do You Think of Deontologism? Conflicts between duties Utilitarians argue that secretly appeal to

consequences to demonstrate the rightness of actions

Ethical Tests

Is It Legal Test?

Quadrant II

Ethical and Illegal

Quadrant IV

Unethical and Illegal

Quadrant I

Ethical and Legal

Quadrant III

Unethical and Legal

Ethical

Unethical

LegalIllegalCorporate

Decisions

Codification

Manifestation

Ethical Tests

1. Is It Legal?I Ethical - Legal

II Ethical - IllegalIII Unethical -

Legal IV Unethical - Illegal

I and IV Easy

II and III Difficult

Ethical Tests

2. Benefit Cost Test Do the benefits exceed the costs

to whomsoever they accrue?

3. Categorical Imperative Are you willing to allow

everyone to practice the proposed action or do you want to be a special case?

Ethical Tests

4. Light of Day TestWhat would be your reaction if theaction were brought out into the open

for public scrutiny?

5. Do Unto Others TestGolden Rule - If you would like others to do the same to you - passes the test

Ethical Tests

6. Ventilation TestSeek out others views. Discuss the 5

tests with them. If others feel it is OK - passes the test

Examples

Robbing a Bank

Driving Above the Speed Limit

Cheating on an Exam

Having Sex with an Intern

Ethical Dilemmas in Business

Conflict of InterestHave two interests - cannot

purse one without having negative impact on other

Two Types Private Interest Conflicts with

Corporate Business Interest Conflicts with Public

Conflict of Interest Mini Case

Personnel Director Brother - in - law out of work Lackluster performer Unemployment about to run out - will loose

house Sister asks you to recommend him for job What would you do?

Whistleblowing

Act of disclosing wrongdoing in an organization

Like blowing a whistle to call attention to a thief

TypesInternal

External

Can Cause Bitterness in Organization Dissent - Must speak out against others in

organization Breach of Loyalty - Perceived as one who

violates confidentiality and loyalty Accusation - Singles out specific

individuals as threats to organization or the public

Possible Retaliation

Fired Blacklisted Transferred to undesirable locations Lifestyles, sex lives and mental stability

questioned Physical abuse and murder possible

Failure to Reveal Wrongdoing

Severe problems for society or organization

Can be implicated as an accessory before or after the fact

Ethics of Whistleblowing

When is it ethical to reveal wrongdoing ?

When is it ethical to remain silent?

Whistleblowing Example

In charge of Quality Control Company makes parts for automobile

brakes Find defect in brake part Could cause failure in brakes Failure not certain May take many years to develop

Whistleblowing Example (cont.)

Go to VP of Production, your boss He tells you to overlook defect - company

may loose too much money

What would you do?

Challenger Disaster

Morton-Thiokol “O” rings Cold in Florida Engineers warned “O” Rings could fail NASA management made decision to

launch Space Shuttle anyway

Cautious Approach to Whistleblowing1. Make sure situation involves an imminent

threat to society or to the business

2. Document all allegations

3. Examine internal whistleblowing first

4. Should you remain anonymous?

5. Get another job first!!!

Bribery

A payment, usually to a public official, to induce that person to either do something improper or to influence decisions or actions

Extortion - same as bribery - recipient of payment initiates transaction

Case

International consulting firm - designs and supervises construction of hydroelectric power generating systems

Your proposal is far superior to any othertechnically

lowest bid To get job, must deposit $250,000 in

official’s personal Swiss bank account

Should you pay the money?

Foreign Corrupt Practices Act of 1997 Grease payment allowed Standard Practice in most foreign countries Results in lost business opportunities for US

companies American tax dollars may be used to pay

bribe

Bluffing and Deception

Negotiating a labor contract Plant has experienced losses over past

several years - not clear why Want concessions from labor Tell labor that plant will be closed if no

concessions are made. In reality , no such plans contemplated

Is This Ethical?

Managerial Implications

Top Management LeadershipOrganizational Culture

Realistic Goal Setting Ethics Audit Code of Ethics Ethics Committee

Managerial Implications

Ethics Advocate Whistleblowing Mechanism Ethics Training

Polaroid in and Out of South Africa Apartheid System 17% White 70% African Whites only could be in government,

possess firearms Enforced segregation of races Blacks relegated to “native reserves”

Apartheid (cont.)

Blacks allowed to own 13% of land Whites - 87% Black workers paid less than Whites

US Involvement in South Africa

320 American companies there American companies controlled

43% of petroleum market23% of auto sales

70 percent of computer business

Polaroid

Rumors that products used in Pass Book System

Commission to South AfricaNo sales to government

Improve salaries for Blacks for local distributors and suppliers

Training program so Blacks could take better jobs

Some profits for Black education

Success of Program

Improvements in Black salaries, advancement and benefits

Principle of same pay for same job accepted Ban on direct sales successful Ban on indirect sales not successful

Sales to Government through Frank and Hirsch Secretly selling Polaroid products to

government Billed as shipments through drugstore in

Johannesburg Polaroid terminated its involvement in

South Africa

Ethical Questions

What is the ethics of American companies doing business in a country with human rights abuses?

Was Polaroid responsible for the use of its products?

Are companies responsible for the use of their products?

Ethical Questions

Was Polaroid’s presence a positive or negative influence on Blacks?

What is happening in South Africa today?