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Ali ' Zulkufly Ramly o Lau Teck Chai

KhaliCah Khatid
OXTORD
UNIVERSITY ?RESS
9H9*R
Oxford New York.
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Karachi Kuala Lumpur Madrid Melbciurne Mexico City
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P er pustakaan N ego.ra M aLay'sra D ata P engkatalogttn - dalarn Penerbrtan

I{halidah Khalid Ali, 19.56-
Bttsiness Ethics / Khlidah Khalid Ali, ZulkrLfy Raml1,, Ldu Teck Chni.
lncludes index
ISBN 978-983 47 t27t 6
l. Business ethics- -SttLdy and teaching.
I. ZulkuJly Rantly, 1971-. ll, Lau, Teck Chai, 1969
IlI. Iudul.
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To our dear parents, families and children, the source of inspiration in realizing our
dream. We made it with patience, respect and gratitude. Ivlay the Almighty continue
to grant us wisdom as we move fonvard in the journey of lifel
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It is an honour and a privilege to write the Foreword for this book, aimed at providing business ethics
knou,ledge to budding leaders of a grou,ing nation, Malaysia, and the globai workforce at large. As Malaysia
doubles its ef-forts to realize Vision 2020 to attain developed nation status, it is synonymous with a civii
society, characterized by not only economic progress but a comrnu;rity with strong ethical vaiues.
Tbday's giobalized and comperitive environment reminds us of the need to revive the emphasis on
moralrty and internaiizalic-rr-r of ethiralvalues, as frar-rd, bribery,, corruption and manipulative practices have
beconle corrrnon f'eatures in business deals and transactions, not to mention the public sector. Citing some
indicators from Transparenc), International studies, Malaysia, on the international front has been ranked
53rd oirt of 177 nations, a step up frora its ranking rn 2012. Regionally, I!4alaysia is currently ranked as the 3rd
leasr con'upted nation among the ten countries in the ASEAN region, after Singapore and Brunei. While the
Government unclertakes relentless and significant efforts to tackle the challenges that abound and curb the
various abuses at large, indrviduals too har,e to be accountable for therr actions based on the values tl'rey carry
in litr. lndeed, it all begins r,vitl'r a strong fundamental knou,ledge of ethrcs ar-id the universalvaiue of clean,
moral juclger-nents, inciuding tl-ie rrarior.is religious principles practised in the country.
fhrs publication is rndeed timely tbr iv'{alaysian studentsto not onl-v equip themselves vr'ith business
ethics knou.,ieilge frorn the conrrentional tir"ciretical framework, but aiso from religious dimensions, which
are seen as critical components in the shaping process of an individual frorn Eastern cultures. This book will
p;rve the u,ay for the accolnplishn're nt of a vision to revive the importance of ethical values not only fri,n'r
r"uriversalistic logical/rational thinking processes but from moral objectivism contexts as well. It nill indeed
add to the lrnrited business ethics books rvith a iocalised ASEANI flavour.
Congratulations on this noble piece---another significant contribution towards nation buildingl
Dato'Hafsah Hoshim
Chief Executiv e OfJ'icer
SME Corporation Malaysi a
Ethics is a branch of phiiosophy. Every branch of philosophy is a normative endeavour. Business ethics is no
exceptron. As a field of study, it is certainly not an oxymoron but a reality tirat must be internalized by all
business people to be sustainable in this chailenging global environment. This study requires one's moral
judgements and deep rationalization of business issues. It requires a constructive application of either relative
or objective ethical principles, including religious principles.
{' Although the primary objective of a business is to make profits, it has to meet social interests since
t any business entity is a cornponent of a civilized community aspiring to sustain economic prosperity and
weil-being. Several established business organizations in the global scenario har.e coilapsed at the wake of
the 21st century dui: to compronrises on ethics. Business decisions therefore must not only be economically
effective br"rt legally and morally sound, complying with man made rules and regulations, what rnore God
made principles and commandments.
'Ihis text aims to eqr-rip readers, especiail,v students ln higher iearning institutions, with the fundamentals
of br:siness ethics knou4edge. It has brought in iocal flar,our rvithin the Eastern perceptions of ethics in the
conduct of business, rvithout cornprornising on the \\/esterir dimensions.
This text begins u,ith ethics as a philosopLical concept and relates it n,ith life. Next, it links ethics
with leadership and rnanagement to set tht stage for the economic character and organizational set up of a
business. Following this, it introduce s readers to ethical theories and principles that are applied in the global
lvorld of business rvith discussions on strengths and limitations of each. Along with this, religious ethics rvr1l
also be linked ancl discussed. Next, t}-re text dwells upon contemporary ethical issues at the r'r,orkplace such
as conflicts of interest, privacy, dismissal and rvornen at the rvorkplace. it deliberates on ethically related
business topics such as marketing, social responsibiiity, and go\rernance. The text r,r,iil er-rd w-ith Etl-]ics in
the Global Environment to rnake readers realize tire rmportance of the ethical condrict of multinational
corporations.
It is hoped that this text r,vili impress upon all readers onthe importance of ethics in life; be it in business
or non business matters. 'Ib all students, who are potentially going to be organizationaI stakeholders of public
or private institutions. business or non-business establishments, may this piece of knor'r,ledge be an added
value as you are stepping on the stone to sllccess in your undertakings.
As iuthors, lve har.e strived to impart our diverse business knolvledge within our limitatrol)s as humans.
\4Ir apolosize for any shortcomings, irr due collrse.
Khalidrh Khalid Ali

Zulkufly Ramly
Lau Teck Chai
We would like to convey our heartfelt appreciation to all the scholars who have been engaged in business ethics
research and publications We have trred our best to cite and acknowledge your relevant contributions in this
text, but in case of any missing information, we sincerely hope this general acknowledgement will repay for the
shortcomings. We would Iike to thank Dr. Noor Akma Mohd. Salleh from Universiti Malaya for contributing
some of the content for chapter 8 (Business Ethics and f'echnology). To Dinis, thank you very much tbr
),our
constructive feedback" "fo the Oxford Higher Educatiex Team, Mr. Terence Chierl the commissioning editor,
and Ms. Khor FIui Min, the editor, thank you very much for your endless support at work. Appreciate your
kindness and understanding in reahzing this inaugural project. N{r. Tanweer and Puan Azra,we thank you
fbr you; noral support. Ma,v the synergy sta1, lvith us to realize future value,added projects togeti"rerl Our
heartiest appreciation aiso goes to YBhg. Dato' Hafsah Hashim, CEO, SMECorp Malaysia rvho has kindiy
eontributed her meaningful foreword specially for this text. \4,rr- hope that you rvill extend this inaugural
piece to the competitive global worlcl as a soft signal that ethics is still relevaitt in business.
Khalidah Khalid Ali

Zulkufly Ranil1,
Lau Teck Chai
We would like to convey our heartfeit appreciation to all the scholars who have been engaged in business ethics
research and publications We have tried our best to cite and acknowledge your reievant contributions in this
text, but in case of any missing information, we sincerely hope this general acknowledgement wiil repay fbr the
shortcomings. We would like to thank Dr. Noor Akma Mohd. Sallch from Universiti Malaya for contributing
some of the content for chapter 8 (Business Ethics and Technology). To Dinis, thank you very much for your
constructive feedback. To the Oxford Higher Education Team, Mr. Terence Chieu,, the commissioning editot
and Ms. Khor Hui Min, the editor, thank you very much for your endless support at u,ork. Apprecrate your
kindness and understanding in realiz.ing this inaugural project. Mr. Tanweer and Puan Azra, ne thank you
for you; ,r-Ioral support. May tlre synerglr stay r,vith us to realize future value-added projects togetherl Our
heartiest appreciation also goes to YBhg. Dato' Hafsah Fiashim, CEO, SMECorp Malaysia who has kindly
r-ontributed her nreaningful forer,r,ord specially for this text. \\'r- hope that yoti tvil1 extend this inaugural
piece to thc competitive global norid as a soft signalthat ethics is still relevant in business.
Khalidah Khalid Ali

ZulkuJly Ramly
Lau Teck Chai
Oxford Advisory Board iii
Dedicatian v
Foreword vi
Preface vii
Acknowledgements viii
Table of Contents ix
Ethics and Its Conceptualization in Life 1

10 Introduction 2
1
', FLhics in definitron 2
1"2 The contrast between ethics and morality )
J
I3 The onqin of ethics 4
1.4 Ethics and its importance in life 5
1.5 The contrast between ethics and legality 6
1.6 Religion and ethics 7
1.7 Eastern and western perspectives on ethics:
Is there a difference? 14
1.8 Universally accepted moral values 10
l(J
]9 Fthics arrd its imporlarce rn busi;.ress ?2

St.tmrnary 25
Glossary 27
Revrew and discussion ?B
Case study 28
References and suggested reading 29
Internalizing Ethics in the

Conduct of Business 32
2.A introduction ')))
.).
2.1 Common ethical dilemmas faced by business pecple aa
JJ
\
x Table of Contenis
2.2 The three leveis of decision-making 36

2.3 Ethical management versus management of ethics 3B
2.4 Role as an ethical ccncePt 40

2.5 Code of ethics for an ethical corporate culture 43
2.6 Economic, legal and moral dimensions for effective
business decisrons 44
2.7 Managing ethical dilemmas 45
2.8 The role of religion in resolving ethrcal issues in bustness 46
Summary 47
Glossary 50
Review and discussion 51
Case study 57
References and suggested readina 53
Ethical Theories and PrinciPles 55
3.0 lntroduction 56
3.1 Understanding the fundamentals of moral philosophy 56
3.? Utrlitarian theory of ethics 59
3.3 Kant's ethics of duty theorY 64
3.4 Arrstotle's virtue ethics theory b/
3.5 Fthrcs oI care 72
-71
3.6 Theory cf rights
3.7 I heory o{ justice 82
3.8 Justice and the market systenl 87
Sumrnary 90
Glossary 93
Revlew and discussion 95
Case study 95
Ethical Leadership and

Corporate Culture 99
4.0 lntroduction i00

4.1 Defining ethical leadership 100
4.2 Two pillars of ethical Ieadership 101
'10-l
4.3 Setting the right tone from the too
4.4 Critical elements of a formal ethic. progr.amme 106
4.5 Detining corporate culture and ethical culture 1tl

Table of Contents
4.6 Ethical leadership and ethical corporate culture 1i3

Summary 114
Glossary 115
Case study 116
Corporate Governance 119

5.0 lntroduction 120
51 Definrtion of corporate governance 121
tra
J.L Corporate governance and public corporations 121
5"-t The concentrated ownership of Malaysian
public corporations 125
54 The development o{ corporate governance in Malaysia 128
55 The Malaysian code on corporate governance 129
56 Theories of corporate governance 134
57 Corporate governance mechanisms 140
5B Ethical issues in corporate governance 1r)
IJJ
Sunmary 158
4 /-
Glossary tol
Case study 164
Corporate Social Responsibility 1,68

6.1 Definrtron of stakeholders 170
6.2 Types of stakeholders 171
6.3 Analysing stakeholders' relative importance 172
6.4 Three perspectives of stakeholholder theory 173
6.5 The concept and nature of corporate social responsibility 1/5
6.6 The debate of corporate social responsibility 180
6.7 Corporatesocialresponsiveness 184
Summary 186
Glossary 189
Revrew and discussion 190
Case stt,dy 191
xit I'able of Contents
Common Issues at the Workplace 194

7.1 Whistleblowing 196
7.2 Trade secrets 199
7.3 Conflict of interest 201
7.4 Privacy 201
7.5 Discrimrnation and affirmative action 218
7.6 Women at work 229
7.7 Employees' rights and duties 238
7.8 Occupational health and safety 240
7.9 Termination of service/unjust dismissal 242
S .n:mary 244
Glossary 248
Review and dlscussion 252
Case study 253
Business Ethics and

In form ation Technolo gy /_>6
arn
8.0 lntrod r-ction LJ'/
B.'1 Overview of ethical and social concerns in

lnformation Technoiogy (lT) .,59
8.2 Security threats that affect informatron systems 1A,t
8.3 Current ethical issues in Information Technology (lT) 266
8.4 Managing inforrnation system security 271
'273
Summary
Glossary 274
Reviey,i and dlscussron 276
Case study 276
Marketing Ethics and Consumerism 279

9.0 Introduction 280
9.1 Marketing in definition 280
9.2 Theories of marketing ethics ,o?
LO.)
9.3 Ethicai issues in product develol-ment

aof
LO/
Table of Contents xiii
9.4 Ethical issues in packaging and labelling 289

95 Ethical issues in pricing 2:92
9.6 Ethical issues in advertising ?aq,
9.7 Ethical issues in retailing 297
9"8 Ethical'issues in the use of direct marketing 300
9.9 Consumer ethics and customer reseonsibility 302
9.10 The company's ethical review 308
308
Glossary 311
Revrew and discusston 1aa
Jt1
Case sludy 312
JIJ
Ethics and the Environment 314

10.0 lntroduction 31s
10.i Fndustrialization, modernism and sustainability
in the wake of the 2lst century 316
10 2 The concepts of sustainability and
susta inable development 323
10"3 Renewable and non-renewable resources 323
10.4 The history behind sustainability and
susta rnable development-an oxymoron? 32s
10.5 F;ee market arguments on sustainability and
pr-eservation of the environment 1?6
10.6 Free market arguments and their rmpact
on the environmenl 3?7
1A 7 S;sl ainable consumption aao
JLO
l0"B Barriers towards sustainable consurnption 329
149 Steps towards sustainable consumption 331
10.10 Green jobs 333
10 'i1 Challenges of Cifferent labour and
environmental standards across the globe 336
10 "12 Environmental ethics J)O
10.13 Environmental ethics-an lslamic dimension ).11
J+l
Sumrnary 345
Glossary 348
Revrew and drscusslon 3s0
Case study 3s0
References anc) suggested readinq 351
iv Table of Contents
Islamic Ethics 354

11.0 lntroductron 355
11.1 Definition of ethics from the Islamic perspective 355
11.2 Sources'and oriqin of lslamic ethics 358
1/4
11.3 lslamic worldview and ethical systerir JOI
ll.4 Axioms of lslamic ethical philosophy 365

1'1.5 lslam and stakeholder relationships JOO
11.6 Relationship with stakeholders from the

perspective of lslamic ethical system 369
11.7 Prohibited earnings and business transactions 3/6
Summary 384
Glossary 3B/
Review and discussion 3BB
Case study 389

I
Ethics in the Global Environment 392

?o2
12.0 lntroduction
12.l Ethics rn international business 393
12.2 The ethical conduct of multinational corporations 395
12.3 Ethical rheories in the context of international business 397
?oo/
12.4 Ethics in cross-cultural and internatronal contexts J/
12.5 An ethical drlemma 4l)2

12.6 A framework for ethical decision-making 403
12.7 Current ethical issues in internatlonal business 404
12.8 The value of ethical behaviour 412
Summary 413
Glossary 414
Revrew and dtscussion 415
A1':
atJ
Case study
't11
+t/
lndex
CHAPTER
Ethics and Its

Conceptuali zatton in Life
q,
\
LEARNING OUTCOMES
At the end of this chapter, you should be able to:

r Define and differentiate between ethics and rnorality.
r Understand how ethics is developed in an individual.
r List and explain the various factors that influence the ethical
values of an individual.
n Compare and contrast between ethics and legality.
r Compare between Eastern and Western perspectives on ethics.
r Relate the role of religion as an important contributing factor in
shaping the ethical values of individuals.
E ldentify universally accepted moral vaiues.
r Recognize ethics and its importance in the global business world.
2 Buiiness Ethics
1:0 INTRODUCTION
This introductory chapter begins with ethics as a concept. It will differentiate between
ethics and morality and outline factors that contribute to the shaping of one's ethical
values. iustifications will be drawn as to why ethics is important in life, what more in
business. It will include a section to compare and rontrast the concept of ethics from
Western and Eastern perspectives. it will continue to discuss the role of religion in
shaping one's values. Finally, it will introduce readers to the universally accepted moral
values ihat must be emulated by ail irrespective of social and cultural drfferences.
We often reflect and ask ourselves some basic questions:
r How should I lead my life?
r What type of person should I strive to be?
r What values are critical for me to lead a rewarding iil"e?
r What standards or principles should I follow to conduct my life?
Our self-reflection and conscience in addressing these personal issues immerses
us in the study of right and wrong or moral reasoning. Moral reasoning leads us to the
study of morality i.e. ethics.
Human beings are special creations of God. Behold, thy l,ord said to the angels:
'1 wilt create a vicegerent (i.e. Khatifah or leader) on earth' (Al Qurart, Al Baqorah,
l:30). Hr-rrnans differ from non-humans because they are made in a baiancc and are
directly informed of their role-to be ieaders in the universe. They are therefore in
a unique position to be guardians. Humans are endor,vecl rvith inlelligence and the
I-righest degree of free wiil to think sensibly whether their acts are right or u'rong rvhile
lultiliing their desires and self-interests. They are good by choice and given inner
control but are made accountable for all their actions. '\4& have indeed creoted rnan in
the ltest of moulds' iAl-Quran, At Tin 95:4).
Humans har.e three responsibilities-to make himseif or herself good; to help
others be good and to make the physical world good. \\re cannot preach goodness
if we do not embody goodness ourselves. This is .'.r,here the study of ethics becomes
relevant as a field of knowledge.
Chapter I introduces readers to ethics and its conceptualization in life. Although
the follou.ing chapters will focus on ethics in the world of business, this chapter is aimed
at providing a clear understanding of the direct link between ethics and the conduct o{
life, be it in business or non-business relaied matters. Aptlr'', each of us takes on diverse
roles as leaders at any point of time, be it at home, at work, in br-rsiness or nhiie serving
tlle community through a voluntary social activit),. As leaders, we are expecteci to displav
ethics in the conduct of 1ife, wherever we are and in all situatioi-ts. We may have acquired
knowledge oi-r ethics but this does not ensure good practrce Let us ask ourseives a valid
question, 'How can we lead Mother Earth without inter nalizing ethics?'
lVe have been using the terminology'ethics', but what is ethics?
?h,., - -, **f I
1"1 ETHICS IN DEFINITION
principles rhat
contains behavioural
Ethics can be described as a set of principles that contains irehavioural ccdes to
codes lo derermine
cletermine rvhat is right or wrong (Khaiidah el c1.,2012a). It also outlines the moral
what is righr or
wrong.
duty and obligations that any hurnan being should practise. The term 'ethics' is derived
Ethics and lts Conceptualization irr Life 3
from the Cireek word ethos, which means character, spirit and attitudes of a group of
people or culture (Rahman, 2013).
There are many formal definitions of ethics. To mention a few, Stanwick and
Stanwick (2009) define ethics as the values an individuai uses to interpret whether any
particular action or behaviour is considered acceptable and appropriate. Velasquez
QAn) and Nickels (2008) regard it as a discipline that examines one's moral behaviour
or the moral standards of a society. According to Abdullah and ZainolAbidin (2011),
ethics concerns itself with what is good or right in human interaction. It revolves
around three centrai concepts-'self', 'good' and 'other'. Ethics is also defined as a
critical analysis of human acts to determine their rightness or wrongness in terms of
tu,o major criteria---truth and justice (Mauro et al., 1999).
To conceptualize ethics as a field of study, we are trying to rationalize rvhat actions
are right or lvrong and assess r.vhether they are just or fair from different perspectives-
individual, organizational or societal levels" Certainly, we have to consider the rights
of others (humans and non-humans) much as we are equally interested to exercise our
own individual rights and self-interests.
We have just defined etiiLcs ancl its scope. Next, we shail iook at the contrast
between ethics and morality.
1.2 THE CONTRAST BETWEEN ETHICS

AND MORALITY
One may ask 'ls there a significant dilfbrence between ethics and morality?'
Practically, these two terms are being used interchangeably in everyday life. While
many may agree that there is a very thin lire to differentiate these two concepts from
a layman's viewpoint, in the study of ethics, however, several scholars have proposed
clear dilferences betlveen ethics irnd moralitl,. Tiie objective behind this distinction is
to clarify certain arguments (Shaw, 2011).
Morality is concerned n'ith tire norms, values and beliefs embedded in social F,l.r,rrr,r,.f.r, ,..,
processes r,l'hich define right or 1,,,rrong for an individual or a community. Ethics, in irornrs, r,alues and
contrast, is the study of moral standards whose explicit purpose is to determine, as far rg ,ei! er.,rlredde.l
as possible, r'r4rether a given moral standard or;udgement based on that standard is - i,-!.rl -.r,.r.e!-qi:r-(
more or less correct (\,'elasquez, 2006). This tl-ierefore demands fcr analytlcal thoright ,"'i .'- i,:- -.' ii:lrL
and apolication of reason to define specific rules, principles or ethical irreories that .rr \'' Tir:r! i--'i
determine right or 1\rrorlg for a grven situation. In addition, these rules and principles ttrclr" dr; :ri '
iy
rrrust give an account of the rights or entitlements we have and what is jusl or fair 'omnrun
(Boatrigl'rt, 2007).
Let us further differentiate these trvo concepts by an example fbr claritl'. We knol-
:hat all religions and cultures vierv strongly that lying, cheating and manipulation
are wrong. These are sub-values of dishonesty. The society's acceptancelrecognition
that these values are morally wrong is termed as morality. However, when we apply
a specific theory or principie to explain why lying, cheating and manipulation are
wrongful acts, this is ethics. Based on Ruie Utilitarian Theory, iying, clreating and
rnanipulation are unethicai after assessing the bad consequenccs against the good
consequences of such actions. in addition, applying Islamic ethics anC princrples,
these three values are irnmoral based on the verses stated inthe Al-Quran andsunna/'t.
Emmanual Kant's Ethics of Duty will also share the same view since these values do
not promote gor;dwill among fellow humans and they do not follow the universal larv.
4 Business Ethics
To quote:
'Act only according to that maxim by which you can at the same time will that
it should becorne a universal law.'
We have so far defined ethics and seen its contrast with moraiity. Next, we shail
examine the ongin of ethics and factors contributing to the shaping of one's ethical
values. We shall also explain why ethics is important in life'
1.3 THE ORIGIN OF ETHICS
E,h"d;;;;;l One may ask'Where do ethical values come from and how is good ethics developed
from one's inner i1 an individual?' It comes from our inner feelings which subsequently translate into
feelings which- our moral t,ehaviour (Khalidah et al.,20l2b). Ethics thus begins with each one of us.
subsequently As hun,ans, we are fuliy responsible for our ethical or unethical behaviour. According
translate into his or tcr Ebert and Griffin (2007), ethical behaviour conforms to ethical beliefs and social
her moral behaviour. norrns about what is right and good. Conversell,, unethical behaviour cottforms to
individual beliefs and social norms that are defined as wrong and bad.
;..*t -ft.*n.rt-l Many of us rvil1 agree that the degree of one's self-control and will Power have a great
ethical values intluence on character building and development. However, looking from a rvider per-
include upbringing, spective, se\reral factors influencc onc's cthical valucs. Thcsc factors includc hislher up
socialization process, bringing, socialization process (i.e. the behaviour of surrounding people), experience and
experience and Lrltical reflectior-rs on those experiences and the explicit and implicit standards of culture
crrrical reflecr'ons (Sl-raw, 2008 and 2011). 'l'hey may be referred as social, culturirl and environmental factors.
on one's expei-iertces Durirrg our childhood days, our parents nurture us with good discipiine and
and rhe explicit and. 'J'hey are
morality. They guide us on lvhat is right and what is n,rong in our actions.
implicit srandards of
our 'first' teachers a-rd role models. In fact, they shoulder the responsibility to shape
cultr:re.
us to be good people. The pertinent role of parents in the upbringing of therr children
has also been duly recognized in Islam based on a reievant Quranic vcrse:
'C) ye t+,ho believe! Savc yourselves and your

families.fron t l:irt'rr'/to','Jtrc1
is Men ctnd Stones, over u,hich are (appointed) angels stern (ond) seyerc, who
flinch not (from executing) the Commands they rt:ceive .fron'L Allah, ltut do
(preci.sely) what they are comntanded.'
(Al- Quran, At-T'ahri irtr 66 : 6)
When we go to school and higher learning instrtutions, our teachers and lecturers
gir,e us added knowiedge and skills for survival. In adclition, they also impart e'.hics
knowledge through moral and religious studies. Much as our teachers ancl lecturers
are exemplary role rnodeis in our chrracter buiiding, we are also influenced by pecrs
and the surrounding environment.
Nowadays, the media and Internet har.e some$,hat contributed to the shaping
o1'human character and vaiues; more so with growing chlldren" The knowiedge
acquired through the numerous search engines and countiess websites, not to
mention Facebook, Twitter and several other sc'ciai networking websites, have
srgnificantly wired the brains and shaped the character of our youngsters. Irt
addition, one's myriads of experiences and critical reflections on what l-re or she
has gone through, be it good or bad, does to a Lertain extent influence iris or her
character and vaiues. We have seen people's values chiinge for the better out of his
or her own self-realization and positive attitudr io improve, especially afier having
experienced a rnishap or misfortune.
Ethics and lts Conceptualization in Life 5
Finally, culture has aiso an influence on one's values. For example, respect and
care for the eideriv have ahva,vs been accepted as noble values internalized by Asian or
Eastern cuiture until today. It is immorai to abandon parents when they are old. \{re
shouid sincerely extend our love and care to them out of gratitude, no matter hou, busy
we are in our lives. Their endless 1ove, care, patience and sacrifices made to guide us
during our childhood are of intrinsic value.to determine our successful lives. in fact,
they have a right to be looked after by their children in their old age. We wouid not
have enjoyed the beauty and bounty of this world without our parents' existencel
We have so far discussed at length the influence ofsocial, cuitural and em,ironmental fAil r.[Cl*t pr*d.
factors on one's ethical values. Aptly, they are also developed and internilized from irs believers wirh a
religrous teachings" Aii religions provide its believers with a worldview and strong worldview and srrong
composition of conduct, values and commitments based on instructions that have to be composirion of
strictly follou,ed without cornpromise. For example, the fundamentai principles of iman conduct, values and
and taclwa in Islan-r require every Muslim to display uprightness, honesty and integrity, commirments based
irrespective of the state he or she is in, be it an individual, a business person or a figure cn insrructions rhat
.i'hese have ro be srrictly
of authority and pow,er. tw'o principles remind Muslims not to act soiely for the
followed without
fulfilment of self-interests, but to dispiay actions that subsequently benefit others as he
compromise.
or she assurnes the role of a leader or Khalifah (Khaiidah et al.,20l2a).
C According to Shaw (2008 and 201 1), rationally, we learn and adapt to the ethics and
morai principies through our:
- Upbringing
- Socialization (i.e. the behaviour of those around us)
- Experiences and our critical reflections or r those experiences (self reflection)
- The explicit and implicit standards of our culture
{q We also learn ethics from religious teachings. All religions provide their believers with a
strong composition of conduct, part of which involves moral instructions, values and
commitments.
Figure 1 .1: The far:tors inf lr-iencing one's ethical values
Frgure 1.1 summarizes llic factors influencing one's ethical values. \&re sha1l dwell
on the role of religion in shaping the etl-rical values of individuals in a separate s(cti.n of
this chartelas \{e gii along" l.et ris firstly acknou,iedge the importance of ethics in life.
1.4 ETHICS AND ITS IMPORTANCE IN

LI FE
Humans, despite their differences, live in a community and develop a web of

relationships in life. Although we value individual privacy, freedom of speech
and materiai rucll-being, as individuals, we also value happiness by sharing and
6 Business Ethics
complementing others. We value compassion, respect, fairness and gratitude. Tf

these values, among others, become the standards for a society's quality of life and
well-being, we shall all arrive at a consensus that ethics is important in life" Imagine
ourselves living in a community which compromises on these ethical values. Will we
live in peace and harmony? Much as we enjoy material wealth, u.ill we achieve well-
being in the true sense?
In the challenging and competitive global environment that we are ail facing toda,v,
individuals pursue their self-interests. However. we are expected to be equally conscious
of our roles in the community and the effects of our good deeds and wrongdoings on
others. fb reiterate an earlier fact, ethics deals with individual character and moral
values that govern and limit one's conduct. It investigates questions of right and
wrong, duty, obligation, moral responsibility and social justice (Wiley,1995 cited in
Malrro, Natale and Libertella,1999; Shaw, 2008). Every society aspires to be developed
and civilized. How can a society call itself civilized if the citizens are not ethicai while
the nation is enjoying an abundance of material wealth?
From a communitarian perspective, an ethical society is thus an outcome of
members lvho internalize and apply ethical values in their lives. The general well-
being, quality of life and prosperity of a nation therefore largeiy depend on the
internalization of good morai values among members of the communitl, (Khalidah
et. a\,2010). Only ethical societies will sustain economic growth, prosperlty and r,r,ell-
being. Without doubt, only ethical socreties rvrll sustain civilization and dignity of
humans as guardians of the universel
Our life nowadays is governed by a myriad of larvs, rules and regulations. Let us
pose a question: Do laws assure that ethics is internalized among nrembers of society?
Simply put, will iau,s instil ethics in individuals?
1.5 THE CONTRAST BETWEEN ETHICS

AND LEGALITY
Some people have the opinion that being ethical means complying with the law or
a set of stipulated rules and regulations. This is in line rvith the vieu,s of Aristotle, a
renorvned Greek philosopher and scientist (384-322 B.C.). In atti:mpting to outline
universal justice, he viewed that a good person ,s one who obevs the larv. Societies
normaliy adopt formai laws that reflect prevailing ethical standards or social nonns
(Ebert and Griffin, 2AA7). It is true that obeying lau,s is an important first step to
LrsrhiJ;' **-- be ethical as laws promote justice and fairness in human aclions. The F.mployment
narrower scope of
Act 1955 in Malaysia protects the rights of employees. Employers must corr-rply with
erhrcs. But a person
who foliows rules
this act. Nonetheless, rve also hear of irresponsible employers' over-exploitation of
and regulations need
labour at work despite the need to comply with the act. We see wrongful acts such as
not necessarily be an disrespect, greed and selfishness within the pubiic and private sectors while complying
ethical person. Ethical rvith stipulated government and business laws. These are all seen rr ithin the so-calied
behaviour rests upon 'rules of the game'. As Ebert and Griffin QAAT) have rightly poiirted out, laws do not
one's full conscience make people honest, reliabie or truthfui.
and accounrability I.egality therefore carries a narro\ver scope in ethics. It ret-ers to laws that lve have
to do,good written to protect ourselves from fraud, theft and violence. Hrrtvgl,sl-, ntan)'immorai
deeds as a social
and unethicai acts fail well within our iaws (Nickels et a1.,2008). T'hcy need not
responsibility under
necessarily drive one's conscience to internaiize good values (Khalidah et al.,20l2a).
all circumstances.
The collapse of Enron, 'fyco International and World.Com at the beginning of

the millennium fully supports this contention. While nations were actively trying to
promote globalization as a call from the World Trade Organization (WTO) to increase
the welfare of the rvorld economy through free trade ano competition, the entire globe
was alarmed by the coliapse of these giant American corporations.
In Malaysia, corporate scandals such as those surrounding Pewaja Steel, Bank
Bumiputra and Bank [siam prior to the 1997-98 financial crisis have also charted
history in the local manufacturing and banking industries and challenged the
integrity of corporate governance. An example of a recent scandal is the RM12 biliion
Port Kelang Free Zone project involving civil servants and renowned politicians who
are supposed to represent public interests.
In an international scenario, the legal suit against San Lu Corporation in 2008
for producing milk tainted with melamine, which killed manybabies in China, is also
a classic example that laws, rules and regulations are not foolproof to ensure ethical
behaviour among individuals and businesses. These established corporations must
have developed a clear code of ethics as a governance mechanism to compel employees
to behave ethicaliy, but they do not necessarily result in internalization of good ethical
values. The muitinationals and organizations mentioned above would have sustained
their multi-billion dollar businesses until today if not for the unethical behaviour of
their upper management and employees at work.
Seriously. ethical behaviour requires more than having to complv with policies, fErh"t b rb"* ,l*
1aws, r ules and regulatiols. Ethrcs is above the law. It reflects peoplet relations with law. It requires a
others. It requires a sincere reflection on how we should treat others and the impact sincere conscience
ol our actior-rs on others. It boils down to a person's commitnrent and responsibility on how we shoulcl
tolr,ards others as he or she fulfiis personal needs and interests, treat others and tlre
Ethical behaviour therefore rests upon one's full conscience and accountability impact of our actiolrs
on others.
to do good deeds as a social responsibility under all circumstances (Khalidah el al.,
2012a). Nevertheless, how do lve then develop one's full conscience, commitment ancl
accountability to do good deeds as a sociai responsibility under all circumstances?
\\re shall next address this issue under the role of religion in shaping one's
,:hrca1r.alues. Earlier in this chapter, we have noted that religion is one of the factors
i ntluencin g ethical r,alues.
1.6 RELIGION AND ETHICS
Some people do not believe that morality boils down to religion but rather that
it is just a function of what a particular society happens to believe (Shaw, 2011).
some nrry even view that it is misieading and inappropriate to link morality with
'.lritualitv and religious bcliefs since it may violate individuai or human rights
whicli promote freedom of choice in religion and privacy. After all, one's of
'hoice
religion is a negative right (i.e. free from others'interference) and is clearly stated in
:l:e 1948 United Nations Universal Declaration of Human Rights (Boatright, 2009;
r..halidah et al., 20l2bj.
While we respect these 'westernized'iiberal and universal viervs on the role of
i,:ligion ttxvards shaping one's ethical vaiues, the point remains-a belief in religion
and internaiization of the principles and teachings will shape one's character and
r,alues. Most religions have an ethical component. Quoting the words of Simon
F'i;ickburn, in nis book, Ethics: A Very Short Introduction (2001):
I Business Fthics
'For ntany people, ethics is not only tied up u,ith religion, but is t-om.pletely
settled by it. Such people do not think too much about ethics, becau.se there is
an authoritatiye code of instructions, a handbook o.f hout to live .'
Mala1,5l2's Rukun NegaralNational Principles directly states the belief in God
as a doctrine to be followed by ail Malaysians irrespective of religious and cultural
differences" This implies the importance of religion in Malaysian society despite its
racial and cultural diversity (see Figure 1.2).
Good
Behaviour
Loyalty to King
and Morality
and Country
Figure 1.2: Rukun Negara
Let us delve further to justify this statement bv explalning the role of Islam,
Christianity, Buddhism and Hindr"rism in shaping the ethical r,alues of ti-rcjr follorvers
or believers. These are the four common reiigions embraced br. J\4ala1'sians, living in
a multiracial community. Let us begin with Islarn, thc officiai religion of Mala,vsia.
1.6.1 lslamic Ethics: Ethics of the Soul

Islam is derived from the Arabic root Salema-peace, pLrrit1,, subrnission and obedience.
1n the religious sense, Islam means submission to the lvill of God and obedience to llis [aw.
G;;d.'r.d ---l Much as Islam is recognized universally as a religion, it is ir-r fact a u,ay of Irf.e for N4uslims.
from an Arabic
Prophet Muhammad SAW once said in ahadith narrated b1, X4ushm:
word Salema which
means, peace, 'Religion is advice.'
purity submission
and obedience
The foundation of Islamic ethics is the A/ Qurol ancl Sunnah (i.e. the sayings and
lslamic erhics takes practices of Prophet Muhammad SAW). Islarnic ethics integratr:s the inner and outer
a Cod-centred view aspects of an individual's life (lbn. Manzur, i990; lv{iqdad Y:ljin, 1973).It concerns
and emphasizes on individual physical development rvith priority on tl-ie soul's cleveiopment, cnrcial to
rhe importance of the individual's behaviour and character devel rpment. The r,;iiues of the soul are
integrating worldly universal and consistent without having to separate human, physicai and spiritual
affairs wiih religion. values determined by the Creator, Allah SWT. These values shall remain unalfected
Ethics and lts Conceptualization in Li{e
by changes in external conditions and circumstances of life (Al-Maududi, 1978).

Therefbre, regardless of their environment, humans, especially Muslims, are
believed to have a moral re,sponsibility to submit to Allah's orders and strictly follow
Islamic principles without compromise (i.e. as revealed in the Al-Quran and Sunnah).
Humans have been granted the faculty or inteiligence to discern God's will and to
abide by it as obedient servants. This faculty most crucially involves reflecting over
the meaning of existence which uitimately points to the reality of Aiiah or God as the
Creator and determinant of everything in life-in this Earth and the hereafter. As
believers, Muslims are expected to internalize the fundamental principles of Iman
(i"e. a Quranic term for faith) which will lead to Taqwa (i.e. a Quranic term for piety).
Figure 1.3,1"4 and 1"5 represent the five principles of Islam, the six principles of Iman
and more elaboration on Taqwa to be internahzedby Muslims.
The Five Pillars of lslam

a,r'l :;'rn:. -
*;,:
rn rs the f,
i Faith or belief in the Oneness of God'and the

finality of the prophet hood of Muhammad 'ar'
* Establishmenl of the daily.playeqs (! timesla

) Concern for a nd -almsgiving:to the nieay,;$}
i Self-purification through fasting :.
(fasting in the month o{ Ramadhan}
) The pilgrimage to Makkah for those who are
(S o tt rce'. http://www.isl a m 1 0 1.co m/d awah/ pi I I a rs.htm l)
Figure 1.3: The five pillars o{ lslam
.Eelief in the
,t i
$iiiiisiiiiirio'i'r'
: rrr *l$fl\ll6fii(jf ',I :,,'
Belief in the 'ri! &*ii ngg toJtr *ie, ;

ci:mmissioned o,:.r;
Messengers . l$r
ipeacq,S, r:,,
uPql'$Kr$l''
Figure 1.4: The six pillars a{ lman

10 Business Fthics
. , ,
) .-^
t&.:1 ,
.,1
.;
.',3:.,
i.: {. 't .{. . :..t:1 --. . ":.
Taqwa y4 i '
1.* r':t t, .
:'t':')' ' ),i
-*i ,:,t ,4-&.
w A 'irlthe AlOuran that carries

.$,
and
...,1-.,, .r1..,':., 3
'ely obey the rule-s of Allah and be grateful to

q.1-., ,il .r'i",u. ri i'l:l:";is{'l
but responsibil
& the ex
ffi lVe remembrance of Allah

:.:
,
&
-
.-.1
ln'1: .cibedience; not
{Source: Green. 2.008)
Figure 1.5: Taqwa
Ethics in Islam therefore addresses eyery aspect of a Muslim's life-for seif, others
and the pirysical wurld. Sirniiar l-u lhc study of ethics, though ciifferent in scope and
nature is ilm al-akhlaq in Islam. Al-A:;hlacl is derived frorn the root word khuluq,
lr,hich means to create, to shape and to give form. Accordingll,, ilm al-Akhlaq, as a
branch of knowiedge, is a science ivhich deals with the ways to maintain virtues at
their optimum ievei, i.e. to avoid wrongdoing and to do what is right ancl desirable
(McDonough, l9B4).
Muslims rnust not only be virtuous, but they must also enjoin virtue. They
tttt-tst t-tot only refrain from evil and vice, but they must also forbid them while going
thror,igh the challenges of life. Muslims are aiso tarLght to act fairly and uphoid justice
in their dealings since every action will give an impact on others; be it humar"rs or non-
humans (Syed Othman and Aidit, 1994). They are always encouraged to emulate the
four attributes of Prophet Muhammad SAW the role rnodel of the mukmins--fatanah
(i.e. inteiligent and sagacious), amanah (i.e. faithful and trustworthy), siddiq (i.e"
truthful and righteous) and tabligh (i.e. informative and conve-ving the truth; never
withhoiding what has been revealed to them).
To summarize, Isiamic ethics strongly view that it is inrportant to integrate
rvorldly affairs with religion. Islam takes a God-centred woridvierv compared to
the secular rvorldview which separates worldly and r:cligious affairs. As a Khalifah,
Muslims har..e to consistentiy strive and promote the rvell-being of the ummah and
the society at iarge. As mukmins (i.e. a believer; Muslims who religioLtsly follow the
rules of Al-Quran), they will keep Allah in their hearts and regard the materialistic
world as a platform or medium to ultimately gain the rewards in akhirah (the world
hereafter) by doing good deeds. Material being is not seen as pride or a nleans to fulfil
one's egoism but it becomes a tool to contribute towurds the ummah which wili finally
determine one's destiny-heaven or heli in the hereafier. For the muknins, the entire
life is one of worship (Ibadah). Life is therefore a jihad or sacrifice. It is not oniy about
pleasing oneself and other fellow humans. Ultimateiy, life is to fuifil the expectations
of the Creator, Allah SWT through total submissron to Him for a promise mad,: to all
mukmins or believers-to enter heaven in the tvorld after.
,:
Quoting from the verses of the Al-Quran:
'O My seryants wl'to believe! Surely My earth is vast, therefore Me alone shoulcl
you serve. Every scttil is going to face death, and then to Us you shall be brought
back. And fitr those who believe and do righteous deeds, We will most surely
establish them in a lofty place in Gardens beneath which rivers flow, abiding
thereirr" Excellent is the reward o-f the ruorkers; those who are patient, and put
their trust in their Lord.'
(Al-Quran, Surah Al 'Ankabut: 56-559)
Religious Professional Personal QualitY

Values Values Values Values
Taqwo (God Education, skill, Accountability, Quality, Productivity,

consciousness), syukur honesty, Moderation, /fqon (i.e. the level
(gratitude; being pu nctual ity, Excellence, Patience, of quality work),
gratetul), Tawokkol trustworthy and Tolerance, Humble, lstiqamah
(relying on Allah after 5yuro (consultation). Salam. {commitment, being
making own efforts), straight and
Muhasabah (self- steadfast), Efficiency,
evaluatton),.lustice creativity,
and amar makruf innovation,
nahi munkor collectivity, lhsan
(promoting good (benevolence i.e.
and forbidding evil). being kind and
helpful).
lAdapted from'The Role of lslomic Ethics in Organizations: An Experience in Moloysia' , L)SM)
[:igure 1.6: Values and ethical components in lslamic management
Figure 1.6 shou,s the reiigious, professional and quaiitl, values and ethic
components in Islamic n.)anagement to be internalized by all Muslims in striving for
a rewarding life"
\&'e shall look at Budclhisrlr nexf .
fB,ddt.i'n-.;;n...'
from the word
1.6.2 Buddhist Ethics budhr which

means to awaken.
Brrddhism comes from the word budhl which means 'to awakeri. Buddhist ethics I ne rounoatron
are traditionally based on the enlightened perspective of the Buddha, or his of Buddhism is
enlightened folloi,r,ers. Siddhartha Gotama (i.e. the Buddha) was born into a royal rhe Pancasila.The
basic conceprs of
fanrily in Lumbini, nou/ iocated in Nepal, in 553 BC. At 29,he realized that wealth
Buddhism can be
and iuxur,r' did not guarantee happiness, so he explored the different teachings.
summarized by rhe
religions and phiiosophies of the day, to find the key to human happiness. After sir
Four Noble Trurhs
years of study and meditatiorl, he finally found'the middle path' and rvas enlightened.
and rhe Noble
Aftcr enlightenment, the Buddha spent the rest of his iife teaching the principles oi- Eighrfold Parh.
12 Business Ethics
BLrddhism-called the Dhamma, or Truth-until his death at the age of 80" He was not
a prophet, nor did he claim to be. He was a man who taught a path to enlightenment
from his orvn experience.
Most scholars of Buddhist ethics rely on the exarnination of Buddhist scriptures,
and the use of anthropological evidence from traditional Buddhist societres, to justify
claims about the nature of Buddhist ethics (Keown, 2000). According to traditional
Buddhism, the foundation of Buddhism ts the Parcasila-no killing, stealing, lying,
sexual misconduct or intoxicants i.e. losing one's mindfulness. The initial precept
is non-injury or non-violence to all living creatures, be it humans or non-humans.
Tb become a Buddhist, a person is encouraged to vow to abstain from induiging in
immorai actions. This is referred as vinaya. The Buddha taught many things, but the
basic concepts in Buddhism can be summed up by the Four Noble Truths and the
Noble Eightfold Path.
The First Noble Truth is that life is suffering i.e. life includes pain, getting old,
disease, and ultimateiy death. Humans also endure psychoiogical suft-ering like
loneli'-ess, frustration, fear, embarrassment, disappointment and anger. Buddhist
ethics explain how suffering can be avoided in order to achieve true happiness.
The Second Noble Truth is that suffering is caused by craving and aversion. One
lvill suffer if he or she expects other people to conform to his/her expectations. instead
of constantly struggling to get what we want, we should try to modify our u'anls.
The Third Noble Truth is that suffering can be overcome and happiness can be
attained; that happiness anr3 confentnrent in the fnre sense are thus possible. \\rherl
we give up useless craving and learn to live each day at a time (not dwelling in the past
or the imagined future), then we can become huppy and free. We then hal'e more time
and energy to help others. This is Nirvana.
The Fourth Noble Truths states that the Noble lrightlbld Iratl.r is the path u'hicl.r
leacis to the entl of suffering. The threading of the Noble lrightfold Path is essenttal to
seif-deliverance. Tn quote the teaching of the Buddha:
'Oease to Co evil, learn to do good, cleanse yoltr o1\'tt hcarl '

(Humphrevs, n.d.)
ffi nignt views or Preliminary Understanding
ffi night Aims or Motives
ffi ntgh,t speech
ffi ntgnt Rcts
ffi night Livelihood
ffi Risht rffort
ffi nignt Concentration or Mind Development
ffi
;-S:MiA;:-
nignt Samadhi,leading to full Enlightenment.
s"leryW---
i..,mi (Source: Huinphreys, n.d-).,--
,,, {J r, .!li.s#fd?ffir
Figure 1.7: Noble Eightfold Path

Ethrcs and lts Conceptr_ralization in l,.ife 13
To summarize, from potential to actual enlightenment, there lies the Middle :
Way-'from desire to peace, a process of self-developrnent between the 'opposites',

avoiding ali extremes. The heart and mind must be developed equally. Buddhism
ieaches that wisdom should be developed n ith compassion. Compassion includes
qualities of sharing, readiness to give comfort, sympathy, concern and caring. In
Buddhism, one can really understand others when one is able to understand his or her
olvn self, through r,visdom.
To many, Buddhism goes beyond reiigion. It is more of a phiiosophy or 'way of
life'. It is a philosophy because philosophy means 'love of wisdom' and the Buddhist
path can be summed up as follows:
r To lead a rnoral life.
r To be mindful and aware of thoughts and actions.
r To develop rlisdom and understanding.
Buddhism is also a belief system which is tolerant of all other beliefs or religions.
Buddhism agrees with the moral teachings of other religion-s but Buddhism goes
lurther by providing a long-term purpose within our existence, through wisdom and
riue understanding (BuddhaNet, n d.).
I-et r:s iook at Christianity and the ethical values that are taught to its foilowers.
'1.6.3 Christian Ethics

r-hristianity offers a view of human beings as unique products of a dir.ine intervention ICh,t""*y r"*
that har-e been endou,ed with consciousness and the ability to love (Shar,v,2011). humans as unique
Christian ethics in general has tended to stress the need for love, grace, merc1, 31d products of a divine
iorgivt-ness because of sin. It is not substantially different from |ewish or even Islamic inrervention thar
traditions. While Islam and ]udaism are based on the teachings within Al-Quran and lrave been endowed
Torah respectively, Christian ethical princinles are based on the teachings within thc wirh consciousness
Riblc" T'hese principles begin with the notion of inherent sinfulness, which requires and rl.re abrliry ro
"rsentjal atonentent. Sin is estrangement from God which is tire result of not doing love. Chrisrian erhics
stress on the need
1''..1'c r,r,ili" God's will is interpreted by the precept:
for love, grace, mercy
'Lovc GocJ n'ilh ail vour heart, soul, mind, strength and yortr neighltotrr as and forgiveness
),ott,'ttl.l'. because of sin.
['his precept is commonly called the Great Coinmandment.

In sutnmary., thc key principles of Christianity (i.e. the Kingdom of Heavcn where
(.hrrst is King according to Scripture) are based on the following:
r Humiiity or faith and trust in God.
lir C()nrmunication with God tl"rrough prayer and self-deniai.
x ()bservance of The Law which is written in Scripture and in the hearts of
those who love the truth.
; T'he offering of sacrifice to God and partaking of the sacrificial offering
(various animal and bird offerings in the Old Testament, the Lamb ol God in
the l{ew Testament, the sacrifice of the Mass in the catholic church).
ijclief in fesus Christ and following Him in a personal relationship is thc central
,irle under rvhich all others come. This personal relationship with God rvhich
salvation brought it into being can never be earned by personal devotion or rvorks of
i , ' l.arv. Peopie get close to ]esus because His Spirit lives inside of the belicver and
''' , , 'rlu'ays rn'ith them. This feeiing among the Christians very much i t-sembles tl-ie
14 Business Ethics
Muslims'love for Prophet Muhammad SAW as a Messenger of Allah SBT and a role
model of the mukmins.
Lastly, we examine Hinduism and the ethical values that are embedded in its
principles.
1.6.4 Hindu Ethics

;,hd,r-,r"t *lr*d I Hinduism is related to reincarnation, which is a way of expressing the need for
io reincarnation, a reciprocity, as one may end up in someone else's shoes in their next incarnation.
way of expressing the Hindu ethics places emphasis on one's intention. Therefore, selfless action for the
need for reciprocity. benefit of others without thought for oneself is an important principle in Hinduism.
Hindu erhics This is known as the doctrine of karma yoga. Kindness and hospitality arr: key Hindu
places emphasis values. AIso, more emphasis is placed on empathy compared rvith other traditions.
on one's intention, The Mother is a Divine Figure in Hindu Ethics, as seen in the creative female Hindu
sur-nmarized as the
ethos of the Devi. Of all the religions, Hinduism is among the most compatible with
doctrine of karma
the vi.,v of approaching truth through various fornrs of art.
yoga. Kindness and
The basic philosophy of Hinduism is that God is Omnipresent and Omnipotent,
hospitality are key
Hindu values.
God appears in everything, living and non-living. 'fhis is the reason why Hindus
seem to worship almost everything. Hindus consider any life frrrm sacred because il
is a manifestation of God. Hindus beher.e in many Gods because they resemble the
attributes of the Supreme Divine. He is the origirr of ever1.1fiing-ail knowledge, one's
cmotions and all actions. The ser.erai Gods in Hinduism resemble the varioits sub'sets
of qualities that human beings can imhibe. For example, a Hanun'Lan-bhakt would be
interested in maintailting celibacy, honesty and Io,valty to tire rnaster.
Hinduism has different strata of spirituality. At the lou.'est level, the Hrndu goes to
a temple and worships the idol. The next level is u,hen one praYs to Hin'r with prayers
in any language and sings His praise. The highest level is when one renoLlnces all these
'gr-rides' to reachin3 Him and directly meditates thinking of the Supreme Divine or
Brahman. Each individual is given the freedonr to choose his modc o[ worship and
connccting to the Divine.
r^re have elaborated on the various religior-rs ernbraced by Malaysians in the sprrit
of 1 Malaysia with openness and respect for humans as a general rigl-rt. We have aiso
seen the ethical values to be emulated b)' the follorvers of e ach religion. You must have
noticed the similarities and differences between these religions, mucir as we respect
that the choice of religion as a negative right, i.e. free from outside or other people's
interference.
Next, rve slrall compare and contrast the -Er,stern and Western perspcctives on
ethics.
1.7 EASTERN AND WESTERN

PERSPECTIVES ON ETHICS:
IS THERE A DIFFERENCE?
Is there a reai difference between the Eastern anri \\estern perce'ptions on ethics?
Let us begin by revisiting the issues of reiigran and cuiture to spur discussrons. As
seen in our earlier elaborations, most religions, despite differences, have a firnr beliet in the
Ethics and lts Conceptualrzation rn Lite 15
existence of God. We have also noted in the early part of this chapter that reiigion provides
its beiievers with a worldview and strong composition of conduct, part of which involves
moral instructions, vaiues and commitments (Shaw, 2011). However, the question remains
whether a community still upholds and internalizes religious principles in their lives.
The East has been known to uphold religious principles and cultural values more
than the \{est. Ib reiterate, the Rukun Negara or National Principles in Malaysia has
stated 'Belief in God' as its main principie; signifying the prominent role of religion
in Malaysian society despite its cultural diversity and religious differences. The legal
system of the country is verv much intertwined with religious principles. Religion is
openly discussed in society and there is high respect and tolerance for people in the
community despite the differences.
In contrast, in Western societS religion is a privacy issue, much as the East I. -.t"r" t*I.,x
and West share that it is a negative right (i.e. a human right, to be free from outside religion is a privacy
interference). Religion does not seem to be openly discussed by the Western issue.ln contrast,
community" Although the majority of Westerners are believers of Christianity, Easrern culture does
according to Bloomsfield, religious words such as 'God', 'devil', 'heaven', 'hell', not seem to have
'Christ' and '|esus' are availar,lc to people only on religious or solemn occasions. In serious religious
'caboos'. Religion is
contrast, Eastern culture does not seem to have serious religious 'taboos'. It is normal
parr and parcel of life
for people to use religious words and discuss religion in casual conversations. Most
in the Easr
pe'ople are free to talk about any goddess to their hearts' content (Ying Zhan g,2012).
This point implies that religion is still part and parcel of life in the East. Therefore, it
may h: suggestive that one's ethical vaiues are developed and internaiized through
rehgrou s conlmrtments.
In contrast, the West has somewhat compromised rehgious principies for liberal
unir.ersalism and secr:larism to promote objectivity, rational thinking and freedom
of thought. Althougir Western ethics is supposed to be iudeo Christian, secuiarisrn
has been rvidely applied in the conduct of everyday life inciuding state affairs. The
foundation of secularism is the separation of religion and state. Secularism is about
ensuring that the freedonls of tirought and Lonscience apply equaily to all believers and
non-bclievers alike. It also promotes fieedom of speech and expression, a framervork
for a democratic society and human rights.
Quoting from a relevant statement by Barrack Obama, the President of America:
'[)entocracy demcLrrds that the religiously motivated mtist translate their
conc(rns intt't tlnittcrsttL. rather than religion-specific yalues. Their proposals
musl be sultjt'et f,) (lrdttrllr'llL unrL reason, antl sltOuld nctt be occorded any
undu c n Ltto nt ol.i r r( s D ect.'
(National Secular Socicty, n.d.)

Mucli as we respect these r,,ier,vs and note that religion may piay a role in fR.lg". *ry h^".
shaping the ethical vaiues of the West, secular principies are equally strong in greater influence rn
contrasi with tire East wl'rich sees reiigion as part and parcel of life, including state shaping the ethical
r,ffairs. Religion may have a greater infiuence in shaping ethical values of the East values of rhe East
compared to the \A/est due to the difference in the God-centred versus secular compared to the
rvorld views. The West may place more value on the application of universally Wesr due to rhe
accepted 'man-made' ethical theories/principles to resolve ethical issues. To difference in the
Cod-cenired versus
mention a f'ew, they may apply Mill's Rule Utilitarian Ethics, Kant's Ethics of Duty
secular world views.
or the Golden Rule compared with the Easi, which may ultimately fail back on
religious or cultural principles although references may be made to these theories/
principles in the decision-making process.
Next, rve shall focus on cuiture and its influence on ethical rralues 1o see whether
there are differences between the perceptions of the East and the West. Redding and
16 Business Ethics
Wong (1986) reviewed a number of empirical studies on holv cultural characteristics

contribute to the new economic power of East Asia. One of the cultural characteristics
is about ego needs versus social needs. The cross-cultural comparison reflects that, in
the East, social needs take a greater significance as part of an individual's psychology
composition; in contrast to Westerners, for whom ego-centred needs such as self-
actuaiization tend to dominate. Aptly, the East values harrnonious interpersonal
relationships and promotes coliectivism more than individualism as promoted by the
West in support of privacy as a negative right.
Morgan (i986) cited in Bob (2009) explaiirs why the ]apanese economy is
successfui from a cultural perspective. He points out that the cultural values of the rrce
field (i.e. cooperation and teamwork) combined rvith the samurai tradition of servrce
(i.e. of willingness to share) account for its success. T'hese cultural aspects promote
conformity and tradition that are favoured over opportunism and individuality, more
common in Western society (Bob, 2009).
Eastern cuiture is more likely to emphasize the importancc of family, clan, group,
organization or society, in which an individual life may represent a tiny thread of
the greater fabric. It manifests the view that group benefits are more important than
pandering to personal desires (Bob, 2009).
From the above explanations, we may conciude that there are differences in hou,
the East perceives ethics as compared with the West. The East secms to place emphasis
on religion as a dominant factor influencing ethical values tvhereas the \4rest may vier,r-
otherlvise due to the strong hold of secularisrn as a world.",ierv. In addition, the West is
seen to be promoting individualism as a sign of respect for hunian rights and privacy
u,hereas the E,ast still values collectir.ism and comnmnity living althor"rgh individual
rights are duly recognized.
We earlier mentioned that the West has also developed thc Golden R.u1e as an
ethical principle to be used in the globalization era. It is also applicable ir-r t1-re conduct
of business. The follorving section describes these prrnciples in greater detail as a piece
of iiterature in our study of business ethics.
1.7.1 The Golden Rule Ethical Principles

There are six principles:
r The Golden Rule
r Immanuei Kant's Categorical hnperative
r l)escartes' Rule of Change
r UtilitarianPrinciple
r Risk Aversion Principle
r Ethical 'no free iunch'rule
il,,i. I 'fhe Golden Rule suggests that we shouid act in the nlanner we rvouid lrke othr:rs
r,-: ; ...-
5rrgg.r: j r.iraL
i r'oyer ac to treat us (i.e. doing unto others as you would have them do unto you). Refer to Figure
in rhL rn.rnNer v/e 1.8 to see an illustration of the unii,ersalityof the Golden Rule in the world religions.
woLrii i ke oihers tr.r Kant's Categorical Imperative suggests that if an action is not right for everyone to
rreai us take. then it is not right for anyone to take (i.e. the principle of universalizability).
Descartes' Rule of Change, also known as the Slippcry Siope Rule, suggests that if
.fhe
an action cannot be taken repeatedly, then it is not right to be taken at any time.
Utilitarian Principle suggests taking the action that achieves the higher or greater
value after rvcighing the costs and benefits or Cor-r:Quences. The Risk Aversion
18 Business Ethics
1.8 UN IVERSALLY ACCEPTED MORAL

VALUES
Figure 1.9 lists down several universally accepted basic moral vaiues, among many
others, as a reference in our study ofethics.
. Compassion . Cheating
. Courage . Cowardice
. Honesty . Cruelty
. Integrity . Deceit
. Respect for human life . Greed
. Self control . Lying
. Selfishness
Figure 1.9: Universally accepted basic moral values
Let us elaborate on the good n-roral values or virtues. Note that many of these
values have been identified from Aristotle's Virtr.re Ethics Tl-reory. They are also
promoted by Islam and other religions.
1.8.1 Compassion
Compassion is the virtue of empathy for the suffering olothers. Ivlore often, it is r-rsed
interchangeablyrvith empathy, altruism, kindness and love. Othervalues that manifest
compassion are caring, concern and friendship. Compassion transcends religious.
ideologicai and national differences. In support oi unir.ersalism, compassion is also
a virtue identified by the Golden Rule-'Do to others ,,vhat )tot.t would hove thent do to
you.' Lack of compassion, by contrast, tnarks a per son as cruci.
Quoting from the words of the Buddha:
'Compassion is that which mt.Lkes the heart of' tlte yood nr.t t' LrI lltc parrt oi
otl'ters.lt crttshes and destroys the pain o.f otl'ters; thus, ti is tolled compassior:
It is called compassion becouse it shelters and enrbrtce s the distresscd.' i
,
1.8.2 Courage
i
-1
J
3
Courage is doing the right thing despite the cost. It is the ability to face danger, pain
I
and other tests of life without showing fear. According to Aristotle, courage is the .j
virtue of responding to fear with a reasonable amount of darrng (Boatright, 2007)" It
is always associated with bravery and doing the right Lhings desp,ils the cost (Khalidah
e.t a1.,2010). A courageous person will not hesrrate to uphold justrce and faiiness in
all situations. He or she normally has commendable drive and rvill positiveiy face the $
$
a
)
l
a
3
c
I
I
Ethics and lts Conceptualization in Life '19
challenges of life with a hope for a better future. He or she will also take calculated
risks and act lvith prudence. Certainly, a courageous person is one who displays high
perseverance and will never give up!
1.8.3 Respect for Humans and Non-humans

This is a sub-trait of integrity. Respect, also considered as a synonym for politeness fc""d m-d *r*t
or manners, is basically an attitude that is shown towards any individuai's feelings . Compassion
or interest" It is acknowiedging another's feelings in any kind of relationship. lt may . Courage
not necessarily be feeiings shared between individual human beings only. It also
humans and non-
relates to how we treat non-humans/other creations of the Almighty. Moreover, it also
humans
covers one's positivity, tolerance and understanding of the differences between the . Self'control
perceptions, viervs and diversity of the various people of the world. Respect therefore . Honesry
has relevance to a famous pirrase 'treat others the way you want to be treated'. It is . lntegrity
also implied by Emrnanuel Kant's second categorical imperative 'act so that you treat
humanity, whether in your own person or in that of another always as an end and
neyer as a means only' (Boatright, 2009). An individual should respect the different
interests and opinions of others sincc human beings are diverse and non-homogellous
(Hyman, 1996).
In Malaysia, respect for the elderly and hierarchy are central to society (Abdullah,
1992). Oonsistcnt r,r,ith this value, small and young children are taught to obey and
listen ic, their eiders and ar-rthority figures. Those ,,r,ho do not respect other people,
especiallv the elderl1,, are considered rude. In the business environment, an individual
should not reduce the leyel of respect of other employees b'y not giving recognition
rthen it is ri'arranted. An indir.idual should also not refuse the input of other employ.ees
or displal,rude brehavrour torvard others (Stanrr.ick and Stanu,ick, 2009).
1.8.4 Self-control
Self-control refers to ol)e's ability to control desires thror-rgh strong r,villprou,er. A
person rritl-r se11-control rvil1 display patience and caimness, and will alnays strive
to control iris or hcr temper as anger is a bad moral value. He or she will consistently
display emotional strength and stability when faced with uncertaintv or tests in life.
Seli-control also refers to one's ability to avoid wrongdoing and promotes rightness
in actions. In Islam, the fbr:ndation of self-control and good behaviour is solaf i.e.
praying five tiirres a day. So/af in itself promotes one's commitmenttowards antar
makruf nahi rLungkar (t.e . doing good cleeds and forbidding eviiiav.,rding bad
b, e1"r avior,r r).
1.8.5 Honesty
,\onesty is telling the truth, not lying, cheating or stealing. Honesty and truthfulness
mean keeping one's commitments and transparency in life. Honesty is a sub-trait of
integrity. It is among the most emphasized qualities in Islam (Haneef, 1979). Absolute
honesty in al1 personal relationships and interactions, in business dealings and
transactions, and in the administration of justice are the most fundamentaj ethical
.oircepts arrd principles. The Al-Quran repeatedly stresses the values of honesty and
frutlrfulness. For instance, in Surah Al-Maariiverses 32 and 33:
'The virtuous are those *,ho honour their trusts tmd promises and tL:LtSe who
stand Jirm i:t their testimonies.'
20 Business Ethics
Next in Surah Al-Isra'verses 34 and 35, again we read:
'Anrl keep your commitment, verily concerning commil.ments you will be

questionicl. Filt the meas'ire when you measure, weight witl't a right balance.
'l'his is good and right in the end'.
In addition, the Prophet SAW also most emphatically said:

'There are three characteristics oJ a hypocrite: v,hen he speaks he lie"s, when he
ntakes a promise he breacltes it, and when he is trustecl he betrays'.
It is self-training that makes honesty a culture and habit ol people at all levels of
society (Sayed Sikandar, 2006).
1.8.6 lntegritY
Integrityis being upright and honest (Khalidah et a\.,2010). A person of integrity will
ul*u:ys uphold good ,rulr"r and principles in life. A renorvned Malayslan motivator,
Dr. Danial Zainal Abidin, defines Iniegrity as Taqv'a' a Quranic termiirology for
'God consciousness or fear of God'. Donald Zavderer listed thirteen (13) specific
behaviourai traits that can help identify the ievel of integrity in individual actions
(Stanwick and Stanwick,2009) (see Figure 1.10).
A They possess humilitY.

l They are concerned about the greater good'
l They are truthful.
l. fheyfulfi I commitments. t,.1:.:
.i:.-
I 'They strive for fairness.

.!tr;1'
They take responsibilitY. j i,.i:,.
.r,,t,.
ihey respect individuals.
t They celebrate the good fortune of others'
t' They deve-lop others.
I They ieproach unjust acts.
l
I They are forgiving.

'Thel extend
lhernselves, to others.
!i3*-i.
Figure 1.10: Behaviour o{ people with high integ; tv
Integrity is among the list of values of a virtuous business Persol] as identified

by Profe*ssoi Robert Solomon in his book, A Bt'tter Wa,v to Think about Business'
(fennings, 2006). It has also been adopteC as a, code of ethics b1' manv trusiness
Ethrcs and lts Conceptualrzation in Life 21
organizations including Malaysian muitinational companies like PETRONAS as

well as the civil ser\zice sector. The development of the National Integrity Plan (NIP)
and establishment of Institut Integriti Malaysia (IIM) have certainly justified the
importance of integrity, a value to be internalized among the Malaysian community
as the country aspires to be a developed nation by 2020.
Following our detailed expianations on the main universally accepted moral
values to be internalized by all humans in all situations, let us now focus on other
virtues as hsted in Figure 1.11, which may be applied in business or n()n-business
situations as we play our diverse roles.
Virtue: Standards and definitions
Getting things done despite

Fostering agreeable social contexts
bureaucracy
Attentiveness
Being admired by others
\ Doing what it takes to do the right

thing
Doing the right thing despite the cost
Giving others their due, creating

Approaching the ideal in behaviour
Establishiqg a congenial
Fuffi lling one's responsibilities
environment
Doing the right thing desp the job done'i'ighi;
(Source: Jenninqs, 2009)
Figure 1.1 1: Standarrjs and def initions of vii-.tue

22 Business Ethies
1.9 ETHICS AND ITS IMPORTANCE IN

BUSI N ESS
This introductory chapter has so far outlined the concepts of ethics in life, the factors
contributing to ethical development, role of religion in shaping ethical values and
virtues that are universally accepted as good moral vaiues to be intern alizedby ail of
us. Before ending this chapter, let us now link the concept of ethics with the business
world and briefly discuss its importance in the challenging global environment of
today.
1.9.1 The Business Environment in a Global Context

il;'*s,ffi;-] The term 'business' or business organization refers to an organization whose
objeci,ve is to provide goods and services for profit. Business people are those
fearure ofa trusiness
organization is who participate in planning, organizing or directing the work of businesses" One
irs economic distinguishing feature of a business organization is its economic character. Because
characcer-to make of its uniqueness, there is a branch of Islamic knorvledge called Muamalat, which
profits. lndividuals oniy focuses on the art of conducting businesses according to Islarnir principies.
aiso assume Muslim students may want to do their own research on this to enhance their
different roles in
business ethics knowledge.
rhe organizational
The workplace in itseif may be rega rded as a family or corlmunity. Employees and
hierarchy to realize
employers interact rvith one another to achieve the organization's vision, mission and
rhe organization's
vision and mission.
objectives. Although the workplace is a family or colnmunity in itself, we interact u'ith
There are also many each other not as family members or friends but as buyers and sellers, empioyers and
stakeholders in a
'
employees, etc. We assurre different roles in the organizational hierarchy to realize
busi ness. the organization's.,ision and mission. There are also many stakeholders in a business.
They include shareholders, competitors, suppliers, custotners, bankers, government
agencies, non-governmental organizations and the community where the business
is operating. The bigger the business operation and tl"ie more global it becotnes,
the more the number of stakeholders and the greater the challenge to baiance their
needs, pertinent for business sustainabilitl,. This is where ethics becomes a critical
component in the conduct of any business activitv.
We have eariier noted the collapse of giant Ar-nerican corporations when ethrcs is
compromised in business operations. The lessons learnt frorn the collapse of Enron,
Arthur Anderson, etc. and the consequences of unethical behaviour and unethical
business institutions such as San Lu Corporation are too serious to be ignored
(Desjardins, 2009; Khalidah et al., 2012a). By nol', we should be fuliy convinced
that ethics is not only important in private life but also in the world of busines.s. It is
important for business people to be ethical as being ethical in business is actualiy no
different than being ethical in private life. Aptly, ethics is not an oxymoron but a must
in businessl
The issue is how do business people conduct themselves ethically. How do we
manage businesses effectively without comprornising on ethics? This is the real
challenge because it requires courage, respect for humans and non-humans, honesty,
integrity, etc. We all know these values up front but how do we translate them into
actions? It definitely requires conscience and altruism because we are conducting
businesses not only to maximize profits for the organization's sustainability but for the
well-being of the ummah as a social responsibility and as a matter of accountability-
as a khulifah!
Today, business people have many reasons to be concerned with the ethical
standards of their organizations. One of the main reasons is that values and societal
norms have somewhat undergone a lot of changes in the past few decades (Khalidah e,
al.,2Al2a), especially among the younger generation. For example, at the'workplace,
Generation Y ernployees who grew up in the information and communication
technology era are more likely than others to see unethical behaviour as justifiable in
pursuit of their goals. They are more liberal. They typically want instant rewards and
gratification. They may believe it is sometimes necessary to cheat, plagiarize or lie in
order to succeed (SnapComms, 2010).
Realizing this challenge, most established business organizations have formally fc"d. ,h*
deveioped either compliance or integrity-based code of ethics as well as business "r.,h.r
been developed by
ethics guidelines to remind employees of the importance of ethics at the workplace. many organizations
For example, PETRONAS has not only developed its Shared Values and Brand Essence ro remind employees
i as shor,r'n in Figures 1.12 and 1.13, but it has recently published a booklet entitled of rhe importance
PETRONAS Code of Conduct and Business Ethics. It is distributed to all employees in of ethics while
performing rheir roies
an effi;rt to emphasize ethics in the conduct of its global business.
at Llre woikplare.
Code of ethics may
be compiianct'basccl
or inregrity-based.
Loyalty
Loyalty to nation and corporation
Prttfessionalism
Committed innovative and proactive and always
striving for excellence
lntegrity
Honest and upright
Cohesiveness
United in purpose and fellowship
f ,ri'-rre 1.12: Shared values of PETRONAS

L4 tsusiness tthcs
Petronas Brand Essence
Figure 1.13: Brand esserrce
1.9.2 The lmportance of Managinq Businesses Ethieally

k -,;i;,,,.,., -, -1 While code of ethics remain a con-irnon featurc. orgrniz.rtiorrs of today have realized
ccrrr(lLt( i l-rus!ie ., the importance ol rnstitutionalizing ethics at the workplace and the need to manage
etirrcailv iir ker:p businesses ethically for the foliowing reasons:
existiirg cr.rsiontc! s,
t To keep extsting customers-reputable organizations rvill maintarrr customer
lo avoici iawsuts, io
loy.alty and business sustainability.
r-ecluce cnrpir.,),ec
trrrnover arrd
t To attract new customeis-good business or corporat,-'itnage lvill attraci rrerv
to pleas0 main
customers and increase profitability.
stakeholders. t To avoid lawsuifs-reputable organizations r'r.,iIl not hesitate to comply rvtth
laws and regulations to maintain their good irnage and dignit1,"
t To reduce employeeturnover-reputable orsanizations will bc able to maintain
employee loyaity, thus reducing employee turnover. 'fhis u,ill subsequentlv
iricrease organizational effectiveness.
t 'lo please customers, employees and society-goocl organizations
wiil strive
to fulfil the ireeds of main stakeholders, r.e. custorners, employees and the
community they serve.
We shall conclude this chapter by re-emphasizing thal ethics is important ir 1ife,
be it in business or non-business organizations. 'lhe cost of compromising ethics tcr
fulfil seif-interests in this challenging global environrnent is far too expensive to incur.
Truly, the bad consequences will outweigh the good consequences; be it rn the short
term or the long term. We certainly cannot refel to ourseives as civilized societies if
we do not internalize ethical values in our livesl
As we move along in our study of business ethics, we n ill take a broader iook
at work place issues that iink empioyees and tn-rployers together, as stakeholders
in a business. For example, discrimination, rvhrstle-blowinq, unjust dismrssal,
occupational health and safety hazards, etc. '.4/e shali look at the impr-rrtance of
ethics in the conduct of marketing, an essentral function in any business" We shall
integrate ethics lvith typical business issues such as the need to preserve trade
secrets, avoid conflicts and conduct sustainable business with good governance as a
social resPonsibil itY.
Sureiy, we shall apply ethical principles and moral reasoning in this process. Our
next chapter will further examine the issue of internalizing ethics in the conduct of
bu siness.
To consolidate your learning, the learning outcomes are summarized beiow:
l. Define and differentiate between ethics and morality.

Morality is concerned rvith the norms, values and beliefs embedded in social processes which
define right or wrong for an individual or a community. Ethics, in contrast, is the study of moral
standards whose explicit purpose is to determine, as far as possible, whether a given moral standard
or judgement based on that standard is more or less correct (Velasquez, 2006). This therefore
denands for analyticai thought and appiication of reason to determine specific rules, principles
or ethical theories that determine right or wrong for a given situation. in addition, these rules
and principles must give an account of the rights or entitlements rve have and u,hat is just or fair
(Boatright, 2007)"
2. Understand hon, ethics is developed in an individual.

Ethics comes trom our inner feelings u,hich subsequently translate into our moral behaviour.
Ethics thus begins with each one of us. As humans, we are fully responsible for our ethical or
unethical behaviour. According to Griffin and Ebert Q0A7), ethical behaviour conforms to ethical
beliefs and social norms about what is right and good. Conversely, unethical behar.iour conforms
to individual beliefs and social norms that are defined as \vrong and bad.
List and explain the various factors that influence ethical values of an individual.
Several social, cultural and environmental factors infiuence one's ethical values.
'fhey include:
. Upbringing
. Socialization process (i.e. the behaviour of surrounding people)
. Experience and critical reflections on those experiences
. The explicit and implicit standards of culture
. Religion
4. Compare and contrast between ethics and Iegality.

Ethics covers a broader scope. It relates to questions of right and wrongdoing, rights and justice.
Ethics reflects people's relations with one another-how should people trcat others? What
responsibility should they feel for others? Legaiity carries a narrower scope. It refers to iaws that
we have written to protect ourselves from fraud, theft and violence. No doubt, an ethical person is
someone who obeys the larq. However, obeying the law need not necessarily justifv that a person
is ethical. Many irnmoral and unethical acts fall n ell within our laws (Nickels et al., 20AB). They
need not necessarily drive one's conscience to internalize good values, reflective of an ethicai
person. Ethics therefore rests upon one's colrscience and commitrnent to do gooC deeds as a social
responsibility under all circumstances.
26 Business Ethics
5. Compare between Western and Eastern perspectives on ethics.

There are apparent differences on how the West and East perceive ethics.
. The West has somewhat compromised religion as a factor influencing ethics in support of'
secularism and universalism. The East still sees religion as an important contributing factor to
shape one's ethical values.
. The West has placed emphasis on secularism and universalism as ideologies to shape not
only individual ethical values but to construct the state. These form the foundation of human
rights, freedom of thought and rational thinking of the West.
. In resolving ethical issues, the East has been seen to fall back more on religious and cultural
principles, much as the East respects the'liberal/universalistic'views of the West. Man-made
ethical theories and principles such as Utilitarian Ethics, Theory of Rights, |ustice, etc. which
are practically based on rational thinking and objectivity seem to be applied more by the West
compared to the East.
6. Relate the role of religion as an important contributing factor in shaping ethical values of
individuals.
All religions teach their followers good ethics to lead rewarding lives. Refer to the explanations
on how ethics is taught and embedded in the foliowers of the various religions as outlined in this
chapter-Islam, Christianity, Buddhism and Hinduism.
7. Identify universally accepted moral values.

. Compassion
. Courage
. Respect for humans and non-humans
. Self-control
. Honesty
. Integrity
8" Recognize ethics and its importance in the global business world.
'Ihe global business world opens to a lot of challenges. Apart from luifilling the profit maxr rnizatrr ,rr
objective which drives aggressive competition in a free market system, businesses have to face
another challenge-managing the global workforce. Society is undergoing a dramatic change
in values and societal norms. There has been concerns on the decadence of moral values among
the younger generation, especially Generation Y, born between tlte year 1982-2000 (Farnsworth
and Kliener, 2003; Freestone and Mitchell, 2004; Daily Express, 2004; i{usnah, 2005; VietnamNet
Bridge,2008; Srivasta,2010; SnapComms,2010; Khalidah et al.,20lA). Generation Y employees
who grew up in the ICT era and represent the bulk of today's workforcc are more likely to see
unethicai behaviour as justifiable in pursuit of their goals.
While codes of ethics and business ethics guidelines remain as references for employees at the
workplace, businesses have realized the importance of upholding ethics lbr the follorving reasons:
. To keep existing customers-reputable organizations will maintain customer loyalty and
business sustainability.
. To attract new customers-good business or corporate image will attract new customers and
increase profitability.
. To avoid lawsuits-reputable organizations will not hesitate to comply with laws and regulations
to maintain their good image and dignity.
. To reduce employee turnover-reputable organizations will be abie to maintain employee loyalty,
thus reducing employee turnover. This will subsequently increase organizaticnal effectiveness.
. To please customers, employees and society-good organizations will strive to fulfil the necds
of main stakeholders, i.e. customers, employees and the community they serve.
--l
I
i
Compliance-based code of ethics It stresses the prevention of unlawful behaviour by fbrmulating rules and
regulations and imposing penalties on wrongdoers.
Ethics A set of principles that contains behavioural codes to determine what is right or wrong.
lman Anlslamic term for'faith', i.e. pious and complete adherence to A Ilah's rules, which is a highly regarded
religious ideal in the Al-Quran. An individual who has iman (faith) rs a nru'min (believer)"
lntegrity-based code of ethics It defines the organization's guiding values, creates a workplace environment
that is supportive of ethical behaviour and focuses on shared responsibility among employees.
Kantian Ethics An ethical theorywhich emphasizes that the rightness of human actions depends on one's
goodwill or intention out of a sense of duty to fellow humans.
Khalifah A concept by early Muslim scholars which focuses on the status and quality (free will) ofhumankind
vis-a-vis other creatures in the universe-leadership, responsibiiity and accountability.
Legality Statutory laws, rules and regulations set by the government or local authority.
Morality The norms, values and beliefs embedded in sociai processes u,hich define right or wrong for an
rndividual or a conrmunity.
1 Malaysia concept A concept introduccd by thc currcnt goycrnmcnt of Malaysia to harmonizc citizens of
the different races in the spirit of respect, sincerity and trustwc:thincss.
Quality of life The general lveli-being of a society in terms of political freedom, a clean natural enl ironment,
education, health care, safet1,, free time and everything else that leads to one's happiness and satisfaction.
Rukun Negara The Nationai Philosophy of Malaysia, which u,as officiali). introduced on 31 August t970 with the
objective to strengthen nationai unity in Mal:ysia's multicultural society. The five principles are: (1) Belief in God,
(2) Loyalty to the King and country, (3) Supremacy of the constitution, (4) Rule of lan, and (5) Mutual respect and
moralitl
Secularism An ideology which separates religious issues from worldly aft-airs. The objectir.e is to ensure that
freedom of thought and conscience will apply equally to all believers and non-believers alike.
Stakeholders All the people or parties that stand to gain or lose by the poiicies and activities of a business. They
irtclude shareholders, customers, suppiiers, bankers, employees, government agencies, non.governmental
organizations (NGOs) and cornpetitors.
Standard of living The amount of goods and services people can buy based on their purchasing porver.
Sunnah The practices or tradition of Prophet Muhammad SAW.
Taqwa An Islamic term for 'piety', i.e. protection or shield from what is harmful.
Ummah An Arabic word which means 'community' or iration'. In the context of Islam, ummah is used to
mean'Community of the Believers' {ummat al-mu'minin), and thus, the entire Muslim world,
Universalism A theses or principle of Utilitarian Theory of Ethics. The c.nsequences to be considered are
those oIeveryone.
ritilitarian Ethics An ethical theory which emphasizes on our obiigation or dutv in any situation, which is to
perform the action that wiil result in the greatest balance of good over evil.
Virtue A good character trait or value that a person displays in the conduct of life. This value will be
rnanifested through habitual actions. For example, honesty, sincerity, trustworthiness, etc.
10
LA Business Ethics
1. I)iscuss some ethical issues that you have faced as a student in a higher learning institution.
2. Provide your own examples to differentiate between ethics and morality.
3. Several factors influence ethical values. Select ANY one factor and jristify its intportance in shaping
one's ethical values.
4" Explain why ethics is important in life.
5. Is ethics applicable in the world of business? Provide justifications for your stand.
Time is of the Essence...

.jenny is a private college srudenr. She has been working extra hours at her part-time
job in a clorhing store.
The srore needs her help to promore sales because rhe Mega Sale rush for rhe coming Eid Fitri festival is
starting.
She also needs rhe money ro pay her tuition fees nexr semester and to fix her car so that she can drive
home for rhe long semesrer holidays. The coming holiday season also means rhe end of the semester, and
unforrunarely, frnal examinarions. Jenny simp[y does nor have time to study for ali of her examinations as well
as work the exira hours she needs. .il.
Something has to be sacrifrced, and she decides to prerend being sick on the day of her Business
Managemenr final examination paper so rhat she can take the make-up examinarlon the next week, giving
her more rime ro srudy.
She knows rhat it will nor be hard ro gei a medical certificate (/,AC) from the busy college health clinic
saying ihar she's roo sick ro rake the examination. Her friend, Dennis, works there and pan 'borrow'a page of
rheir lerrerhead stationery.
"Even if I have ro lie iri fair rhar I ger exrra rime to srudy," Jenny tells herself, "because I have to work, and
I can'r study all the time like studenrs who have cheir parents to pay for everyrhing."
Questions:
1. Jenny seems ro see her lie as a simple case of manipulating an unfair system. ls there anyrhing wrong with
manipularing ihe sysrem? ls her srraregy fair ro the other students in her business management class?
2. Jenny seems ro jusrify her behaviour with a vague idea that 'unfair' differences between people (such as
wealrh) thar have norhing ro do wirh efforr or intelligence should nor be reflecred in rheir grades. Whar
do you rhink about her claim rhar she deserves more time ro srudy rhan other-students because they do
not have to earn rheir own money?
3. Lying is a universally accepted bad moral value. Jusrify why lying is immoral and unerhical.
' @ffiffiiffigismijtr:.--4r. -'
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CHAPl-ER
Internali zlng Ethics in

the Conduct of Business
LEARNING OUTCOMES

r ldentify and discuss the common ethical dilemmas faced by business
people.
x ldentify and explain the three levels of decision-making.
r Differentiate between ethical managemerrt and management of ethics.
r Explain the concept of role in ethics.
r Outline the role of leadership to inculcate an ethical cultrrre in a
business orqanization.
r Discuss the role of managers as economrc actors, company leaders
and community leaders.
n Compare and contrast between compi:ance-based code of ethics
and integrity-based code of ethics and recognize their application to
inculcate an ethical corporate culture.
a Discuss the importance of integrating eccnomic, legal and moral
dimensions to make effective and fa,r business decisions.
r iderrtify and explain the three check questions that one has to ask and
self-assess when faced with an ethical dilemma.
r Discuss the role of religion in resolving ethical issues in business.
lnternal;zing Ethics in the Conduct of Business 33
INTRODUCTION
In Chapter l, we conceptualize ethics as a field of study, differentiate bctween ethics

and morality and identify factors that contribute to the shaping of one's moral/ethical
values" We also see hon' the West views ethics compared to the East. The chapter
continues to discuss the role of religion in shaping one's values. It then introduces
readers to the universally accepted moral values that must be internalized by all
humans irrespective of social, economic or cultural differences. Justifications are
drawn as to why ethics is important in life, what more in the competitive global
business environment. At the end of the chapter, we seriously note that the cost of
compromising ethics to fulfil self-interests in this challenging global environment is
far too expenslve to incur since it will affect the sustainability of the business itself in
the short and long run.
Chapter 2 rvill further deliberate on internalization of ethics in the conduct
of business. It first introduces readers to common ethical problems faced in a
corporate environment. It continues to elaborate on the three levels of decision-
x,,'
h making-individuai, organizational and business systems, Foilowing this, it will
$ differentiate between the concepts of ethical management and management of
,st ethics and eramine the role of leadership to inculcate an ethical culture wrthin an
-
organization. Nert, it looks at the two types of code of ethics that orgairizations
deveJup to rernind employees of the importance of demonstrating good conduct and
behaviour at the lvorkplace-cornpiiance-based and integritv-based code of ethics"
It then rationalizes the importance of considering the three dinrensions ec()n()mic,
,s: legai and moral-in any business decision-making as a social responsibrlity. Flnally,
*t this chapter rvill end rt,rth the three check questions that one has to ask and self assess
-f- e.
i!: when faced rvith an ethical diiemma while executing his or her job responsibilities
*\
at the workplace.
2.1 COMMON ETHICAL DILEMMAS

FACED BY BUSINESS PEOPLE
\\Ie note that the business world is unique because of its ecor-romic ch;racter. Sole
proprietors, partnerships and corporations by and large strive to maximiz-e plofits in
a competitive global free market system. Certainly, this drive is justificd after taking
the risks of conducting a business and considering the opportunity costs inlolved
tn busitress set ups. However, in the quest to maximize profits, board of directors,
managers and empioyees at all levels are bound to face ethical dilemmas or conflicts.
They rnclude, arnong others, balancing profit maximization with ethics in tire conduct
of business, exercising justice and rights to please stakeholders as well as fulfilling
individual aspirations and organizational needs.
Let us outline and critically examine five common ethical dilemmas faced by
those involved in business, as shown in Figure 2.1.
34 Busrness Ethrcs
Balancing the economic charac[er or

organizarions with justice and fairness
Conflict of inrerest
Common ethical dilemmas

Personaliry traits
faced by business people
Responsibility to stakeholders
Level of openness
Figure 2.1 : Five common ethical dilemmas faced by people involved in business
2.1.1 Balancing the Economic Character of

Organizations with Justice and Fairness
The economic character of organizations, chasing afier profit maximization as a
primary objective, may pose ethical conflicts. For example, lo sustain high protit
levels, Company A has to cut down on operatins costs. It may even decide to retrench
at wili workers who are still ioyai and committed to providing their sen,ices to the
organization. Is it ethical to maximize profits for the organization's success.rt the
expense of retrenching workers who depend on their survival as emplo,vees? lVhat
r,r.ill happen to their families after being retrenched? How much of conrpensation
should the organization offer to these peopie befbre retrenching them in the context
of industrial harmony, justice and fairness? Should emplol,ees be dismissed or should
the organization give them the option to accept the'golden hand shake'or otlierwise?
The competitive 'free trade' giobai scenari,; poses more business opportunities as
well as ethical challenges to businesses. Organiza.tions reap opportunities by setting
up businesses in countries rvith lorv labour costs hut when they find other better
*:
!
l
places with even lower labour costs, they may ciose cior.vrr their existing operatron to
set up another new business, leavrng behind jobless local employees to look for new
jobs. Much as organizations may undertake this as a matter of survival or to stay
competitive, is it ethically justified for taking sucir decisions, which are detrimental
to human survival and well-being? Aren't these actions seen to display greed and
selfishness among businesses? Certainly, such actions are conflicting with justice and -n
I
human rights principles in the conduct of business although it maybe economically
justified.
lnternalizrng Ethics in the Conduct o[ Btisiness 35
2.1.2 Conflict of lnterest

This involves morality and economic trade-offs whereby there is constant
tension in trying to separate the 'person' from the business decision. This is
also referred to as the agency problem in the study of management. In other
words, the challenge is how to set aside.personal interests when executing job
responsibilities. For example, being the branch manager of a commercial bank,
Mr. A has the power within his authority to approve customers' loans. He is also
expected to comply with the loan application guidelines as a responsibility within
the bank's governance mechanism. However, a personal agenda arises.when Mr.
A is obligated to approve Mr. B's loan application that does not meet the bank's
guidelines after accepting a kickback or token money from Mr. B. This is certainly
a clear case of breach of trust and an abuse of power. Mr. A is already paid a
salary by the bank to perform the task effectively. Being an employee, he should be
responsible for ensuring that the organization benefits from the loan transaction
instead of gaining personal interests by accepting kickbacks. However, he chooses
to be opportunistic and use" his position and power to his personal advantage.
We shall deliberate in greater detail on conflict of interest cases when we cover
workplace issues in Chapter 7 of this text.
2.1.3 PersonalityTraits
This relates to relationships, personal values and characteristics of individuals. In
many situations, the personai issues or individual personalities cause the dilemn-ra.
To create a scenario, a job vacancy is present in a firm. The human resource Inanager,
u.ho has the power to select a suitable candidate for the job, appoints his orvn relative
u,ho does not har.e the proper academic qualiflcations and skills to match the job
requirements.
His 'caring' attitude or rather nepotism is not displaying justice and fairness to
other qualified candidates, what more to the firrn. Aptly, the firm requires qualified
and skrlfui ernployees to stay efficient and competitive. Such actions wili consequently
lead to poor performance and inefficiency in the organization. f'he human resource
manager clearly does not fulfil organizational needs because he puts personal
relationships and self-interests above organizational needs.
2.1.4 ResponsibilitytoStakeholders
In the study of business management, vre note that businesses hirr,e many stakeholders.
They range from employees, suppliers and consumers, to the government, non
governmentai organizations and many other parties. The bigger tire business
organization, the greater the number of stakeholders; certainiy, there rvill be nrore
chalienges to please ali of them.
However, businesses must be socially responsible and empioyees must effectively
play their roles and fulfil their responsibilities. For example, a recruiting executive
should not be gender or racialiy biased when recruiting potential employees as it is not
fair to treat people differentlywhen there is no good reason to do so. Recrurting should
be on the basis of competency to ensure organizational effectiveness and efficiencl
In another scenario, businesses must fulfil the needs of consumcrs, being the main
stakeholder to secure business survival. However, much as consumcr scivere;.gnty is
recognized and consumers are regarded as'king', they are being nanipuiated through
deceptive markcting strategies to reap high profit margins. Certainly, businesses need
.Jb tsusrness tthrcs
to incorporate managerial rationalization and emphasis on code of ethics to fulfil the

needs ofstakeholders by and large.
2.1.5 Level of Openness

Business people may ask themseives to what extent they should reveal infbrmation
about their business since there are also trade secrets to be protected for healthy and fair
competition. While the need to protect trade secrets is justified from property rights
arguments, they must also be 'transparent' or public about their values and expectations.
They must be honest and uphold the value of integrity in their business dealings. For
example, as marketers, they should not withhold or manipulate any information which
may influence consumers' rational buying decisions. There must be proper labelling so
that consumers will be well-informed on the ingredients or compositilrn of products
purchased. Consumers'freedom of choice, well-being and other rights must be protected
as a social responsibility over and above business sustainability.
Having discussed the five commorr ethical dilemmas faced by business people
and realizing the need to apply ethics and imbue virtues, we shall next differentiate
the three distinct levels of decision-making-individual, organizational and business
system.
2.2 THE THREE LEVELS OF

DECISION.MAKING
The follorving figr-rre depicts the three levels of decisrort-making. tdentifying the
appropriatc level for a decision is important, because an ethical problem may l-iave no
solution on the level it is approached (Boatright, 2009).
+ -l
[--!q'.*
Figure 2.2: The three levels oI decision-making
D..r"rt t"d. *
-I
an individual level Organizations are made up of individuals from difft'rent personalities and
more ofren are meant
backgrounds. Businesspeoplehaveto make decisirns at individual Ievel, organizational
to fulfil personal
level and business system level. Decisions made on individual ler.,el more often are
needs and i.nterests-
meant to fulfil personal needs and interests. For example, Mr. A may decide to come
Managers also make
to rvork late since it suits his convenience. Horvever, as a manager, he also has to make
organ izational-level
decisrons since they
decisions to fulfii organizational needs. He is expected to uphold policies, rules and
are acting on behalf regulations. Considering his role and obligation torvards the organization, Mr. A
of the or"ganlzation. will decide to come to work on time since he has to uphold organizational rules and
lnternalizing Ethics in the Conduct of Business 37
regulations" As a manager, he is also a role model to his subordinates. In this case, Mr.
As decision to come to work on time is based on his organizational considerations
although he may prefer to come in late if his decision is made on the individual level.
Many ethical issues occur at the organizational level since the individual is rrur*,r''".il--
making decisions on behalf of the organization or placing himself as a responsible be prudenr in
and loyal employee. Suppose an employee reports to his manager that a co-norker making decisions
is forging signatures for contract documents. Coincidentally, the co,worker is by identifying rhe
a close friend of the manager. At the individual levei, perhaps, the manager may appropriare level of
not take any action at all, but on the organizational level, he has to play his role to decision-making.
ldenrifying the
investigate the matter and report to the human resource department for a domestic
dppropriare level
inquiry. He must ensure that such unethical practices may not occur again. Thus,
is importanr for a
having obligated to make a decision at the organizational level as a matter of job
decision because an
responsibility and loyalty to the organization, he decides to report to the human ethical problem may
resource department accordingly, acting in impartiality, all for the benefit of the have no solution
organization. Of course, this is not an easy decision to make. It takes a lot of courage on rhe level ir is
and a strong conscience to correct wrongdoings, in this case, out of a moral concern approached.
to fulfil organizational needs as a matter of responsibility.
Having seen the differentiation between decision-making at the individual
and organizational levels, we look at decision-making at the business system ievel.
Assume Mr. A receives a request from a male subordinate for a salarr. revision.
Being a responsible and caring manager, he would like to help his subordinate by
recomrtending him fbr a salary revision through the human resource department.
Hotvever, such requests will most likely be on hold or possibiy rejected because there
iS aned to do a comparative study on salaries and compensatiorr of employees r.r,ithin
the same industry for equity and fairness.
This decision is made at business system level, considerirrg that there n-ra,v be mauy
other people in the organization r,r,ho are in the same boat. Mr. A may then explain
to his subordinate the real situation and perhaps console him by fonvardrng tire
i.:tter to human resource department with recommendations to look into the matter.
}{e knou's that his sr-rbordinate's case lvill only be considered after a comprehensive
, omparative study at business system level, conducted by the human
resource
,-epartment. Certainly, he has to be skiifulin maintaining the motivation Ievel oit|e
said subordinate rvho is expecting a salary rise. Perhaps, he can negotiatc rvith the
subordinate to set more challenging but realistic key performance indicators to entitle
'.im to be considered for better salary increments through the annual performance
appraisal exercise. -fhis, in fact, will be a decision made by Mr. A at organizational
,.:ve1l
To srtnlntarize, identifying the appropriate ievel for a decision is pertinent
because an etl-rical problem may have no solution on the ler.el it is approached
iBoatright, 2009). For example, the solution to the forgery issue may
not be resolved
lt the individual or departmental levels. It has to be solved at the organizatronal
levei by rcporting to the human resource department. Similarl,v, the salary ret,ision
lcquesi cannot be fulfilled at organizational level until a comparative compensation
:tudy of the entire industry is conducted at business system level to ensure jr-rstice
and fairness, but a salarv increment may be given after assessing individual
irerformance at organizational level.
Considering the abor.e, managers must be prudent in rnaking decisions. They
must have tlle skills to identify the appropriate level of decision-making because
an ethical probiem may have no solution on the ievel it is approacheci. Next, rve
shail differentiate between the concepts of ethical management and nranagement
cf ethics.
38 Business Ethics
Erhical manag.*.rul 2.3 ETHICAL MANAG EM ENT VERSUS

rherefore relates
to the undertaking MANAGEMENT OF ETHICS
of managemenr
functions in an
erhical manner by In the study of general management, we learnt that management involves four
doing the right thing inter-related functions-planning, organizing, leading and coordinating Ethical
for individual success management therefore relates to the undertak;ng of managelnent functions in an
, and organizational ethical manner by doing the right thing for individual success and organizational
effecriveness.
effectiveness. Certainly, it requires individuals involved in the management
function, especially section heads, managers and those in the leading roles to
M*-r-.'*;;;i-l practise ethical management in the conduct of business. It has to begin from the
echics refers to individual's values, displayed through his actions while perlormirlg management
managers acting duties and responsibilities. High-level managers have a responsibility for creating
effectively in and maintaining an ethical corporate climate that protects the organization against
situations rhat unethical and illegal conduct. In Chapter 1, we have highlighted real cases of'ethical
have an erhical
misconduct that have caused severe harm to many individuals and organizations. You
aspect borh in rhe
may recall the classic cases of the collapse of Enron Corporation due to the unethicai
inrernal anC external
behaviour of top management and the tarnished image of San Lu Corporation for
envrronnrent of
bu srness.
supplying tainted miik to its Chinese customers.
However, the irony is there are managers who belrer.e that rn buslness, ethics is
only applicable to a certain extent. Most managers think they are ethicai but it only
provides some degree of relevancy to their work" Perhaps, the reasott Lrehiltl LLis view
may be due to the obsession rvith niaximizing profits within the rules of the game
since business entities must make profitsl
\\rhile we n-)ay agree that the manner in which ethics is applied in br,isiness
may be varied from horv it is applied in nornral dail,v life, practically, there is no
difference between being ethical in business or in privati:1ife. Organrzations after
all are made up rf people with values and characters.'l'he same people are running
the organization and ieading their private lives. It is unlikely that their characters
will change drastically due to a change in the environment, i.e. the b'"tsiness
environment and private life. Core universally. accepted virtues such as honestl',
respect and compassion are bound to reflect in similar characters as they play their
leadership roles in the organization.
We have just conceptualized ethical management. What is then management
of ethics? It refers to managers acting effectiveiy in situations that have an etlircal
aspect both irr the internai and external environments o{'business. I'hey normally
apply the internai policies, rules and regulatrtrns as well as stipulated government
laws to manage ethical issues. For example, as a production manager at a MODENAS
manufacturing plant in Gururr, Kedah, Mr. A has to follow the organization's human
resource policies, quality control standards as u,ell as the guidelines of Occupational
Safety and Health Act (OSHA) 1994. He also has to ensure that his suborCrnates
comply u,ith the policies, procedures and guidelines as rveI1.
Organizations in fact internally bind their member.. through a myriad of
policies, rules and regulations. Holtever, they musi be fairly managed. Ilow does an
organization er-ISure that employees wiil follow tiie rules and regulatrons?
Certainly, the process of management of ethics does not refer solely to developing
policies and regulations for employees to be coerced or forced to follow blindlrr
Knowledgeable employees look forward to feeciback sessions to justify the introduction
lnternalrzing E-thrcs in tl-re Conduct of Bustness 39
of specific policies, rules and reguiations developed by the -management. They <1o
not like to be forced to comply u,ithout rational grounds. Therefore, policies and
regulations must be effectively communicated to employees to gain their acceptance
before compliance is expected. Certainiy, employees' acceptance and commitment to
comply with these policies, rules and regulations require a perception and assessment
that they are just and fair.
We have just differentiated between ethicai management and management of
ethics. Figure 2.3 summarizes the two concepts.
Difference between Ethical Management and

Management of Ethics llft hrrchrrmil,,,,,,,,,,,,,
being leaders, are
responsible to
manage employees
o Ethical Management-acting ethic"lly as a Manager by ensuring rhat
by doing the right thing for rndividual success and organizational
rrEa rrizational ei [eci ivencss policies, rules and
regularlons comply
wirh the management
e The Management of Ethics-acring effectively in of erhics, they nrust
gain rhe acceplance
situations that have an erhical aspect
of employees
through consistent
engagemenr
and effective
co mnr r,rn icarion
channels.
Figure 2.3: The dif{erence between ethical management and management of ethics
Next, ive sha1l discuss what it takes for managers to practise ethical management
and management of ethics at the rvorkplace. Aptly, managers must possess specialized
knolvledge to appiy and practise etl-rical management and management of ethics. T'his
is where the study of ethics becomes relevant as a field of knorvledge to be studied,
applied and internalized by managers. Chapter 3 of this text n,il} dui1, outline the
ethicai theories and principles for reference and application ofreaders.
IUanagers must aiso have the necessary skills that corne with experience
and training to make sound ethical decisions and implement them. The nee,1 for
fT" pracil..rh"il -
management and
specializ-ed knonledge and skills is especially acute when a business is conducted managemenr of ethics
abroad. Managers must possess knowledge of the legai system, as well as statr:tory at the workplace,
rules and regulations of the country rvhere their operations are conducted. Over and managers must
above these, they must have knorvledge of the culturai differences and appiy tireir possess specialized
skills to handle a diverse globai r'vorkforce with respect and compassion to maintain knowledge and
an ethical and harmonious working environment, a prerequisite fbr high productivity. skills rlrat come
Certainly. they have to demonstrate their leadership roles as effective and virtuous wirh experience and
decision makers. But what is a role in the first place? training.
4A Business Ethics
2.4 ROLE AS AN ETHICAL CONCEPT

A rr. **,r*,*.d I ln ethics, a role is a structured set of reiationships with accompanying rights and
ser oI relarionships obligations that are sometimes added to those of ordinary morality over and above
wrth accompanying those of er.eryday life. Roles are created in order to serve society better as a whole
rights and obligations since everyone is contributing or taking some responsibiiity to accomplish something
rhat are somerrmes for the well-being of society. Thus, roles are directly related to social responsibility.
added to rhose of Individuals in certain positions have responsibilities to many different groups and
ordinary moraliry must consider a wide range of interests. The higher the position held by an individual
over and above those
in a business or society at large, the greater the role he or she has to play. Business
of everyday life.
people have a role to play for a nation's economic growth, prosperity and well-being.
2.4.1 The Role of Leadership for an Ethical Culture in

a Business Organization
The top and senior management in any business organization play a very important
role in ensuring ethics is gii,en priority and institutionalized accordingly at alJ
levels. In corporations, the board members are role models in the shaping process
of an ethical organization. After all, they themselves developed the code of ethics"
ll'herefore, they har.e no choice but to demonstrate good ethical values, being stervards
in a corporation.
Figure 2.4 iists dor,vn the noble values to be internalized by board members. You
may realize that they are not any different from the universally accepted virtr-res that
we have learnt in Chapter 1.
Becag;g che board members are sLewards for noi oniy rhe assets of rhe company bur also rhe
inteiieits of all stakeholders, Schwartz, OJnfee and kline recommend s,* .ore values ro guide
. :"a " board
.,qh9'[b9ffiriour.as
'{{-+r}1+,&.*& members: ].
, ..:. . .. r
'eiii*.Ii*t --
riih1,u1ina,fur'rhrighi., :rrre1:deci!io1i..,,ii::, , .:., ,::.-:: ,i:;.,t -.,.,,,;,1 ,..,,
;
2.. fnt*iitv:act,wjth,honoui: and iletiqio,n,will,,always-coiilcide wirh the,ethrcal vision and

standards of the firm
3. Loyalty-avoid all deals rhar fulfrl rheir 'sellri;6erescs.'Mu5r fulfill,rhe interests of
stakehoiders. Objective in their decision and hold classifred any confidenrial and/or
prop ,.' ry.
j rmari o n
',.] n fo
. r.i.era
'r
4. Responlibiligy-Fulfill all rheir assrgned respogsib.i]lirgi and rheir actions,would be
Figure 2.4: The ethical values o{ board members
Vien ing leadership from a n,ider perspectir,.e, you may also recall from Chapter 1
that Islamic woridview recognizes humans as special creations of God (S1,ed Othman
Aihabshi and Aidit Haji Ghazali,1994). We have been directly rnforrned of our role as
lnternalizing Ethic.s rn the Conduct of Business 4'1
a Khalifah-to be a leader in the universe. Aptly, the role of a Khalifah is not confined
to the top management but everyone in the organization. Certainly, the values listed
in the above figure should be emulated by employees irrespective of hierarchy being
Khalifahs. Of course, the expectation to imbue and internalize ethics among the topr
management is highly expected in the manifestation of a role model.
Let us next focus on the three specific roles of business managers.
2.4.2 The Three Roles of Business Managers

In this section, we discuss the main roles of business managers-as economic actors,
company leaders or trustees and also as community leaders (see Figure 2.5).
. They must manage assets prudently. They must also fulfil the needs of srakeholders and
balance any conflicting interests being trustees.
As community leaders, rhey must exercise powers given upon rhem ihat denronsrrate
rheir corporate leadershrp/cirizenship
(.5c u r c e: B oa r r t glt t, 2 0 1 2)
Figure 2.5: The three roles of business managers
Managers as economic actors

As economic actors, they are expected io make effectir.,e economic decisions, balancing
costs and benefit considerations for the profitability and sustainability of the business.
Certain11,, this fulfils the expectations of sharehoiders, be it n-rinor or major. Brri, they
are alst, fulfilling the needs of other stakehoiders, for example ernployees, consumels,
suppiiers and so forth. A firm's sustainability wili give positive externality effects to
societl, at large.
Managers as company leaders/trustees

Managers are also expected to play the role of company leaders or trustees. Corporate
rnanagerl especially are entrusted to iead the corporation, owned by shareholders lvho
have taken the risk to invest in the business. They rnust therefore do their best to
42 Business Ethics
manage the company's assets with prudence since they are made accountable for their
actions, being holders of critical positions of high responsibility" They must also fulfil
the needs of other stakeholders who will either gain or lose in the business, depending
on how it is being managed. Sustainable businesses will build long-term relationships
with stakeholders which will contribute significantly to organizational success in the
short and long term.
More often than not, some of the interests of stakeholders are conflicting with
one another- For example, the shareholders' maln objective is to maximize wealth or
profits. This would mean that the business may have to charge consumers highly or
reduce employees' compensation and benefits which form a major part of operating
costs. However, rational consumers look forward to affordable prices of" goods and
services. Employees on the other hand look forward to increases in salaries and benefits
to cope with the rising costs of living. Yet, for the company's survival and expansion- it
must be able to have retained earnings for busincss expansion. No wonder companies
resolve to cost cutting measures and offer consumers highly priced products to gain
more profits. But such actions may not be favourable in fulfilling the needs of the two
main stakeholders i.e. consumers and employees. Managers must therefore strive to
balance the needs of all stakeholders for long-terrn sustainability.
Managers as community leaders

We have just covered the two roles of manag,ers; as economic actors and company
leaders /trustees. Managers must also play the role of community leaders. Milton
Friedman, an influential economist in the 1960s once advocated that business people
should focus on making profits only within rules and reguiations and ieave social
issues lor the public civil servants to resolve. By doing so, they are contributing to
the society by providing employment for job seekers. While this may be true from
a narrow viewpoint of social responsibility, businesses owe their existence to the
societies they serve. Furthermore, the success of businesses depends on the provision
of labour services and natural resources that every mcmber of the communitr., has a
stake in (Khalidah et. al,20l2a).
They must therefore be socially responsible as corporate citizens, given power to
make strategic decisions in their leadership roles. While sorne projects may generate
high profits for the company, if it is going to negativeiy affect the community,
managers must be sensitive enough to consider these implications and decide for the
best alternative decision to maximize the positive impacts and minimize the negative
impacts on society.
C*p,,il;;--_l Corporate managers must be seen to play bigger roles as corporations' activities
rhe largest forrn have great impact on the community due to their high capital investments"
of business in Corporations are the largest form of business in any ('ommunity. Whatever they
any community. do in the production of goods and services will significantly affect thc community.
Therefore, corporate Pollution, depletion of resources and other sustainahility problems have occurred
managers musi play largely due to the irresponsible activities of corporations. The cost of pollution for
bigger roles as the example, an outcome of corporations'mega manufacturing activities, creates negative
corporations' activiries
externalities to the community in terms of promoting health-impairing illnesses
have great impact on
arising from pollution, safety and health hazards, etc.
rhe community due
I'hese corporations must be seen to be offering society some forru of assistance
to their high capital
investments.
or compensation, such as paying pollution taxes, subsidizirrg medical bills at public
hospitals, sponsoring health campaigns to create public awareness on diseases
and so forth. At the very least, these corporations should be committed to operate
premises alvay from residential areas although they may have to incur extra costs on
infrastructural development such as building secondarv roads and employees'living
quarters.
Corporate managers must therefore piay their role as corporate citizens, much as
they are equally required to play their roles as economic actors and company leaders.
However, these three roies by and large are appiicable to all managers. Irrespective
of business forms, managers must play a balanced role as economic actors, company
leaders and community leaders for the well-being of the community.
CODE OF ETHICS FOR AN I A ,rd" ,f rrh*

ETH ICAL CORPORATE CULTURE is a statement of
principles, policies
or rules that guides
Inthe earlierparts of Chapter 2, whiie expiaining managementofethics as a concept, we behaviour.
recognize that organizations develop policies, rules and regulations to institutionalize

lA compln,rce-kred
ethics at the workplace. One of these initiatives is through the development of code code of ethics stresses
of ethics. A code of ethics is a statement of principles, policies or rules that guides on the prevention of
behavicur. It may also be defined as a social, religious or civil code of conduct that unlawfui behaviour
is considered right or correct, especially Lhose of a particuiar group, profession or by rncreasrng
individual. control ihrough rl.re
Althoueh code of ethics will vary among organizations, it may be classified into formulation of rules
t\vo tvpes-compliance-based and integrity-based code of ethics. A compliance- and regularions and
based code of ethics stresses on the prevention of unlalr.ful behaviour by increasing rmposing penahies
control through the formulation of rules and reguiations and imposing penalties and and punishments on
wrongdoers.
punishments on lvrongdoers. integrity-base 'l code of ethics defines the organiz-ation's
guiding values, creates an environment that supports ethical behaviour and focuses ll,rr"grty-fuKd r"fu
.ln shared responsibility among emplolees (Khalidah et al., Z}t2a). oferhrcs defines rhe
Related to code of ethics is corporate cuiture. Every business organization organ ization's guiding
has a corporate culture fashioned by a shared pattern of beliefs, expectations and values, creates an
meanings that influence and guide the thinking and values of its members. The environment rhat
ilevelopment of good corporate culture begins with the top management. Good supports ethical
behaviour and
Sovernance and leadership by example shor'r,n by rnanagers rnay positively contribute
focuseS on shared
towards shaping organizational corporate vaiues and culture. Emplovees have the
responsibility among
tendency to emulate the character traits of their superiors since t1-rey are rcgarded as
employees.
roie models. Therefore, it is critical for those in the leadership roles to demonstrate
ethicai behaviour and fulfil job responsibiiities through ethical management. Thus, f c"rwrr"*l-rr,5
they must uphold and internalize the organization's code of ethics based on their a shared partern of
own acc0i.rntabilit1,. beliefs, expecrarions
Next,lve shall examine the three dimensions tl-rat managers must consider in the and meanings ihat
process of decision making-economic, legal and moral. influence and guide
the thinking and -
values of irs members.

44 Busrness tthrcs
2.6 ECONOMIC, LEGAL AND MORAL *i I
DIMENSIONS FOR EFFECTIVE I
BUSINESS DECISIONS
It is pertinent for managers to look at three dimensions while rnaking effective t

business decisions, as illustrated in Figure 2.6. I
l
The Three Dimensions of Effective Business Decisions
Thinking abour what is rhe besr rhing ro do so as nor ro

harm others
Figure 2.6: The three dimensions of effective business decisions
The economic and legal dimensions have eariier been outlined in Chapter 1"
By non, yoll must already be familiar with these two perspectives. It goes lr.'ithout
saying that a business is generated to make profits within the rules of the game; it
needs to comply with statutory laws and regulations to ensure it is legal in practice.
However, effective business decisions will also equaliy consider the importance ol
the rnorai dimension.
Eff..*^ b***t;-l The rnoral dimension requires an individual to be rvilling to seek out and acl on
decision-making reasons. It also suggests one to think about doing the best for the comrrlon good and
involves an integration weli-being of others. It expects an individual to be impartial and regard the interests
of economic, legal and of everyone including himself or herseif as equally rvorthy of consideration ivhile
moral viewpoinrs. deciding what to do. In other words, one has to place himself or herself in the shoes
of others before acting. Certainl-r,, one's level of cthical knolr,ledge, consciousness arid
internalization of ethics will describe the extent of application of the moral dirnension
in business decision-making as a matter of social responsibility.
!
Aptly, effective business decision-making involves an integration of all three
dimelsions. Business people must therefore integrate moral viervpoints x'ith economic
--i
and legal viervpoints to make effective and ethical decisions &
1t
1
I
Internalizing Ethics in the Conduct of Business 45
Business ethics is the attempt to think clearly and deeply about the ethical
issues in business and to arrive at conclusions that are supported by the strongest
possible arguments which r,r,ill benefit all parties involved. Both economics and law
are essential to business decision-making. However, it is critical to observe ethical
standards in profit-rnaking initiatives.
: 'r:: "l,l MANAGING ETHICAL DILEMMAS
\{e have duiy recognized the importance of integrating business, legal and moral
dimensions to make effective and ethical business decisions. However, business people,
in their quest to make profits, are bound to experience ethicai conflicts or dilemmas.
\4re have seen some of the common ones at the beginning of this chapter. Having
recognized these di1ernr113S, rrow cio u,e go about resolving them? When business
people are in an ethical dilemma, they should prudently self-assess themselves and
ask three,check questions before making decisions (Khalidah et al.,20l2a), as shown
in Figure 2.7.
Figur"e 2.7: The three check questions for assessing ethical dilemmas
If
these questiolts are answered u,ith a good conscience and clarity, business
people will act accordingly in good faith. Ethical decisions will then be made for the
conlmon good and lr.ell-being of the community.
4b BuErness Ethrcs
2.8 THE ROLE OF RELIGION IN

RESOLVING ETHICAL ISSUES IN
BUSI N ESS
Sr..*;'.1,ffi1 Obviously, the three check questions, though developed through rationai thinking,
embody rhe idea of a are holistically consistent with religious beliefs and principles to resolve ethical
Transcendent Realiry dilemmas. All believers of religion have their own principles to uphold such as doing
which has some good deeds and avoiding evil acts, to be just and fair, compassionate, shou, respect for
bearing upon the others, etc. Since most religions embody the idea of a 'lranscendent Ileality which has
purpose and meaning some bearing upon the purpose and meaning of iife, how onc lives on earth and what
of life how one lives lies beyond this finite, mortal existence, it also shapes one's perception of ethics and
on earth and what
determines one's actions in resolving ethical issues in business.
lies beyond rhe finite
Internalization of ethics comes from within, out of one's conscience to be ethicai
mortal existence,
as a sociai obligation and as a commitment to obey God's rules and larvs above man-
it also shapes one's
perception of erhics made laws. After all, He is watching and He reads what is in our hearts! From an Islamic
and derermines one's perspective, it certainly requires one to assess, reflect and relate to the fundamental
acrions in resolving principles of iman (faith) and taclwa (piety) as Khalifah (leader) on earth. The Prophet's
ethical issues in traditions are exemplary to Muslirns. Lile is a jihad (inaking sacrifices) and jannalt
business. (heaven) is the ultimate goal or destinyl Thus, as mukmins (believers), Muslims will
strive to please the Creator abor.e all other rvoritlly interests and obligations.
h*rr.fi;"" --_l For the Hindus, the dharma or righteousness consists of individuals directing
ethics is a social
"f their possessions and passions to a spiritual end. Hou,ever, it is a constant battle both
obligarion ar.rd internally and externally to practtse dhttrna. Quoting fronr l{ajenciran Nagappan's
commitmenr ro obey words:
Cod's rr-rles and laws
'The worldly li.fe is full of choices, both good crnd evil.'
above man-made
laws.
As stated in the Bhagavad Gita:
'The. deadly sins are three in number: lust, anger and gre ed, ttntl tLre1, Le ad n'rart
to hell.'
Other vices that are mentionecl are self-conceit, stubbornness, ostentation,

arrogance, excessive pride, harshness, ignorance and force. it is the responsibility of
the individual to choose the right path to govern his relationship rvith others and tl"ri'
environment (Chandra Muzaf{ar, 2009).
At the heait of the Buddhist philosophy is the profound respect for the inherent
dignity of all life. It also emphasizes the immense potential energy in life, or lile force,
r,vaiting to be tapped. Buddhism has ahvays placed great emphasis on compassron and
to give happiness, sharing the suff-ering of another out of hurnanity and creiiting a
network of genuine friendship and trust. The basis of such an endeavour is heart to
heart dialogue with freedom of expression. The extraordinarv character of Gautarna
Buddha who had the strength to overcorre hardship and misfortune is a role model
fcr Buddhists to emulate. He was known to have lived the greatest possible life of
happiness, courage, compassion, wisdom and huinanism.
Last but not least, Christianity, just like other Abrahamic rehgions (Islam and
|udaism) beiieve that justice and freedom are possible only if the human being is
internally goverired by the norms of God. The human being has to consciousiy fulfil
his role as God's steward. To do this, he abide; by the ethical prine iples reve .rled by
God to humankind such as the Ten Commandments. The Christian who is faithful to
lnternalizing Ethics rn the Conduct of Business 47
his religion would demonstrate an abiding commitment to God and to ]esus who had
extended his love to all with justice and mercy.
We have partly reiterated our earlier discussions on the role of religion in shaping
one's ethical values in Chapter 1.
To conclude this chapter,let us summarize the salient points. The internalization
of ethics in a business environment, amongothers, rationally calls for an appreciation
of the common ethical dilemmas, understanding of the three levels of decision-
making and differentiation between ethical management and managemerlt of ethics.
It also transcends the role of leadership to inculcate an ethical culture, integrating the
economic, legal and moral dimensions in decision-making and recognizing the three
check questions to be asked when resolving ethical dilemmas, Certainly, one's level of
knorvledge, conscience and commitment to upholding religious values and principles
do influence his or her internalization of ethics although the degree of reiigiosity of an
rndrvidual is not for us to assess. As fellow humans with limitations, we humbly leave
this cornplicated task to the Greatest-Our Creator!
Having said the above, and recognizing the need for iifelong learning, business
people must be fully equipped with ethics, knowledge and skills to enable them to
assess situations and make effective and ethical business decisions. Thus, Chapter 3
, will introduce readers to the various universally accepted ethical principles in this
global scenario foliowed by a special emphasis on religious principles as highlighted
in Chapter 11 i.e. Islarnic Ethics. It is hoped that the myriad of knowledge in the
correroonding chapters will give business peopie an insight to appiy and internalize
;'thrcs as they play therr roles under all circumstances.
To consolidate your iearning, the iearning outcomes are summarized below:
l ldentify and discuss the common ethical dilemmas faced by business people.
Business people will face five (5) common ethical dilemmas or conflicts as follows:
. Balancing the economic character of organizations with justice and fairness.
. Conflict of interest
. This involves morality and economic trade-offs rvhereby there is constant tension in trying to
separate the 'person' from the business decision.
. Personality traits
. Responsibility to stakeholders
. Level ofopenness
2. ldentify and explain the three levels of decision making.

There are three levels in the ethicai decision-making process*-individual, organizational and
business system. Identifying the appropriate level for a decision is pertinent because an ethical
problem mayhave no solution on the }evel it is approached. For example, the solution to the forgery
issue in this chapter may not be solved at the individual or departn-,ental levels. It has to be solved
at the organizational level by reporting the case to the human resource department. Similarly,
the salary revision request cannot be fulfilled at the organizational level until a comparative
compensation study of the entire industry is conducted at busincss system lcvel to ensure justice
and fairness but a salary increment may be given after assessing individual perforrnance at ihe
organizational level.
48 Br:siness Ethics
J. Differentiate between ethical management and management of ethics.

Ethical management relates to the undertaking of management functions in an ethical manner by
doing the right thing for individual success and organizational effectiveness. lt has to begin from
the individual's values, displayed through his or her actions while performing management duties
and responsibilities. High-level managers have a responsibility for creating and maintaining an
ethical corporate climate that protects the organi zalion against unethical and illegal conduct.
Management of ethics refers to managers acting effectively in situations that have an ethical
aspect both in the internal and external environments of business. They norrnaily apply the
internal poiicies, ruies and regulations as well as stipulated laws by the governlnent. For example,
as a production manager at a MODENAS manufacturing plant in Gurun, Kedah, Mr. A has to
follow the organization's human resource policies as well as Occupational Safety and Health Act
(OSHA) i994. He also has to ensure that his subordinates comply rvith the ruies and procedures as
well.
4. Explain the concept of role in ethics.

In ethics, a role is a str uctured set of relationships with accompanying rights and obligations that
are sometimes added to those of ordinary morality over and above those of eve ryday life. Roles are
created in order to serve society better as a whoie since everyone is contributing or taking some
responsibility to accomplish sornething for the well-being of society. Thus, roles are directiy related
to social respor-rsibility.
5. Outline the role of leadership to inculcate an ethical culture in a business organization.

The top and senior nlanagement in any business organization play a very importarrt role in
ensuring ethics is given priority and institutionalized accordingly at ali levels. Ihc,v are the role
models. Vielr,ing leadership from the Islamic n'orldvieu,, humans are special creations of God and
are directly infomed of his or her our role as a Khalifah-to be a leader in the universe" The role
af a Khalfoli is not confined to the top management but everyone in the organization. Certainly,
virtues shouid be emuiated by ernployees irrespe ctive of hierarchy as Khalfahs.
However, the expectation to irnbue and internalize ethics among the top management is high11'
expected in the manifestation of a role model.
6. Discuss the role of managers as economic actors, company leaders and community leaders.
. Mana[ers as economic actors
They must rnake sound economic decisions, ensuring pr,rfitability fcrr the grorvth of tl-re
company.
. Managers as c()mpany leaders / trustees
They rnust manage assets prudently. They must also fulfil the needs of stakehoiders and
balance anyconflicting interests, being trustees.
. Managers as cotntnunity leaders / quasi-public servants
As community Ieaders, they must exercise po\vers given to them that demonstrate their
corporate leadershiplcitizenship.
Managers must also be seen to practise ethrcal management and management of ethics at the
workplace. They must also be role models for their subordinates and be committed to leadership
by example.
7. Compare and contrast between the two types of code of ethics adopted by organizations.
Code of ethics adopted by organizations can be classified inio two types--complianc.e based or
integrity-based. A comphance-based code of ethics stresses on the prevention of unlawful behaviour
by increasing control through the fbrmulation of rules and regulations and imposing penalties
and punishments on wrongdoers. Integrity-based code of ethics defines the organization's guiding
values, creates an environment that supports ethical behaviour and focuses on shared re sponsibility
among employees.
8. Discuss the importance of integrating economic,legal and moral dimensions to make effective
and fair business decisions.
A business is generated to make profits within the rules of the game; it needs to comply with
statutory laws and regulations to ensure it is legal in practice. However, effective business decisions
will also equally consider the importance of the moral dimension.
The moral dimension requires an individual to be willing to seek out and act on reasons. It
also suggests one to think about doing the best for the common good and well-being of others.
It expects an individual to be impartial and regard the interests of everyone inciuding himself
or herself as equally worthy of consideration while deciding what to do. In other words, one has
to place himseif or herself in the shoes of others before acting. Certainly, one's level of ethical
knowledge, consciousne .rs and internalization of ethics wiil describe the extent of application of the
moral dimension in business decision-making as a matter of social responsibility.
Both economics and lar,r, are essential to business decision-making. However, it is critical to
observe ethicai standards as a rleans to the end of profit making. Therefore, there needs to be an
integration of all the three dirnensions to make ethical business decisions.
9. Itlentity and explain the l"hree check questions that one has to ask antl self-assess when {hced
with an ethical dilemma.
One needs to ask three check questions r,r,hen faced lvith an ethical dilemma:
. .l-s it legal?
Am I r.iolating company poiicies or iaws including the religious beliefs and principles that I
uphold in life?
. .Is it balanced?
Am I acting fairi,v in my decisions? Am I taking into consideration the r-reeds of others whiie
fulfilling my own needs? Am I causing harm to others or are m;, actions just and thir?
. IIow will the action make rue feel about myself?
Wiil I be happy after taking such actions? Will I have a clear conscience that I have not done
anything wrong to others?
10. Discuss the role of religion in solving ethical issues in business.

A11 believers of religion have their own principles to uphold such as Joing good deeds and avoidrng
ei'il acts, to be just and fair, compassionate, show respect for others, etc. Since most religions
embody the idea of a f'ranscendent Reality which has some bearing upon the purpose and meaning
of life, how one li'u'es on earth and what lies beyond this finite, mortal existence, it also shapes
h.t.ar we perceil'e ethics in business. Internalization of ethics therefore comes from within, out of
one's conscience to be ethical as a social obligation and as a commitment to obey God's rules and
laws above man-made laws. After all, God is watching and He reads ivhat is in our hearts! From
an Islamic perspective, it certainly requires one to assess, reflect and relate to the fundamental
principles of iman andtaqwa as Khalifah on earth.
50 Business Ethics
Agency problem It happens when managers do not act in the sole interest of the principals, who are the
shareholders.
At will employees / Employment at will Employees who are willinp to continue their services based on
good faith. Employment at will is a moral doctrine related to employrnent. The moral and legal basis for a
particular assignment of rights for employees and employers i.e. two parties willingly enter into an agreement
and the relation continues as long as both parties will that it do so.
Code of ethics A statement of principles, policies or rules that guides behaviour.
Compliance-based code of ethics It stresses the prevention of unlawf'ul behaviour by formulating rules and
regulations and imposing penalties on wrongdoers.
Consumer sovereignty The recognition that consumers are'kings'in the economy. They have the liberty and
right to decide whether to buy or not to buy a product.
Economic character The characteristic of business organizations to maximize profits.
Ethical management The undertaking of management functions in an ethical manner bv doing the riglit
thing fbr individual success and organizational effectiveness.
Ethics A set of principles that contains behavioural codes to determrne vu,hat is right or \\rrong.
Governance It refers to the act, process or power of governing and governinent.
lman Anlslamictermfor'faith',i.e.piousandcompleteadherencetoAllah'sruies,nhichisahighlyregarded
religious ideal in the Al-Quran. An individual who has iman ({aith) is a mu'min (believer).
lntegrity-baseci code of ethics It defines the organization's guiding values, creates a rvorkplace environment
that is supportive of ethical behaviour and focuses on shared responsibility among employees
Khalifah AconceptbyearlyMuslimscholarswhichfocusesonthestatusandquality(fieeu,ill)ofhumankrnd
vis-d-vis other creatures in the universe-leadership, responsibility and accountability^
Legality Statutory larvs, rules and regulations set by the go\rernment or local authority.
Management of ethics It refers to managers acting effectively in situations that har.e an ethical aspect both
in tl",e internal and external environment of business. They normaily apply the poiicres, rules and regiilations
as weii as stipuiated laws by the government to manage ethical issues internally.
Morality The norms, vaiues and beliefs embedded in social processes which define right or wrong for an
individual or a community.
Nepotism Favouritism or biased attitude toward a certain person or group which may lead to discriminative
action.
Opportunity costs An economic concept to explain the next best alternative that has to be given up after
making a decision.
Risks The chance an entrepreneur or business person takes of Iosing time and money on a business that may
not prove profitable.
Role A structured set of relationships with accompanying rights and obligations that are sometimes added
to those of ordinary moraiity over and above those of everyday life.
Stakeholders All the people or parties that stand to gain or lose by the policies and activities of a business. They
include sharehoiders, customers, suppliers, bankers, employees, government agencies, non'governmental
or ganizations (NGO s) and competitors.
Stockholders A synonym for sharehoiders
Tagwa An Isiamic term for'piety', i.e. protection or shield from what is harmful.
Trade secrets A term used to describe the art of conducting a business. Examples of trade secrets include
sales data, product formulas, research findings, etc.
Virtue It refers to a character trait that manifests itself in habitual action. For example, honesty <-annot be
regarded as telling the trutlr once; it is rather a trait of a person nho consistently tells the truth as a general
practice.
1. Discuss the five common ethical issues faced by business people.
2. Differentiate between ethical management and management of ethics. Provide examples rn your
expl anal ion.
J. Discuss the role of leadership in the context of a business organization.
4. Internalization of ethics requires one's conscience to be socially responsible and committed to

clhical principles, including religion. Do you agree with this contention? Discuss.
5. In your view, to what extent does religion play a significant role in shaping one's ethical values? Are
religious vaiues and principles applicable in the business environment?
tr,) Business Ethics
Authentic Biscuits from Australia... To Sell or Dispose?

Helena is an MBA graduate from a Malaysian higher iearning institution. She had malored in markering and is
interested in retailing. One day, while browsing jobstreet com, to her excitemenr, she received a job offer from
a large and prestigious department chain store in Kuala Lumpur. Wirh open hands, Helena ac-cepted the job
offer. She is all set to face the challenges at the new workplace.
At point of entry, she was positioned as a trainee executive, whereby she will be roiat.ed on rhe 1ob to
all the departments ro gain exposure and appreciare the nature of rhe business Helena's frrst assrgnmenr rs
to assist Madam Marina, a qualified buyer in the Food and Beverages Departmenr. Buyers piay a crttrcal role
in rhe management of the department store. They select the goods to be offered, negotiate purchase terms
and conditions, set rerail prices, arrange displays, organize promocions, and are generaily responsible for rhe
operations of rhe departments within the store.
Helena was extremely happy on the firsr month of her employment. Madam Marina respecred her as an
employee. On several occ.rsions she received praise for good discipline. Her views and opinions have been r,veil
considered and workload is ;usr right.
However, an event occurred thar rhreatened co destroy all her contentment. According to Madam Martna,
the deparrment store has received a shipment of imported halal brscuits from Ausrtaiia wrrh an ailthentc
chocolate cream filling. They are well packed in attractive foil covered boxes, but somehow sorne of thern had
become infested wirh mouids and insecis. Nor all rhe boxes were infested, srnce only a felnr custorners have
returnedrhertemafterpurchase.ButrhepointissomepeopledidreturnLlrerrpurclrasctl parks Ol-,vrt-,usy,sarrj
Miss Marina, "We cannor continue to sell them at our deparuflflt stor- to uphold out good image Wealso
do not have rhe time ro inspect every package and keep the ones thar are not rnl'esred" Madam A4arrna went
on to discuss the cosr implications. She utrered, "What about the losses rhat we have r.o incur? We have alreaciy
commitred a caprral cost of almost RM50,000 The biscuit manufacturer rvill rror ref und us srnce ir rs doubtlul
whether the infestarion had occurred during shipmenr, or even during storage at our own tvarehouse"
After a serious discussion, Madan, Marina asked l-lelena ro get rrd cf the biscurr:s, Helena thoughr thar-
Madam Marina asked her to rhrow them away at the rubbish bns provrded by the Kl munrcipality (DBKt)
near rhe srore but Miss Marina further clarified ro Helena, "Absolutely notl Call Mr Maniam He operati, .l
mini market at the ourskirts of the Klang Valiey where the majoriry of the residents are in the low rncome
groups. We have got ro get our money backl"
Helena prorested openly, but Madam Marina further assured, "Look, rhere rs nothing wrong with our
actions. The residents of these areas have. never had high qualrty foodsiuff of rhis nature Ihese rmportecl
biscurrs wrll be sold very cheaply, and for most people who buy rhem, ir wrll be an opportunriy to rry
sornething really good Cnly a few people will ger rhe infesred roxes. They will nor be very happy, bur ai sucl-r
remote areas, ihey expect this especially when they see a lolv price on an expensive produci They make rhe
choice. We don'tl" Helena is in a ciilemma... should she follow the instruction:; of her boss?
Questions:
i. Analyse this case from economic, lggril and moral perspectives. Justify whether Madam N{arina's srrategic
views are reasonable or orherwise.
2. Assess whether Madam Marina practises ethical managemen[ and management of ethics. Provide your
reasoning.
3. lf you were Helena, what would you do in this siruation? Will you arrange for the delivery of the biscuits to
Mr. Maniam? Jusrify your acrions.
A.G. Abdullah and A. Mohd Zainol Abidin (2011). Business Ethics. Selangor: Oxford University Press.
Al-euran; King Fahd Complex: Madinah Munawawarah, K.S.A. For the Printing of the Holy Qurau www.
qurancomPlex.org
Boatright, ].R. (2007). Ethics and the Conduct of Business (5'h Ed.). New [er"ey: Prentice ]lall.
Boatright, I.R. (2009), Ethics and the Conduct of Business (6'h Ed). New Jersey: Pearson International Edition"
Boatright, J.R. (2012). Ethics and the Conduct of Business(7'h Ed). New Jersey: Pearson Education International"
Chandra Muzaffar (2009). Religion and Governance. Selangor: Arah Publications.
Chandra Muzaffar (2005). Global Ethic or Global Hegemomy? Reflections on Religion, Human Dignity and
Civilizational lnteractioiz. London: ASEAN Academic Press.
I)esjardins, J. (2009). An Introcluction to Business Ethics (3'dEd.). Singapore: McGrau,-Hill Higher Education"
Ebert, R.]. and Griffin, R.W' (2007) . ELtsiness Essentials (6th Ed.). New Jersey: Pearson/Prentice Hall.
Green, t(. (2008). What is Taclu,a? <http:/iislamicbeliefs.suitei0l.com/article.cfmhvhat-is-taqwa>. Accessed

on 11 .rugust 2010.
Haneef, S" (1979). Vrhat Everyone Should Know about Islam ani Muslim. Lahore: Kazi Publications.
Hyman, D,N. (1996) . F,conomics (ath Ed). lJnited States of America: Irrvin.
IslamiCity. Al Quran, Yusuf A1i. <http://wwr.r,.isiamicity.com>. Accessed on 3 Ar-rgust2012.
/ennings, M.l. (2006). Business Ethics iS'h Ect.;. United States of America: T'homson/ West.
Khalidah Khalid Ali, Rohani Salieh and lr{ashitah Sabdin. (2009). A Study on the Level of Ethics of lrrnal
Year Engineering and Technolog,v Students at a Malaysian Higher Learning Institution. In Proceedings ol
the Regional Conference of Humanities 2009 (RCH 2A09), Seri Iskandar, 18 19 February 2009.
Khalidatr Khalid AIi, Rohani Salleh and Mashitah Sabdin (2010). A Study on the Level of Ethics at a Malaysien
Private Higher I-earnii-rg Lrstitution: Comparison between Foundation and Undergraduate Technical based
Students. International Journal o.f llasic and Applied Sciences (10), 15 October 20i0, 35 ,19.
Khaiidah Khalid AIi, Satirenjit Kaur Johl, Lai Fong Woon, Rohani Salleh, Soliah Molek l,ope Aman Shah,
Rahayu Abd. Rahman ancl llmiah ibrahim (2012a). Business Management: A Malaysian Perspettive (2'" F.d).
Selangor: Oxford Fajar.
Khaiidah Khalid Ali, Rohani Saileh and Mashitah Sabdin. (2}l2b). Ethical Values of Final Year Students at
a Malaysian Private Higher Learning Institution, 2012 (1). In Proceedings of lnternational Conference on
Appiied and Social Science (ICASS 2A1D, Kuala Lumpur, 1 - 2 February2Ol2 (pp. 119 13i). USA: Inforn:ation
Engineering Research Institute (IERI).
McDonough, S. (1984). Muslirn Ethics and Modernity. Canada: Wilfrid Laurice University Press.
i'v{organ, G. (1986). lmages of Organization.Beverly Hills: Sage.

54 Business Et hics
Nickels, W.G", McHugh, |.M. and McHugh, S.M. (2008). [Jnderstanding Busine"ss (B'h Ed.). New York:
McGraw Hill/lrwin.
Shaw, W.H. (2008). Business Ethics (6'h Ed.). Californra: Thornpson Wadsworth.
Shaw, W.H. (2011) . Business Ethics (Z'h gd.). California: Thompson Wadsworth.
Stanwick, P.A. and Stanrvick S.D. (2009). Understanding Business Ethic,s. Neit,|ersey: Pearson International
Edition.
Syed Othman Alhabshi and Aidit Haji Ghazali. (1994)" Islamic Values and Managetnent. Ktrala Lumpur:
Institute of Islamic Understanding Malaysia (IKIM).
Sayed Sikandar, S,H. (2006). Ethics and Fiqh for Daily Life: An Islamic Outline " Kuala Lumpur: Research
Cenrre IIUN/i.
Velaquez, M.G. (2006). Business Ethics Concepts and Cases (6th Ed.). New |ersey: Pearson.
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'
CHAPTER
Ethical Theories
and Principles
W"oA
'/Yr
LEARNING OUTCOMES

r Explain the fundamentals of moral philosophy.
r Differentiate between teleological and deontological theories of
ethics.
r Explain influential ethical theories and/or principles applied in today's
global era-Utilitarian Theory, Kant's i:thics of Duty, Aristotle's Virtue
Ethics, Carol Gilligan's Ethics of Care, Theory of Rights, Theory of
Justice and Rawls's Distributive Justice/Egalitarian Theory.
I Elaborate on the important featur.,s of each ethical theory.
I List and analyse the strengths and limitations of each theory,
where appropriate.
Apply the ethical theories to make sound business decisior-is"
56 Business Ethics
3'0 INTRODUCTION
In the last two chapters, lve emphasized on the importance of-ethics in all facets of
life, be it business or non-business, and noted that leaders have a role to play to ensure
that ethics is institutionalized in any organization for its sustainability. We also
recognized that religion, among several other factors, has an influence on ethical acts
and practices. From an organizational dimension, although a code of ethics may be
developed to promote an ethical culture, employees need to be equipped with ethics
knowledge and be exposed to ethical philosophy and principles fbr them to internalize
ethics and apply it at work.
Chapter 3 will continue to introduce readers to influentiai ethical theories and
principies. Along the way, it will highlight the features, strengths and rveaknesses of
each theory. Where applicable, it will also spur discussions on the compatibility of
th "se theories within Islamic ethics and religious contexts. The aim is to equip readers
to be famiiiar with established generic ethical theories and principles applied in the
global business world of today and criticaliy see their relevance in resolr,ing moral
issues in general. These theories and principles n,ili also be an added knowledge to
those r,r.ho are new to the study of ethics. This u,i1l enablc them to apply the useful
knou,ledge when making decisions, be it at an individual or organizational ievel, in
both business and non-business situations. It will further strengthen the readers
ability to effectively integrate economic, legal and moral dimensions rvhen making
business decisions.
llefbre we go through each ethical theorl,,let us frame our understanding of the
ftrndamentals ol moral philosophy for better appree iation.
3.1 UNDERSTANDING THE

FUNDAMENTALS OF MORAL
PH ILOSOPHY
Erl".. *rdy --l In Chapter i, we noted that the term ethics is derived trom the Grel'ii u-ord efho-s,
-, rvhich ineans character, spirit and attitudes of a group of people or cuiture (Rahman,
ofacrion and how
man should acr. 2003). Ethics is concerned witl-r what rs good or nght ir-r human interaction (Abduilah
lr relates to one's arrd Mohamad Zainol Abidin, 2C11) and deals with justice ancl rights issues (Boatright,
behaviour and in 2012). It is therefore a study of' action and how man should act. It relates to one's
order to act erhically, behaviour and in order to act ethicaliy, one is dependent on epistemoiogy of ethrcs
one is dependent knowledge. It is impossible to make choices on horv to act rnorally n'ithout knorvledgc
on epistemology of of ethics.
ethics knowledge.
Ethics is also a branch of philosophl'. Conceptually, the f ive branches of philosophy
are metaphysics, epistemology, ethics, politics and aesthetics. Figure 3.1 illustrates
a hierarchical relationship between these five branc.hes to see their links with one
another.
Ethical Theories and Principles 57
+ +
..> +
Ethics
...> Stndy'ofr __> "
Politics + gg.{y,ql.force. -.>,;
.> Srud;rof Art
,
; + What can life be like?
(Source: lmporrance of Phtit:sophy, n.d-)
Figure 3.1: The five branches of philosophy
Ethics, as a field of study, may be further sub-divided into two branches-meta- I Mrrr*thki,t rh.
ethics and prescriptire or normative ethics (Newall, 2005). Meta-ethics is the study of srudy of where
\{,here ethical concepts came from and what they mean. It is therefore the study of the ethical concepts
origin and meaning of moraiity. Meta-ethics classifies morality into two main forms came from and
morai/ethical reiativism and moral/ethical objectivism. Moral relativism considers whar they mean. It is
that what is right or wrong is not absolute. It is rather reiative and variable depending therefore the study
on the person, circumstances and social situation. it is a theory that views the rightness of the origin and
meaning of morality.
of actions is determined by what a culture or society says is right (Shaw, 2011)" What is
Mera-ethics classifies
right in one place mavbe lvrong in another, because the only criterion for distinguishing
morality into two
rightness of action is t}-re moral system of the society in which the act occurs.
main forms moral/
A..-sume that an innocent person is desperately looking for shelter to save his lifc
erhiral relarivism
f rom someone who wants to krli him. l le approached you and you are convinced that hc
and moral/ethical
is innocent. You provided him r'r,ith your home as shelter. Wher, you are approached b,v objecrivism.
the killer, ),ou denied/liecl that you had provided the person shelter for his protection.'f hc
act of lr-ing to the killer to save the life of tl're innocent is an example of morai relativisnr lir"h"t*.'r*,
Although lying is a universally accepted bad moral act, it is regarded as acceptable under considers thar vrhat
such circumstances sincc the intentron is good-to save the life of an innocent person. isright or wrong is
The bombing of Hiroshima and Nagasaki in 1945 to end the Second World War mar nor absoluie. lr is
also bc seen to be a rightful act bv moral relativists to regain rvorld peace and stabiiitl,. dependent on the
moral system of rhe
1'1rg ar t of abortion is religiously \,\,rong from the viewpoint of Islam and Christranitl,.
society in which the
but in lal-,an, it is neutrally accepted as a form of birth control. Moral relativism appears
acI occurS.
to depend significantly on human vien s and judgements to assess rightness of humair
actions relative to situations within a society's culture and environment. Utilitarianisnr
and theory of rights may well fall under moral reiativism principles.
On the contrary, moral objectivism considers certain acts as objectively right or
IM*rl.btrotrtt.
wrong, indepenclent of hrirnan opinion. Many codes/rules of objective rnorality sterr considers certain acts
from the r,ielv that moral codes originate fiom a divine eniity, either from God or flom as oblectively right or
a cosmic force such as Karma in Hinduism. Moral objectivists therefore view tl'rat wrong, independent
irrespective of cultural differences and Iluman conditions, some rules are standard from human opinion.
and must be religiouslv folloned by humans. islamic ethics, for exampie, is based on
divine cornmandrnent rather than perceptions of individuals and community lDusuki
and Abdullah.2006).
Islamic beiievers are thus moral absoiutists who live by the principle of moral
objectivism. Their actions are absoiutely guided by the teachings inthe Al-Quran andthe
Sunnah. Believers, as servants of Allah, will foliow these commandments/ruies without
question srnce they consciously believe that these rules come from Aliah, the Creator of
the Universe. With regard to the need to perforn-i prayers, a Quranic verse reads:
'When my servants question you obout Mc, tcll tlrcm that I am t,ert close to
them. I answer the pralter of every humble believer wlten he calls Me therefore
I
; :
58 Business Fthics
-$
the1, 576u14 respond to Me and put their trust in Me, so that tkey be rightly t
j
guided' - B
(Al-Quran, Al Baqarah, 2:186). ff
In another verse explaining God's creation:

'Glorv to Allah, who created all things in pairs: mankind, the plants of the earth
and other living things that they do not rno*'
,^r_ouran, Su.rah ya_sin, 36:36).
Concerning one's claim on ownership of property, wealth, power, etc., Muslims
are reminded that:
'To Allah belongs everything in the earth and heavens. Allah encon?pas,(es
euerything'
(Al- Quran, Suroh An-Nisa, 4: 1 26).
While religion-based principles are morally objectivistic, man-made theories *

a
such as Kant's Ethics of Duty and Aristotle's Virtue Ethics may somewhat fall under
this r.a ssification too.
P-;,lpr,* * ----l We have just elaborated on meta-ethics, the first branch of ethics study'. Next, we
normative ethics shall focus on prescriptive or normative ethics, the second Lrranch of ethics.It rs a set
provides general of principles that guide or regulate human conduct (Rahavu, 2AD). It also provides
guidelines for general guidelines for deciding r'r,hat is morally right or wrong. In the stud.v of
deciding whar is prescriptir.e ethics, moral philosophers have classified tlvo types of ethrcal theories
morally righr or teleological and deontological.
'wrong_ Teleological theories hold that the rightness of actions is determlned solely b). thc
antount of good consequences they produce. These are aiso ref-erred to as consequential
theories.
Deontological theories deny that consequences are relevant to deterrnining lr,hat n,e
ought to do. Rightness of an action is because of the natr,ue of these actions or tlre rules
from which they frllorv. These wiil include dir.,ine commands from God i.e. religious
principles. Deontological theories are also referred to as non conscquential tl'reories.
Figure 3.2 summarizes diagrammaticaliy morai philosophl, anci its conlpl;rtnts
in conceptuaiizing ethics as a field o1 study.
-t a
-!
i
:
r
{F
; :
(Source: lbrahim, 2000; Rahayu, 2012) tr

&
Figure 3.2: Moral philosophy and components
E
$
re
E
Ethrcar Theories ar,l Pnncrples 59
One of the most influential and prominent teleological ethical theories that has
survived through the centuries is Utiiitarian Theory of Ethics or Utilitarianism. It
is a theory applied widely by economists to make rational economic decisions for
a society's well-being, defined objectively in material contexts, rather than from
spiritual perspectives.
3.2 UTILITARIAN THEORY OF ETHICS
This theory was first developed in the l8th Century by Ieremy Bentharn and further
for-ilrrb" *
refined by his student, lohn Stuart Mill in the 19th Century. Utilitarianism is a theory dury in any siruation is
to provide an answer to a basic practical question-what ought a man do? Its answer to perform the acrion
is that he ought to act so as to produce the best consequences possihle for the common rhar will result in
good i.e. utiiity. Utility mearrs satisfaction or pleasure that people receive fronr the grearest possible
consuming a good or service (Tucker, 2005). According to this theory, our obligation balance of good over
or duty in any situation is to perform the action that will result in the greatest possibie evil.
balance ofgood over evil.

r Goodness is human weli-being. Whatever makes human beings generally
better off or provides some benefit is good, and whatever makes them worse
off or harms them is evil.
r Utilitarian Tl'reory attempts to v,,eigh/assess all of the good ancl bad
consequences of an action lr,hether the consequences arise after tl-re act has
been perlbrmed or during its performance.
r in tJre process, Utilitarian advocates wil! develop several alternative actions
to rveigh the good and bad consequences of each action before decicling on
the best action to take.
: The more the good conseqliences for the majority, the more ethical rvill he
the decision or action. I{owever, if the diffcrcnce in the consequences of
alternative acts is ilot great, some utilitarian advocates do not regard the
choice between them as a moral issue.
r This theory seems to support moral relativism. The rightness of actions thus
depends on the good and bad consequences of the actions and situatiorrs that
prevail in the process. Morirl right is thus defined in terms of an objective; for
the material good.
3.2.1 The Roots of Utilitarianism: Bentham and Mills

This theorl, originated from two scholars, jeremy Bentham (1748-1832) and hrs pupil,
John Stuart L,1i11 (i806-1873). They rvere followers of Adam Smith, the Father of
N'Iodern Economics. T'hese trvo scholars defined the theses /principies ofUtilitarianism
although it was Adam smith's tutor at Glasgorv University, Professor Hutcheson, who
first coined the phrase 'the greatest happiness af the greatest number',the furrdamental
principle behind Utilitarianism
According to iohn Stuart Mill:
'An ttcLiort is right to the extent that it inclines to promote thc .qre o.test,Eodd/r)/
the greatest nrtnilter.'
60 Business Ethics
Utilitarianism therefore evaluates moral action on the basis of consequences

and goal orientation on how far a decision maxinrizes the net utility that everyone i:
,:
affected by the action may exf ect. I
3.2.2 The Four Theses of Utilitarianism

The utilitarian principle involves four distinct theses:
r Consequentialism-the rightness of actions is determined solely by their
consequences.
r Hedonism-utility in this statement of the theory is identified with pleasure
and the absence of pain. Hedonism is the thesis that pleasure and r:nly
pleasure is ultimately good. This principle relates to inclividual happiness and
Th" f"* ,h"*t I satisfaction in the consumption of goods and services"
of Urilitarianism: r Maximalism-a right action is one that has not merely some good
conseq uentialism, consequences, but it also has tire greatest amount of good consequences
hedonism, possible when the bad consequences are also taken into consideration.
maximalism and r Universalism-the consequences to be considered are those of everyone" We
universalism. have to consider the impacts of our actions on the masses or rnajority"
Figure 3"3: The four theses of Utilitarianism
3.2.3 Forms of Utilitarianism

Tliere are two forms of Utilitarianism:
r Classical or Act Utilitarianism developed by Jeremy Bentham
r Rule Utiiitarianism deveioped by Iohn Stuart Mrli
l^ Cl**rl ---l Classical or Act Utilitarianism

Uillirarianism, an In Classical Utilitarianism, an action is judged to be right by virtue of the
aciion is judged ro
consequences of performing that action. Pieas'rre is taken to be ultimately the
be right by virtue of
oniy good and evil is the opposite of pieasure or pain. Classicai theory requires
the consequences
consequences to be measured in some r!ay so that the pleasure and paln of different
of performing that
action. Pleasure is
individuals can be added together and the results of different courses of actton
raken ro be ultimately compared.
rhe only good and 'An action is right if and onU) if it produces the greatest balonce oJ pleosure o1'er i0
evil, or pain, is rhe "g
pain far everyane'.
opposire of pleasure.
r
L
Ethrcai Theories and Principles 61
In Ciassical Utilitarian principles, an action is judged to be right by virtue of the

consequences of performing that action. It is silent on iompliar,."1o codes and rules.
As a result, telling a lie or breaking a promise is right if it has better consequences
than any alternative collrse of action (Boatright, 2009). T'his theory appears to support
moral relativism rather than moral objectivity. It depends greatiy on human judgement
and rational thinking by rveighing the good and bad consequences of an action. lt also
seems to set aside estabhshed religious principles that are embedded in society since
there is no need to follow established rules or codes in determining the rightness of
actions other than the four theses earlier mentioned.
Rule Utilitarianism
Bentham's classical theory received controversiai comments duringhis time. Tl-re'over-
freedom' and rationalization of moral actions seem to challenge established religious
ruies and cultural norms within the conservative English environment at that time.
John Stuart Miil, in trying [o save his teacher, refined Bentham's principles after being
chalienged by the community. Mill tried to clarify the limitations of Bentham's theory
by referring it as Rule Utilitarian Theory:
"An action is right rJ and only iJ it corrfonns to a set of rules the general acceptanc(
of which w,ill produ.ce the greatest balnnce o.f pleasure aver pain for eyeryone".
Tl,is principie relates to the importance of complying with rules while assessing
the rightness of actions. it seems to give firmer ground to the ruies of morality and
role obligations. Horvever, it does not specify nhat rules one should conform to.
Presumablr', it includes man-made rules as rveli as God-made rules and principles.
Again, individuals have to rnake their olr,n moral judgements to determine the
rightness of actions, an inclicator of moral relativism.
Comparing between Act and RLrie Utilitarianism, both focus on the consequeilces
or results to determine the rightness of an action. However, Act Utilitarianism puts
k"n,.p*-g-
between Acrand
emphasis on results only regardless of compliance to rules as iong as the conseqlrence Rule Urilirarianism,
of the action gir.es happiness for everyone. both focus on rhe
con5equences or
results to determine
3.2.4 Bentham's Theory: Calculating Utility the rightness of an
action. However, Acr
Unlike Rule Utiiitarian Theory, Bentham's Ciassical Theory requires one to be able Urilirarianism purs
to determine the amount of utilit1, (r.e. the balance between pleasure and pain) for emphasis on results
each inciividual irfiected by an action as rveil as the amount of utiiity for the r.vhoie of only, regardless
societl', measured in monetary terms. of compliance to

rules as long as
Horvever, hon, do we then calculate utility?
the consequence
r irconomists calculate utility by deveioping the consumer choice theory', profrt of the acrion gives
maximization theories, cost and benefit analysis, marginal analysis, etc. happiness for
r These theories assist in making objective and rational individual and L,usiness everyone.
decisions.
You may recall these iheories lvhen you study economics as a course. Holever,
there are critics over horv \{e can actually calculate the amount of pleasure each course
of action produces as it is impossible to calculate in terms of quantity, what more
with quality. Moreover, happiness and satrsfaction are intrinsic human values that arc
beyond measurements, They also differ berween individuals.
62 Business Ethics
Nevertheless, Utilitarianism has 'scientific' and practical pretensions. [t allows

for right and wrong to be based on calculating the elements in a situation. We can
calcuLte and choose the actiot-r giving the greatest utility. The decision is rationalized
and supposedly clear. To recall, moral right is defined in terms of an objective; for
material good. One will use cost/benefit analysis as a method for reconciling empiricai
fact against subjective, value judgements.
Another issue arises on the application of'cost benefit analysis in the world o{'
business, apart from the difficulties of calculating the pleasure and pain"
3.2.5 Cost-benefit Analysis in Business: ls lt for the

Majority?
Businesses usually calculate the anticipated costs and benefits only for their interests
i.e. profit seeking. Only legislators, social planners and regulators use cost-benefit
analvsis to analyse the positive and negative effects of an actton or decision on everyone
affected. The issue is how far cost-benefit analysis is applied by busine.ss organizattons
to ensure social justice. Private business organizations usually do cost-benefit analysrs
to maximize profits and fulfil economic goals to benefit the organization itself rather
than society at large.
While *. q.,.itio, the objectivity of calculating utility, a must under Bentham'"c
Classical Theory and application of cost-benefit analysrs in business, in summary,
there are six points about Utilitarianism:
r When deciding which action will produce the greatest I'rappiness, rve t't-lt-rst
consider unhappiness or pain as weli as happiness.
r Actions affect people to some degree. However, rve add up the various pleasures
and pains, and act on the action that brrngs the greatest net happiness.
I Because Utilitarians evaluate actions accordrng to therr Cotlse!uelrres, ancl
actions produce different results in different circumstances, aimost everything
might in principle be moraliy right in somc particular circumstance. This i:
true for ClassicallAct Utilitarianism.
r Utilitarians wish to maximize happiness not sirnply immediately br,rl in the
long run as weli. All the direct impLcations of an act har.e to be crrnsiclere<l
rn the process.
r Utiiitarians acknowledge that we often <io not knort rvitlr certainty rvhat the
future consequences of our actions will be. Accordinglr., we must act stl that
the expected happiness is as great as pr:ssible.
r When choosing an)ong possible actions, Utilitarianism does not rt'quire us
to disregard our own pleasure, nor should we give i1 added weight. Rather,
our o\vn pleasure and pain enter into calcultts eclually lvith the pleasures
and pains of others. \Are try to assess the goocl and bad cottseqLrenct'. f t'om
our actions before taking an action or decision. The action must create mote
happiness/pleasure than unhappiness/pai ir.
Let us try to apply Utiiitarian Theory of Ethics to resolve the foliowrng short case"
I
,
I
{
I
Ethical Theories and principles 63
Million XY Berhad is a small and medium enterprise, based in Langkawi lsland The CEO, Mr. Aminuddin,
has been approached by a giant forergn corporation to merge his food processing bLLsiness, wir-h an
objective to gain competitive advantage. The rerms offered by the (-ol'porarion are simply Iucrarive
to the CEO, who would receive a large sum of severarrce/separarion package. I he shareholders of rhe
firm would also benefit, because the offer for their shares is substanrrally above rhe currenL rnarkei
price. Mr. Aminuddin realizes thar the merger plans call for a closure of his food processing planr
The plant currently provides jobs for rhe majoriry of rhe local residenrs He is now unsure of how ro
balance his employees'welfare, who woLrld be thrown our of work and rhe cornmunrry where rhe
planr is located against the interesrs of rhe shareholders. He is also in a dilernma abour how much he
should rake his own inreresis inLo accounr
Assume you are Mr. Aminuddin. Should you support the merger plan? lustify
your position from utilitarian principles.
Next, we shall look at the strengths and weaknesses of Utilitarianism.
3.2.6 The Strengths of Utilitarianism

l.tilitarianisi-n is ir-r accordancc with much of our moral reasoning. The fact that an
. iion rvould pror-ide some beneflt or cause some harm is generally a moraliy relevant
i e ason for or against perfcrrming it.

It is result-oriented. It provides a relatively precise and objective method for moral
ciecision nraking since r,r,e are trying to evaluate/assess the good and bad consequences
helore ae I iug.
Act Utilitarianism is simple to appiy and provides an easily understoocl decision
procedure. Assr-rming that the goodness of consequences can easiiy be measured and
compared, a teleological decision-maker needs only to determine the possibie causes
ofaction and calculate the consequences ofeach one.
Rule Utilitarianism gives a firmer ground to rules of morality and to role
obligations, r,,']-)ich are problems to ail teleological theories. It also eliminates the
dilficult task of calculating the consequences of each individual act.
Utilitarian reasoning has also found.favour among economists, who use the
.issurnptiotl that individuals seek to maximize their utiiity or welfare to explain
,,nd predict a wide range of economic phenomena, such as prices and allocition
''f resources. Many of the micro-economic theories have been developed based on
IJtilitarian principles. For example, profit maximization, marginal anilysis, T'heory
oi Cornparative Advantage, elc.
3.2.7 The Weaknesses of Utilitarianism

While there are substantiai strengths seen in Utilitarian Theory, it has its weaknesses
ioo- The theory does not give an account of the rights we have and what is just and fair
,r'hich an ethical theory is expected to give. More criticisms on Utilitariair Theory of
Ethics have been listed by Abdullah and Moham adZainolAbidin (2011) revealing its
l;mitations as anv made-made theory.
64 Business Ethics
Individual happiness and satisfaction cannot rationally be the main objective

or sense of purpose in life. Critics list a number of noble people who sacrificed
their own happiness in order to do good deeds.
The theory is degrading to humans" It degrades human beings to the level of
animals because the theory suggests that people's only goal in lif'e is attaining
pleasure. .
Utilitarianism encourages selfishness. It propagates that one should be

concerned only with maximizing one's own happiness.
Utilitarianism is unattainable. It is almost impossible to act alrvays for the
sake ofthe generai happiness ofsociety.
Utilitarianism is self-serving" The principle will be abused in order to serve
particular interests of the person making the decision.
The theory is too time-consuming. It is impossible to calculate the amount of
pleasure and pain implied by each alternative course of action, and then come
to a conclusion based on the Utilitarian calculus.
'Ihis theory promotes objectivity rather than subjectivitl. it is silent on the
spirituality aspects to be objective and scier-rtific. It only emphasizes on
humans'physical needs since its emphasis is material well-being. Holvever,
humans are unique creations of God with intclligenr-e, feelings and emotions.
i-luman needs are not only physical, but splritual. Moralit1, certainly revoives
not only within physical contexts but spiritual aspects of a human life as well
since human beings consist of the bodl'ancl the soul. Their essence is the soul'
Before rve end our discussion on Utilitarian 'i'heory of Ethrcs, let us criticall,v
make some inquiries for discussion purposes.
r Is Utilitarianism really workable?
r Are some actions wrong, er.en if they produce goocl consequences?
r ls Utilitananism unjust? Is it wrong to fulfil seif-interest and promote utl[ity?
Does fulfiiling self-interest create happiness for soctety as a whole?
Next, we shall discuss Immanuel Kant's Ethics of l)r-rty, a deontologtcal theorv
rvhich insists that moral action requires conferrnrity to inorerl principles.
3.3 KANT'S ETHICS OF DUTY THEORY

Immanuel Kant (1724 - 1804) was a renowned German philosopher" FIis influential
rvork on ethics is entitled Fundamental Principles o-f the Metaphysic of Ethics,iirsi
published in l7B5 (Boatrigl-rt, 2009; Abdullah and lvfol-rarnard Zainol Abidin, 2011)
before the rise of Utilitarianism in England (Boatright, 2012). T he opening rvorcls
of Kant's work reads:
'Nothing can possibly be conceived in the u,orltl whicJl t dn be good v,ithottt
qualification, except a Good Will.'
ffirrg -*dtl
t
Tl* Will is the uniquely human capacitl,to act from principle. It is the power of the
of Kanr's work reads,
'Norhing can possibly
mind to do something and to make things happen. Kant is convinced tl'iat our morai
-3
actions cannot be guided by our practical experience. In other \,!,ords, it is impossible N
be conceived in che I
world which can to determine what people ought to do by studying r,'hat thc), in fact do (Abdullah and
be good wirhout Mohamad ZainoTAbidin, 2011). Human actio,rs must therefore be rationalized based
-1
q ual ifi c ation,' exce pt a on human intelligence and wiil power. According to Kant, we hr.ve a dutv to play
I
Cood Will.' torvards feliow human beings.
x
*
a
Ethical Theories and Prrnciples 65
'An Actiot't rs rnorally right if and onl1, if the actor is motivated by good will.'
It is not a matter of the individuai weighing the consequences" Thus, according to
Kant, the basis of a moral act rests upon a duty that one has to perform for the purpose
lAri;;, "
m",rtty
righi if and only if rhe
ofgood lvill. Irrespective ofthe consequences, an act has to be intentionally good, as a acror is morivared by
duty to be performed lor fellow human beings. good will.'
Nothing is good in itself except a good wili. Goodness of the will thus depends on
the use of them. For example, some students lvho are smart in using computt:rs hacked
through the universitr"s security system to acquire the final examinalion papers in
advance. Such acts are intelligent and courageous, but are done for the wrong reason.
It is not motivated by good will; it is an act of cheating, so it is a wrongful act.
Only an action done for rational principled reasons from a sense of duty has
moral worth, according to Kant. In other words, if our act is from a sincere obligation
to perform a duty towards others, our act has moral north. For example, FELDA
Global. in late November 2013, contributed RM 132000 to support the Fiiipino
T1'phoon Hair-an victims. Another example is the continuous contributes of Uiriversiti
Teknologi Petronas (UTP) to r''lei:ted orphanages and old folkt homes in Perak as a
social responsibilitr-to genuinely heip the needy.
An important point has to be emphasized here. The purpose or intent of an act
seems to differentiate it betrveen a good and bad action from the perspective of Kant's
ethics.If the purpose is ior good will out of a sense of dutyto heip others, it has moral
rr-orth. I{ou,ever, if these initiatives are primarily aimed at popularizing the organization
in the er-es of the public as a corporate business strategy, its moral worth mav be
questionable since the main intent is not to promote good will or help feilorv human
beings as a dutr'. Rather, it is to build a corporate image with a purpose of increasirrg
profits to fulfil orqiinizational interests. It is interesting to note that according to Kant,
if an act is orit of self interest, it has no moral rvorth. lVhile Kant had viewed from an
rndivldual perspective, the issue remains whether acting for organizational interests
, ma1'be perceived as fuifilling self-interests within an organizational context.
3.3.1 Kant's Categorical lmperatives

\\-c have just utrderstooci the basic features of Kantian ethics i.e. acting based on gooci
rvi11 out of a sense of duty. There are still grey areas in determining rightness ol'aciions
here. \\,'hat then determines one's duty? Hor,v does one determine whether an act is
morally right? Utilitarianism states that consequences or results wili determine the I Fl,t*-rg"t*l
imperarives-Act
moral judgernent but I(ant believed that reasons alone can give us the absolute moral
only according ro that
truth and discover our sense of dLrty. He championed the two categoricai inrperatives, maxinr by which you
the basis of his moral principle, stated as follows: can ar rhe same time
r lst Categorical Imperative-Act only according to that maxim hy which 1,su will rhat it should
become a universal law.
cqn at the sane tirne will that it should become a universal law.
r 2nd Categorical Imperative
-Act so that you treat humanity, whether in your
own person or in that of another, always as an end and neyer as a means only. I k*rd rr*g*kil
imperative-Acr
An'imperative'is a command or duty whereas'categoricai' means'that is r,r,ithout so that you rreat
exception'. In understanding the First Categorical Imperative, maxim is clefined as humanity, wherher in
'a saying that expresses a general truth' or ;rule your own person or in
of behaviour'. The first categoricai
imperative seems to reinforce that our moral actions should not be guided by our own thar of another'always
inclinations, but guided by a sense of duty to the universal law. An action is moraily as an end and never as
right for a person in a certain situation if and onlv ilthe person's reason fbr carryilg a means only.
out the action is a reason that he or she would be lvilling to have every pcrson act on
in any similar sitrration.
I
I
66 Business Ethics
-n
a
i
rE
r{
An acr is morally
--l An act is morally right if and only if we can u,ill it to become a unlversal law of i
conduct. One's absolute moral truth must be logically consistent, free from internal
I
right if and only &
contradiction. For example, the act of Robin Hood, stealing from the rich and giving
T
if we can will ir to
I
become a universal to the poor is wrong beiause stealing is a universally accepted wrongful act. Also,
law of conduct. One's if Robin Hood were to place himself in the shoes of the rich whose things had been
absolure moral trurh stolen, certainly he would not have committed such an act because he would not like r
must be logically his own possessions to be stoien by others" ;
consistent, free from Let us create another simple business scenarit-r for f'urther illustration. Mr. A, the
General Manager of GAP Corporation, needs a job to be done by Mr. B within-one
H
inrernal conrradicrion. E
t
week. Mr. B wants to impress his general manager so that he will be considered for I
promotion in the short term while competing with his colleagues. H9 delegatcs the
(i.e. Mr. C) to complete the task within :
lob to Mr. C, his subordinate, and forces him I
one day at the sacrifice of Mr. C's famiiy obligations and prior commitments. If Mr.
B places himself in the shoes of Mr. C, he wouid realize that his act is unjust and
i
-
therefore u,rongful. Human beings do not like to be exploited so an act of labour I
K*lt Fi"a explîtation contradicts the universal law of conduct. Mr. B's action also seems to
Categorical -1 reflect greed. Therefore, according to Kant, we should not act in such u'a]'s since it has _!
lmperailve simply ':
no moral worth.
requires us ro place
Kant's First Categorical Imperative simply requires us to place oursel-u'es in the
ourselves in the
shoes of the receiving-purtybefore acting. If the action rs goir-rg to bnng pain rathcr
shoes of rhe receiving
party before acting. than happiness to the ieceiving party, then the actiotr is not ethical. We should not
lf the acrion is going commit such an act on others. it calls for us to put asidc our sclf-interests. It also
ro brir.rg pain rather requires us to reason out and assess whether orlr act is universally accepted as good
than happiness to trs, To reiterate, an act is morally right if and only rf we can u,r11 it to becolne a ilnivers:r1
then ihe action ts nor 1aw of conduct. The action that we are going to take cannot be olclouble standards too.
erhical. \\/e shoLrlci If we commit an action on a certain person or situation, a sinlilar actiori lnust be taken
not commit such an on another person or circumstance. The acts of favouritism, discrimination ancl lying
acr on others. under all circumstances are wror-rgful acts according lo Kant's elllics"
We har.e just eiaborated on Kant's First Categorical lrlperative. i'Next. acc-ording
to the Second Categorical Imperative, an action is ntoralh'right for a irers()rr if end
a
oniy if in perforn-ring the action, the person do,:s not use otirers nrerel\' AS a 'rleans
for'advancing his or her interests, but at the same time respects and dcvelops therr t
capacity to choose freely what they want" {
'Never treat human beings as a ftteans but as on end.'
'^k;' *; hr;;-l Kant's view is that people, unlike things/objects, ought nn'er to bc merelr- usetl
For example, empio,vees may be hired for theii labour, skills, knou'ledge ancl abtlities,
berngs as a nteans but
as an end'. Kant's view
but must alr,vays be treated rvith respect as huntans. Relating lci the same business -r
ls tlrat people, unlike scenario discussed earlier, obviously, Mr" B is treating N{r". C as a means to an end. Mr.
I
rhings/objects, ought B has used Mr. C as a nleans to fulfii his ambition tc., be promoted in the short term. Mr.
never to be mereiy C is forced by Mr. B to complete a one-week job within orte day, an act of injr-rstice irnd
used. disrespect and therefore unethical according to Kant's Second Categorical Impei ative .
Kint's theory has survived ihrough the centuries due to the following strengths.
3.3.2 The Strengths of Kant's Ethics

I The First Categorical Imperative provides fir m rules to follow in moral
decision-making' No matter lvhat the collsequences ma)/ be lrr rvho docs
'lhis view
il, some actions are always wrong e.i:. iying, cheatinq, greed, etc.
is certainly congruent with religiorl:i dimensions and supporters of morai
objectivism.
$
Ethical Theories and Prrnciples 67
n The Second Categorical Imperative emphasizes on the importance of the

to an
humanrstic dimeniion, not using I treatingothers (humans) as a means
rights
end but as an end themselves. This principle is consistent with human
principles.
r The theory also highlights the importance of motivation and acting on
than
principles out of u r""nrJ of duty towards fellow human beings rather
fulfilling one's self-interest.
Kant's duty principles are certainly consistent with the Islamic concept
of
r
a Khalifuh o,, Man is directiy informed of their role--to be a leader/
"urtir. to
guardian in the universe. He has specific duties and responsibilities
accomplish as a vicegerent on earth'
Despite, the strengths, K"ant's theory had also been critici zedby
moral scholars'
3.3.3 The Weaknesses and Criticisms of Kant's Ethics

r what exactly has moral worth? Kant advocated that an act based on self
interest has no moral rr.-rrlh, which Seems to be too extreme a vietr''
It seems
emotions and
to suggest that the theor,v requires us to disregard personal
feeiirgs. Many moral theorists, especially advocates of moral reiativism,
feel
t}-rat Kant is too severe on this point. Humans practically wili always r'vant to
fuiiil self-interests since they are individuaiistic by nature.
r .is the categorical imperative an adequate test of rightness?
Kant said mr ral
rules are ivithout exception when, in reality, humans may not foilorv them
and act on the contrary. The categorical imperatives nay not holisticall,v
cover all asPects oflife.
I \\rhat does it mean to treat people as means? It is not clear tn'hen people are
re aliv being treated as ends or merely as means. Because
at times' irrdi"'iduals
freely choose to do it to fulfil commitmetrts without being forced b,v other
peopie. It is therefore not right to saY that under such situations, they
are
expioited and treated as a means rather than as an end'

L)espite the criticisms, Kant's ethics yield two important findings: I K-,i.,h"t )^kl ,-"
r It iirtroduces the principle of universalizability and emphasizes on respect for unportant findings:
.
pe rsoils. The universalizability principle states that as a matter
of logic, rve lr introduces
not be double the principle of
must be consistent in the judgements we make. There should
universalizabilitY
standards in our actions for it may lead to bias and disrespect towards others' and emphasizes on
r Kant's ethics provides a strong foundation for rights. Individual hunan rights respect for persons.
must be acknon'ledged and inviolable. . It provides a strorlg
Kant's Ethics certainly complements Islamic ethical values, especially thosc foundation for
r-elated to iltsan (i.e. benevolence and being kind), respect and adl
(i'e' justicel' righrs.
\Ve shail next look at Aristotle's Virtue Ethics Theorv, another deontoiogical
theory.
3.4 ARISTOTLE'S VIRTUE ETH ICS

THEORY
Aristotle lived long before the birth of ]esus Christ, what more Prophet Muhammad
SA!V. He was a renowned Greek philosopher. His theories are mainil' foulid in a
collection of writings called Nicomichean Ethics, compiled by his son, Nichomachus'
68 Business Ethics
in Century B.C.
4th
Arrs.rh3,h.-y---1 Aristotle's theory focuses on the virtues of humans. t,iterall1., virtue is a good
focuses on the virrues moral vaiue or character trait that manifests itself in habitual actiori (tsoatright,
ziloz).
of humans Lirerally, Virtue Ethics Theory recognizes the need for one to emuiate virtues such as honesty (a
virrue is a good moral sub-trait of integrity), courage, self-controi and respect for humans and non-humans
value or characrer to lead a rewardi4g life (Khalidah et al.,2010). The virtue of honesty, for instance,
rrait rhar manifesrs cannot consist of teiling the truth once; it is rather a trait of a person who consistently
irself in habirual
teils the truth as a general practice.
action.
Aristotle's Virtue Ethics Theory begins with a basic assumption that morality
is
both necessary and vital for human beings.
1
'ltis impossible to live with human dignity u,ithout beu.rg a de,velopecl rnoral
1
being. Morality is not aluxury that one can choose to Ltut,e or not to haye . It ts I
a pre-condition
Ar-r"d. r V-r* | Jor a li_fe with human digrLity..
rheory begins wirh ?
(Abdullah and Moham ad Zainol Abidin. 201 i)
a basic assumprion
A ccording to Aristotle,
rhat moraliry is both
- people who compromise rnorality are degraclng
necessary and viial themselves and they have missed their goal
in life. Aristotle strorigly believed that 1
for human beings ethics enable mankind to lead successful, rewarding lives.
3.4.1 The Foundation of virtue as a character Trait

Ar*"rk b.l.".d;;;I Aristotles theory throws back at each ir"rdividual a fundamentai questron, 'lthal
everyrhing in life has a
kind of person should we be?' The indlridual himself nrust rerlson this oLrt based,rr
or intelligence. Aristotle believed that everytl.ring in life has a sf_recific goal
specrlic goal, rcy'()_t or felo-s rn
in (,reek. llniy alsir Greek. It may also perhaps be referred as 'objective or purpose'. In or-cler to
iive as a
peritaps be refr:rr..'ci .ts human rvith dignity, one should strive to achieve the te /os fbr a rern,ardipg iife
'obiec t ir,,e Lrr pLr r.pc)se'. Accordrng to Aristotie, in order to achieve a rewarcling life, firstl,v, on" h"s
to live
in a society n'hich promotes justice. It is the responsrbiliiy of politicraps a1d social
t*"d;;t*;l scientists to develop a just society and ensure sociai order to atlain et.rcjairnottLa,
a Greek
a rewarding life, rvord to signify ultirnate happiness or overall wcll being. Secontlil,,
inclir,idgals rrcr.ci
firstly, one has ro live to engage themselves with good friends to support thenito achieve
lheir eyclairTtoTtLa"
in a sociery which These tu'o conditions clearly suggest that humans are socrai berngs
promores jusrice. li
rvho clepencl
is on others to develop themselves for a rewardir-rg 1ife. T'hirdly, ArisLtle
rhe responsibiliry of note<l that
individuals need material or physical provisiom fn. a good [ife. Irinal]r,.
poliricians and social irrdrvicluals
need to develop and cultivate their potential. The firsl tliiee con.litiorrs
scientisrs ro develop nrentioned arc
c'xternal factors, whereas the last one is an internerl ancl intrinsic
a just sociery and iactor for rnciir.idual
sllccess and happiness. The last factor thus throlr.s back to tl-re inclir..icltral
ensure social order to as responsible
anain eudaimonia,
beings' He or she is accountable for his or her own cler.elopmcnt, inilepenclent
a of the
Creek word to signrfy three external factors. Aristotie's Virtue Ethics Theorl, fo.ur., on
this internal thctor
ukimare happrness or 'n,ithin the individual self.
overall well-being. For Aristotle, morality begins with oneself-. it i-, tl're characrer t,i a
pcrsorr. It
begins with seif-love-one's love for his individual self. For exanrple,
if A loves
himself, he will strive to improve in all aspects, be jt physical, rnteilectual,
ForArilb,n.o,.lrl emotionai
or spiritriai. He will not involve himself in destruitive activities rvhich chalienge
begins wirh oneself lr
his dignity as a human being. Self-love is therefo- e a pre-coni-lrtion
is the characrer ofa fbr a yirtuous
person. k begins wirh Person according to Aristotie- Morality requires pcople of good character. Only then
self-love i.e. one's love can they do good deeds. Self-love, in facr,p.ori.1.r"the c.ltiilyst to
develol-r hurnan
for his individual self. potential to the fullest.
Ethicai Theories and Principles 69
3.4.2 Moral Virtues within Aristotle's Definition

Aristotle defined a virtue as 'an activity of the soul', implying a ratiorral principle.
filr.d.d.fr.ra
Underlying the definition of a virtue is a very specific view of human nature. Aristotle virtue as'an acrivity
distinguished two dimensions of humans-the rational and the irrational dimensions. of ihe soull in-rplying
The rational dimension should be dominant. it distinguishes humans from non- a rational principle.
humans. Aristotle refers to our natural desires and inclinations such as appetite, He disringuished
breathing and sexual desire as natural dispositions. Tl-rese dispositioirs should be rwo dimensrons of
controlled by rational thinking and prudence. Natural desires and inclirrations should humans, the rarional
not be left uncontrolled. Once these desires are controlled by one's rational thinking and the irrational
ormenslon_
and intellect, his or her acts will be virtuous. Aristotle admitted that virtues cannot I ne
rational dimension
be developed instantaneously; they should be enhanced and maintained throughout
should be dominant.
an individual's life.
Onc may ask,'What are moral virtues?'According to Aristotle, moral virtues are
habits that enable a person to live according to reason. He also introduced the concept
of 'mean' or 'moderation' in actions. He does not assume that there is a universal
standard that applies to ali pecl Ie (Abdullah and MohamadZainol Abidin, 2011). It is
therefore relative in scope and differs between individual persons.
'\\'herr a person lcnows and chooses a reasonable middle ground between going
too -far or nol enottgh irr his actions, ernotions and desires, "moral t,irtue . .. is a
mean betv,eg71 {tyo vice s, one oJ excess and the other o.f deficiency ond .. it aims
at !,itting a n'Le(ui in fe eling (desires) and actions.'
(Boatright, 2006)
For exatnprle, rvitll respect to ti-re einotion of fear, courage is the virtue of
responding to fear ivith a reasonable amount of daring, whereas being con,ardly is
a r.ice of not being daring enough in response to fear, and recklessness is the vice for
being too daring in response to fear.
One may'ask,'f churacter troits are relative, hoy,does one determirte yuhot is
fPrrd.*. -,h.
reasonable?'According to Aristotle, prudence is the virtue that er-rables one to linou,
virtue thar enables
rvhat is reasonable in a gir.en situation. Prudence literally means'being cirreful and one to know whar is
sensible' in ;ndividual actiot-t. In today's life, certainiy, one has to be knorvledgeablc in reasonable in a grven
the fields aitd are as of decision-rnaking to be sensible. situarion.
Let us recall from Cl-rapter 1 the moral values that are universally accepted as
good, u,hich in fact covered many of the virtues identified by Aristotle:
r Honesty, sinccritl,, reliabiiity, trustr,vorthiness, dependabiiitl,, patience,
prudence, bencvolence (kind and helpfui), compassion, courage, courtes,v-,
f riendliness, moderation, self-control, toleration.
I Interestingly, Aristotle also included pride as u'ell as shame as virtues. !\re

fA...dr.g * Arb.d.,
a 'vtrtuous man' rs rhe
should be proud of our accomplishments (not arrogant) and ashamed of our man who has taken
railures.
rational control of
One may ask, 'l{/ro is the virtuous man?'According to Aristotle, he is the man his life, cultivated his
rvho has taken rational control of his life, cultivated his naturai dispositions int.r moral natural drsposirions
virtues, and has ahvays throughout his lifetime found happiness/pleasure/satisfaction into moral virrues, and
in his actions based on these developed virtues. This description, though ab::tract and has always throughoui
his lifetime found
descriptive, has been used to define a rational man in the legal profession. Likervrse,
happiness/pleasure/
since this definition is legaliv accepted, it is therefore appropriate to use this definition
sarisfaction in his
for a virtuolrs person, as a guide in the development and conduct of indiviclual rnoral
aciions based on these
action.
developed virtues.
70 Business Ethics
3.4.3 The Strengths of Virtue Ethics Theory

Virtue Ethics Theory suggests that one is assessed by his or her moral character; not
specific actions. An individual who has developed good character traits (virtues) is
perceived to be a morally good person, and vice versa. It therefore provides a criterion
for evaluating right or wrong actions of individuals based on character traits" It is thus
a value-based theory
This theory offers harmony between hur.ran intellect and desire, the actual
physical make up of human beings. It identifies what is the right course of action to lead
a rewarding life" Human desires have to be conlrolled. Virtues have to be developed
and enhanced through repetitive training and they will harmoniously foilow by habit
in the process. Moral virtues are well explained in an intellectual manner, though not
objective but logical to describe the actual human nature which performs right and
wrong acts in life"
This theory acknowledges that humans commit wrongfui actions due to natural
disposition. To develop virtues, one has to control his or her desires through rational
thinking and wisdom. He or she must be prudent in action, a practical observation in
human behaviour as a way of life.
Virtue ethics also provides a useful criterion for evaluating sociai institutions and
practices. Besides connecting thevirtues to the conception of a fuller li{e, it reminds
one to examine how character traits are formed and conditioned by the environment.
(Please read more elaboration under sub-section 3.4.5--Applying \rirtue Ethics
'I heory rn Business).
It offers a more holistic understz,nding of iife wrtl-rin business" Apart from simply
describing people as good or bad, right or wrong, virtue ethics encourages a fuller and
detailed description of an action through human characters. For example, relating tcr
a conflict of interest scenario, a person involved in such a situation lacks self-control,
honestl, and integrity. He may be greedy as wel1l
3.4.4 The Weaknesses of Virtue Ethics Theory

Virtue ethics does not seem to have room for basic concepts such as rights and
obligations, so as a theory of ethics, it seems inadequate in dealing nith big issues" It
does not always have a view about what makes an act right or wrong frorn institutional
dimensions.
Aristotle's 'mean'principle does not easily apply to all r'irtues. Compassion, fot
example, at its extreme may become vice. But horv do lr,e determine that it becomes a
r.ice at its extreme?
It may be seen as a 'selfish' theory by morai scholars since the focus is or-r inclividual
development rather than the effect of one's actions on others.
Aristotle was writing in the context of the 4th (lentury BC Greek city state, in
which inequalities between noblemen and the slaves were the norm. The whole of
human life underwent transformation. Today, people have reasonable incomes and
open slavery is no longer a common feature. Cultr-rral differences may also influence
characters.
i
Aristotie's virtues such as bravery and honour may be regarded as mascuiine,
ignorrng feminist character traits such as humilrty and ernpathy. Aristotle regarded
humility as vice during his time, whereas humility today is ;r noble character of people -
I
with integrity. It is a virtue to be consciously en-ruiated and internalized fiom religious

dimensions.
a
t
L,
EthrcalTheoriesandPri.nciples 71
Some philosophers have argued that virtue ethics is not consistent with the
findings of -od"i, Psychology (Harmon, 1999; Doris,2002).In a study invoh'ing
it .oto[y students at Princeton University Divinity School, a conclusion was made
"p..ror', is determined by his external situation, not by his moral
that a behaviour
character (Velasquez, 2012) -
As with anytth.. man-made theories, there are weaknesses as wellas strengths.
until
interestingly, Virtue Ethics has survived for centuries and has been dorninant
scholars have argued on
today (Ab-duilah and MohamadZainolAbidin,20ll). Some
the exient of applicability of Virtue Ethics in the world of business because
of the
peculiarity of it . busineis world (You may recall that we discussed this in the last
section of Chapter i). However, it is still relevant and applied by people who are
conscious aboui the internalization of virtues for a good life as convinced by

Aristotle
during his giorious davs. How can we apply Virtue Ethics in business?
3.4.5 Applying Virtue Ethics Theory in Business

In business, Virtue Ethics Theory couid be applied directlyby holding that the virtues
of a good businessperson are the same as those of a good Person'
ifter all, we have noted that business is a part of life. Therefore, it goes lr'ithout
saying that business people have to emulate virtues as part of thelr character
t.rlt, ihut more rvithln a healthy organizational culture context. \Ve note that
are
businesspeople neecl to engage themselr,es in tjusiness-reiated areas since ti-rey
,"pr.r"nting their organization. They need to achieve basic organizational goals
s',.,.1, u, proiit making. Horvever, organizations are made of
humans r^"ho have the
intelleci to assess rightful and rr,rongfui actions, while baiancing with their own
desires a1d interests. So, as humans, they have to consciousl,v ernulate virtues. For
exampie, good business managers must care for their employees and customers
although they hare to make decisions from various dimensions and ievels. We
discussed this in Chapter 2.
Business actions must be seen to be fair and just and refiect a high sense of
respecr for others as a human right and social accountability. A ristotle's Virtue Etirics
is universall,v relevant from business contexts, what more from humanistic
itill
dimensions.
3.4.6 Virtue Ethics from lslamic Perspectives

Aristotle's principles are certainly relevant from Isiamic ethics dimension,
u,hich integrates the inner and outer aspects of an individual's life and promotes
rationalization through human inteliect; moderation and balance betu'een physical
and soul developrneni (lU" Manzur, 1990; Miqdad Yaldin, 1973; Al Maududi, t978).
In lslamic Ethics, there needs to be balance between individual physical devcloprnenl
and soul development, although priority is on the soul development; crucial to the
indivrdual's behaviour and character development (Norazzah Kamri, 2C10; Ibn,
Manzur, 1990).
Aristotle has defined a virtue as'an activity of the soul'. Aristotle's Virtue Ethics
theory thus emphasizes on soul development, compatible with Islamic ethics, which
concerns nkhlaq, i.e. hlman nature, attitude and habit (Ibn Manzur, 1990).
Virtue Ethics, as a value-based deontologicai theory, seems to har:monize well
wrth ilm al-akhlaq in Islamic ethics; the building of aqidah (i.e. the cotrviclron and
beliefs of islamic faith) and one's character as a foundationfor itnan (fanh) and ihsart
(bener.olence; being kind and heipful). Ilm al-okhlaq, as a branch of knor'vledge, is a
I
I
I
I
I
72 Business Ethics
science which deals with the ways to maintain virtues at the optimum level, i"e" to
avoid wrongdoing and do what is right and desirable (McDonough, l9B4). Aristotle's
theorywas no doubt silent on human submission to God but his rational theory gained
keen interest among influential Islamic philosophers such as Al Farabi and Ibnu Sina.
ri
Al Farabi was known to be an expert on Aristotle's moral philosophy.
In addition, Aristotle's theory was also intensely studied by Imam A1-Ghazali, 4
who noted his logical thoughts with epistemology of knowledge. Despite the contrast ?
and different ideologies and viewpoints of both scholars, AI-Ghazali in f'act built i{ ---
t
di
his Sufism principles from Aristotle's logical thoughts on the natural disposition of
humans. Al-Ghazali even made full use of the Aristotelian theory of the golden mean s
to expiain the balance between the human body and soul clevelopment. In fhct, Al-
Ghazaii composed three works on Aristotelian logic i"e. Mi'yar ctl-'ilm (The Standard
Measure of Knowledge), Mihakk al-nazar f'l-mantiq (The 'Ibuchstone of Proof in '4
.l
Logic) and al-Qistas al-mustarlim (\'he |ust Balance). ,}
Aristotle's Virtue Ethics has been one of the most influential contnbutions rn the *
study or philosophy. Virtue Ethics has survived for centuries as an ethica] theory for *!
reference despite criticism from moral philosophers. *.*

Following the Virtue Ethics T'heory, we shall cover another deontologrcal theory
which reiates to the virtue of caring for others-Ethics o1 Care.
3.5 ETHICS OF CARE
Many ethicai tireories assume tha,t one has to be impartral to nrake ethrcal decisjons"
We should detach ourselves frorn an issue to be resolved, put aside our emotions
to make objectir.e and effective decisions. Consequentll,, u'e should set aside any
speciai relationships that we have with particular indir.iduals, relatives and lrrends in
determining what we should do, especially at the r'r,urkplace .
As a supply and material services manager, responsible tor negotrat urg Lontracts
for the organization, Mr" A should avoid any possibility of oflering contracts clirectiy
to relatives, friends, etc., which is unfair and nepotistic, and tl"rereftrre uncthical. A
utilitarian advocate lr,ould assess from the good and bad conserlr:ences of such actions,
especially on issues related to efficiencp Kant's first calegorical irlperative mav share
the same view since it does not seem to follow a r,Lniversal lar,r,of justrce anci fairness.
Perhaps, Aristotle's Virtue Ethics ma1, require further anaiysis to justify the rishtness !
or wrongness of such actions based on the reasoll or purpose and r.irtues oi l1're person
himself, such as honesty, compassion, etc. Ei
Erh., G;;;-1 Interestingly,, contrary to these theories is Ethics ,rf Care, developed 1-,v *i
h
"f
eth,c thar emphasizes psychologist, Carol Giliigan, seen as a feminist theory by the West, a ner,r. approach to k
moral development, though not quite in eastern dimensions as caring is a value in a s
caring for the
concrete well-being society u.hich promotes collectivism rather than ir-rdividualism. fhis theory requires
of those near to one to be partial in resoiving ethical issues. Ethics of Care is an ethic that emphasizes
us. lr emphasizes caring for the concrete lvell-being of those near to us. Tt emphasrTcs on preservirrg and
on preserving and nurturilg concrete valuable relationships.
nurturing concrere
We shouid care for those who are dependant and related to us. A moralit1, of care
valuable relationships.
rests on an understanding of relationships as a response to another in their terms (Lyons,
Also, this rheory
i983). According to this 'care'view of ethics, the nr:,ral task is not to fbllow universil anC
requires one ro be
partial in resolving
impartial moral principles, but instead to attend ancl respond to the good of particular
ethical issues. concrete persons with whom we are in a valuable and cJose relatronship (Blum, 1994;
11
Ethical Theories and Principles /J
Dillon, 1992). Compassion, concern, love, friendship and kindness are all sentiments or
virtues that normally manifest this dimensron of morality (Velaquez,2012).
In applying this ethicai theory, it is also irnportant not to restrict the notion of t---.--
I A communrtarran
relationships between two individuals or a relattonship between an individuai ethic is an ethic
"oncrete
and a specific group. Advocates of Ethics of Care have emphasized that it should that sees concrete
encompass the larger system relationships'that make up concrete communities. It communities
is classified as a communitarian ethic, an ethic that sees concrete comtnitnities and and communal
communai relationships as having a fundamental value that should be preserved and relarionships as
:iraintained. For example, in an organization where employees suPPort the employer's having a fundamenral
value rhat should
business r.entures, the'caring' culture should be cultivated and nurtured since there is a
be preserved and
.oncrete relationship between the employer and employees. The organization's success
mainrained.
ivould not have been made possible without the invaluable contribution of the employees
aithough the emplove. has pioughed in capital and taken risks to spin the busitless.
3.5.1 Justification to Support an Ethic of Care

The identity of oneself (i.e. rvho i am) is based on relationships with other people.
rn indir.idual human being cannot exist in isolation from caring relationships rvith
'fo start r'vith, we u,ere born and cared for by our parents; we were taught by our
'rthers.
teachers in schools, lecturers in higher learning institutions, etc. We join the Iabour
mark:t and lvork in organizations as part of the workforce. We live in a community
sharing the same language, tradition, cuiture and other benefits that define our
,hr,sica1 and spintual needs. We emulate a culture and tradition, derived from people
,rtlr-rnd us. lt is also these concrete relationships that make us understand our ort'l.t
sr-1f. 1n i'act, the value of oneself is uitimately derived from the value of the comnrunity.
, heretbre, it is pertinent for us to nurture a caring t alue among those who havc
pported us to be nhat 1.,,e are toda1,, not only fro,.r an individual dimension but fronr
.' r,ocietal dirnension, inciuding the business arena.
3.5.2 Distinguishing the Three Forms of Caring

.hics of care classifies three forms of caring-caring about something, caring after
:.0rreore, and caring for someone.
3.5.3 The Difference between the Three Forms of

Ca ring
.{ccortiiris to Ethics oiCare, there are three forms of caring, as rllr:stratecl in Figr-rre
\,-r- rvi1l discuss thern in the following sections.
i ...,:re 3.4: -Ihree forrns of caring according tc Ethics o{ Care

4 Business Ethics
Caring about something

T'his relates to the kind of concern and interest that one can ha\re for things or ideas
where there is no second person i:r whose subjective reality one becomes engrossed.
For example, the'care'seen in bureaucratic service institutions such as the gr:r,ernment
social and rvelfare departments, water works departments, etc. 'Ihough they 'care' for
the needs of the people concerned, the'care' remains'objective' and'distant'. There
is an element of impartiality since as long as the sen,ice is provided, the'care' is seen
and 'delivered' to the appropriate people or parties who need such services" However,
caring after people in this manner is not considered as 'caring' from the Ethics of Care
perspective.
Caring after someone

This relates to caring for someone who requires our supporl or services because of
some limitations that the person is experiencing. For example, Miss A is sick and
requests that we send her to the hospital. Wc offer our help out of syrnpathy. This is
seen to bc caring, no doubt, but we are helping because the person needs he1p. Ethrcs
of Care does not classify this as'caring'too.
Th" krd;f .*. I
promoteci by Erhics
of Care is 'caring Caring for someone
for someone'. lr is 'I'he kind of care promoted by Ethics of Care is 'caring {,rr soineone'. It is the kind
engaging and deep
of care shown by a mother to her child. It is engaging and deep, r'r,itir feelings and
wirh feelings and
emotions. The'caring'is not'detached'br.rt 'engrossed' rn the person and atlempts to
erlotion. The values
see the norld through the eyes and values of the person (\relacluez, 2012). 'Ihe values
rhar maniiesr rlrt
r,rirtLre of 'carir-rq' in
that manifest the virtue of 'caring'in this situation arc c()nlpassion, concern, [ove,
f riendship and kindness.
rhis situarion are
cor-npassion, concern. Aptly, the caring is for the persons'general nell-being. It involr,es a tu,o way
love, friendslrip and process of nurturing for personal individual development" Ihe caring process; should
kind ness. not, however, develop or foster over-dependence on ()ne another.
3.5.4 The Moral Demands of Ethics of Care

rh" Ek;;;i;;-1 Ethics of Care theory emphasizes on two moral demands:
theory emphasizes on
two moral den-rands. r We exist in a web of relationships and we should preserve and nurture those
. We exist in a rveb concrete and valuable relationships.
of relationships and r Each one of us must exercise special care for ihose r,r,ith u,hont lve are concretely
rve should preserve related by attending to their needs, vaiues, desires and concrete rvell-being"
and nurture
Hou,ever, there are two important issues to note under this theor1,.
those concrere
and valuable 1. Not all reiationships have value, and not all would re sult in the dutics of ca'c
relationsh ips. towards others. The following reiationships lack the value that an ethic of
. Each one of us musr
care requires:
exercise special
care for those
r Relationships in which one persoil attempts to dominate, oppress or
with whom we are harm another-
concretely related o Reiationships characterized by hatred, violencc:, disre specl and
to by arrending viciousness.
ro their needs, o Relationships characterized by injusticc, exploitat ion and harm to others.
values, desires and
Therefore, wc are not obliged to maintain or nurtrlre these relationships A
concrete well-being.
relationship that exhibits the virtues of compassion, love, concern, friendship
and loyalty should be maintained and nurtured.
Ethical Theories and Pr-inciples 75
2. it is important to recognize that the demands of caring are sometimes

conflicting with the commands to uphold justice. E.g. Amy is the human
resource manager of ABC Sdn. Bhd. By offering a job to her relative out of
being caring, it may be in conflict with the demand to be just and fair i"e" by
offering the job to someone who is better qualified than her relative"
3.5.5 Ethics of Care Theory from lslamic Contexts

Although the non-caring demands and reasoning based on Ethics of Care (as
highlighted in the first issue above) seemsvalid from rationai thinkingand judgements,
it is conflicting with Islamic ethics. Isiamic ethics totally beiieves in rnaintaining a
harmonious relationship based on peace and compassion. Caring is preached even
tor enernies. The classic story of Prophet Muhammad SAW visiting a sickly |ewish
o1d ]adv, his neighbour who used to throw human waste in front of his house, clearly
suggests that in Islam, there is no relationship that is free from care of others" In fact,
believers are encouraged to e..en patch up relationships lvithin three days after a
conflict. Faiiure to do so is a sin in the eyes of God.
Another episode was how the famous Islamic military leader, Salahudin Al
Ayubi treated Richard the Lion Heart and the Crusaders during the Battle of ArsLir to
capture ]erusaiem from the Muslims in 1192. When Richard was suffering frorr fever,
his appeal to his enem),, Salahudin Al A1.ubi, to send fresh water and fresh fruit was
an,su-eretl as a religious obligation to help those in need out of care, even for an enemy.
Salahudin's positive response to send frozen snow to the crusaders, to be used as u,ater
and fresh frLrit during the war is another proof that the yirtue of care is promoted rn
lsian under a1i circumstances (History Learning Site, n.d.).
Believers are nell reminded in a Quranic verse:
'l.l one tltnong the Pctgans ask thee
for as1,lum, grant it to him, so that he tnay
hear lhe \\rord of God; and then escort i,im to where he cart be secure . ?-,lrl.s i-s
becttLse they are men without knowledge'
(Al-Quran, At Taubah, Surah 9 Verse 6)
The sprrit of caring is beyond bad relationships and enemies in Islam. These
sentiments are aiso reflected by the emphasis on promoting ukhuwrtft among the
ummah, despite cultural diversity and other demographic differences.
The second conflicting issue between caring and justice seerrs to bc an ethical
tlilemma but may be resolved by being honest and transparent in the process.
I{elating to tl-re above scenaricr, perhaps Amy, the human resource mana!'.er of AB(l
Sdn. Bhd. could still help her relative to be considered for the job out of care by
encourasing her to apply for the vacant position with other interested candidates.
,o!{ver, Amy rvill not get invoived in the shortlisting process or eyen sit in ihc
irttervieri'session with panel members. She will choose to be an independent party
, : the decision-making process as a professional employee. If her relative turns out
to be the raost suitable candidate to fill the position, it is the decision of the rnterview
panel by which Amy is not a member. Amy still displays a caring attitude by giving
a chance for her relative to be considered for the vacant position. However she does
iiot use her power to directly appoint her relative into the position to uphold justic.e
, r the recruitment process.
Ethics of Care seems to focus only on the virtue of care, much as there are many other
i:rod values that hrimans need to internali ze in life. Certainll,, as we had noted eariier,
lhe vaiue of caring encompasses several other sub-values such as love, conrpassion, etc.
Let us next understand some of the strengths and weaknesses of this theory.
/O Busrrtess tthics
3.5.6 The Strengths of Ethics of Care

It forces us to focus on the moral value of being partial towards those concrete persons
u,ith whom we have special and valuable relationships. fhe closest are our parents,
immediate family members, neighbours, colieagues at the wr.rrkplace, etc. 'fhey are
those who have made.us what we are today. This is certainly a ctvil and humane action,
deeply rooted and supported by all religious principles, irrespective of differences in
the fundamentals of beliefs.
It obligates one to realize the moral importance of responding tn such persons as
particular individuals with characteristics that demand a response to them that we do
not extend to others. It reminds us of the moral obligation to care fbr these peopie who
are speciai to us in all ways.
3.5.7 The Weaknesses of Ethics of Care

2:
Ethics 'f Care can degenerate into unjust favouritism. As favouritism is an act o{ i
injustice,the.over-caring,behaviclurmay1eadtoinequa1ityoftreatmentzrmongthosc
we are fond of, leading to unfair treatment towards others. For exaurple, ii Amy, the
human resource manager, becomes too engrossed in wanting to hclp her niece to get a
iob in the same organization, she may directly offer her niece ..r.tthin the porver given
to her and not consider the applications of all otlrer caudiclates; an act of injustrce
and lack of professionalism since it will violate organizational polrcies ancl guidelines,
nhat more justice and rights principles.
The Ethics of Care demands can lead to stress and 'burn-out' I his ethic seems to
deniand that people sacrifice their orvn needs and desires to care for the r,vell-being of
others. While we may {ocus our cnre on immediate farnilv members, neighbclurs, etc.,
since this theory requires one to care like 'carir-rg for sorteone' a.,. earlier described,
over-caring may lead to stress in the process of balancing the myriad of needs oiothers.
Assuming that over-caring rnay lead to 'burn-out', it may bc minimized by settrng
priorities and by being honest and sincere in the relatrorrship in the spirit of carins. \\'e
need not be extreme in the caring process. \4re certainly have to exercise jr-rdgement
and prudence in our actions. For example, our parents rvish to see Lls visiting them
this weekend, If we are very bus1,, rve just har,e to say so aircl suggest other ways to
shorv that we care for them. We can call them often, e-mail a note or evrn suggest
another day to visit them out of the caring feeling and obligation. \\re do not have to
endure the stress of maintaining the carrng feeling, seen to be a sigr-r of insrncerity 1r-r
our relationship.
Despite its weaknesses, Ethics of Care reminds us of the rmportance of ,
ir-rternalizing the virtue of caring from not oniy an inclividuiri perspective but also ,.
from communitarian dimensions. As socialbeings, we are obligated to complement

one another as a two-way process to nurture harmonious relationships, especrelll'
arnong those who are closely a.ssociated with us, be it irnmediate family members, ;
business colleagues, etc. It is certainly a call from ali rclieions fbr humans to develop
nobie values such as coinpassion and caring, universaily accepted moral virtues"
Perhaps, we must continuousiy remind ourselves rvith this slogan, 'Caring is sharing'.
Tire extent of caring is no doubt subjective and relative since it is dependent on the
rviilingness of oneself to reach out to others, the lol,ed oiles as lvell as e.,reryorle else in
the webr of relationships that we sustain in life.
Let us examine the following business case before we go on to the Theory of
Rights. 1
Ethical Theories and Principlesr ,,77
Rayland lnrernarional, a mulrinarional corporation, has been operating at Senawang lndustrial Area
for rhe lasr 15 years, producing microchips for the export market. The company provides employmenr
opporruniries for 1,000 Malaysians, holding execuiive and non-executive positions. lr has been
providing a competitive compensation package to all employees.
High performance employees are further rewarded with performance bonus over and above
rheir yearly salary increments to moiivate them ro continue performing well for murual benefits. The
company has also been paying bonuses to all employees for rhe last five years due ro commendable
bLrsiness performance. The microchips have been extensively used for rhe prodr-rction of mobile
phones anC computers, highly demanded in today's global market
To everyone's shock, on 31 August 2010, Rayland lnternational, Senawang caught f rre The whole plant
was burnr down and losses incurred were massive. En. Ridzuan, the chief linancral controller, esrimared
rhe losses ro be RM30 million. The chief execurive officer (CiO), Mr. Andrew Leong, r.vhen con[acted was
srill in a stare of dilemma, rrying ro find out what led ro the plant's fire. However, he felt greatly relreved
afrer realizing rhat the company had secured a fire insurance policy from Allianz lnsurance.
,: Following rhe frre incidenr, rhe Board of Directors (BOD) immedrately met to discuss the
nexr steps ro be raken. Should rhe Senawang plant be rebuilt or should rhe operation of Rayland
'lnrernarional be shifted ro other ASEAN nations such as Vietnam or Thailand where labour cosl rs
comparatively lower? After all, business has to continue since there is a readv matl.er lor rnrc.rochips.
Furrhermore, Rayland has esrablished a strong network and good reputation all rhese years However,
should ihe company also consider some other related busrnesses as a diversil'rcalion straiegy . nce
ihe Senai,vang planr has been forcibly shut down due to the fire?
AssLrme you are N{r. Andrelv Leong. What will be your immediate steps to addrcss
the prc,blerr-r after the plant caught fire? As a CEO of Rayland Internation?l}, yg11 or.
also a men'ber of the BOD. According to the Utilitarian Theory of Ethics, should the
piant be rebr,riit or otheru'ise? Will your decision differ if you were to apply Aristotle's
\-irtr.ie Ethics and Ethics of Care?
-r"e-rt, u,e shali cover the
'Iheory of Rights.
3,6 THEORY OF RIGHTS
i:.iqhts plar. an important role in business ethics; what more in moral issues. The
political struggles in Egypt and Syria, the survival of Rohingya Muslims in Myanmar,
the future of Gaza Paiestinians, the cries of women activists to promote gender equality
and the recognition given by the West for the rights of homosexuals are i'nough to
explain the emphasis placed on human rights in today's global environment.
In the husiness environment, employers, employees, consurrlers) the generaipublic,
etc., each have their own rights. Employees have their right to be treaied fairlv bv
,'nployers for the services pror.ided in the production of goods and services. irrnployers
also har.e their rights to minimize cost of production by retrenching re,iiurdant staff
!r 1irl1
'.;ring an economic crisis to sustain business. In the marketing arena> consumers have
7B Business Ethics
their rights to enjoy quality and safe products. Likewise, producers and manufacturers
also have their rights to produce the kind of goods that reap rnaximLrm profits for the
high risks taken. Practically, everyone is claiming for their rights nowadays.
I'he concept of rights, though humanistic, can be confusing and manipulative if
not well-understood because everyone claims that they have rights. We may realize t'
that rights can be conflicting and the claim of a right by a party is frequentiy the
beginning of an ethical debate rather than an end (Boatright, 2012). Nevertheless,
'right' is an important ethical concept that needs io be appropriately understood E
within individual as well as social contexts. *

ia
*i
3.6.1 Conceptualizing Rights

Al1 religions acknowledge that humans and non-humans have rights. The c-oncept of
rights is certainly closely linked to justice and fairness. Horvever. in order to fbcus on
h
rights as an ethical concept, ethics scholars have attempted to separate the concepts
of right" and justice although they are ciosely related. \{e shali firstly examine the
Theory of Rrghts" ff-.
*
R,ghrr.r. b. --1 United Nations [Jniversa] Declaration of l{uman Rights in 1948 set forth
explaineci as basic human rights for all people. But what are rights? ltights can be explained as
entiiiemenrs t,-, entitlernents to something. To have rights is to be cntitled to act on our owtl or to be
scrnethrng. To irave treated by others in certain rvays without asking permission ol anvone. T'o have rights
rights is ro be er.rrrrled is to he free and independenf of someone's good r.vill" In r:ther u,ords, it gir.es a person
to act on our own freedom to act in the manner he or she deems fit r'r,ithout lravinq to follol Some terms
or ro be treared by
and conditions laid down by others.
orhers in cerrain
ways wi:hout askirrg
Although today's rvorld promotes standarclization and Lrnilbnnity at the
per inission 6f 2nyr;ne.
workplace, an employee has a right to 1\'ear any outfit that si-rit,c hi-c or her taste and
colour as iong as it is decent and suitable lbr work. It i'nav be r,iolating rinc's right if
another person or colleague comments on one's dressrng because ever)'one has a right
to dress up in the Inaniler he or she u,ishes as a cir.i1 hr.tmart being.
Conceptually, rights may be classified into legai and moral rights, spec"ific and
general rights, and negative and positive rights (Boatright, 2009 aiid 2012; \relasquez,
ti
2012). Figure 3.5 summarizes the various types of rights.
*!
Negacive and
posirive righrs
Figure 3.5: The various types of rights

Ethical Theories and Principles
3.6.2 Legal and Moral Rights

Legal rights are those which have been recognized and enforced as part of a legal f t"grl tighu^*-
system or law. For example, the Employment Act 1955 (r ith revisions) in Malaysia lays those which have
down provisions to protect workers from being exploited by employers. Tire detlned been recognized and
legal rights of employees are out of a legal system which states employees' rights to enforced as part of a
ensure justice and fairness. legal system or law.
On the other hand, moral rights are those entitlements that we ought to irave out of
general ethical rules or principles. Moral rights do not have to depend on the existence of
lMr"hqht*r*h"*
entirlemenis rhar we
a legal system to determine the individual right. For example, the right to be treated with
oughr ro have out of
respect by others is a moral right of any human being. Although Mr. A is a floor sweeper
general erhical rules
in the streets, he has a moral right to be respected as a human being. We treat hiin well or principles.
bv acknorvledging his contribution and supporting him in any way. It challenges his
right if rve \r,ere to mistreat or humiliate him because he is undertaking a low income job
in the streets. It is a moral right to act fairiy towards everyone irrespectir.,e of differences
out of respect for human dignity. Moral rights is synonymous with natural or human
rights which shall be covered i,- greater detail in Section 3.6.5.
3.6.3 Specific and General Rights

Specific rights reiate to and involving identifiable individuals or parties e.g. in lSprofl-Eh"
contrarts and agreements. It creates mutuai obligations, duties and commitrnents - relare ro and
between the parties. For example, when we sign a sales and purchase agrcement to rnvolve rdenrhable
buv a house, there are specific rights that are defined for both parties, be it the buycr individuals or parties
rr seller'der.'eloper. One of the rights of a buyer is the ou,nership of the property n ithin e.g. in conrracrs and
: stipulilgd perlod of 18 months. Failure of the de'r,eloper to fulfil the buyer's right rvilJ agreements.
obligate him to pay corrpensation to the buyer for the inconvenience caused. '1'hrs is a
specific right of the buyer, clearly written in the contract through mutual agreement
that is binding between the two parties. lcrrrrrk,gh"
involves claims
General rights, on the other hand involve claims against everyone, or huntanity
againsr everyone, or
in gencrai, e.g. freedom of speech, the right for survival, the riglrt to be resl'rected as a
humanity in general,
PerSon. etc Relating to freedom of speech, if Mr. A stops Mr. B frorn givine his viervs e.g.freedom of
Lr\'.r a concern or issue of interest, such an act is seen to be vioiating Mr. B's riglrt to speech, rhe righr for
erpress ]rimself as a civil human being. In fact, enforcernent of general rig]'rts rests survival, the right to
'rith the n-hole community. be respected as a
person, etc.
3.6.4 Negative and Positive Rights f Nrgrr-, tghtt^"

correlared wirh
Negative rights are correlated with obligations on the part of other people or parties
obligations on rhe part
to conscit-rusly refrain themselves from acting in ways that interfere u,ith one's i)\\.11
of orher people or
rreedon-. of action. It relates to the right of human beings to
be free from outsirlt, parries to consciously
interference. Examples of negative rights are individual right to property ar"rd rvealth
refrain from acting
accumulation, one's choice of religion and beliefs, freedom from injury or tl're right in ways rhar interfere
lbr survival, and the right to individual privacy. Negative rights, thus, requir-e another with one's own
person or party to respect the rights of others by not interfering in their pcrsonai life freedom of action.
\)r undertakings.
Positive rights, on the othe; hand, impose obligations on other peopie to provide fP"t.r,r, ,',ch*'^p
us with sorne good or service and thereby act positively on our behaif. It ref iects the obligations on other
vital interests that human beings have in receiving certain benefits f.om son',:one or people to provide us
society. For example, the right to be provided with adequate health care, provisron of with some good or
child education, the right to a decent standard of iiving as proclaimed by the United servrce and thereby
act positively on our
lrlation's 1948 Human Rights Charter, etc. In other words, it closely relates to the rights
behalf
0 Business Ethics
of society members to enjoy social benefits provided by the priblic sector through
government expenditure to fulfil one's basic physiological needs.
We have elaborated on the types of rights. Let us focus on naturai rights or human
rights.
3.6.5 Natural or Human Rights

N*r;;EG;-l In the classification of types of rights, we had earJier explained moral rights. A sub-set
rights rhat belong of moral rights is natural rights. This type of rights had been prominently covered in
ro all persons, being historical literature. These are rights that belong to all persons, being humans. it also
humans. covers general rights that society has to enforce to respect an individual being.
The idea of natural rights has long been debated in history, going back to the
ancient Greeks, who held that there is a 'higher' law that applles to ai1 persons
Th; U.ir.d Nr""* I everylvhere and serves as a standard fbr evaluating the larvs of the states. Both
Universal Declaration Roman law and the medieval church adopted this idea and developed it into a
ofHuman Rights ' comprehenslve legal theory.
in 1948 sets forrh The United Nations Universal Declaration of Hurnan Rights in 1948 sets forth
basic human righrs
basic human rights for all people. This declaration covers natural rights. Horvever,
for all people. This
they call it by a different term i.e. huinan rights. These are rights that belong to all
declararion covers
persons purely by virtue of being humans, rrrespective of race, gender, nationality and
natural righrs.
However, they call it
othcr diflercnces.
by a differenc rerm i.e.
There are two main features of human rights i.e. universality and unconditionalitl li:
human rights. r Universality refers to rights that are possessed by everyone, rrrespecttve of )'
demographic differences such as race, religior-r, gender, nationality and so

T*" .rrj.;t.t I forth.
human righrs'.
"f r Unconditionality refers to rights thai cio not depend {)n any particular
. Universaliry r.e. practice or institutions in society. It is therefore not conditronal, and noi
righis rhat are dependent on situations or circurlstances. It also means tirat there is nothing
possessed by
we can do to deprive ourselves or others of these rights.
everyone, and
Examples of natural or human rights are the riglrt to be treated u,ith justice and
. Uncondirionaliry
fairness, the right for freedom of speech, the right to choose one's way of life, religior,
i.e. rrghrs rhar do
etc.
not depend on any
panicular pracrice t
or instirurions in
society.
3.6.6 Natural Rights Theory
g
I
The most influential natural rights theory is the theory presented b.v Iohn Lercke
0633-1701) in his famous Second Treatise o_f Goyernv'tent (1690).l,ocke began rvith the
assumption of a state of nature, rvhich is the condition of a free human being, in the
absence of any government. According to lohn Locke's Natural Rights Theor1,, human
beings have rights, even in the state of nature, and the justification for uniting into a state
is to protect these rights. In other words, a society or nation tbrms a go\rernment as a
representative of all members to protect their individual naturai rights as human beings.
The most important natural right fcrr Locke is the right to property. Although the
borrnty of the earth is provided by God for the benefit of everyrine, no one can nrake
use of it without taking some portion as one's orvn. Each of us has a right to a fair share
of the bounty of the earth based on our efforts and contributions to the society that
we iive in. T'his is done by means of our labour, which, to Locke, is a fornr of propertl,"
As he writes,
'Etery man has property in his own pet s0t1, so Jllte Labour of his bady and thr
work of his hands.. ... . cre praperly his.'
(Boatright, 2012)
o4
Ethical Theories and Pnnciples ot
Man survives by reason and in order to do so, he must be free from the ignition
of force, as required by his rational nature. Society can be greatly beneflcial to the
individual because of mutual protection, division of labour and economies of scale. Q u.i-i5 t4 rtsn
aS A{gh'c belt
However, it is only beneficial to the extent that the individual is free to act and survive cn46-Dl,ts
according to his olvn reason"
A right is a moral principle defining a man's freedom of action in a social contexi. @ eqJuAl;\X as q
(rx&t'aen+a]
Individual rights state explicitly the requirements for a person to benefit rather than
e
sufter from living in a society" Rights are absolute requirements of iife within a society hr no']at
(lmportance of Philosophy, n.d.). By the rational nature of humans, rights are not & -t;q t+ h'ewtcrn
arbit rari' or negotiabie. YqLe
It appears that the Natural Rights Theory very much complements capitaiistic
teatures such as individualism (i.e. pursuance of self-interests) and freedom to CD re\$iow
q
G-c"dn""
accumulate t'ea1th. The Theory of Natural Rights has in fact spurred the development O .;51*t -$ auoners'kf
of more rights-based theories such as the Libertarian/ Entitlement 'fheory and the
Theory of Egoism. Horvever, we shali ieave readers to do their own research on these 6 ^t* d i'c[i.adt^<\
theories in the knowledge seeking process. FsJa115
Let us examine the concep. of property rights from the Islamic ethics dimension. O"lU* a-Q +o honourltk'
Islamic ethics recognizes that man has the right to own property and weaith. and this lrt<
right is protected as long as the means of acquisition is lawfui and within the ethical
@ 0*=drr- -t ax?,*"r:o
Irar-rerr'trrk devised by Allah (i"e" based on the commandments in Al-Quran and the e'"{ i^-\r"v.a\q
Stinti,iit;. The rieht to use and benefit from one's wealth and property rnust not be
)
ayr *" qeL.crrt-.r\
exercise -i at ti-re expense of the interest of the community (Gaafland et al., 2006'). As
a vicegererrt orr carLir, rnarr is required lo acl as lrustee and depuly of AIIah SBT, in
@ eorrrrco.\ ;31"+
dealing r.r-ith the univcrsc and its environment, wealth and othcr creatures (Zinkin
and \\-illiams, l0i{-ll. In this sense, man's right is not absolr,rte but subject to the ruies
.rithe Alrrqhir in all aspects of lif'e.
Let us 'brieflv discuss the strengths and weaknesses of the Theory of Rights.
3.6.7 The Strengths of Theory of Rights

r It defines and confirms that ali humans have rights by virtue of being an
jndir.idual being. In social relationships, we have to respect this right as one's
.'iriitlement oui of respect for human dignity.
r ii rs aiso a concept that is relevant from religious dimensions and interhnkcd
rvitl-i justice principles, a virtue to be emulated by all humans.
r f'he Natural Rights Theory acknowledges that every person has a clairlr or.er
his efforts to accumulate property. As long as he uses his onn efforts, body
and hands, he has an ownership/right towards his wealth and propert,v. This
is a capitalist principle, well accepted based on social justice.
3.6.8 The Weaknesses of Theory of Rights

r 'I'hrs theory can be confusing to the mind, especialiy if everyone claims for
indl.'idual rights. The issue will be whose rights are we going to fulfil?
r If any rights rnaybe conflicting rvith one another (refer to earlier explanations).
r i\{ore oflen, Theory of Rights cannot be seen as an independent theory
without linking to justice principles. It may not also be justifiabie to be
applied independently ivithout relating to other ethical or religious principles
because it is a theory based on rational thinking and human judgement.
i.et us elaborate further on the;rbove point b1 correlating the concept of rights
with justice ancl religion. In Islam, rights are no doubt duly recognized to uphold
)Z Business Ethics
justice. However, the context of uphoiding justice has to be done by referring closely to
the divine commandments/verses of Al-Quran and the Sunnah.In Islam, adherence
to this ethical code is part of faith (Haniffa and Hudaib,2002). For example, the cry to
legalizehomosexuality as a human right in today's world will not appeal to believers of
Islam who will stand by the Quranic verses, Surah Hud, t2:77-83 that homosexuality
is an outright sin although from human rights principles, it is rationaily iustified"
Muslim readers may want to refer to these Yerses in Al-Quran.
Interestingly, similar views are shared by believers of other religions in Malaysia
on this controversial issue. Aptly, all religions recognize that homosexuality is rnoraily
wrong. It is clearly violating the rules of God from Shari'ah princ.iples and all other
religious principles. Even from Kant's Ethics, such an act is in conflict with the
uniyersalizability principle; what more the acts and rules of natLrre.
Certainly, the homosexuals have a right to live and based on justice principles,
one cannot discriminate them in en-rployment or in other areas. It is also noted that
we cannot control peopie's lives. Humans are given the free will and right to decide for
themselves how they are going to conduct :heir personal lives as a responsibility but
they will be accountable for their actions; right or wrong'
Jnstitutionally, we cannot legalize wrongful acts by compromising religious
principles although from human rights principles, homosexuality may be rationally
justified since it has somewhat been accepted as a norm tn the \\rest. Malaysia, with
Rukun Negara as its guiding principle, is a nation ivhich upholds belief in religion.
With Islam as the main religion, it will be appalling to legalize hotnosexuality as
a human right although the West has long recognrzed rt. Wi: believe that human
judgements have iimitations indeed. Certainly, thr: degree of ttne's religiosity and in-
depth knowledge lvill determine hrs or her actions in exercising inriividual rights to
fulfi1 social obligations.
Finally, we shall discuss the Theory of iustice.
3.7 THEORY OF JUSTICE t

E
fts*
!
t
h
E
r
3.7.1 Justice.as a Concept r-
I!
F
|ustice is another important moral concept witir a wide range of applicatrons. ]ustice a
is also a religiousiy accepted fundamental concept tbr a good human li1e. Buddhism
asks us to; t
a.
!,
'Treat all creatures as you rvould like to Lte tre cLtcd.' t
1:
!
Hinduism reiterates: {'
r
f
'This is the essence of Moraiity: Do rrot do to otlrer tt'htch 11 Joie to yrtu would *
r
cause you pain.' '-. E
*&
In Christianitl., i1 it tutd' H
'Whatever you wish that others would do to yott, do -so lo thcrn.' &
s
Islamic believers are also well reminded to uphold justice rn all aspects of life" A
K
Quranic verse reads:
&
E
g
sa
I
IT
I
'Oh you y,ho believe! Be L/[aintainers of justice, witnesses

for the sake of Allah,
and though ii is against l.,otLrselves, or yoLtr parents, and your relations, be he
rich or poor, tlrcn Allah is nearer to them ( than you), therefore follow not (your)
lou, desires lesi vott do not do justice. And if you distort (the evidence), or keep
away fhgn, sureit' AIlal'L knctx,s well what you do.'
1 6t-Quran, Surah An I'lisa 4:35)
In fact, the Isiamic ethical s,vstem is underpinned by two core valucs of unity
(tathid) and justice (adl) (Alhabshi, 1987). These corevalues have a tremendous impact
on how Islamic ethics guide economic activities and business dealings (Rahayu, 2012).
Today, justice is listed as a unir.ersally good moral value to be internaiized by
everlrone, irrespective ofdemographic differences and cuitural diversity. Conceptually,
:i is used to er.aluate not only individtial actions but society as a whole. The 1 Malaysia
ancept, introduced by the Malaysian Prime Minister, YAB Datuk Seri Najib Abdul
.' rzak, rs aimed at addressing sociai justice within the diverse multr-culturai society.
Justice relates to equality of treatment. We often hear this phrase,
'Do me Justice,l willdo Sotrr'!
trrr,.. "h"t ,"
It is literaily fairness" Justice and fairness have been used interchangeably although equality of treatment.
,..,r serious cases, we always use the term 'justice'. It is literally-falrness.
|ustice is associated rvith probity
To uphold jusrice,
ii,;. con-rplete uprightness, honesty/integrity) and virtue, legality and the erxerclse of
the good ones
r:r.is.rs sen'ing the administration of rights, rewards and punisirments (Roget's
must be recognized
'-lesaurls). To uphold justice, the good orres rrrusl be recogrrizeci and ren,arcled. The
and rewarded. The
.-j on.s n'Lust be punished. bad ones must be
punished.
3.7.2 Justice as a social process

I
We earlier note that justice is also a social process. It refers to the qr.ralit,v of being
morally
,r,1 andlor demonstration of righteousness, fairness and equity in just conduct when
t*r,.."b.h"rt*d
process. lt refers to
.1e aling r"ith others. One's self-interest is balanced with altruistic (i.e. concern for needs
rhe qr-rality of being
.l ietirngs of others above one's orvn)regard, respecting rights of others. For example, nrorally jusr and/
. a marketer, I1r. A has to fulfil his self-interests to achieve iris key perfbrmance or demonstration
:.ircators (KPIs) as lvell as meet his employer's profit objectives. Hor.r'ever, he also has of righteousness,
--: fulfil the expectations of his customers to ensure justice andfairness out of a social fairness and equiry in
r ,:1r6n5iSili1y. Failure to do so wili result in biame for his unfair treatment. just conduct when
Over and above this, in executing justice, there has to be the maintenance of 'right' dealing wirh others.
' lt an exercise of authority or power so that the right can be vindicated (i.e. clear of Ones self-interest
l-'lrme or suspicion) rvith distribution of equitable rewardlpunishment. is balanced with
altruistrc (i.e. concern
N{ore often, the process of ensuring justice constralns action by rules,
})rocesses for needs and feelings
' procedures. It also defines dutiesiimperatives to act accordingly. For examl.,ie, of others above
Llolr' Qurarz clearly states the importance of upholding justice as a virtue:
one's own) regard,
'l) t't'tu n'ho believe! Stand out respecting rights of
firmll, for Allah as jttst tttitnesses; and let not the
ei,,nit)'ttndhalred of others make you avoid justice. Be_just: tl'tat is nurti to others.
piety; and fear Allah. Verily, Allah is Well-Acquainted u,ith what you tlo.'
(Al-Qurcn, Surah Al Moidah, 5: Yerse B)
'Allah has promised those who beliet,e (in tlrc onenes: oJ Altah - lsrantic
Monotheism) and do deeds of righteousness, tl'tat for tl'Lem there vvill be
forgivencss and o great reward ( i.e. Paradise)'.
(Al-Quran Surah Maidah, 5' Verse 9)
\4 Business Ethics
These verses apply to all aspects of life of a believer. It must be observed by all
Muslim leaders and followers alike. It governs all reiigious, political, social and
economic affairs, including business. Certainly, it also links with distribution of
benefits and burdens among the members of society.
3.7.3 Justice and Business Ethics

In the study of busrness ethics, the concept of justice is relevant primariiy in the
distribution of beneflts and burdens (costs) when we correlate the concepts of justice
and rights. It is a moral right to treat ail individuais as fiee and equai persons out of
uan act of justice. Likewise, benefits and burdens should aiso be distributed equally rn
a social context.
|ustice is an important concept in evaluatingvarious lbrms of social organization.
We can aiso ask about the justice of the economic system in which business
activity takes place. The formulation of the Annual Budgets and Malaysia Plans
by the .,ialaysian government takes into consideration the interests of all parties-
households, businesses, the government sector and international trade to ensure the
cardinal ofjustice is upheld in all institutionai aspects.
One of the first literatures on social justice is from Ar istotle's works. Let us I
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examine Aristotle's justice principles in greater detaii.
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3.7.4 Aristotle's Theony of Justice t
justice is a virtue, long highlighted by Aristotle during the glorious Greek civilization.
Within a social context, Aristotle noted that a rust societv is a prec-ondition for a
rewarding life. He emphasized upon the responsibility of poiiticians and social
scientists to develop social order u,ithin a just environntent for individuals' ultimate t
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happiness and rvell-being. Figure 3.6 outlines Aristotle's Theor,v of iustice.
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In Book V Nicomarchean Ethics, Aristotle divided justice into trvo forms--

universai justice and particular justice:
r Universal or procedural justice-in the universai application of justice as
I-Ac.*drc." ,rr".r, a moral concepti virtue, a jr:st or morally upright person is one who always
or procedural justice,
just or morally
does what is morally right and obeys the larv. ln administering justice, fair,
a
upright person is one
impartial ruies and procedures should be applied.
who always does what r Particular justice.- in the second application of justice as a moral e oncept,
is morally right and it may be applied in particular or speciii,- situatious. It is aiso concerned
obeys the law. with upholding the r.irtue of considerateness, empathy and avoiding greed
in oneself by taking only a proper share of soir-ie good. In other words, to
be just, we may have to sacrifice our self-interests ancl be reasonable in our
judgements to utilize the resources that are avaiiable in society. There rs
certainly an element of moderation in action here.
To quote a relevant statement from Boatright, (200tr):
'An unjust person is thus a grosping pcrson v,ho tokes too muth weaLth. hctnour
or other benefit that sociell, offers, or a shirker u,ho reJtLses to bcar a fair share
of sorne btirden.'
Figure 3.6 summarizes Aristotle's Theory of |ustice.
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Figure 3.6: Aristotle's Theory of Justice
Le t us further elaborate on the forms of particular juslice based on Aristtltle's

theorr'.
3.7.5 Forms of Particular Justice

Aristotle further sub-divided particular justice into three-corrective or colllpensatory
justice, retributive justice and distributive justice.
r Corrective or compensatory-a matter of compensating persons lor r'r'rongs
done to them.
r Retributive-the extent of punishrnent should fit the offence.
r Distributive-deals n ith distribution of benefits and burdens.
Both corrective and retributive justice relate to correcting rn'rongdoings ttr
maintain a moral equiiibrium. Distributive justice, on the other hand, is comparative
in nature and considers benefits and burdens of a person in relation to other persons.
Le1 us elaborate on each form ofparticular justice.
Corrective/co m pensatory justice

This type of justice involves someone who has committed wrongcloings to another f c"*rr;rr/
pariv. In order to be just, he or she has to compensate the other party out of etrptrthv. compensatory jusrice
For exernple, while driving, we accidentally knocked into a motorcyclist. He feli down involves someone
and needed help. As a result, we have to perhaps compensate his burdens by .leanng who has comrnirted
his niedicai charges or at the least, take responsibility to bring him to tlie hospital for wrongdoings to
immediate treatment, etc. It is an act of injustice to biame him on the spot and defend anorher parcy. ln
ourselr,es to show that we were driving in the right path or lane. If u,e are in the u'rong, order to be jusr,
he or she has to
certainly rve will have to arrange lor our insurance companli to cover the cost of his
compensate the orher
motorcycle repairs. Such acts need not even be determined by legality. it is in the name
party oui ofempathy.
of corrective justice that our actions are taken for the unfortunate party stncu ire are
in the tvrong.
6 Business Ethics
Retributive justice
-R;;;;*;-----1 We earlier noted that justice also relates to punishments for one's wrongdorngs" The
extent of punishment should fit ttie crime or offence that has been committed. For
fusa,ce relates ro
punishments for one's example, drug tralficking is a wrongful act according to the Malaysian law. Anyone
wrongdolngs. The caught for such an offence faces a death sentence. Is it a just and fair punishment?
exrenr of punishment Perhaps so, because the consequences of drug trafficking causes widespread deaths
should fit rhe crime or in the long run due to drug addiction, what more r.",ith the astcuishing increase in
offence char has been the number of AIDS cases! Therefore, a death sentence to uphold retributive justice
commitred. seems fair if there is clear evidence that the person caught really committed the drug
trafficking offence.
Aristotle's retributive justice resembles the Qlsas principle in the Al-Quran. To
quote:
'ah you who believe (those with Iman), the law oJ' equal.itl'(Ql.sas) is prescribed
to you. In cases of murder; the free for th efree, the slave Jor the slave, the woman
for the woman. But if any rentission is made by the brother (or relatives), of the
slain, then grant any reasonable demand, and cornpensatr: him u,itl'r handsrtme
gratitude" l'his is a concession and the mercl, from your Lord. Aiter this,
u,hoever exceeds the lirnits shall be iru grnve pennlty'
(Al-Quran, Surah Al Baclarah, 2: 178)
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Distributive justice ::
l;
poiitical and
l'*.,il;;;*.1 Issues on distributive justice arise mostiy in the evaluation o1 social,
economic institutions, where the benefits and burdens of engagrng in cooperative
jr-rsrice arise nrosr ly-
in the evaluarion activities must be spread over a group (Boatright, 2012). In some tnstances,
of social, political a jr-rst distribution is one in which each person sharcs equaliy, but in others,
and economic unequal sharing is just if the inequality is in accordance rvith some principie of
insritutions, where the distribution.
benefits and burdens For example, the implementation of a progresslu inctrnre tax system. 'I'he richer
of engaging in 1ve are, the higher the income tax u.e have to pay. After all. thc re \renues collected will
cooperative activrttes be channelled accordingly for public expenditure as rveil as project development to
must be spread over
enhance the weli-being of society at iarge. Generally, distributive justice is comparative,
a group.
in the sense that it does not consider the absoiute amoulrt of benefits and burdens of
each person but each person's amount relative to that of others.
Ontheotherhand,bothcorrectiveandretribuiivejusticeare'non comparative' i
in their applications. The restoration of the moral equilibrium under these trr,o
forms of justice is determined by the features of each case and not by comparison i
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rvith other cases. For exampie, under retributive jr-rstice, a punishment fits the tl
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crime. f'
We shali next focus on justice and the free market system. \Ve shail try to link {,
the concept of justice in a competitive environment and introduce ]ohn Rawls's a:

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Egal itarian/lustice Theory. (,
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Ethical Theories ancl Principles ,87
3.8 JUSTICE A ND THE MARKET

SYSTEM
The worid economy today promotes globalization and a free market system. The
free market features u ,yri.- rvhere all ecoiromic decisions are taken by individual
households and firms with no or minimal government intervention. It recognizes
the
rights of individuals to accumulate u,ealth and maximize their potential. Competition
is"encouraged among individuals and businesses. Major decisions about what. to
produce, hiw to prod,r.. and for whom to produce are made through the market
operation. Markeidecisions are made on the basis of prices, largely determined by
tl-re
forces of demand and suPPlY"

Thc follon,ing are rights of individuals under the free market system:
r To own Private ProPertY.
r To own a business and to keep all its profits after taxes'
r Freedom to compete rl rvealth accumulation and consumption of goods and
services.
r Freedom ofchoice based on the ability to pay.
3.8.1 Justice and Competitiveness

In a conrpetitive society where members compete to pursue self interests with some
selt-referential altruism, problems of distributive justice u'ti1 obviouslv surface,
tspeciall,v the issue of inequality of distribution of weaith, power and incotre.
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Arisiotle's justice principles contain much value that lies in its insistence tirat
Il"h. R.r/*
different treatment be justified by citing relevant differences and that djfference in Egalimrian/Justice
treatment b,e in proportion to these differences. Hot^,,ever, there is a contemporar,v fheor,v recognizes
lheory on distributive justice to resoir.e social conflicts tt'ithin a free markct system, rhat conflicrs
der.elopecl bv an American philosopher, John Rawls (1921-2002). and inequality in
disrribution of wealth,
power and incbme
3.8.2 John Rawls'sEgalitarian/JusticeTheory no doubt exist in
such an environment.
Ii.awls'stheory is related to the distribution of society's benefits and burdens lr'ithin
However, it assumes
.i competitive free market system environment. The theory recognizes thai conflicts
rhat conflicts n'ray be
:.nd inequality in distribution of wealth, power and income no doubt exist in suc.h sertled by devising
an enr,ironment. However, it assurles that conflicts may be settied hy .ll'-irirrg a fair a fair method
rteti-rod of choosing the principles by n'hich conflicts are resolved; for example, bv of choosing the
hin.ing a contract or agreement betlveen parties involved in the business. principles by which
To quote from Boatright (2006): conflicts are resolved;
for example, by
'lohn Rawls uses the notion of contract (uhich assutnes thol iJ rndivtduui,' rn
having a contract or
sorne hypothetical pre-contract situstion would unanimously accel)l t.e-rtttirt agreement between
ternts governing their relations, then those terms are just and all peoltLt: nove parties involved in the
an obligation to abide by then) andJormulote s an original positiort (n d'rslinct business.
'yeil of ignorance' whereby the individuals vtho ore i'kcd lo
_featttre of this is
agre on the principles of ju stice must do so witl'tout knowing ntany fttcts trbout
them,:iyes and the situation) to oyercarne indeterminacies in delining torttt:pts
LJ jLrstice.'
iB Bt,siness Etirics
To resolve social conflicts, Rawls proposed two basic principles to be applied in

the process of selecting a fair method of making choices/decisions:
r Principle l-Principle of Equal Liberty
r Principle 2-divided into two parts-(a) Difference Principle, (b) Principle
of Fair Equality of Opportunity
Rawls's First Principle of Justice

l.rh" l-t,;lplrrf 1 As mentioned, this is the Principle of Equal Liberty. Each person is to have an equal
Equal Liberty,each right to the most extensive total system of basic liberties (i.e. freedom) compatible with
person is to have a similar system of liberty for all.
an equal righr ro Everyone has basic rights; the right to liberty i.e. right to life, specifically refbrring
the most extensive
to freedom of action and the rigirt to pursue happiness. Right to property is an
rotal system of basic
extension of right to life. Equal share of whatever goods are available is the most that
liberries (i.e. freedom)
any person may reasonably expect, given the requirernent <-rf unanimttus agreement.
compatrble wirh a
similar system of
' This principle aiso supports the claim that each citizen's liberties must be protected
liberry for all. from invasiorr by others and must be equalto those of others.
Rawls's Second Principle of Justice

Social and economic inequalities are to be arranged so that the1, are both:
1. To the greatest benefit of the least advantaged (Difference Principle)
Tliis principle supports the claim that a productive society r'viii incorporate
inequalities, but takes steps to rrnprove the positton o1'the most needyi
unprivileged members of thc society.
Ilorvever, there are conditions under u4rich rational persons rvould make
5",.d il..r.,"..rcl
inequalrties are to be
exception to the first principle ancl accept less than an equal share of sonie
arr'anged so rhar they primary goods. An unequal share or distribution r.vil1 be justified if everyone
are both: would be betier off l^,rith the inequalitl,llror, withor-rt it. For example, assLlflre
. To the grearesr that there is an increase in total income but it is not possible to distribute
benefir of rhe it equallv among society rnernbers. Honeve'r, if er.erl,oilg benefir"s frorn tlral
least advanraged extra income, it is still considered a just action.
(Difference
Principle).
2. Attached to the offices and positions open to all under conditions of fair
. Attached to equality of opportunity (Principle of Fair Equality of Opportunit,v)
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the offices and This principle supports the claim that everyone shoulc'l be given arr equal !;
positions open ro opportunity to qualify for the more privileged positior-rs in society's t'
all under condirions institutions i.e. basecl on talent and corrpelence. -lhere should not be
of fair equaliry inequality of treatment based on gender, race, econorlic status, etc" to uphold
of opporuuniry social justice and fairness.
(Principle of 'Ib conciude our discussion on Theory of ]ustice, it is noted that both
Fair Equaliry of
Aristotle and Rawls's social justice theories are primariiy,developed to pror.idc
Opporruniry).
a means for evaluating exrsting and proposecl institutional arrangements.
Insofar as the market systenr promotes utility i nc1 protects rights, it is doubly
justified that these justice principles be applied accordingiy to ensure social
justice rvithin a competitrve market environment. Certainly, lve cannot also
rule out the appiication of religious based justi:e prlnciples that are found iir
buoks o[ d ivine r tvelatious.
Ethical Theories and Principles '89
Figure 3.7 summarizes )ohn Rawls's Egalitarian/Justice Theory'
Figure 3.7: John Rawls's Egalitarian/Justice Theory
Tnis chapter has outlined common teleological and deontological ethical theories
introducecl
that 1.;rr-e been rvidely applied in the study of ethics. It has amotlg others;
developed over
readers ro the ,ruin .o,-,."pts and ti'reories of ethics that have been
centuries b1. inf-1uential moral philosophers. Where applicaL,ie, it has aiso
spurred
within Islamic ethics and rcligious
discussions on the cor-r-rpatibililiof these theories
contexts. The value oi uty theory depends on its applicability rqitliil existrng
institutional arrangements, including business. Howe\rer, one n'ould realiz'e that no
one theory, is compiehensive enough to be applied in all situations and circumstances'
:
Each theorl, has iis strengths and lirnitatrrrns. One's in depth conceptual knou'ledge
1-ili derernrine thc chorceind appropriateness of each theory to be applied in resolving
morar issues, be rt business or ,',or-r-b,",siness. The subseqilent chapters will apply this
theoreticalfoundation to resoive a r,vide range of business ethics topics of interest. T'he
globally competitive business, l^/hich supports the free market system, certainiy has
io operate wiihin ethical consideratior-rs to sustain long-terrn organizational sun'iva1
andreputablecorporateimage'I-ikelvise,emplol,eeshavetoadequatell.Possessa]l
epistemology of elhics knowiedge to be appiied and internalized whrie resolving
business issues rr,ithin the context of fulfilling a social responsibility as a vicegerent
and tiustee on iv{other Earth"
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To consolidate Four learning, the learning outcomes are surnmarized belorv: t*
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1. Explain the fundamentals of moral philosophy. E

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Ethics is derived fiom the Greek word ethos,which means character, spirit and attitudes of a group t
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of people or culture. Ethics concerns what is good or right in hurnan interaction and deals rvith
justice and rights issues" It is therefore a study of action and how man should act. Ethics is also a $
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branch of philosophy" Conceptually, the five branches of philosophy are metaphysics, epistemology, B
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ethics, politics and aesthetics. As a field of study, ethics is sub-divided into two branches-meta" 3
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ethics and prescriptive/normative ethics. Meta-ethics classifies morality into two main forms*- L
moral relativism and moral objectivism. Moral reiativism considers that what is right or wrong is k
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not absolute" It depends on the person, circumstances and social situation" Moral objectivism on r
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the reverse considers that what is right or wrong is independent of human opinion because some
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rules or codes originate from a divine entity and must be followed religiously. Prescriptive ethics t
divides ethical theories rnto two-teleologicai and deontological theories. tf
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2. Differentiate between teleological and deontological theories of ethics. ;

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Teleological theories hold that the rightness of actions is solely determineci bv the amount of
consequences they produce. They are aiso referred as consequential theories. C)n the reversel
Jeontological theories deny that consequences are relevant in deterrnining ttre rightness of actions.
The rightness of action is based on the nature of the action itself or the rules fiom which they :
follou Deontological theories are also referred as non-cinsequential theories.
3. Explain influential ethical theories and/or principles applied in today's global era-Lltilitarian
Theory, Kant's Ethics of Duty, Aristotle's Virtue Ethics, Carol Gilligan's Ethics of Care, Theor,v
of Rights, Theory of |ustice and Rawls's Distributive |ustice/Egalitarian 'fl-reory.
. Utilitarian Theory of Ethics

It is a teleological theory of ethics widely applied b), econornists. There ;rre two forms o{'
Utilitarian Theory of Ethics-Classical and Ruie Utilitarianisn,.
- Classical theory requires consequences to be measured in soire \\iay so that the pleasure
and pain of different individuals can be added together and the results ol different courses
of action compared. An action is right only if it produces the greatest balance of pleasure
over pain for everyone. In Classical Utjlitarian principles, an action is judged to be right
by virtue of the consequences of performing that action. It rs silent on conlpliance to codes
and rules"
Rule Utilitarian Theory emphasizes that an action is right onlv if it conforms to a set of ruies
the general acceptance of which will produce the greatest balance o1'pleasure over pain for
everyone" This principle relates to the importance of complying rvittr rules while assessing
the rightness of actions. It seems to give firmer ground to thc rules of rloralitv and role
obligations. However, it does not specify what rules one should conform to. Presun-rably,
it includes man-made rules as well as God-made rules and pi'inciples. Again, one has to
make their olvn moral judgements in their actions, an indicator of moral reiativism.
- There are four theses of Utilitarianisnr i.e. consequentialisn . hedonism, rnaximalism and
universalism.
Ethical Theories and Principles ;9i
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. Kant's Ethics of Duty Theory

It is a deontological theor1,. 'An action is morally right if and only if the actor is motivated by
good will.' Only actions done for rational prrncipled reasons from a sense of duty has moral
worth. It is not a matter of weighing up consequences. Reasons alone can give us the absoiute
moral truth and discover our sense of duty.
li.;r:tl championed the tu,o categorical imperatives:
1. First Categorical Imper ative--Act only according to that maxim by which you can at the saime time
will that it shauld become a universal law.
Sr,rond Categorical Imperative-A ct so that you treat humanity, whether in your own person or in
that of another, altvays as an end and neyer as a means only.
, Aristotle's Virtue Ethics Theory

This ls another deontological theory that is value based. Aristotle's theory begins with a basic
assumption that morality is both necessary and vital for human beings. His theory focuses on
human virtues i.e. good character traits that manifest themselr.es in habitual action. Aristotle
defines a virtue as 'an activity of the soul'. Peopie who compromise morality are degrading
themselves and they have missed their goai in life. Ethics errable mankind to lead successful
and rewarding lives.
This theory throws back at each individual a fundanrental question- what kind of person
should we be? The individual himself must reason this out based on intelligence. Aristotle
distinguished trvo dimensions of humans-the rational and the irrational dimension. He
rdentified our natural desires as natural dispositions. J'l'rese natural desires must be controlled
bv rational thinking and prudence to be virtuous. Aristotle introduced the concept of mean
or moderation in actions. He does not assume there is a universal standard that applies to
all people. Aristotle defines a virtuous person as someone r.vho has taken control oi Lis life,
cultivated his natural dispositions into moral r,irtues, and has ahr,ays throughout his lifetime
found happiness in his actions based on these der.eioped virtues. Some of the virtues identified
b), Aristotie are honesty, self-control, courage, justice, respect, prudence and shame of failures.
. Ethics o.f Care

This theory is a deontological theory that propagates a pcrson to be partial to make ethical
decisions. It emphasizes caring for the concrete rveli-being of rhose near to us. It promotes
the preservation and nurturing of valuable relationships on indiviciual as well as collective
dimensions. This theory distinguishes three forms of caring- caring about something, caring
after someone and cariilg for someone. The form of caring that is promotecl by Ethics oi
Care ls 'caring for someone'. It is the kind of care that is not detached but engaging, deep
in feelings and emotions. [t involves a tno \{ayprocess of nurturing ferr personal individual
develoPment. This theory however recognizes tiiat liot all relationshrps must be preserved.
Only relationships based on compassion, iove, concern, friendshrp and loyalty should be
maintained and nurtured.
. Theory of Rigltts
Rights play an important role in business ethics as well as in all rnoral issues. The concept of
rights can be confusing and manipulative if not well understood because everyone ciaims that
they have rights. Nevertheless, it is an important etirical concept that is very much corelated
ivith justice and fairness.
According to Boatright (}AD), rights may be classified intr. legal and moral rights, specific
and general rights, and negative and positive rights.
9? Business Ethics
A fbcus on natural/human rights features two main characteristics-'universality'

(i.e. rights that are possessed by everyone) and 'unconditionality' (i.e. do not depend on
any particular practice or institutions in society). |ohn Locke's Natural Rights Theory
recognized that each human being has a right to a fair share of the bounty of the earth
based on his or her efforts and contributions to the society that he or she lives in. This is
done by means of the labour services provided by an individual. Locke regards this as a
form ofproperty.
Theory of lustice
Iustici is another important moral concept with a wide range of applications. |ustice is fairness'
)ustice is associated with probity (complete uprightness, honesty/integrity) and virtue, Iegality
and the exercise of processes serving the administration of rights, rewards and punishments
(Roget's Thesaurus). |ustice as a concept may be appiied in individual as well as social contexts'
It is also a universaliy accepted moral vaiue to be internalizedby all people.
Aristotle clas,:'fied justice into two forms-Universal and Particular Justice.
- Universal justice is also referred to as procedural justice. A just and morally upright
person is one who alrvays does what is rnorally right and obeys the 1aw.
* Particular justice, on the other hanc1, may be applied in particular or specific. situations. It
is further sub-ciassified into three forms corrective or compensatorl, justice, retrrbutive
justice and distributive justice. Corrective and retributive justice is non-comparative
an<l maintains moral equiiibrium by correcting rvrongdoings. Distributive justice on the
other hand is comparative in nature and consriers the benefits and burdens of a person in
relation to other persons.
Rawl s's Egal i tarian T' h e ory tf,

A contemporary distributive iustice theory, rvas cleveloped by John Rau,ls u,ithin a conrpetitive
free market system environn,ent. This is tl-re Egalitarian Theor1,. The theory recognizes i1
that conflicts and inequality in distribution of lvealth, power and income exist in such an
environment. Horvever, it assumes that contlicts rnay be settlecl/r'esolved b). devising a fair *
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method of choosing the principies, e.g. having contracts and agreements. T
To resoive such conflicts, Rawls came uir r,vith the folloiving principles:
x
- Principle l-Principle of Equal Liberty. E,ach person is to have an equal right to the most I
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extensive total sy.51gm of basic libertie s compatrble with a similar s\/sten-) of libertv for all.
- Principle 2- divided into two parts: (a) Difference Princrpie, (b) Principle of Fair Equalit,v :;
of Opportunity, In the Difference Prir-rciple, social an,,l economic inequalities are to be

arranged so that they are both to the greatest benefit of the leirst adr,antaged. In the
Principle of Fair Equality of Cpportunitl,, s1,.iu1 and econotnic inequalities are to be
arranged so that they are both attached to the offices and positions open to all uncler
conditions of fair equality of opportunity.
Elaborate on the important features of each ethical theory'

There are strengths and limitations of each theory described above. Refer to the chapter texts on
the strengths and limitations of each theory rvith further elaborations, where appropriate.
List and analyse the strengths and limitations of each theory, rvhere appropriate.
Students' analysis on the strengths and limitations of each theory u,i11 depend on one's corrceptual
understanding of each theor1., its contexls ;ind dimensions. Some rvill aiso deepen the analysis by
comparing and contrasting these theories with religious principlcs, based on divine coprnnndpcnts
rather lhan rational thinking and judgements.
6. Apply the ethical theories to make sound business decisions.

An understanding of the main features and epistemology of each theory rvill give an individual
the edge to apply them in resolving moral issues, be it business or non-business. Students will
have to create or relate to specific cases or scenarios and choose the appropriate theory/theories
that are relevant to determine rightness of an action in a particular situation or condition. The
application of these theories certainly depends on one's logical thinking, judgements as well as
in-depth knorr'1edge and consciousness to practise and internalize ethics in the decision-making
process.
Altruistic Concern for needs and i-eelings of others above one's o$,n needs and feeiings.
Categorical That is u'ithout exceptior"t
Consurner choice theory An economic theory that seeks to deterrnine consumer equilitrriurn i.e. a condition
in which total utility cannot be increased by spending more of a given budget on one sood ancl spencling less
on another good.
Deontological theories A thcorynhich denies that rightness of action depends on thc good consequences
thei produce" Rightness of actioir depends on the nature of the action itself or the rules from which they
li,llorr'.
Epistemology A study of our n'rethod of acquiring knowledge, how does one knou, about something? it
rncompasses the nature of concepts, the constructing of concepts, the validity of the senses, logical reasonirtg.
as well as thoughts, ideas, memories, emotions, and all things mental. It is concerned u.rth how our minds are
reiated to reality, and whether these relationships are vaiid or invalid.
Ethics A branch of study r,vitl-r rvhat is the proper course of action for man A study of action; rvhat should
aperson do? It rs the stud,v of right and wrong in human endeavours. At a more fundamental level, it is the
met}rod bv rvhich rve categorize our values and pursue them.
Aesthetics A study of art; wirat can life be like? Art is a seiective recreation of realit,v. The purpose is to
concretize an abstraction to bring an idea or emotion within the grasp of the obsener. Iror erampie, music,
literature and painting. The selection process depends on the value judgements of the creator. These value
judgements can be observed and evaluated via the field of ethrcs.
lmpartial Putting aside one's emotion or 'detaching' from another person to avoid Liias in order to make
object ivc/effect ive deci siorr s.
fularginal analysis An examination of the effects of additions to or subtractions fronr a current situation.
lmperative A command or duty

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Metaphysics 'I'he fbundation of philosophy" A study of existence; what is out there? A study to explain and ts
interpret the worl<1 art'rund us in order to deal with reality Metaphysics is also the foundation of a woridview. s
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Maxim A saying that expresses a general truth or rule of behaviour
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Moral relativism 'fhe view that what is right or wrong is not absolute. It is rather relative and variable s
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Moral objectivism The view that certain acts are objectively right or wrong. it is independent of human
r
opinion due to the beiie{'that moral codes originate from a divine entity; either frorn God or some cosmic r
I
i:
force.
r
i
Politics It is ethics applied to a group of people. Politics tells us how a society must be set up and how i
one should act within a society. A study of force; what actions are permissible? However, reason is man's :
prime means of survival. A human being cannot survive in an environment where reason is ineffective. The 9
r
primary goal of a political systcm must be the preservation and enabling of the faculty of reason. Reason does $
not function under fbrce or coercion. A moral political system must ban force and coercion, and promote
I
!
justice and individual fieedom within larvs that are reasonable. i
,.
Prudence Being careful and sensible t
Tawhid The islamic concept o1'unity of God. A person's relationship with A1lah, F{is people and I{is Universe. d
The first relationship (i.e. man and Allah) signifies that Al1ah rs the only God and creator of everything in the
;;
heavens and earth. It requires mankind to follorv the cominandments of Al1ah bv fLrlfiiling all obligations,
and avoiding unethical conduct u,hich is detrimental to allbeings on the planet. Ever)'thought and behaviour
of a Muslin-r is drrected towards attaining tl"ie blessings of Allah. Allah appointcd man as His vicegerent on
earth, and requires him to act as his trustee and dcpr-rt,v in dealing rvjtl-r the universe and its environment, ::
rtealth and other creatLrres.
Teleological theories Anc,ther term for consequential based ethical theorics
u
Theory of Comparative Advantage A countrl, should sell to other cout-rtries those products that it produces !.
t
efficiently and shor-rld buy from other countries those products that it cannot produce a.s ef ficiently. T'
c
H
p
Utility Satisfaction or pleasure that people receive from consuming a goocl or serr.,ice. r.
t,
Unconditionality Anotirer feature of human rights. Rights that c1o not rlepend on anlr particular prac.tice or *1
institutions in society.
Universality A feature of human rights i.e. rigl-rts that are possessed by everyonc.
Vindicated Clear of blame or suspicion
Qisas Principle A principle in the Al-Quran to describe tl-re lan, of equality of treatment when handling
humans. For example, in cases of murder, if someone kills another person, the punishment should be a death
sentence as lvell.
Ethical Theor-ies and Principles 95
. :.
l. Discuss the relevancy of Utilitarian Theory of Etirics from a business climension.
2. Compare and contrast between Kant's Theory of Ethics and Aristotie's Virtue Ethics Theory.
3. Ethics of Clare Theory demands for partiality and nurturing of relationships in moral decision-
making" Elaborate on this statement.
4. Discuss the strengths and weaknesses o[Ethics of Care Theory from Islamic perspectives.
5. Define rights and differentiate between the types of rights.
6. Differentiate between the concepts of justice and rights.
7. Explain John Locke's iiatural Rights Theory. Discuss how this theory fits into the competitive
capitaiistic free market system.
8. Eiaborate on Aristotle's Theory of Justice. Compare and contrast Aristotle's theory with Rawls's
Egaiitarian Theory to uphold social justice.
Ihe Reality TV Controversies; A Series of Controyersies

ln January 2001, religious and conservative pressure groups worldwide (i e. America, Europe, Australia and
Asia) protesred strongly against the airing of Tempration lsland, a TV show. The show, belonging ro rhe genre
of reality TV, was made by the U5 media house, Fox TV. lt was designed to 'resr rhe fideliry' or fairhfulness
of four unmarried but committed couples, who were taken ro an exorjc island, where 25 singles tried ro lure
them so that they would cheat on their partners. Whoever succeeded in remaining faithful ro his or her
partner was declared the winner.
Crirics of the programme demanded a ban on ir on the grouncis rhar ir promored illicir sex and endangered
the relationship between ihe participaring couples. A spokesman for the American Family Associarion, Randall
Murphree, remarked, 'Even the rrailers for the show were enough ro upsei conservarive organizations and
various religious groups.'The activisrs, in their campaign, publicized rhe advertisers'idenriry and encouraged
the public to compel the adverrisers ro boycorr the show.
Though Fox TV authorities argued that rhe focus of Temprarion lsland was on exploring rhe dynamics
of serious relationships and not sex, the fact that Fox screened all contestanrs raking parr in rhe show for
sexually rransmitted diseases weakened its argumenrs. Many family associarions accused it of capiralizing on
the entertainment value of sex and infidelity. The controversy deepened when ir was discovered rhat one of
the four couples had an infanr son.
Though Fox TV pleaded ignorance and removed the couple from rhe series, rhe proresrers argued rhar
Fox TV could have broken up a family. Melissa Caldwell of Parenrs TV Council, a division of Media Research
Centre, said, 'l think a lot of people are appalled at the concepr of trying ro break relationshrps for rhe purpose
of entertaining millions of viewers
II
If;
i Business Ethics E
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s
The programme artractecl simiiar reactions in orher counlries, especially in conservative countries
sur:h n
&
was aired' ln lndra,
aslapan, Tarwan and india. in Taiwan, ihe show was scrapped even before a single episode
E
E
programme was aired, ir faced severe opposirion and ihe STAR TV network had ro give up the
though rhe I
l
idea of makrng an lndtan versiotr of the programme. t*
I
(Adapred from htrp//wwwicmrindia.org/free%20resources/case studies/F,ealiry%20TV%20Contrverstes' $
$
Accessed on 23 June 20D) ,
t
s
x
Questions: g
1. Starc any three (3) erhrcal tssues in this case. t
?
I
2. Several Asian coun[ries cleoded ro ban Temptarion lsland from being shown on television.Apply Utilitarian'
Kanrian and Virrue Erhics rheories ro assess and jusrify whether rhe banning action is a rightful action' G
f,
Relaring ro quesrion (Z) abc e, is rhe banning aciion justifiecl from the Theory of
Rights and Justtce E
3. &
principles? Discuss. E
4. Is the realiry show promotrng social justice? Justify your answer' $

g
rr
r
f
*
t:
9,
r
i
i
The Holy Quran: Text, Translation and Commentary. Ali, Abduliah Yussuf. Maryiand, US: Amana
Corporation, i989. Print.
Abdullah, A.G. and e. irnohd ZainolAbidin (2011). Business Ethics. Selangor: Oxford University Press.
l-15.
Alhabshi, S.O. (1937). The Roie of Ethics in Economrcs and Business" Journal of Islamic Economics, 1(i):
Boatright, J.R. (2007)" Ethics and the CondtLct of Business(,5'h Ed.). New |ersey: Prentice Hail.
Boatright, J.R. (2009). Ethics snd the Conduct trfBirsi ness {0"' F,d.;. New lersey: Pearson International Edition'
Eoatright, l.R. (2012). Ethics and the Conduct of Business (7'h Ed.)" New )ersey: Pearson lnternatiottal Edition.
Blum L.A. (1994). Moral Perception and Particularity. Carnbridge: Cambridge Uiriversity Press" p" 12.
*i
Chandra Muzaffar (2005)" Global Ethic or Global Hegemorn,t| Reflections on Religion, Human Dignity
and
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Civilisational lnteraction. London: ASEAN Academic Press Ltd. p" 2.
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Chandra Muzaffar (2009)" Religion cnd Governance. Selangor: Arah Pendidikan.
Di1lon, R.S. (1992). Care and Respect.lnEveBrowning Cole and Susan Coultrap-McQuin, eds., Explorations
in feminist ethics: Theory and Practice. Bloomington: Indiana Uiriversity Pr.ss'
&i
&
$i
Doris, l. (20c2). Lack of Clraracter: Personality and Moral Behavior. Cambridge: Cambridge University Press- g
st
Dusuki W.A. and Abdullah, t"N. (2006). Whv do Malaysian customers patronize islarnic banks. International w
gi.
6
!ournal of Bank Marketing,25 (3): 142- 160. &
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Ethical Theories and Principles .o7
GaafTandl.,Mazereeuw, C. and Yahia, A. (2006). Islam and Socially Responsible Business Conduct-An
Empirical Study of Dutch Entrepreneurs. Business Ethics: A European Rettiew,15(a): 390,a06.
Haniffa, R. and Hudaib, M" (20A2). A theoretical frarnework for the development of Islamic Perspective
of Accounting. Accounting, Commerce and Finance. Journal of Business Finance and Accounting,zl (l-a):
1034 1062.
Harmon, G. (1999). Moral Philosophy Meets Social Psychology: Virt'.re Ethics and the Fundamental
Attribution Error. 1ru Proceedings of the Aristotelian Society, New Series, YoL.99(1999): 315-331.
History Learning Site (n"d.). Saladin. <http://www.historylearningsite.co.uk/Saladin.htm>. Accessed on l3

November 20i3.
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Ibn Manzur (1990). Lisan al-'Arab,vo1.l0. Beirut: Dar Sadir.
Ibrahim, M.S.H (2000), The l-.:ed for Islamic Accounting: Perception of its Objectiyes and Characteristics
by Malaysian Musiim Accountants and Accounting Academics. PhD. thesis. Scotland: Llniversity of Dundee.
Khalidah Khalid Ali, Rohani Salleh and Mashitah Sabdin (2010). A Srudy on the Level of Ethics at a Malaysian
Private Higher Learning Institution: Comparison Between Foundation and Undergraciuate Technical-based
Students. International lournal o-f Basic and Altplied Sciences,l0(5): 35-49.
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Rahayu Abd' Rahman and Ilmiah Ibraliim (2012). Busine.ss Management: A Malaysian Perspective (2"d Ed).
Selangor: Oxford Fajar
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I 36.
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Publications Ltd.
McDonougli, S' (1984). Muslim Ethics and Moderrtity. Canada. Wilfrid Laurice University press.
Miqdad Yaljin (1973). Al-tttijah al-Akhlaqi al-Islam. Egypt: Maktabah al-Khanji.

fi
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maniscript.php? Posted=43789>. Accessed o, 12 November 2013.
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Ed.). Ner,v york: McGraw
Hill/lrwin.
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principle of Maelaiah.
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Rahayu Abdul Rahman (2012). Religious Ethical values ancl Earnings

Quality: Some Evi.lence from Malaysia.
PhD thesis. New Zealand: Massev Universitv
)8 Business Ethics
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on 20 October 2010.
Shaw, WIl" (2011). Business Ethics (Zth Ed.). Belmont, CA: Thompson Wadsworth.
Syed Othman, A" andAidit, H.G" (1994) .Islamic Values and Management.K:ualalumpur: Institute of Islamic
Understanding Malaysia (IKIM)"
Tucker L (2005). Econom|cs lor Today (4'h Ed.). Ohio: Thomson South \Vestern.
Velasquez, M.G. (2012) " Business Ethics: Concepts and Cases (7'h Ed.). New fer:sey: Pearson Education.
Zinkin ]" and Wiiliams, G. (2010)" Islam and CSR. A Study of the Compatibility between the Tenets of Islam
and the LIN Giobal lmpact. laurnal oJ Business Ethics,9l (a): 519-533.
CI{APTER
Ethical Leadership and

Corporate Culture
LEARNING OUTCOMES

r Define ethical ieadership.
r Describe the two pillars of ethical leadershrp-moral person and
moral manager.
r Explain the meaning and importance of the right tone from the
top in the context of ethical leadership role.
r Lxpiain some critical elements of a formal ethics programme.
r Define corporate culture and ethicai corporate culture.
r Explain the role of ethical leadership in establishing ethical
corporate culture.
T
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l0 Business Ethics II
II
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4.0 INTRODUCTION E
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This chapter covers the topic of ethical leadership and corporate culture. There are
I
two parts to this chapter. The first part covers the topic of ethical ieadership whilst I
{
the second part examines the link between ethical leadership and ethical corporate $
culture. First, we wili look at the definition of ethical leadership to set the context of I
our discussion. Second, we will examine the pillars of ethical leadership. Third, we
I
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will discuss the importance of setting the right tohe from the top in the context of r
establishing ethical leadership in an organization. Next, we will look at the meanings I

t
of corporate culture and ethical corporate culture. Then, we will examine the role of
ethical leadership in creating an ethical corporate culture. Finally, we will delve into f
f'
the elements of an ethics programme in an organization. The ethics programme is an
important aspect of ethical leadership. It helps the leaders to set the right tone from
i
I
the top and instil ethical corporate culture in the organization. I
4.1 DEFINING ETHICAL LEADERSHIP .
'
Leaders have long been vierved as the key influencer of corporate culture and source of'
;rpl"r; b;---1 ethical guiclance for employees because Lhey have the porver and ability to guide and
i
through observation.
5o, leaders ought
motivate others. They can use their pov/er to establish organizationai norms, practices
to send the right and policies. Tliey shouid be able to demor"rstrate the desired behaviour, goals, values
nressage by first and norms of the company. Employees emulate the personal behaviour of their leaders"
behaving ethically They get their ethical cues by observing what their bosses do (|ames, 2000). If their
themselves and then leader's are known r.r have committed unethical behaviour and corporate practices,
motivating their employees might perceive ti-rat these behaviours are acceptable and expected of them.
followers to observe Leaders, in tiris context, are not limited to corporate directors, CEOs and other
erhical conduct. senior executives, but also at every levei of an organization, ir-rcluding line managers
or supervisors. Given this background, it is pertinent for leaders to be the main source
Th"i--r-.,]** I of ethical guidance for employees. So what is the meaning of ethical leadership?
of ethical and
unethical practices
According to Broln, Trer.ino and Harrison (2005), ethical leadership is the ability
are reflected in the
or po\\rer to instil ethically acceptable behaviour through personal actions and
organizational values motivate followers to emulate such behaviour ihrough tr.,r'o-u'ay communication,
and ethical standards reinforcemcnt and ethical decision rnaking, Ethical leadership embraces the values of
established by the trustworthiness, respect, responsibility, fairness and caring as shorvn in Figure 4.1. It-l
organization. fact, an organization is ethical only if its leaders are ethical and most importantly, if
e
t
the leaders are able to motivate their foilolvers to behave ethically. t',,
L.rd.t*- Ethicalleaders set an ethical tone-at-the-top by behar.ing ethically and encouraging &
g
'hflrer,cel
the behaviour of their their employees to do the same. This type of leaders leads by example and encourages s
followers through their employees to take the initiative to solve problems in a fair and ethical manner. s
role-modelling and Some studies found that employees behave ethicaily when their leaders pay attention
esrablishing systems to ethics, take ethics seriously and valuc ethics as mrch as making profits (Trevino ef &
f
and processes that a\.,1999; Hitt, 1990). Other than role-modelling, ethrcal leaders also allocate adequate
promore eihical
financial and physical resources to promote and support ethical behaviour and
behaviour.
practices.
Next, we shall examine the two pillars of ethical leadership, which greatly affect s
K
the extent to which a leader is a strong or weak etliical leader. H
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Ethical Leadership and Corporate Culture 101
Figure 4"1 : Core components of ethical values
4.2 rWo PiLtAnS or

ETHICAL LEADERSHIP
Trevino et al" (2003') suggest tr,vo pillars of ethicalleadership-a'moral person'and a

'moral manager.' These tu,o pillars basically reinforce the idea that ethical leadership
requires someone that does not only have a set of core ethical vaiues and acts upon
them, but also establishes various piatforms and a rvork environment that promotes
such values among his followers.
The rnoral person pillar represents the leader's personal traits, character and
altruistic motivation. The moral man?ger piilar represents the proactive efforts of the
manager to influence the way his employees behave, ethically and unethically. These
two piliars are important to ethical ieadership because individuals learn appropriate
behaviour through a role-modelling process, which is by observing the behaviour of
others (Bandura, 1977). Figure 4.2 shows the two pillars of ethical leadership.
Figure 4.2: Iwo pillars o{ ethicai leadershrp

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)?- Business Ethics !
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The rnoral person pillar requires a leader to be a person of integrity, honesty, I

n
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trLrstworthiness, and competent. He must also shorv concetn for people, b,e socially {
s
responsible and treat others with respect and dignity, and most crucially, live a moral r
life at the personal level. As a moral person, the leader must be a role model to all his a
&
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employees. His behaviour and the way he makes decisions must be consistent with
what he preaches i.e. 'walk the talk' and he must live his beliefs i.e. 'live the talk' as
E
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F
opposed to being a hypocrite. E
L..d.rr *Gi b.hr*l In a nutsheil, he must behave ethically in his personal and professional iives. A E
ethically in borh rnorai person knows what is right and wrong anri then acts out of conscience and $
t
integrity. l{e must lead by example and be aware of how the use of his authority, actron
&
their personal and g
p
professional lives. and behaviour affects others. in addition, a moral person must be brave enough to E
&
They should avoid take a stand on questions of ethics, behaviour and morality. in short, a moral person E
being hypocrites. is a principled decision-maker. Figure 4.3 summarizes the characteristics of a'moral
E
2
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person' and a'moral manager.' :
i
The moral manager pillar requires a manager not only to be a role model a
lhrougL visible action, but also to use his authority to estabiish work en\rironment
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and system that promotes ethical behaviour and discourages unethical behaviour. ?
For example, a moral nlanager puts in place a reward system that promotes personal i
accountability and irrstitutes a disciplinary systern that punishes unethical practices
in an organization.
Rrl. -"d ,rc ---l A moral nlanager also consistently and regularly communicates the importance
alone is nor enough of ethics and values to hts employees. He makes conscious effbrts to transter his
ro develop erhical ethical vaiues and beliefs to his employees so as to fbster an ethical work envtronment.
leadership. lt has to A moral manager must ensllre that all decisions are in line r.t ith the ethical r'alues that
be supplemented he professes. He must not be afraid to even decline business that is not aligned to the
by rewards and a ethrcal r,alues of the organization. These actions must be visibie to ali emplo,vees in
penalty system and
rrlder 1o Bcl llreir lttention t.
constant two-way
cornmunication
In a nutshell, ethical leadershrp is about how leaders exercise their porver b1' I'
about rhe
being both rnoral indir.iduals and moral managers. In the next section, lve will look
.j..
importance of ethics. at another impolterilt aspect of ethical leadership, which is the right tone {iom the
toP. 5
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ruORAL PERSON IVIORAL IuANAGER tf
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I",: ,,l i .l'rta!!Sr1:.:qli :*,I Role modelling through .
I I -t ntesriry,:Ioriqqry^.trqqtw"riirtht nshs-'t . I visible action
II nbf. t 66fifidtehi;,'G:i#g;1
-',-' !'';"/j* s:
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-:-#"ti*j: eEffi fiffii*il-H$n*ff $Iil

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EqdtibB*}hlhtfr &ffifr 5ll
I'-'*tKbEtft0boefil:Delsonal molafIffi^l
ffi Rewards and discipline
t:
I r: j6xe !"frx$fts" f !" 'r { s'{ie\"ftqdE&gl t'
!,
&
I\1$iiffi#(ry1Deel$&i,',diE11th"ri?#3#t ffi.t
"Si9$i5ld
I rii.to flilil;s.$bieicti'iirniii&ffi1 Ccrnmunicating about ei' rics
1 .offtfr br, ieid'#cti$ffi"tnufrffi I
|I ;d and values
;"tr]:#- ffi; r H-7111#%h4}MiYlffiCl
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Figure 4.3; Characteristics of a 'rnoral person' and a 'moral manager'
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413 SETTING THE RIGHT TONE FROM

THE TOP
A very important dimension of ethical leadership is for the leaders to transform their
words into action, which is to set the right tone from the top so that they rvill not be
seen as paying lip service to ethics. What does it mean by setting the right tone at the
top? 'Ihere are many ways to interpret this expression. In this book, we can take it as
the efforts undertaken by corporate leaders, including the board ofdirectors, to create
an ethical atmosphere in the workplace" It is about creating a culture that is conducive
for everyone to take ownership and responsibility to do the right thing because it is
the right thing to do.
This type of culture is so infused in the daily lives of aii employees that it
becomes a porverful tool to mitigate risk arising from fraud, corruption and unethical
behaviour. For example, a manager sets the right tone from the top when he decides to
discard a component of a product that fails to meet a critical safety test. The manager
believes that faulty products shor,ld not be sold in the market even if the colTrpany is
under pressure due to time and budeet constraints. His empioyees emulate this belief
and expectation, then internalize them in their daily lr.ork. The manager has, in fact,
m* ft""l,h..p,'t
a powerful means to
set the right tone for the company for years aheacl that ensuring product safety is affecr the behaviour
paramount to the company. of employees in
The irnportarrce of setting the right tone from the top is greatly emphasize d by.l oot rhe organization.
and Ofori (2009) u,hen they assert that 'leadership r,r,hich lacks ethical conduct can be Leaders have to set
dangerous, destructive, and even toxic'. If the top management sets an inappropriate: che righr tone from
or wrong tone at the top, that is the atmospirere that encouragcs urnethical practices rhe rop so as to
lhe ernployees will not take ethics seriousiy. If the top management shirks, misuses communicate their
company assets, misrepresents the capabilities and perfbrmance of the organizatiot't, expecrations about
rhe imporrance of
sii,es bribes, Lrreaks the law and engages in other unethical practices, then the
ethics in business
emplol,ees receir.e the message that these types of behaviour are not only acceptable,
dealings.
but perhaps expectecl. They might think that it is certainly the r.vay to get ahead in that
iirganization. Employees watch the behaviour of their managers, iisten trr rvhat the1,
say and follow their lead.
Case for review 4.i highlights the incident where the top rnanagement rvas so
',,bsessed
u.ith the achievement of financial goais at any cost that the emplovees
'sorted to unethical prac.tices to meet the goals to avoid harsh actions from their
hosses.
Bausch & Lomb: Overstated Earnings
fhe Hong Kong division of Bausch & Lomb had tremendous sales growth throughout rhe 1980s
and early 1990s. However, suddenly, the division reported a significanr reduciion in earnings in 1994.
The earnings dropped by 54 per cent. The decline in earnings was due io the excessive distrrburor
inventories.
)4 Business Ethics
The SEC's investigation revealed rhar Bausch & Lomb had been overstating its earnings for years.
Nor only the l long Kong division was involved rn rhis unethical and unlawful acr, but also other
divisions in Latin America and orher Asian counrries. How did Bausch & Lomb rnanage to oversta[e
irs earnings? Apparently, the company resorred to various unethical sales tactics to boost sales, such
as durnping Ray-Ban sunglasses ar cheaper prices ro'black'markets and shipping con[act lenses to
doctors who did not make any orders in the firsr place. In some extrme cases, the distributors even
held up to r-wo years of unordered invenrories. ln short, the company relied on financial manipularion
ro meet sales targers, thus arrificially boosted rheir earnings.
The SEC charged rhe company for breaking rhe US law for overstaternenr of earnings. Several of
its top executives were named in rhe charges. As a resulr of the unethrcal sales ractics, Bausch & Lomb
had to restate rhe earnings. l-he revenues were reducedby 542.1 miliron and ner profrrs by413 million
for 199-3. Although the SEC did nor find any evidence rhat could direcrly irnplicare rhe rop executrve-(
on rhe oversraremenr of profirs, rhe invesrigarion revealed that rhe culture ar rhe company focused
roo much on the achievement of earnings and sales goals.
The rop executrves gave challerrging sales targets and expected the salespeople ro achieve them
at any cost. They did nor wanr ro hear any excuses for not meeting rhe rargels. Sometimes, employees
who failed ro meet the targets would be sub;ecred to severe humiliarion. T.he top executives failed to
emphasrze chat rhe achievemenr of f inancial goals must be made rhrough ethical means and values
such as honesry and fairness. They had pur tremendous pressure orr the salespeople to achieve sales
rargers unril rhey resorted ro whaiever means ro meer them. lr-i short, rhe top executives set the
wrorlg Lorre [rorrr t-lre Lup Lirar Llre errrployees had Lo do whatever it takes to boost sales.
Nor only the culture became so obsessed with the ochieverrenL of earnings. the cornpany also
gave higher weighr ro achieving higher saies and earnings growth and profitabilrty than the werghr
on ensuring customer sarisfacrion As a resulr, Bausch & Lomb pard deariy fr:rr-this lack ol ethical
leadership and had to serie a shar-eholder Iarvsuit over the overstatement oI earnings as well as the
SEC charges. The company's reputation was badly damaged too.
(Adaprcd frct m : J e n n i ngs, )0 09)
Case for Review 4.2 shows when the CEO of iohnson and )ohnson set the right tone
from the top about putting customer's safety first, it heiped to gain public confidence
and restored its damaged reputation in the long run.
Johnson and Johnson: Tylenol lncident
ln 1982, several people dred after raking Tylenolcapsules rn Chrcago, USA. The then CEO of Johnson
and]ohnson, James Burke, clurckly referred to the company's credo of olacrng cusromer safety ahead
of financial considerations io make a swift decision to recall the prod.rct from ihe market nationwide,
fuliy knowing ihat rhe sales and share price would fall.
He rook a big risk because the recall meanr rhe company had ro absorb a massive cost bLr his
conscience was clear because he knew rhat he could not rrsk more lives. He did not wait for the
investigarion ro be complered before making such a decisicn ln ocing so, rhe CEO had ser the righr
tone irom the rop-to put the cuslomer's interest and safety firsr in whatever they do in rhe company.
ll
He belreved rhar only when rhe cusromers were happy then rhe interests of shareholders would
be served. His acrion and rone frorn rhe top enarled the company ro endure the Tylenol crisis and
derive a long-rerm comperrrive advantage from the incident. How is thar possible? l-le was nor afraid
to make a decision when there was a quesrion of ethics and stakeholders took notice of rhis acrron
Akhough iniriallyJohnsorr andJohnson suffered a temporary serback due to the massive loss from
rhe recali, ir came back stronger with higher customers' rrust and loyalry as well as enhanced repulation.
Since then, rhe company has been one of rhe mosr profitable and successful companies worldwide.
Holv do the leaders set the right tone from the top? Leaders must embrace the two
pillars of'ethical leadership that lve discussed in the eariier section of this chapter. A
summary of the actions that can be taken is as follons:
r Always act as roie mode,ls by being ethical towards employees, customers,
suppliers, shareholders and regulators. If the CEO himself breaks tire law,
then he could riot have been setting the right tone from the top for the
organ izat ion "
r Actively embed values so tirat ernpioyees know ti-rat ethics and honesty are
rmportant in thc orglnizatiutt.
r Regularly talk about the <;rganization's ethical values and standards in all
compan)'er,,en1s to show that ethics is a prioritv.
r Consistentl,v 'clo as the,v sar,r' as opposed to double talk, ivhere in the
organization the leaders talk about the irnportance of ethics and integrity,
but ignore them in therr personal lives and social engagernents.
r Implement policies, processes and systems to support the tone from the top.
r Make it clear that comphance and ethical risks are not tolerated, and infuse
this stance in the organization's rervard and disciplinary system.
r l-ake imrnediate action to fix anv ethical problem and remedy the harm,
rvhich includes taking appropriate action against tl-re offending ernployee in a
su,ift and firm manner.
r Provide, sponsor and endorse adequate and regular ethical training on a code
of ethical business conduct of the organization.
In reality, horvevcr, nurrerous firms have failed to establish the right tone
frorn the top, leading to l-rarmful scanclals and even their collapse. Take 0nron, for
example. It had a corporate slogan of 'Respect, Integritl., Community, Excellence'
but the top executives were the ones that betrayed the trust of the empioyees and
shareholders by getting invoived in massir.e lrauds. The former CEO, ]effrey Skilhng,
emphasizcd bottom-line results over ethical values whereas another former CEO,
Ken La1,, showed unethical leadership bv instructir-rg his managers to use his travel
agency for arranging ail overseas trips for Enron's executives. As such, the lr,ords of
that slogan meant nothing to the stakeholders as they lost their jobs, pensions and
life savrngs. Similarly, rve had rvitnessed how the CEO and founder of Computer
Associates International, Sanjay Kumar, proudly talked about his company's
corporate qovernance and business ethics practices. However, at the same time, he
committed large-scale fraud that led to his indictment in the US court. He obviously
did not walk and live the talk.
In the next section, we rsill look at some critical elements of a forrnal ethics
programme, lvhich is one of the building blocks of an ethical leadership and corporate
06 Business Eihics
culture. We can also take this ethics programme as a way to safeguard against unethical
practices in the workplace or the way to institutionalize ethics in an organization.
4.4 CRITICAL ELEMENTS OF A

FORMAL ETHICS PROGRAMME
In the earlier section of this chapter, we have learned the importance of setting the
right tone from the top. Here, we wiil explore a structure that leaders can estabhsh
to support the effort to 'walk the talk' and ultimately establish an ethical leadership.
It is normally referred to as a formal ethics programme, which provides ethical
safeguards in the workplace. This programme consists of a set of formal activities,
policies, practices, processes and procedures to deal with ethical issues in an
organi: rtion.
This 1-'rsg12mme aims to affect employees' perception and view of ethical issues,
and rnost cruciail1,, to guide them to address those issues that arise on the job. It is
also inter-rded to suppnrt employees to comprehend the ethical standards set by the
organization and ensure compliance with the standards. Employees necd to har.e
ethicai standards, training and channels to seek advice whcn they encounter an
ethicalrJilemma in their dailywork. Then, theyu,ill tre able to rnake an informed arrrl
ethical decision to address such a dilemrla.
T'he top management, particularly the CEO, should take the lead to initiate
and sponsor this ethics programme. Furthermore, it is a manner in rvhich the top
managernent team and the employees' irnmediate si-rpervisors can sholtr strong i
ccxrmitrnent to create an ethical atmosphere throughout the organization. The !
a
supen.isors har.,e a crucial role in impiementing a formal ethics programme because B
they need to give support to employees in adopting the cthical standards. Frgr:re 4.,1 i--
t
shorvs a list of critical elements in a formal ethics programnte. ,..
!.
t?
*
&
Critical Elements of a Formal [thics Programme

#
s
s
6
&
" Core value statemenL . Erhics training programme

!_
. Code ol eLhical conducr . Whistleblowing policy and ethics helplines

ll
&
. Compl,ance manual . Ethics audir
E
F
. Lrhic. of iicers and cornpliance officers . Ethics award

&
&
re
&
Figure 4.4: Critical elenrei'lts of a formal ethics prograrnme B

h
sI
l
*&
4.4.1 Core Value Statement x
An important dimension of ethical leadership is the articulation of organizational r_
G
D
x
values to all empioyees and other stakeholders. This can be done via a core value x
G
statement. Top management needs to identify anri derine a clear shared meaning of xT
values/befiefs, priorities and principles that can guide everyone in the organization in E-
&
their daily activities" IE
I
T
Z
I
I
4.4.2 Code of Ethical Conduct

Code of ethical conduct or simply ref"erred to as code of ethics is one of the most
common critical elements of a formal ethics proJramme. Many established
organizatrons have formulated such a code. We can take it as one of the best-known
and important instruments for implementing business ethics in an organization
because it can influence behaviour of the employees. It usually contains poiicies and
ethical principles that sirould be followed by all members of the organizalion so that
they can behave ethically. It is meant to guide managers and employees on what is
viewed as ethical behaviour and to enhance their ability to deal with ethical issues.
Schwartz (2004) suggests that code of ethics shouid have the follorvino
characteristics for it to be useful and effective.
r Applicable to er.eryone in the organization and all business partners
r Easy to understand and non-legalistic
r Contains reievant exampies of ethical and unethical behaviour or practices
r Avoid negative tone
r Specify sanctions or penaltics for violatron of the code
Other than the abovementioned characteristics, code of ethical conduct should
also specify the procedure for handling complaints and rnciude the descriptions
fMr*rrt*d
of standarcl of condr-rct ancl standard of practice expected of ail rnembers of the -
supervisors must take
proactive steps to
organlTation. It is conrmon for tire codc of ethics to be a stale document, u,hich is ensure that the code
rreant to be stasired ar,vay sotrrer,r'hele in the desk drawer of errrployees afler atLelrtling of erhics is not a stale
an induction programme. Hence, it is pertinent for organizations to ensure ali document rhar has
employees are reqr-rired to sign-off on ti-re code annually to indicate that they have no significance ro the
read, understoocl and undertake to contply with the code. employees performing
In additjon, the code of ethical conduct wiil be more effective if it is follorved by an their daily routines.
employee ethics training prograrnme so that ethics can be infused in the company's
dav-to-day activities. Figure 4.5 lists typical provisions or issues covered ir-r a code clf
ethical conduct r,r'hereas Figure 4.6 shows the PETRONAS no gifts policy statement,
,,"hich is also rnclucled in its code of business conduct and business ethics.
Accepting or refusing gifrs from business

partners policy
Conflict of rnteresr
Securiry of propnerary and conlideniial
infornrarion
.p!lQ!f les
Figure 4.5: Con',mon prcvisions of the coie of ethical conduct

)B Business Ethics
NO GIFTS POLICY
pETRONAS aspires ro achieve rhe h;ghesr standards of inregrity and honesty in rhe conduct
of its business and operations.
pETRONAS staff are required ro acr in rhe besr inrerests of PETRONAS and to refrain from
engaging in rhe conducr whrch may affecr the besr interests of PETRONAS.
fherefore PTTRONAS staff shall NOT:
r zccpt personal gifts from external parties
. give personal gifrs to external paruies
The policy is meanr ro avoid conflicrs of interest or the appearance of conflicrs of interesr
rn any ongoing or potential business deallngs of PETRONAS
pETRONAS staff are required ro familiarize rhemselves wich the provisions of PETRONAS'
Code .-rf (..onducr and Business Erhics (CoBE) to ensure rheir conducr is in compliance
wirh
rhe CoBE
(Scturce: http://www.petronasgas.com/events-prctmorions/Pages,/articlel
GENTLEREMINDERNOGIFTSPaUCv: aspx, accessed on 12 lune 2014 )
Figure 4.6: The PFTRQNAS no gifis policy statement
4.4.3 Compliance Manuals

It is common for large org,anizations to have corrp.liirnce nlattuals to communicate
relevant rules, policiei a,r.l regulations that must be adhered to by all employegs. $n6h i:'
l
a manual guides enployees to understand the rules and helps them to implemerrt r
I
them in th"eir .1ally u.tiviti"r. Some rnanuals include a checklist of things tcl compiv
t-
n,ith for easy ref-erence of employees. For example, HSBC Bank Malaysia reciuirer all r
t
functiolal lteacis of clepartment to ensurc that a11 employees rcad and con'rpl1' 1r i1fi
the provisions of the bank's compliance manual. They are also required to sign off
r*
E
on the manuai annuaily. The heads of department need to complete arrd sign off on a u
checklist that specifies all the relevant banking policies, regulations and provisions of
t
*
larvs that need to be complied rvith in the bank's dal'-to-day operations.
r
s
:l
4.4.4 Ethics Training Programme

Ethics training programme aims to train all levels cif ctuployees to engage in ethical
practices and behai.iour in the workplace environment. It is liot meant to teaclt
employees about morality but to help them make the nght dee isions that are consistent
with the organizations'ethical standards. Training can be in the fornr of briefings,
lectures, workshops, gloup discussrons, high-level spceches and uewsletters'
E,.r- ;,,rrrg-_--1 The training ihould cover the provisions of the cocie of ethtcs and ethical issues
Leiomes nerrfei rrve if that are specific to an industry or profession. In other words, it should be tailor-made
rhe ourcomes a,'e Tror to address issues encountered by different business ftrnctions in an organization
assesseci or 1ev1sv,,s1l For example, human resource managers may face unique ethrcal concerns in the
i'egulariy recruitment process and ernployee relations. Meanlvitile, procurement managers
may have to deal *,ith the issues of accepting gifts, b, ibes or benefits-in-kind in the
supplier selectron process"
Ethical Leadership and Corporate Culture '109
Ethics training can help to shape the behaviour and perceptions of employees
toward acceptabie and unacceptabie practices in the organization. Hence, it is
important for the ethics training to provide them with the exposure and skill to
analyse case studies on real ethical dilemmas in the workplace and guide employees
in the process to make the right decisions to resolve them. Organizations can also use
training programmes to convey their expectations and ethical rules to the employees.
Finally, organizations should put in place a system to measure and track the
progress and success of ethics training. Periodic qaizzes or tests can be arranged
to check the employees' knowledge retention. Supervisors can keep track of any
behavioural change that is more in tune with the ethical standards or an increase in
reported concerns or complaints about potential unethical activity.
4.4.5 Ethics Officers and Compliance Officers

Ethics offlcers (EOs) are basically administrators who have a direct and full I-T*" **d
responsibility to oversee all matters related to a formal ethics programme in an facrors for the
organization. They inplemeirt and monitor the programme and advise the top effecriveness of EOs
management and board of directors on ethical problem identification and resolution. are independeni
They are senior corporate officers whc, have the clout and power to act on ethics-related reporting and
matters. To ensure the EOs act independenth,, a reporting mechanism should also be organizational
established to provide confidentiajit-r and anonymity without any fear of retaliation. reS0urces.
O..6.r.L,1it the EOs shouid report directlv to the board of directors with a dotted line
reporting to the ClrO 1br adrninrstrativc matters. ivlembers of an organization will not
be confident to refer potential ethical problems to an EO lvho is rrot impartial for fear
of reprisals or a conflict of inlerest.
One of the more critical fr-rnctions of an L,O is to assist the top management fEot *.r" b.
leam and board of directors to rnstrl ethical culturc in an organization. EOs are accessible ro all
the key contact point for marlagers, employees, customers, directors, shareholders employees i,r a
arrd even suppiiers on issues reiating to cthics. Petry and Tiez (.1992) suggested confidential rvay
that the responsibilities ol'ethics oificers include advising empioyees, investigating
aliegatrons of ethicai problerns, as r,e1l as der.eloping and coordinating ethrcs and
compliance policies. An rmportant point to consider is to ensure that EOs have the
resources to perform their fui-ictions. Hence, the support from the CEO in aliocating
the budget and human capital resollrces is paramount to ensure the etfectiveness of
the EOs"
Conipliancc officers (COs), on the other hand, are tuliy responsible for not
onl-v ensuring compliance lr,ith policies, rules and regulations, tut also monitoring
adherence to ethical procedures ancl standards. It is comrlon to combine the functtons
oi erhics and compliance officers in most organizations. In short, EOs and COs are
the anchors of a successl'u1 ethics programixe in an organization.
4.4.6 Whistleblowing Policy and Ethics Helplines

Whistleblorving is the disclosure of information about unethical or illegai practices tcr
someone rvithin an organization who can take action to investigate, prevent and punish
the lvrongdoers. It is an important risk management mechanism to uncoyer unethical
activities that could expose the crrganization to various risks. A whistlebiower is an
individueii who reports the evidence eif wrongdoing or unethical activities.
Tlvo famous whistleblo\vers rvere Sherron Watkins and Cynfhia Cocper of
Enron and \{orldCom respectively. They reported accounting irregula,-ities in the
10 Business Ethics
Whistleblowing will I companies. In the case of Ms. Watkins, she reported her concerns to the CEO, Ken
not take place if rhe Lay. Unfortunately, the CEO did not take the report seriously and failed to investigate
employees do nor the concerns thoroughly. This incident highlights the importance of having an
know how to do independent whistleblowing channel of reporting so that any reporl of wrongdoing
it and they are nor can be investigated instead ofshoving them under the carpet.
confident thar rhey Employees are the ones who usually have the inforrnation about conduct or
will nor suffer from
activities that could have ethical or legal ramifications. However, they are reluctant
reprisals from doing
to report such activities due to fear or simply mrsplaced loyalty to coworkers or
50.
superiors" So, it is pertinent for organizations to have a written policy and procedure
on whistleblowing in order to guide and encourage employees to report unethical and
illegal activities.
Further, the policy and procedure is necessary to prevent abuse or misreporting.
Swoan (2007) suggests the foilowing reasons for having a whistleblowing policy in an
organization.
r fb identify risks that the top management or the board of directors might
not know.
r To encourage employees to voice out their concerns.
r To provide an alternative channel for employees to report unethical activities
if they cannot report them to their immediate superior.
An inrportant element of an effective whistlebiowing policv is to specify the
protection to be accorded to the whistleblowers. Protection in terrns of confidentialit,v
of in{brmation and rmmunity from civi} or criminal actions is necessary to encourage
u,histleblou,ing activities. Whistieblowers should also be protected from an1, fornt of
retaliation such as dismissal, pay cut, job transfer or e\ren a demotion.
Without this protection, nobody will dare to speak out for fear of being victirnize d.
In Malaysia, the government has introduced Whistleblorver Protection Act 2010 rn i.
Decenrber 2010 to give legal protection to individuals who expose corrupt practices s
I
in the public and prn ate sectors. The Act assures confidentiality and gives irnmunitv
t--
from criminai trr civil cl-rarges. I
r
An essential element to the rvhistleblor,ving policy is the etl'rics helpline, rvhi,-h
serves as a confidential channel for everyone in the organization to communicate
information on ethical violations and illegai activities. Members of an organization
can also call the helpline to seek advice on ethical problems or dilemmas in case of
doubt. Thel'can choose to remain anonymous. Thr heipline can be in the form of
telephone lines or via the Internet. Establishing helplines indicates that an organization
is serious in promoting ethical practices, which in turn gives confidence to employees
to b1ou, the vr,histle on bad behaviour.
4.4.7 Ethics Audit

Some firms have put in place an ongoing process or mechanism to verify and assess
the effectil,eness of their ethicai safeguards by conducting an audit of their ethics
programmes and standards. This process helps the organizations to determine any
loopholes, tr,eaknesses and warning signs that could lead to future ethical problems.
Another purpose of the audit is to ensure that thc managers and employees closely
foliorv the desrred ethicai standards specified in the code of ethicai conduct. The audit
also periociically revien s and assesses the adequacy of the existing ethics policies and
procedures and suggests improvements. Ethics audit ts also perlormed in order to
identify anlr d.,riu,toirs from the code of ethics and assess whether the manageinent
has taken the necessary steps to rectify them.
Ethical Leaclership and Corporate Culture 111
4.4.8 Ethics Awards

demonstrate
arganizations can give recognition to empioyees who have gone all out to
,nj.mbru.. the core and ethical values in their daily routi'res. This form of recognition
helps to show other empioyees the appropriate behaviour expected of
them, which
thei shguid emulate. Ethical employees can be role models and set good examples of
ethical conduct fbr their coworkers. The role models can provide supPort and give
encouragement for their coworkers to follow the ethical standards establislied in the
organiza-tlon and to consider ethics in decision-making.
" In ,u*-ury, the top management needs to ensure that they use or integrate a1l
mri;il;6,, -.
the eight elements of an ethics programme together because they reinforce each other musc be included in
and iiis more effective to do so. Studies have found that employees in the companies an erhics programme
that have a comprehensive ethics programme are less likely to engage in unethical for it ro be effective.
()oseph,
behaviour and inclined to report such behaviour to the relevant authority
2000; Kaptein, 20U9). A formal ethics programme must not only exist on paper but
must be present in the hearts, minds and actions of every member of an organization
for it to be effective.
In the last few sections of this chapter, we lvill explore the link between ethical
-1b
leadership and corporate culture" begin with, first we need to be clear on the
definitions of corporate culture and ethical corporate cuiture. We may have briefly
broached on these tlvo areas eariier in this chapter so it is now the time to delve into
theitt t'Jstrril.
4.5 DEFI N ING CORPORATE CULTURE

AND ETHICAL CULTURE
Personalvalucs and nroral character play crucial roles in influencing an organization's
ethical stance and perforn'lance. Hor'l.ever, they are not sufficient to prevent nr isconduct
because research has shonn that ethical culture is the one that has the strongest
inflr-rence on behaviour (Whetstor-re, 2005; lurkiewicz, 2007).In this section, rve will
revieu'the compot"tents of an ethical culture. However, to begin rvith, we need to knorv
the nteaning of corporate culture and its role in shaping the decision-rnaking process
oian organization.
Corporate culture is the sirarecl beliefs, values, norms, customs, expe :tations artd
meanings of the members of an organization that shape or influence their thinking
and behaviour. Simpll, pr-rt, it is the way everyone does things in an organization.
It also ties indir.iduals in thc organization and guides how thev ought to treat each
other. F,:rther, corporate culture gives a sense of identity to achieve common goals
and enhances social stability because it holds the organization together.
Elements of a corporate cuiture include methods of probiem-solr.ing and
conflict resolution, rules and policies, incentives and rer,vard system, reporting line
and authority, tempo of' rvork, pirysical layout of workplace, mode and channels
of communications and leadership styles. An example of a corporate culture is
AirAsia's culture--team,orientated, fun, low cost and high productivity. Financial
institutiotis, on the other hand, are knolvn to har.e a compliance based culture and
strict control.
Ethicai cuiture rs an unspoken understanding amongst meri'lers of an
organization of the legitiinate and unacceptable practices. It is the part of corporate
12 Br.rsiness Eti,ics
culture that promotes the ethical values of an organization and guides employees
Th. rbt-,-* I to understand the importance of doing the right thing. In a strong ethical culture,
"f
an ethical culrure employees know that doing the rieht thing is expected and they have a positive attitude
could bring abour a towards the ethical decision-making process. They also know that doing the right
disastrous effecr on thing is a priority in the organization. The top management team is instrumental in
the sustainability of developing a strong ethical culture because their attitudes, choices and actions have a
an organization.
great influence on the expectations of the employees.
Organizations that have a strong ethical culture embed ethical values in the
actions and decisions of the management and employees, in the company policy and
procedures and formuiation of incentive systems. The establishrnent of a formal ethics
programme is one of the key components of the development of an ethical culture.
The other component is the top management's commitment to ethics, which is
encapsulated in the concept of ethical leadership.
In a strong ethical culture, employees are not merely concerned with getting the
job done, but getting them done in the right/ethicai way. In fact, a stronger ethical
climate ,rncourages ethical conduct, promotes ethicalleadership (Brown and Trevino,
2006) ancl enhances employees' perception that the management is committed to
ethicai practices (Sims and Keon, 1999). A survey of Ethics Resource Center (2009)
in U.S. companies revealed the folloning findings *,ith regard to the companies that
have a strong ethical culture:
r Fewer employees felt pressure to commit unethical behaviour.

r Lotver incidents of miscottducl alttuttg etttpluyees.
r I{igher tendency to report for observed misconduct.
r Actions and perception of top management team drive the ctl-rical culture.
r Strong top managerrrent commitment erlcourages reporting of financial
misconduct.
'l'rer.ir-ro et al. (1999)
in a survey of more than 10,000 U.S. employees found that
ernployees are more r'r,i11ing to report bad news and ethical violations to management
and they perceive that the presence of ar-r ethics programme enhances their decisjon-
making process. The findings of this survey indicate that ethical culture plays an
irnportant role in the employees' decision-making process. Employees are inclined
to make ethical choices when the culture of an organization gives priority to ethical
values and conduct and the top management does not compromise ethics in their
actions and decisions.
In summarv, corporate cuiture piays an important role to bind emplot'ees together
and to make them understand the expectations ,.nd values of their organizations.
I'hey are guided by the corporate culture not only in the ivay they do things but also
the rvay thev interact with each other and ti-re ntannel they treat other stakeholders.
Ethical culture is the component of corporate culture that griides employees on what
is acceptable and unacceptable behaviour in therr datly activities in the organization.
A strong ethical culture fosters the environment that makes being ethical a priorrty
and essential to achieve organizational goa1s. Ethrcal leadership and a formal ethics
programme are key comprJrlents of an ethical culture.
Next, rve shall examine the relationship between ethical leadership and ethical
corporate culture.
Ethical Leadership and Corporate Culture 1i3
ETHICAL LEADERSHIP AND

ETHICAL CORPORATE CUrIURE
We have noted that ethical leaders embrace a set of universal ethical values and personal
traits such as trustworthiness, respect, responsibility, fairness, caring and integrity,
among others" Further, leaclers explicitly make the statements of values, beliefs
and customs through their conduct, speeches and various systems and procedures
established in the organization. Ail of these become ingrained in the organizational
culture. Ethical leaders are both 'moral persons' and'moral managers'who encourage
ethical behaviour by role modelling, purposefully managing ethics and making
eyeryone in the organization accountable for ethics. Given these characteristics,
ethical leaders are instrumental in cultivating ethicai culture in an organization. In
other words, ethicai leadership is a precondition to an ethicai culture.
Leaders are influential in shaping the expectations, perceptions, practices and
C,h'.ril.rd"rth,p h*
behaviour of everyone in thei. organization. Trevino, Hartman and Brou,n (2000)
a posirive relarionship
highlight that the 'moral manager' piliar makes ethical leadership stand out, which
with erhical
in turn greatly affects the corporate cuiture of an organization. They have polver and corporate culture.
influence that they use to motivate their followers. Motivation is, in fact, a powerful
force that influences individuals to channel their behaviour, energy and concentration
to achiet'e organizationa) goals. So, ethical leaders motivate or even compel others to
confor rrr to their cxpcctalions ahout cllrir.al conrlrrct
Horv do ethical leaders motjvate others to embrace ethic:l principles in their
daily actir.'ities? They can creatc motivation by establishing an incentive systcrn that
rewards the achievernent of goals througl-r ethrcal means and punishes emplol,ees who
fail to coniply with the ethical standards of the organization. This reward system is
a porverful reinforcement for ethical behavior.rr. F,,rrther, it is through such incentive
systems that leaders can convey their expectations of ethical conduct.
Further, ethicai leaders lead bv erampie and are role models for the einployees.
Grojean, Resick, Dickson and Srnith (2004) assert that role rnodelling can be an
important determinant of an ethical culture because it increases trust in leaders
and aligns the values of the ernployees r,vith those of the leaders. In aildition, ethical
leaders provide the direction and facilitate the process of achieving organizational
goals through role modeiling. Sci, naturall,v, employees look up to thern to determine
lhe expected beiraviour.
. In addition, policies of ethical leaders greatly affect the rva1, employees perform
their daiiy work and behave in the organization. Ernployees vierv leaders tha,1 introduce
policies and take actions that are in Iine with the core values of the organisation are
more trustworthy. Thus, in a nutshell, ethical ieadership is a critical iomponent of
an ethical culture, which is an ultimate source of ethical behaviour (Slnclair, tqq:).
in.fact, \^ e can say that ethical leaclers play a dominant roie in developing an ethical
culture. it is through their ethical tone from the top and actions that they.*u, p.ornot.
and reirrforce ethical culture.
In summary, ethical leaders promote ethical culture. Unethical leaders
demonstrate a severe lack of ethical conduct in business operations and breed a
culture of anything goes that we have witnessed in various companies such as Bausch
& Lomb, TVco [nternational, Artirur Andersen, Parmalat, Satyam Computer Services,
Lehrnan Brothers, Merrill Lynch and most recently HSBC Banking Group
4 Business Ethics
The learning outcomes for this chapter are summarized below:
l Define ethical leadership.

Ethical leadership is the abiiity to cultivate ethical behaviour in the workplace by role modelling
and motivating followers to observe ethical conduct in their daily acrivities. Leaders can encourage
ethicai behaviour through two-h,ay communication, reinforcement and ethical decision-rnaking.
2. Describe the two pillars of ethical leadership: moral person and moral manager.
The moral per.son pillar represents the ieader's personai traits, character and altruistic motivaticin.
'fhe moral manager pillar represents the proactive efforts of the manager to influence the way his
employees beirave, ethically and unethically.
3. Explain the meaning and importance of the right 'tone-from-the-top' in the context of ethical
leadership role.
'Ihe initiatives by corporate leaders and the board of directors to create an ethical atmosphere in
the workplace where eyer).one takes ownership and responsibility to do the right thing because it
is the right thing to do.
4. Explain some critical elernents of a formal ethics programme.

Core value statement--a u,ritten statement issued by the top management team to convc,v Lhe
values of the organization to en-rployees and other staketolders.
Code of ethical conduct a r,r,ritten set of rules, policies and ethical principles to gurcle managers
and employees to behave e thically and to resolve ethical problems at the workplace.
Compliance manuals -a set of guidelines to guide employees to understand and implernent the
relevant rules, regulatjons arnd laws in their daily activities.
Ethics training programme a programme to train all empioyees to engage in etl"iical practices
and behaviour in the rvorkplace environrnent and to help them inake the right decisions based on
the establisl-red ethical standards.
Ethics offices and compliance officers-Administrators who have a direct and ful1 resporrsibilitl,
to oversee al1 matters related to a formal ethics programme and to advise the top management,
board of directors and employees on ethical problem identification and resolutlon.
Whistleblowing policy- a policy that outlines the procedure to disclose information about
rinethical or iJlegal priictices rvithin an organization and specifics the protection accorded to the
i
r'r-1ristleblon er. ?
f,
Ethics helpline-a conficlential channei of communication establi.shed for all members of the I,
r
organization to report on ethrcal violations and illegal activities to seek guidailce on resolvins E.
u
etl, ical problerns or dilemnras. ii

k
i
Ethics audit-an on-golng process to verify and assess the adequacy and eff-ectiveness o1'ethical &
r
safeguards and to check that the managers and employees closely follorv the desired ethical I
standards specified in the code of ethical conduct. r
E
Ethics arvards-Recognition tti employees who have gone all out to demonstrate and embrace the &
core and ethical I'alues in their daily routine. fr:
s
5. Define corporate culture and ethical corporate culture. #

x
Corporate culture rs tire shared beliefs, values, norms, customs, erpectations and rleanings of the
members of an organization that shape or influence their thinkrng and behaviour. It is the wav
li
&
everyone does things in an organization. H
B
B
E
s
E
Ethical Leadership anci Corporate Culture l'15
Ethical culture is an unspoken understanding amongst members of an organizationof the legitimate

and unacceptable practices. It is the part of corporate culture that promotes the ethical values of an
organization and guides employees to understand the importance of doing the right thing.
6. Explain the role of ethical leadership in establishing ethical corporate culture.

Ethical ieaders play a dominant role to cultivate ethical corporate culture in an organization' They
embrace ethical values in their personai and professional lives. Thcy make decisions based on
ethical principies and ethical r.alues. Ethical leaders have a great influence on the way the followers
behave and perceive things in the organization. Hence, they can influence and motivate them to
pay attention to ethics in their daily activities through role-modelling and establishing policies
and reu,ard systems that promote ethical practices. They can reinforce ethical behaviour by talking
about ethics and emphasize on the importance of ethics to the organization. When leaders practise
ethical leadershrp, the follolvers iearn the appropriate behaviour through observing them and
copying such behaviour. Ethical leadership lets employees know the boundaries of acceptable and
unacceptable behaviour in the workplace.
Erhics audit An on going proce ss of assessing the adequacy and effectiveness of a formal ethics Programme
,lf an organization.
Ethics awards Recogi'ution given to emplol,ees who are known to observe ethical conduct in their dailv
actn ities consistentl-v.
Ethics helpline A confidentialchannel of communication for all members of an organrzatton to seek advice
on ethic,ai problems and to report any rt'rongdoing.
Ethics officer A senior rnember ofthe management team who is responsible for overseeing the implementation
of a ibrn'a1 etl-rics programmt: and ensuring adherence to established cthical standards.
Ethical culture An unspoken understanding amongst members of an organization of the legitimate and
unacceptable practices"
Ethical leadership fhe ability or po\,\rer to instil ethicaliy acceptable behaviour through personal actions and
,notivate follotvers to emulate such behaviour through two-wa1'communicatiun, reinforcement and ethical
,.iecision-making.
f thicsprogramme A set of fortnal activities, policies, practices, processes and procedures to deai with ethical
tssues in an organizatiott.
Ethics training A prograrnrne that aims to irain all levels of employees to engage in ethical practices and
lehaviour in the workplace environment.
Code of eth ical conduct A written set of rules to guide managers and employees to observe ethical conduct
and to help them rvork through ethical <-lilemmas.
Compliance manuals A set of written guidelines about policies, iules, rcgulations and provisions of laws to
1r-ride employees to implement them in their daily work.
ib Busrness tthics
Compliance officers A manager who is responsible for ensuring that the organization and its members
comply with the policies, relevant rules, regulations and provisions of laws.
Core value statement A written statement articulating organizational values to all employees and other
stakeholders.
Corporate culture The shared beliefs, values, norms, customs, expectations and meanings of the members
of an organization that shape or influence their thinking and behaviour.
Moral manager Represents the ef'forts of the managers to be role models and to establish a work environment
and system that promotes ethical behaviour and discourages unethical behaviour in an organization"
Moral person Represents the leader's personal traits, character and altruistic motivation.
Tone from the top

The efforts undertaken by corporate leaders, including the board of directors, to create an
ethical atmosphere in the workplace.
Whistleblower An individual H.ho provides the information or evidence about potential unethical or iliegal
activities in the organizatioir.
Whistleblowing Disclosure of information or evidence about potential unethical or illegal activities by an

individual within an organization to the parties outside or the authorities in the organizatioti.
t. Explain the meaning of ethical leadership.
2. List and briefly explain five common organizationai ethical values.
3. In your opinion, explain rvhat happens if a moral person fails to be a nroral manager?
4. Illustrate. with examples, the meaning of setting the right tone from the top.
5. Analyse the importance ol ethical leadership in cultivating ethical culture in an orqanization.
Earnings Growth: The Orbit Way

Mac was a Senlor Vice President in the Customer Credit Department at Orbit lntern.:'ional Broadcasi
Network (Orbit), a leading inregrated consumer media entertainment group in Malaysia and Soutlreast
Asra Crbir operates in four areas of business, iiamely Pay-TV Radio, Publrca:ions and DigiLal Media Mac
was responsrble for customer i)ayrnents, credirs and reconciliations of accor-inis. Ihe top managenlent gave
hinr chrlienging monthly revenLle growth targets. He felt pressured ro achieve the targets He knew thai
not meeting ihe targers would put his 1ob on the line.
ln Orbrr, ir was common for upper level management to'massage'the company's financial records'
Mac knew thrs. They were willing ro do wharever was neLessary ro achieve revenue growth withour farl.
The board of drrecrors did nor know about this activiry. They were happy to see performance
growth and
did nor borher to ask any quesrtons. They pur their complete trust in the top management team to deliver
resulrs. One evening, a week before the end of the month, Mac was under rremendous srress. He had
yer ro meer the current monrh's iarger. He did nor have much time left. He ccrrainly did not wanr to be
humiiiared during rhe deparrmental heads' meering for not meering the target. He went rhrough it a
few
year. He had
rimes lasr year. lt was nor a good experience. He lost a hefry poriion of his annual bonus last
also warched orher heads of deparrmenr go rhrough a hellish time on numerous occasions. All of them
were very fearful of rhe CEC.
Mac knew his bosses manipulared financial records and said ro himseli "l should do the same in this
desperare rime. Why nor? My bosses never get caught. There is a slim chance that lwill be discovered,
bur
lconrrol all rhe records." soon, ir became a habir for Mac ro manipulate rhe financial records. Larer, his
subordinares would also do rhe same fraudulenr activity under his v;atch. ln fact, they worked together
ro'brainsrorm'creative ideas rct cook rhe company's books. The inrention was ro fraudulenrly stare as if
rhey were meeting revenue growrh orojections albeit artificially. Mac wanted ro make hls bosses happy,
lro more importantly, he could save himself from further humiliation. He had had enough. lr was during
-.: D:ainsrorming sessrons rhar Mac learned how to hide bad debt, which caused the assers and profit to
;. nilaied
!re i ne Cay in Decenrbcr, a ream of inrernal audirors paid a visit ro rhe Customer Credit Department'
They
They v,,enr srrarght ro see Mac and dernanded to examtne the accounting records of the department.
did nor rake long ro frnd unusual journal enrries made and appro\ed by Mac. They confronted him about
rhe entries. Mac panrcked and coulcl nor rhink of any plausible explanation. lt was then that he confessed
. o his iraudulerr prz( r cp
Questions:
1. ldentify rhe elements in Orbir lnrernarional Broadcast Network that contributed to the decisions to
manipulate financral records and continue to do so.
2. Wharwasrheronefromrheropinthiscompany?lnwhatwaydidtheboardofdireciorscontriburedto
rhi: lraudulenr activrryl
Bandura, \. (1977). Self-efficao,: 'l'or,r,ard a unifying theory of behavioral change. PsS'chological Reliew, B4'.
t91-215"
Brown, M.E. and Trevino, L.K. (2006). Ethical leadership; a revierv and future directions. The Leadership
Quarterly, 17 : 595 - 616.
Brown, M.E., Treyino, L.K" and F{arrison, D.A. (2005). Ethical leadership: a social learning perspective for
construct deyeloprnent and testin g. Organisational Behavior and Human Decision Processes, gT(2): 117-134.
Irthics Resource Center (2009). The rmportance of ethical culture: increasir-ig t:ust and driving dorvn risks-
<http://trvr,r,.ethics.orglfiles/u51Cu1tureSup4.pdf>. Accessed on 12 ]anua f '; 2014.
ts*
118 Business Ethics
Grojean, M.\V., Resick, C.J., Dickson, M.\Ar. and Smith, D.B. (2004). Leaders, values, and organizational
climate: examining leadership strategies for establishing an organizational climate regarding ethrcs. Ictttrneil
oJ Bu sine s s Ethic s, 55: 223 -24 l.
Hitt, W.D. (1990). Ethics and leadership: putting theory into practice. Ohio: Battelle Press.
iames, H.S., )r" (2000). Reinforcing ethicai decision-making through organizational structure. laurnal of
Business Ethics, 28(1): a3 -58.
Iennings, M.M. (2009). Business ethics: case studies and selected readings (6th Ed.). Ohio: South Western'
Cengage Learning.
|oseph, J. (2000). National ethics survey, Volume l: Hou, employees perceive etlrics at work. Washingtorr D.C.:
Ethics Resource Centcr.
Jurkiewicz, C.L- (2007). Louisiana's ethical culture and its effect on the administrative faiiures foiiowiug
Katrina. P ubli c Adm ini s t r at i o n Re v i ew, 67 (l) : 57 - 63.
Kaptern, M. (2009). Ethics programme and ethical culture: a next step in unravelling tireir multi-faceted
relationship . I ournal o"l' Business Ethics, 89 261-268.
No Gifts Policy. <http://u,.rvn'.petronasgas.comievents-promotions/Pagesiarticlel

PETR.ONAS Gas Berh:rd.
GENTLEREIVIINDERNOGIFTSPOLICY.aspx>. Accessed on i2 lune 2014.
Petry, E. and Tietz, f. (1992). Can ethics officers improve ethics? Business and Society Ret,iev,,, 82(1): 21 25.
Schu,artz, 4.,1.S. (2004). L-inir.ersal moralvalues for corporate codes of etl'rics. Journal of BtLsiness Erfuir-s, 59 (1):
)-7 - 44
Sims, R.L. anC Keon, I'.1 . (1999). Determinar-its oiethical decision-making: The relatronship of the percerved
organizational enr.iron nrcnl. lournnl of Bu:iness Ethics, D@):393-401.
Sinclair, A (1993). Approaches to organisational ctilture and ethics. Journal of Business litltics,12:6'3 73
Snoan V (2007). L,stablishir-rg a u,histleblowing procedure. ICSA Best Practrce Guide (Z'd Ed.). London:
International Charterecl Secretaries and Administrators.
Toor, S.R" and Ofori, G (2009). Ethicai leadership: examining the reiationships with full range leadership
model, ernplovee outconres, and organizational culture. Iournal of Business Ethics,90(4): -533-5'17
Trevino, l-. K., Hartman, L. P. and Brorvn, M. (2000). Moral person and moral manager: horv erecutives
develop a reputiition for ethical leader:ship. California Management Review,42 l2B-142.
Trevino, L,. K., Brorvn, M. and Pincus Hartman, L. (2003). A quantitative rnvestigation of perceived execulivc
ethical icadership: perceptions from ir"rside and outside the executive suite. Htnnon Relations,56(l): 5-37
Trer.i.no, L. K., Weaver, G.R., Gibsoir, D.G. ancl Toffler, B.L. (i999). Managing ethics and legal c.ompliance:
whai hurts and rvhat ',r'orks. Oalifornic Management Review,41: 131-i51.
Whetstone,'f.i. (2005). A framervork for organizational virtue: the interreiatronship of mission, culture and
leadership. Business Ethtcs: A E'uropean Review, V(4\367-378.
CHAPTER
Corporate Governance
I-EARNING OUTCOMES

r Explain the meaning of corporate governance-
n Explain in what way that the separation of ownership ano control
in public corporations could lead to corporate governanc'e
problems.
s Elaborate on the meaning of conflict of tnterest in the context
of the relationship between shareholders and professional
rnanagers.
r Explain the implications of the Malaysian corporate ownership
structure on corporate governance.
Describe the nature of the principal-agent relationship in the
context of corporate governance.
Explain the stakehoider, property and social institution theories
that are applied to the corporate governance discipline.
Describe the role of various Corpordte governance mechanisms in
protecting the interest of the shareholders and stakeholders.
Describe the various ethlcal issues in corpcrate governance.
CHAPTER
Corporate Governance
5
LEARNING OUTCOMES
At the end of this chapter, you shouid be able to:

n Explain the meaning of corporate governance-
r Explain in what way that the separation of ownership and control
in pukrlic corporations could Iead to corporate governance
problems.
s Elaborate on the meaning of conflict of interest in the context
of the reiationship between sharehoiders and professional
managers.
a Explain the implications of the Malaysian corpcrate ownership
structure on corporate governance.
Describe the nature of the principal-agent relationship in the
context o{ corporate governance.
Explain the stakeholder, property and social institution theories
that are applied to the corPorate ciovernance discipline.
Describe the role of various corporate governance n-'echanisms in
protecting the interest of the shareholders and stakeholders.
Describe the various ethical issues in corporate governance.
l:
:0 Business Ethics
.- 5;0. -' INTRODUCTION
By nature, human beings are egoists. Recall the discussion on ethical theory where
egoists tend to place emphasis on their self-interest. Their actions are based on
promoting their own'happiness. Being egoists, human beings can be greedy too.
Horvever, the extent of the greediness differs from one person to another. In a business
context, when greed is combined with unfettered power, it can almost certainly lead
to corrupt or unethical practices. Corporate governance problems largely arise due to
the unethical behaviour of corporate managers. They are human beings who can be
egoists, greedy and have power in their hands. undeniably, there are many good and
ethical corporate managers out there who work diligently to ensure that shareholders
are not short-changed. Howeveq there are aiso sufficient numbers of errant and
unethical managers who had caused havoc in the corporate worid at the expense of
stakeholders.
In llre past decades, we have witnessed various corporate scandals, be it in the
rArestern or other parts of the world. The US government responded to the Enron
scandal by tightening the legal framework governing corporate managers and public
corporations. Meanwhile, the UK and Asian countries introduced various corporate
governance codes to address the issue of abuse of power by corporate managers
and revamped their respective company laws. 'lhese initiatives were mainly taken
to strengthen the oversight function within public corporations. The ultimate
aim is mainly to protect shareholders and stakeholders and to improve corporate
rnanagement of public corporations.
In Malaysia, \^re have a good share of corporate scandals invoiving pubiic
corporations, namely the financial irregularities in Renong Berhad, the Perwaja
Steel fiasco, the downfall of Sime Bank Berhad and the massive trouble at Malaysian
Airlines System (MAS) Berhad in the late 1990s.In 2006, we witnessed the'llransmile
Berhad's financial manipulation case in which tu,o of its dircctors were sentenced
to jail for providing misleading financial information to Bursa Malaysia Securities.
In 2010, the case of former Sime Darby Berhad's top executir.e in connection with
trvo alleged failed investments overseas and the Bakun Project had rocked corporate
Malaysia. Sime Darby Berhad allegedly suffered a massive loss dr-re to these failed
investments.
Poor corporate governance is of great concern to not only shareholders, but also
to other stakeholders as well, because it can lead to massive losses and the collapse
of corporations such as Enron, Worid Com and closer to home, Sime Bank Berhad.
Hence, robust corporate governance provides a mechanism for the board of directors
and shareholders to control corporate managers so as to give them little room to misuse
their porver and to advance their greed at the expense of stakeholders. Hower.er, this
mechanism needs to be supported by the promotion of ethicai practices amongist
the corporate managers. In this instance, the board of directors play a crucial role to
inculcate ethicai behaviour in a business organization. Hence, the interrelationship
between corporate governance as a mechanism to oversee the way power is exercised
in a pubiic corporation and the role of ethical practicts or behaviour in ensuring the
achier.ement of organizational objectives is established.
This chapter attempts to provide an overview of corporate governance in the
context of business ethics. We will focus on corporate governance issues relating
to public corporations. Then, we will learn about the developrnent of corporate
go\rernance in Malaysia and the uniquencss of the Malaysian corporate olr.nership
structure that is said to be an important corrtributing factor to corporate governance
CorporateGovernance 121
problems in our public corporations. We will also examine the theories of corporate
gou..nur.. to understand why corporate governance problems occur and the remedies
ior them. Finally, we will delve into some of the ethical issues in corporate governance.
However, we first need to be clear about the meaning of .orporate governance and its
importance to public corporations.
5.'1.". DEFIN ITION OF CORPORATE

GOVERNANCE
According to Tricker (1984), the term 'governance' is derived from the Greek word
gubernare, which means 'to steer'. Shareholders of public corporations rely on board
if directors to steer the corporation on their behalf. In contrasi, owners of small
private companies steer the con-rpany on their own. The official definition of corporate
governance in Maiaysia as adopted hry the Malaysian Code on Corporate Governance
(2000) is:
'Tht' process tmd -strtLcture ttseLl to direct and n'LanLtg the business ond
ttlt ;irs of the compctrtl, to)+,ords e nhcncing business prasperity ancl corporate
ttccorrttabilitlt ,,ytisJ, thc ultimate objective of realisit'Lg long-tcrm sharcholdcr
value, whilst taking into accotult the interests of other stakeh,'lders-'
This definition takes a broader perspective where companies need to take into fc*p*r"
.onsideration the welfare of stakeholders in fulfilling the objective of maximizing governance aims
value for the shareholders. The ultimate role of corporate governance is to oversee the ro ensure that rl-re
management that manages the business on a daily basis. company serves and
Corporate governance, in this contexl, should ultimately lead to enhancement of prorecrs the inrerests
of irs shareholders
accountabilit,v of the board of directors and corporate wealth. Corporate governance
and stakeholders.
encompasses a broad spectrum of internal and external mechanisms inter-rded to
mitigate agency risk by increasins the monitoring of managements' actions, limiting
managers' opportunistic behaviour, aird irnproving the quality of firms' information
florvs.
Next, r,r,e rvill look at the significance of corporate gorrernance in public
corporations. But first, we need to have a good understanding of the structure of the
public corporatiotr that gives rise to various corporate goverttance problems.
5.2 CORPORATE GOVERNANCE AN D

PUBLIC CORPORATIONS
In this section, lve urill examine the structure of a public corporation, rn'hi.h has a
srgnificant implication on corporate governance. To begin with, though, we should
note that a public corporation is one of the common forms of business ot,nership. The
other two fbrms are sole proprietorship and partnership. Our focus in this chapter
rs on public corporations. Knorving the structure is crucial to the undrrstanding of
rvhy peopie give prominent attention to corporate goyernance of public corporations
22 Business Fthics
as oPposed to private companies. Most importantly, we will investigate in what way

the structure ofpublic corporations contributes to the various corporate governance
problems. We will pay close attention to the misalignment of interest between the
shareholders and controllers in pubiic corporations.
Most companies started off as small entities where a group of people or
rnp'*;"r,pill family members pool their funds together to form a business entity. The orvners
the owners are
directly involved in
are effectively tiie managers of the company. This form of orvnership is called the
'ownet-ntanager firm'. As firms aspire to expand tiieir businesses, the otvners need
rhe management
of day-to-day substantial capital to support the expansion. A common way of raising capital rs
operations. to issue shares and bonds to the public through. capital markets. The shares are
tradabie in the stock market.
Once a company goes public, often times it is no longer fully ccintrolled by the
founders. This situation is typical of the Anglo-American type of public corporation.
rvhich is found in the US and UK. Pubiic corporations in these countries are
characterrzed by dispersed share ownership in which there is a large number o{
shareholders with small shareholdings. It is uncommon to find a single or a group of
large shareholders. Figure 5.1 shows the corporate ownership structure for private and
public companies. A public corporation is its own lega1 entity, as if it r\re re a person.
iror example, a public corporation can enter into a contract to organize a business
transaction and own a property in its own name. Similarly, it can sue and Lre sued for
breaching a contract.
Managen :nr
Figure 5.1 : Corporate ownership structure for private and public cornpanres
1'he dispersion of share ownership into hundreds of thousands or er.e n

l" prbh. ilt"d --_l sharehoiders meant that no single sharehoider has enough shares to exercise cffective
miliions of'
companies, rhe
owners delegate
control over the company. In this instance, the shareholders do not manage or have
the managemenr fuil controi over the enlarged entity anymore. They effectively surrender or deiegate
of day-ro-day most power to their appointed board of directors. .r board of directors consists of
operarions ro a professioral directors that control corporate resources on behalf of the shareholders.
group of professional Thc leader of the board is the chairman. He or she is the highest ranking officer and
managers. is the cirairman of the public corporation too^ Figure 5 2 illustrates the relationshrp
betu,een the shareholders and the board.
Corporate Governance 112
ILJ
BETWEEN THE SHAREHOLDERS AND THE BOARD OF DIRECTORS
The shareholders delegate power and

aurhoriry to the board of directors
The board delegates porver

to the management
Figure 5.2: Relationsl'rp between shareholders and board of directors
The control or mariaBenrcnt of public corporations are distinctiy separate from I Shareholders are rhe
ownership. Corporirte ownership and control is divided bettveen two parties- owners br-rr rhey do
shareholders and the boirrd o1'directors. The sharehoiders own the firm and the board nor direcrly conrrol
r-.i directors control thc pubiic corporation. This situation is possible because it is not all the decisions in
;-raclical fbr the large number of shareholders to speak in one voice in managing the their company.
daili' alfhirs of the public corporation. Further, some shareholders prefer to beirar,e
like investors rather than shareholders. Thci, fls not wish to take part in managing
bilsiness actiyities" 'I'hey are only concerned lvith business performance so tirat ther.
car) reap the desired retLlt ns {'rom their investment.
The separatisn rrf o\{rnership and control has two important implications. First,
the delegation of control ovt:r corporate resources to the board of directors diiutes
the porver of the shareholclers. Tl-rey are the owners but irave limited power over the
r"ay the public corporatiolt is managed. The board of dirbctors usually cor-rsists of a
small nurnbcr c',1 people depending on the size of the corporation. Hencc, thel, are
unable to control and manage the affairs of the corporation by themselves. The,v hire
prolessional corporate rnalrallers to manase and make decisions on daily operations
of the e orporation. \\re call this group the top management team. It is led by a chief
executive offlcer.
The board of directors then focuses on charting the strategic direction anri k*p*r",.n.rrg."
making srrategic decisions. In tiris structure, the board of directors should be have the tendency to
rJeally the shareholders' first line of defence against potential abuse of po\,\,er by the pur:sue self-inreresrs
professronal managers. In reality, hor,r,ever, r,ve have witnessed numerous faiiures of firsr, often making
the board of directors to ellectivel.y play the important role of protecting the interests decisions rhat do nor
.'f sliareholders. So, in this chapter, we shall consider the directors and prolessional serve the interesi of
rorporate managers as controllers of a pi:blic corporation. They have the tendency rhe shareholders. This
io abuse their immgnse po\{er if they are left unmonitored. It is rvorthr,vhile to bear situarion is known as
;n mrnd that the boarcl o|directors can be a powerful mechanism for protecting conflicr of interesr.
the interests of sharehoidcrs rf it is coinposed of a sufficient number of i;idependent
direcfors" We shall examine this issue in Section 5.7 of this chapter.
24 Business Ethics
Second, when there is a separation of ownership and control, there is bound to be

Corporare -1 a conflict of interest between the shareholders and controllers. Shareholders expeet
governance in public
the controliers to maximize their wealth so that they can enjoy good returns on their
listed companies aims
to align the interests
investment in the forms of dividends, capital appreciation and iong-term survivai of
of the professional the public corporation. The controllers, however, do not necessariiy share the same
managers wich those aspiration or objective as the shareholders. The controllers may have their own
of the shareholders. agenda or motir.e in exercizing control over the public corporation. This divergence
oi misalignment of interest between the shareholders and controilers is said to be the
origin or key contributor of corporate governance problems in public corporations.
Recall the opening section of this chapter-that human beings are opportunistic
or greedy by nature. The controllers' power to control the public corporation
combined with the natural tendency to be greedy and an ineffective monitoring of'
their behaviour can lead to disastrous outcomes. We have learned from the media
of various corporate governance issues such as creative accounting, the controllers
paying hefty bonuses to themselves despite poor performance, taking excessive risk by
icquliing other companies that may only serve to enhance their prestige and power,
committing fraud, etc. Mismanagement issues are bound to arise . The effect of these
to shareholders and stakeholders'
'We g()vernance problems are far reaching
corporate
have now seen that this type of corporate structure renders shareholders to
be aimost pow,erless except for the power to exercise the voting rights to reject major
corporate decisions that are not in their favour. In reality, ho\t'ever, it is not easy to
coordinate a large number of shareholders to speak in one voicc in oppositlg corporate
actions during the general meeting of shareholders. Hence, tvhen left to their own
devices, opportunistic and errant controllers tend to exercise their pon'er not to
advance the interests of sharehoiders as expected, br-rt to prornote their self-interest.
This is argued to be the starting point of corporate governancr problems tllat lve have
been witnessing so far.
The precedilrg discussion establishes the r-reed l'or corporate governance in
public coiporations. Corporate governance is meant to mot'titor those errant and
opportunistic managers so as to ensure they exercise therr Po\,\'er to advance the:
interests of shareholders at all times. In contrast, the role of corporate governan,-c is
said to be less needed or significant in private companies r'r'here there is iittle separation
of ownership and control between the on'ner and manager.
The owner-manager is basically the same person who orvns and manages the
cornpanyhimself or herself. He or she has full control over the direction oithe companY
and makes his or her own decisions on matters of importartce to the company i.e.
or,r,nership and control are in the hands of the shureholders. In this respect, there is no
divergence of interests as in the case of public corporations because tl-re shareholders
cum controllers are pursuing the same objectives or interests. Further, it is in the
o\vner-manager's best interest to ensure that their comPany is rvell-managed and
profitable. The conflict of interest situation common in public corporatiolrs is ke;rt to
a minimum or does not exist at all.
In summary, the structure of public corporalions gives rise to the various
corporate governance problems that we had witnessed so far. The structure leads to the
cletachment of shareholders as owners of the public corporation-they are separated
fiom controlling their ou,n property. They rely on the controllers to protect their
interest but why would the controllers care about the shareholders? They might pursue
their own interest because they are greedy by nature, and with Power in their hands,
they are in the best position to enrich themselr,es at the expense of the shareholders.
ln this situation, the controllers need to be rn;nitored so as to ensllre thel' do not
deviate from the activities and decisions that u,rl} give priority to serve the objective
to maximize shareholders' wealth. 'Ihis monitoring comes in the form of corporate

governance mechanisms, which will be discussed in Section 5.7 of this chapter.
In the next section, we shall take a look at an alternative form of corporate
ownership and its implication to the nature of corporate governance problems. Unlike
the typical diffused shareholding in Anglo-American corporations, Malaysian public
corporations have concentrated ownership: It is common to find family groups,
institutions, the government and individual shareholders having large proportion of
ownership; thus exerting substantial control over the public corporations. As such,
there is little or rare separation of ownership and control compared to the diffused
corporate ownersh ip envj ronment.
5.3 THE CONCENTRATED

OWNERSHIP OF MALAYSIAN
PUBLIC CORPORATIONS
Corporate governance in Malaysia is generaily characterized by a high degree of fo-*rrhe .f prbht

concen:ration of corporatc otvnership and tight insider control. Concentrated corporarions in
ownership refers to the situation where the ordinar), share ownership in a public Malaysia is mosrly
corporation is largely held bv individuais, a group of individt als, famiiy members, concentrared
instittttions and the government. In this tvpe of ownership environment, olvnership in the hands of
and controi tend to be concentrated in the hands ofa large group ofshareholders that family groups
har-e sigitiiicarrt direct control in a company. Concentrated shareholders are known and governmenr
as the 'insiders' that have long-term stable relationships with the public corporation. institutions.
Insiders exert control over the public corr)oration either through exercising their
outright majority voting rights or by orvning a significant minority shareholding.
In thls section, wc siraIl focus on the concentrated ownership of family and fC"*.."r"d
government owners ancl their in-iplications to corporate governance. In particular, ownership refers ro
\re are interested to look at in rn',hat way concentrated owners may act in their or,vn the large percenrage
tnterest at the expense of minority shareholders. The situation may get worse when the of share ownership
controlling owners also serve in the top management capacity. Concentrated o\\rners that belongs to an
have controlling interest in a public corporation when they own a large percentage individual, a group
of shareholdings, which gives them greater control or voting rights to influence the of individuals,
decrsions of the corporation. family groups
or government
institurions.
5.3.1 Family Ownership
According to Claessens et al. (2000), corporate ownership in Malaysian public
lorporations is highly concentrated predominantly in the hands of individuals and
family groups. In fact, they found that the most significant controlling shareholders
rvere family groups, follou,ed by the government. This finding is not surprising because
nany public corporations including the conglomerates have evolved from traditional
family-owned enterprises (Kean and Cheah, 2000). A more recent study revealed that
from the p-riod 1999 through 2005, over 43 per cent of the main board companies of Frrdy **rr *.d
ihe Maiaysian Bourse are family-owned (Haslindar et a\.,2009). to have a close or
tighr conrrol over rhe
As traditional family orvired firms in Malaysia grew prosperous, thry expanded
company they own.
and went public" However, the founders of the family firms still retain significant
2-6 Business Eihics
o\,\,nership and control in the newly listed corporations. Exampies of family-owned

compani;s are Robelt Kuok Group, Genting Group, YTL Group, Hong Leong Group,
Lion Group and Kuala Lumpur-Kepong Berhad. The government introduced the
secondboaid of the Bursa Malaysia (formerlyknown as Kuala Lumpur Stock Exchange)
in 1998, which rnade it easier for smaller family firms to access the capital market for
raising capital to support their business expansion. This initiative had contributed to
significani grorvth rn the number of small listed family-owned corporations and the
growth of the Malaysian equities market (Mak, 2006).
Family owners tend to exert controi on the corporation because they have longer
investment horizons and usually plan to pass the business to future generations of the
famiiy (E11u1, Guntay and Lel, 2006). This important characteristic has helped family-
owned corporations to persevere and prosper in business.
5.3.2 Government OwnershiP

In Mai*ssia, the government has been involved in business enterprises for more than
40 years, since the early 1970s. The involvement of the government in businesses
can be attributed to the historical and political developments of Malaysia, especialiy
after the implementation of the New Economic Policy (NEP) in 1971. l)uring the
fornrative yeirs post independence from 1957 until 1969, the foreigners and Chinese
businessnten largely dominated business actir.ities in Malaysra (forrnerly knou'n as
Malaya). A major ethnic group, Malays were ieft far behind in sharing the economic
rve alth of the neu,ly independent natior-. The unequal distrrbr-ition of r."'ealth between
the Mala1,s and Chinese led to social unrest in 1969, follorn'ed by brief political
instabilitl', particularly in Kuala Lumpur.
The noble aims of the NEP u.ere to eradicate poverty regardless of race in N4alaYsi.r
rl* g"*r"d"r I
ald to enhance the participation of the ethnic Malays in business.
'i'he NEP's specific
Malaysia has been
objective r.vas to achieve 30 per cent of corporate ort,nership and nranagemetlt for
involved in business
way to manage
Br-irniputera by 1990. The government had hoped that tlie NIrIr u-ortld be able to reducc
a5 a
the economy and to the huge inequality in nealth distribution and ultintateh,proinote social stabilit'" in
correct rhe socio- the country. The NEP has created the building blocks for thc Present da,v corporate
economic imbalance eni ironrnerrt in Malaysia.
The NEP served as an important impetus for greater governl.nent participation
in business. During the initial years of its implementatiot-t, the goverument had
actively acquired corporations in strategic industries such as plar-rtations. lnining as
u,ell as banking from the foreigners (Azham, 2002). The gor,ernrnent had technicaiil'
transferred the ownership and control of those c,lntpanies in major industries into
their hands. The NEP has entrenched government inr.olvement in the corporate
sector, ancl a more intimate relationship was forged betrveen business and poiitrcs irr
Malaysia.
Further, corporate on,nership in Malaysran public corporations is also lareely
aff'ected by the national economic agenda. Beginning tn the 1980s, the governinent of
lVlalaysia under the leadership of Datuk Seri Dr. Maliathtr Mohammad (now Tun Dr
Mahathir) has aggressively embarked on privatization of key state companies, but at
the same time, remained a major shareholder in t1,'ose privatized entities (Rashidah,
2006). The privatized corporations are now knorvn as go\rerllirlent-linked companies
(GLCs). Currently, the GLCs greatly influence the perforn-rance and vibrancy of the
lvlalaysian capital markets. The GLCs also play a promincnt role as one of the kel
engines of economic growth in Malaysia.
The govemment also embarked on the 'l.ook East Policy' in the early t980s.
Urrder this policy, many iapanese corporations invested in Mala1.sia, especially rn the
manufacturing sector" They either invested directly by opening their manufacturing

plants in the country or formed joint-venture entities with local companies. The
prtvatization exercise, coupled with the active involvement of foreign-controlled
corporations, helped to spur the economic growth of trre country in the mid 1980s
until the Asian financial crisis in the iate 1990s.
Following the Asian financial crisis in 1997, the government established its
investment arm company known as Khazanah Nasional Berhad. It is a major
shareholder of a few public corporations such as TM, Malaysia Airlines, Tenaga
Nasional, Edaran Otomobil Nasional (EON), Petronas Dagangan, Petronas Gas,
UMW Holdings, Faber Group, Perusahaan Otomobil Nasional (Proton)'and Sime
Darby, to name a fer,r
The natrire of"Malaysian corporate ownership influences the type of agency
probiems that exists in public corporations. In view of the highly concentrated
ownership in Malaysian firms, the extent of the traditional agency conflict between
sharehoiders and professional managers may be less severe than the conflict between
major shareholder (or.vner-manager) and minority shareholders. We shall now
examine this issue in the next sub-section.
5.3.3 The Nature of Agency Conflict in a

Concentrated Ownership Environment
In a concentratecl owuership environment such as in Malaysian public corporations,
mp. hg.*y
there exists one iarge shareholder and a fringe of minority shareholders. In such an
env:ironrnent, the classic o\\'ner manager conflict in diffused ownership (referred to as
problem exists
between owners
-
-f1.pe
I Agencl, Problem) described by Berle and Means (1932) or ]ensen and Mecklir-rg and managers in
i1976) rs niitigatecl due to the iarge shareholder's greater incentives to mor-ritor the a diffused rype of
controllers. Horvever, a second type of conflict appears (referred to as Type II Agency, corporate ownership.
Problem) in r'r,hich the large shareholder that is also the controller may use its It is also known as
controlling position in the firm to extract private benefits at the expense of minority owner-manager
conflicr.
shareholders through managerial entrenchment or various other forms of seil intercst
related party transactjons (Morck and Yeung, 2003).
Minorlt,v shareholders refer to those shareholders that own a small percentage
olshares in a public corporation. Technically, shareholders that onn less than five
m. il rr*y
problem occurs
per cent of total shareholdings are classified as minority owners. In this instance, in a concenrrated
corporate governance is mearit to alleviate the Type II agency problen-rs that are ownership
detrimentalto ilitrority s1-rareholders and other stakeirolders such as the creditors ancl environment
lenders. Hence, givetr this background, corporate governance in Malaysra is not only between rhe large
meant to curb the potential abuse of power by the controllers, but most intportantll., owners and the
to curtail the tendenc,v of the large shareholders to expropriate funds fron-r the minoriry owners.
rninority shareholdcr:s. An important aspect of corporate gor/ernance, in this instance, lr is also known as
principal-principal
rs the strt'ngthening of tl're reguiatory framework to give protection to the minority
conflicr.
:'lrareholders"
Le t
us now move on to the development of corporate governance in lvlalaysia,
which was accelerated by the firancial crisis in the late 1990s. The government,
through regulators of f-inancial markets such as the Securities Commission, Bursa
ivialaysia and Companies Commission of Malaysia, has initiated various corporate
governance reforins following the financial crisis. One of the most significance
outcomes of tiiis initiative rvas the implementation of the Malaysian Code on
t-orporate Governatrce in March 2000. The code was revised and strengihened
trvice in 2007 and 2012.
:t1 Busrness Lthrcs
5.4 THE DEVELOPMENT OF

CORPORATE GOVERNANCE IN
MALAYSIA
Although corporate governance issues emerged wrth the birth of firms, they were
targely unheard of in Malaysia until the Asian financial crisis in 1997-1998. The
financial crisis basically served as the irnpetus for.aggressive corporate governance
reforms in Malaysia. The crisis exposed the structurally weak foundation of Malaysian
public corporations. In general, the consensus was that Malaysian public corporations
had poor corporate governance, which led to their lack of flnancial resilience to
surr.ive the financial crisis. Many public corporations sr-rffered frorn poor corporate
performance and some even collapsed (Mitton, 2002).
k Mrlrr,"r,.-dA Poor corporate governance allowed corporate managers and Iarge shareholders to
governance received
transfer tl,e y,ealth of the corporations to enrich themselves. Prior empirical studies
prominent atlention
observed that corporate abuses rn Malaysian public listed con-rpanies inciuded poor
during the financial
board oversight, numerous conflict of interest transactions involving directors and
crisis in i997-1998
Poor corporate
rnajor shareholders and severe lackof transparency in financial disclosure (Mak, 2006).
was , Further, in general, sharehoiders were sceptical of the abilrtt, of the board of directors
SOVernance
idenrified as one of to safeguard their interests against rampant and blatant abr-rse of power of corporate
rhe key causes of the ruanagers and major shareholders.'1'he board also tailed to detei:t breacl-res of internal
financral crisis financial controls.Investors, in general, nad almost cornpletelylost contldence in the
Nlirlaysian capital markets (Finance Committee Report on (.orporate Cloternance,
1999). As a resuit, the Malaysian stock exchange nearly collapsed if not for govcrnment
lr.;;-,.. ---l intervention.
identified the Follolving the financial crisls, corporate governance of public corporations have
weaknesses in come under increasing scrutrny by regulators, the investing public and acadenticians
corporate Eovernance
alike. 'fhe call to rmplement a higher quality of corporate governance had been
and established a
greater than ever before. The poor state of corporate govcrnance led the gotrernntertt
set of guidelines for
to accelerate the forrnulation of a comprei-rensive and co-ordinated reform to improve
listed companies to
implement. Tlrese corporate governance in Malaysia. The Malaysian gor,ernment, thror.rgh the Ministry
guidelines are called of Finance, had established a high-level Finance Committee (tire Committee) on
the Malaysian 24 March 1998 to conduct a detailed study on cort)orate go\rernance and to make
Code on Corporate recommend ations for improvements.
Covernance (MCCC) The prirnary aim of the Committee -,vas to cstablish and cler.eiop a world-class
corporate go\rernance framework mainl1, for pLrbiic corporatiotts, for the market
Ar Mrhysanprbil to foilow. The Committee comprised 12 members represcnting ahnost a1l sectors
listed companies did of buslness and regulatory communities including the Securities Commission, the
nor have a proper Frnancial Reporting Foundation, the Malaysian Accor:nlirrg Slandards Board, the
standard ofcorporare Registrar of Companies (now known as Companies Lommission of l\lalaysia), the
governance, the Kuala Lumpur Stock Exchange (norn,known as the Bursa Ir4alaysia), tl-ie Centrai Bank,
government Federation of Public Listed Companies and the Association of Banks.
established a
T'he Committee had two working groups, namely (i) rvorking group on best
commitree to look
practices in corporate governance, training and education and (2) working group on
into rhis issue.
lau, reforrn issues in corporate governance. The Committee fourid that the corporate
governance quality in Malaysia prior and during the financial crisis was lacking
and ihere was a need to impror.e it. Moreover. the Committee l'e1t that firrns needed
guidance in raising iheir corporate governance c,lalit)', rvhich shc,uld be on par lvith
the internationa I level.
b
The most significant outcome of the Committee was the establishment of the
Malaysian Code on (Jorporate Governance (MCCG) in 2000, which consisted of the
recommendations to strengthen the statutory and regulatory framework for corporate
governance, enhancing the checks and balances and self-regulatory mechanisms
towards good governance. The recommendations were aimed at strengthening the
internal processes within the company, and in particular, the role of the board of
directors (Nathan, Chiew and Soo,2000).
The MCCG set out a set of principles and best practices aimed at enhancing frh. -", "b,il;
the quality of corporate governance. The Committee opined that good corporate of rhe MCCC (2000)
governance rests firmly with the board of directors whilst the shareholders and was ro improve rhe.
auditors play secondary roles (Shim, 2006). The MCCG (2000) placed great emphasis qualiry of corporate
on the governance role of the board of directors by setting the best practices for governance in
improving board structures and procedures. Malaysian lisred
The Bursa Malaysia adopted this comprehensive code on corporate governance in companies.
its Revamped Listing Requirements (2001), now known as the Bursa Malaysia Listing
Requirements (BMLR). This approach essentially meant that it v:as mandatory for
pubiic corporations to disclose rn their annual reports the manner in which they have
fGy f*rt *.*
rhe MCCC (2000)
"f
implemented the MCCG's (2000) principles of corporate governance and the extent of
were strengrhening
compliance with its best practices recommendations. The underlying priiicipie in the rhe role of the
enforceability of the MCCG (2000) is that compliance nith the recommendations in board of direcrors
the MCCIG (2000) is r.ciluntary, but compliance with the disclosure provisions under in monitoring rhe
the B\{ 'R is mandator}, (i.e. a hybrid approach). professional managers
The Securities Commission (SC) had undertaken various initiatives to increase and ro enhance rhe
awareness among directors on the significance ofcorporate gover nance and the need to financial reporting
strengthen the lbundation of the governance structure in their respective companics. and transparency.
L-or example, in 2003, the SC n-randated the directors of public corporations io acquire
48 points o1'continuing professional education annually. This requirentent eruphasises
the irnportairce of training the directors in order to enhance their knor.vledge and
eflectiveness.
In the foilorvtng section, we shail take a look at the MCCG. The discussion
is based on the first vcrsion introduced in 2000. The recommendations of the
N4CCG serve as a benchmark for public corporations to emulate and for the rnarket
participants to assess the quaiity of corporate governance in Malaysian public
corporations.
5.5 THE MALAYSIAN CODE ON

CORPORATE GOVERNANCE
]'he NICCG (2000) is primarily aimed at listed firms given the paramount
responsibility that the board of directors has in promoting shareholders'
objectives and safeguarding firms' assets. The Malaysian government revised the
MccG (2000) in 2aa7, incorporating changes, amongst others the settr:rg up of
an internal audit department that reports directly to the audit comntiltee and
making it ntandatory to have only non-executive directors in the audit committee
(MCCG, 2OA7).
l0 Business Ethics
5.5.1 The lmplementation Approach

In developing the MCCG (2000), the Committee had considered three implementation
Thr",. rpprr*-.|*t al approaches as wideiy adopted in various jurisdictions in the worid. The three
rhe implernentatron
approaches are prescriptive, non-prescriptive and hybrid. The prescriptivc approach
of corporate
governance are specifies corporate governance practices and requires legal compliance with them"
prescriprrve, non- It provides hard and fast rules that may be easier to report compliance with, but it
presciiptive and encourages a'tick in the box' attitude to foliowing lules (Shim, 2006). The Sarbanes-
hybrld. The Malaysiai-r Oxley Act20A2 in the United States adopted this rather rigid approach. In contrast,
auihoriries adopted the non-prescriptive approach places prominence on the disclosure of actual practices
the third approach undertaken and allows firms a complete flexibility to determine their governance
needs. This approach permits maximum creativity and flexibiiity, but makes
comparisons difficult. The Greenbury report in the United Kingdom adopted thrs
flexible approach.
The hybrid approach takes elements of both the prescriptive and the non
prescriptive approaches. Under this approaeh, broad guidelines are introduced, which
should oe flexibly implemented in the 'comply or explain' reporting styie" Firms are
provided rvith a framework for disclosure of the implementation of various provisions
of the corporate governance code. This approach recognizes that there are significant
differences in corporate governance practices, depending on the size, circumstance
and financial capability of firms. In addition, this approach encouraged the market
to recognize the importance of corporate governance provisions. The U"K. Clombined
Code on Corporate Governance (1998) adopted this approach. Figure 5.3 iiluslraies
the three approaches to the implementa.ion of the corporate governance code.
Specifies details of corporate
Prescriptive approach
Effi@ governance and requires legal
compliance with them.
It is mandatory to comply.
Gives firms flexibility to

determi ne their ccrporate
Hi"d rpffih I
Non-prescriptive
approach $ffi@ governance practices but
disclosure of such practices
prescribes the is a must.
best practices for
the directors ro
follow and gives Broacl guidelines issued for
them flexibility firms to emulate.
to implement the
recommendations
Flybrid approach
Bffi@ The extent of compliance and
non-compliance must be
based on their needs disclosed in annual reports.
and circumstances.
However, companies
are required to Figure 5.3: Three implementation approaches to corporate governance
disclose the level
of compliance and
reasons for non- The Committee members, upon revielving the i:trree approaches, decided on
compliance ro the adopting the hybrid approach, outlined in Sectiun I of the N{CCG (2000). Firs'., they
best practices in rhejr argued that it -!vAS necessary to prescribe corporate governance best practices diie to
annual report.
CorporateGovernance 13'1
the fact that there were no established standard of corporate governance in Malaysia.
Hence, the prescriptive approach of requiring actual disclosures of corporate
governance practices was not adequate to address this lack ofstandard.
Second, the Committee strongly felt that good corporate governance is not mereiy
a matter of prescribing the desired practices and expecting fuli adherence to hard and
fast ruies. Instead, directors as controllers of.the firm need to be guided and given
some freedom to apply the guidelines based on their needs and with common sense
(Shim, 2006)" In other rvords, each company should be allowed to flexibly de.relop its
own approach to corporate governance.
Companies may be able to develop alternative ways to the best practices. These
alternative ways may be as good as the prescriptions. By doing this, companies are
encouraged to consciously address their governance needs. However, the prescriptions
of best practices musl be accompanied with a rule mandating disclosure on the ievel of
compliance and reasons for non-compliance.
The non-prescriptive approach is also ruled out, because of the absence of a
benchmark for good corporate sovernance, and most importantly:.ts adoption gives
too much flexibility to the companies. In so doing, the Committee takes cognizance
of the fact that the qualit,v of corporate governance is lacking in Malaysia and the
intention of the Malavsian governmeut is to raise such quaiity;thus, necessitating some
lorm of benchmark for frrms to emulate. In short, directors should be encouraged to
consciouslv address the governance needs of their firms, as outlined in Section 2 ol
rh<\i('CtJtl0U).
5.5.2 The Structure

-irl,e
MCCf; (2000) rs dn idecl into four parts-(1) broad principles, (2) best fTh. Mccc (rooo)
practices, (3) principles and best practices for other corporate particrpants, is divrded inco for-rr
and (4) explatrator-r' notes. 'Ihe first part outlines the recommendations on thc parts:
broacl princrpies of good corporate governance for Malaysia. The purpose o1'the - Broad principles
principles i-i i(-1 gi\.e flexibility to companies in appil,ing the principles depencling . Besr practices
on their needs anci rndivrduai circumstances. The Committee recognrzes tirat . Principles and
rn inrprovrng corporate governance, a combination of statutory regulation, seif best practices for
regulation and market regulation is the most appropriate approach for Malaysian other corporare
partici pants
firms, as specified in Sectron 1 of the MCCG (2000). The broad structure of the
. Explanatory nores
MCCG (2000) is depicted iir Figure 5.4,
The BMLR makes it mandatory for companies to explain in a narrative statcntent
in thc anniral rcport thc cxlent to u,hich they have applied the relevanl rrinciples.
Ihis conrpulsor-v reqLtrrenrcnt is meant to allow the market participants, namell,
shareholders and other uscrs of annual reports, to evaluate companies' performance
and governance prac,tices. 'I he Committee believes that the market should be ailor^,,ecl
to assess llie extent of firms' compiiance to the corporate governance principles. The
market rs then able to 'puntsh' non-compliance if shareholders are dissatisfied with
the explanatron for failure to comply. There are 13 broad principies covering fcur key
areas, namely (1) board of directors, (2) directors'remuneration, (3) shareholders ancl
(4) accorintability and audit. Figure 5.5 shows the 13 broad principles in four key areas.
Some of the brietprinciples of corporate gor.ernance are as follows:
r Th,' board and its directors are to be properly structured with sufliciently
expcrienced, skilied and knorvledgeabie members.
r The cornposition of the board should be balanced by executive, non-executive
ancl independent directors.
I "1,/ FJLISIneSS EthiCS
Figure 5-4: The structure of the Malaysian Code on Corporate Governance (2000)
r Committees of the board should be estahlished to crrr1. out revierr,s atrd

recommend important matters concerning audrting, rtlnruncralion and
nomination, among others.
r There should be reasonable svstems to er.aluate and access nsks and internal
control, so as to form risk management pracrices.
r Sufficient care should be devoted to financial reirorting and disclosure,
r Constructive communication and dialogue rvith shareholders ar-rd rndivrtlr-ral
directors shouid be encouraged.
The second part sets out best practices for companies in designing their approach
to corporate governance. This part provides a set of guidelines for firms to adopt in
implementing the board principles on corporate gvvernance as set out in Part One.
Complirnce to the best practices is voluntary but firms are reqr-rired to explain the
extent of compliance and explain any deviations from such besr practices. f his second
part sets out 33 best practices covering three kev areas including board of dtrectors,
accountability and audit and reiationship with s| areholders.
CorporateGovernarrce 133
1 Directort Remuneration
J
l-i
J'I Shareholders l
'
11. Financial reporting

12. Internal control Accountability and Audit
t-
13. Relationship rvith auditors
''
-:. * Figure 5.5: The l3 broad princrples
Tire MCCG (2000) dedicates most of the guidelines for sti'engthening the board
structure and procedures as well as enhancing accountability 3n.1 audit processes. Less
attention seems to be allocated to the relationship between the board and shareholders
bv t,irtue of having only one guidance note under this area. The third part consists
rtf exhortations to other participants such as instiiutional shareholders and auditors,
wh ich are purei-v voh:ntary and aimed at en hancing the roles of externai auditors and
shareholders. 'l'l're fourth part providcs explanatory notes on the principles and best
practices set out in Parts One and Two.
Sirnilar to the U.K. Cornbined Code (1998), the MCCG (2000) requires
lirtns to ciisclose the extent to which they have complied with the MCCG (2000)
recommendations and to give reasons for non-compliance. The disclosure, as stated
in paragraph 15"26 of the BMLR, is to be made in the form of a narrative statement
(kt'rolvn as corporate governance statement) to be included in firn-rs' annual reports.
In essence, irnder the hybrid approach, the requirement to 'r:omply or explain' is
rot a passive thing tn which firms are not free to choose non-compliance tf ,'ompliance
'" loo much trouble. Fims need to recognize that in order to reassure shareholders,
'r.rch explanation often makes clear how and lvhen the area of non-compiiance rr,ill be
'. medied.
'fhe SC revised the MCCG (2000) in 2007, incorporating changes, amongsl
'hers the setting up of an internal audit department that reports directly to the audit
'- omnrtttec and making it mandatory to have only non-executive directors in Llie audit
r:ommittee. In 2011, the SC introduced a five-year Corporate Governance Blueprint
/the Blueprint), which provides the action plan to raise the quality of corporate
b.i\rernance in Malaysia by strengthening self and market discipline and prt;moting
,lreater internalization of the culture of good governance. The Blueprint focuses on
:,ix corporate governance areas, namely shareholder rights, the roles of institutional
..rl'estors, ltoards, gatekeepers and influencers. ciisclosure and transparency and
;,ublic and private enforcement. The recommendations of the Bluepnnt are to be
implemented ovtr a five-year period"
4 Busrness Ethrcs
Recently, the SC launched the Malaysian Code on Corporate Governance (MCCG)

(2012), which incorporated the recommendations of the Blueprint and supersedes the
MCCG (2007).The MCCG (2012) focuses on clarifying the role of the board in providing
leadership, enhancing board effectir.eness through strengthening its composition and
reinforcing its independence. Firms are also encouraged to establish corporate disclosure
policies and to make public commitment to respecting shareholder rights. The MCCG
(2012) came into effect on 31 December 2012 and iisted frrms are required to report therr
compliance with its principles and recommendations in their annual reports.
We shall now turn our discussion to the theories of corporate governance, which
will further enhance our understanding of the corporate governance framework in
terms of its origin and remedies for poor corporate governance.
5.6 THEORIES OF CORPORATE

GOVERNANCE
In this section, we shail exan-rine several corporate governancc theories such as the
U.d.""*.d"g -_-| agency, stakeholder, property rights and social institution theories. Hor,ver.er, the trvo
rheories ofcorporare
most commonly uscd thcorics in accounting and financc-rclatcd ficlds arc thc Agcncl'
governance is
imporranr in order and Stakehoider Theories. Agency Theorl' criginated from the fields of finance and
to identify the eccinomics. Stakeholder and Social Institution Theories, meannhile, arise lrom a Inore
obligatron of a public social-oriented vien on corporate governanct" Property Rights Theory originates
corporation and from the larv discipline that emphasizes property rights and the right of indrviduals
to make sense of to conlract. These theories serye three common purposes (1) to offer insights as tcr
the reasons behind rvhose interest that a crrpora[ion shor-rid serve, (2) to explain the behaviour of those
the occurrence of contribr.rting to corporate governance problems in public corporatiot-rs, atid (3) to offer
corporate governance solutions to alleviate those problems.
problems"
Briefly, agency theory suggests that firms solely exrst for advancing tlie interest ol
shareholders, which is basicaliy a narrol,v agenda. Hence, the objective of a corporation
This section I should be to maximize sharehoiders'r,vealth. This objective can be attainecl b,v ensuring
highlighis four that the shareholders earn the best possible returns of investment in the fbrms of annual
corporate dividends and share price appreciation. The controllcrs should exercise the polrer
governance-related
bestor,red upon them by the shareholders in a way that can fulfil this narrow objectrve.
theories: Agency,
Stakeirolder T'heory, on the other hand, argucs that tlre objective o1'the firm should be
Stakeholder, Property
broadiy defined to include the advancement of the stakeirolders' welfare in addition to the
Rights and Social
Institurion Theories.
traditionai objective of shareholder wealth maximization. Str, the controllers shall strive to
promote the interests of shareholders without neglecting the rvclfare of stakeholders.
Next, the property rights theory argLles that a corporation is tlie private properti
of shareholders who exercise their rights to incorporate and to contract. By virtue ol
having property rights, shareholders have the right to controi thc corporation" 'fhe
property rights of the owners in a corporation must be fully protected by the larv. The
social institution theory, on the other hand, indiczites that shareirolders can exercise
their right to incorporate because the state aliows thenr do so. Without the sanction
of the state, corporations will not exist. Hence, corporations should not be treated
solely as organizations that serve the interests of indii,idual shareholders, because they
should promote the interests of the public at large.
Next, we shall examine each of the theories in turther detail. Let us begin u,ith
the Agency Theory.
5.6.1 Agency Theory

as a contract under rvhich otre
Jensen and Mecklin g(1976) defined'agency relationship'
party (the principal) hires another party (the agent) to utdertake specified functions
tn the principal's behalf. The principal delegates some decision-making authority to
the agent to cnable the agent to perform the.assigned tasks. The principal also trusts
that the agent wili always act in the best interest of the former by discharging his or
her fiduciary duty. The agents are expected to protect the interests of the pri,rcipal and
discharge their duties diligently.
In i public corporation, the agency relationship exists in the contractual fAg.".y Th.*y
relationship between the shareholders (principal) and controllers (agents). fhe attempts to explain
controllers are the directors of the public corporation. Shareholders eiect the rhe narure of rhe
directors to control the resources of the company and represent their interests in relationshiP berrnreEn
the cor poration. Shareholders delegate authority to the directors to make most shareholders and
rhe professional
decisions on their behalf. The board of directors appoint a team of senior managers
managers,
to manage the daily operations of the corporation. They make key operational
clecisions pertaining to the al,cication of corporate resources. As such, the senior
managers can be considered as indirect agents of the shareholders. Shareholders
."p..i the directors to closely morritor the senior management team to ensure that
thet.ni11 rneet the objectives placed upon them. In return, the controllers enjo,v
a
good ren-luneratiorr packages and incentives so as to motivate them to fulfil their
duty tc promote thc shareholders'interest.
In this sysLerrr of corporate ownership, problems arise r,vhcn thc controllels clo Cgs*y Tl*-y
not necessarily make decisions and allocate resources in the best interests of the proposes thar
sharcholclers, In other l'ords, the controllers do not consistently strive to etlsure corporate governancc
the ac|ier.ernent of the shareholder wealth maxinrization objective. Agency Theory problems exisi ciue to
rhe selfish tenderrcies
.Lssumes that this situirtion exists due to the conflict of goals between shareholde rs
of tl-re professional
and controllers. f'he controllers, by nature, prioritize their own self-interests or are
managers that
opportunistic. They are hkeiy to display ego;stic behaviour, which is to make decisions
prompt thern ro
that are ruotivated b,v self-interests. Il academic terms, this situation is knor'r'n as the engage rn conflict oi
principal agent problem or the agency problem. interest siruations.
Self-interests motivate the controllers to divert the corporation's resortrces to
activities that are detrinental to the objective of maximizing shareholders' r'r'ealth
(Jensen and Meckling, 1976; Williamson, 1985). Examples of the controllers'
irersonal asenda inclucle paying higher bonuses to themselves regardless of cortlpanl'
performarice, enloying paid holidays, buying expensive club memberships, acquiring
?. corporate jet and l'raving a luxurious office. The corporation pays for tirese perl.s,
rvhrch ]eads to the reduction in shareholder wealth.
The controliers are in a unique posrtion to pursue self-interests in a public
corporation lvhere the orvnership is separated from control. In this type of cr-rrporate
orvnershrp, shareholders do not have effective control over the managenlent t.,f tl-re
corporation, because the controllers have most of the decision-making powers. Irl this
situation, if the controllers har.e the chance to control the company without effective
supervision by shareholders, they are likely to give iower priority to the obj.ctive of
maximizing the rn,ealth of shareholders.
The shareholders are unable to effectively monitor the controilers due to
information asymmetry. This situation exists because shareholders do not have access
to the infirrmation about the corporation, unlike the controllers. They largely depend
on the controllers to furnish the relevant infonnation. This is because the controllers
know more about the coinpany and they are in a position to control such information.
lnfbrmation asymmetry leads to two agency problems, nameiy adverse :relection and
moral hazard. Adverse selection problem arises when shareholders are unabie to
36 Business Ethics
ascertain whether the controllers actually perform their tasks as expected. 'l'he moral
hazardproblem occurs when the shareholders cannot be sure whether the controilers
are pursuing their own self-interests or truly striving to perforrn their tasks for the
benefit of the shareholders.
It is also important to note that often times the controllers do not own the
corporation. They are merely salaried employees and likely to behave differently than
the owner of the corporation toward the long-term success of the corporation. They
have the tendency to work inefficiently and focrrs on short-term profits only in order
to demonstrate success. Focusing on short-term profits enables them to maximize
their bonuses and give them high salaries and perks, Shareholders, on the other hand,
expect the controllers to seek out profitable new long-term investments to ensure the
survival of the company in the long run. As salaried employees, the controllers stand
to lose little compared to the shareholders if the corporation goes bankrupt due to the
former's seif-interest-inspired agenda. The managers may look for other employment
whereas the shareholders stand to iose their entire investment.
The dir.ergence of interests between shareholders and controllers leads to the need
for the former to take steps to exercise control over the latter. The primary purpose
of exercising this control is to align the interest of the shareholclers and controllers.
Agency Theory argues that it is expensive and time-consuming for the shareholders
to do so. They have to incur agency cost, which is the costs that arise from the neeci
of the shareholders to monitor the activities and performance of the controllers. 'lhe
shareholdes need to determine what the controllers are doing, nhici-t is not an east,
task due to the information asymmetry Hence, tl"re shareholders need to put rn place
control mechanisms that are costly in terms of the monev spent, resources consurned
or time taken.
We will review the various control mechanisnrs in Section 5.7 of thrs cl'rapter.
Briefl1', they may include, amongst others, incentive schemes ancl contracts, external
and internal auditors, shareholder activism or engagenrent and regulation. Ttre
control mechanisms are encapsulated in the concept of corporate gorrernance.
Public corporations need to impiement effective corporate governance to alleviate
the problerrrs associated lvith the agency relatrorrship betrveen shareholders ancl
controllers. The primary aim of corporate governancc is to ensure the alignment of
tire interests of the shareholders and controllers so that the loss of sl-rareholder value
resulting from the controllers' opportunistic behar.iour can be rninirnized.
Agency conflict betrveen the shareholders and conLrollers lvi11 result in a loss of value
M*rg.r*#--1 to the shareholders in two ways. First, shareholder value is adversely affected through
prioririze rheir self-
interests tend to
the transfer of u.eaith from the profits available to sharel'rolclcrs to the controllers rvhen
errgage in acriviries the latter engage in opportunistic behaviour. Second, shareholder value r.r,ill be iorver
rhat will reduce r,r'hen the corporation establishes the costly control meci'ianisnrs to oversee the activitie-s
rhe wealth of of the controllers. it is true that the control mechanisms n ill help to mitigate the effects
shareholders. of agency conflict, but it rvill be impossible to eliminate everv opportunity for Liehaviour
fuelled by self-interest. As such, some ioss of shareholder value that will be incurred vra
transfer of wealth from the shareholders to the controllc,s rs simply inevitable.
Similarly, agency costs may increase the uncertainty of the corporation's future
cash flows (|ensen, 1986), which may adversely affect the corporation's ability to
provide good returns to shareholders. Shareholders that invest in corporations ivith
rampant agency problems wilt likely demand higher premium lor rvhich they need
to expend additional resources to monitor controllers tvith vested self-interests
(Lombardo and Pagian o, 2002).
Next, we shall examine an alternative thc,;ry of corporate governance that
promotes a broader agenda of public corporations as opposed to the narrow agcnda
of the Agency Theory-stakeholder Theory. It has been receiving greater prominence

in recent years in view of the disastrous effects that corporations can bring to the
livelihood of their various stakeholders-
5.6.2 Stakeholder Theory

Traditionaily, corporate objectives tend to give priority to creating value for
shareholders as the main supplier of capital, In the Agency Theory, thc bilateral
relationship between shareholders and controllers is paramount. Corporate directors
are argued to owe a duty to shareholders only and hence, are obligated to'maximize
returns fcrr them (Friedman, 1970). This belief has shaped the ways in which corporate
governance mechanisms, such as board of directors, play a role in aligning the interests
of shareholders and controllers.
However, in the last decade, we have witnessed a grou'ing interest in corporate I S"k.h"id.r Th.*y
responsibility in view of the disastrous impacts of firms' operations on the well-being offers a more
of itakeholders such as employees, creditors and customers. For example, thousands inclusive approach to
of Enron's employees lost therr jobs and pension fund savings when the corporation corporate governance
by broadening the
collapsed due to financial mismairagement and abuse of top executive pol\rer. In 2008,
accountability of
rve also observed how investors lost their investment when giant investment banks in
rhe professional
the US such as Lehman Brothers, Salomon, and Smith Barney collapsed. Also in 2008,
managers to serving
we learned from the nerr.s horv Sanlu Corporation endangered the lives of thousand
borh the inrerests of
infant> in China and worldwide when they purposely used hazardous ingredients in shareholders as well
their baby milk powder. Figure 5.6 provides a typical representation of'Stakeholder as other srakeholders.
Theorv.
Iigure 5"6: StakeholderTheory
In view of this contemporary perspective, policies and corporate governance

rnitratives have highlighted the need to broaden the corporate governance agenda to
not only focus on the interest of shareholders but also on the needs and reqi.rirentents
of all corporate stakeholders (Solomon and Solomon, 2A04). This i'iew is known as
stakeholder perspective or theory. Stakeholder Theory basicall,v extended the agency
relationship beiween controllers and shareholders to include stakeholder groups
JO Business Ethics
(Ezzamel and Watson,1997). Each stakeholder group has differing interests or stakes.
A stake can be viewed as having an interest or share in r,rndertaking. Freeman (1984)
defined stakeholder as an individual or a group that has various iinds of stakes or
legitimate claims in the business.
Stakeholders are said to have an interest in a corporation given the fact that
whatever business decisions, policies, practices and actions taken by the company
may affect the stakeholders in the same way the stakeholders may have influerr.., on
business practices and policies. Stakeholder Theory' is relevant given the increasing
pressure for businesses to voluntarily spend on ad,n ancing the welfare of the social
stakeholders as well as protecting the environment (Robins, 2009). Ilusinesses are also
pressured to report such spending in annuai reports.
According to ]ones (1995), a public corporation is viewed as a nexus of contract or
relationship bett'een controllers and stakeholders. Fience, the controllers are nol only
the agents of shareholders but aiso contracting agents of those stakehoiders. Tricker
(1984) advances the notion that public corporations have corporate accountabiiity
to a wider range of stakeholders and socieiy at large. The controllers should also be
made acccttntable to stakeholders and proiect their rights in managing the public
corporation towards achieving business goals. In so doing, the controllers a-re expected
to balance the interests of shareholders with public interest.
Kay and Silberston (1995) argue that although shareholclers enjoy many of the
benefits usually associated with ownership, they are not stricti,v the orvneri of the
public corporation. In fhct, tl-ie shareholders is just taken as one of the stakeholder
groups. T'herelbre, they shouid not be gir.en priority in a public corporalion" With
this argument in mind, the centrai proposition o1'the Stakeholder Theory is thai
tl-re objective function of the priblic corporations shor-rltl not bc confined to the
tlaximization of shareholders' u,ealth only. 1r'rstead, pLrblic corporations sl'rould also
recognize the welfare of other groups that have long-terru relationships n,ith them,
and therefore an interest or stake in their long-term success (I)lair. 1995).
The wider objective of a firnr is not only seen as more equitable but also brings
benefits to both the shareholders and stakeholders. Hcnce, tire corporate governance
reforrn derived from this theory should be tl'iat of u,ider ctrrporate goals thin focusr ng
on shareholder profits only. For example, the creditors make up an important
stakeholder group of a public corporation. Whilst the1, d6l not irave a direct ituk" i,
the public corporation, their interest is to ensure that the firncls provided is channelled
fbr its intended use and the public corporation is able to fulfil iti obiigations stipulatecl
in the lending agreements. Sirr-rilarly, the interests of empio,vees sholld be taken intcr
account in decision-making to give them enough sa.I-eguards, ensure their saf-ety and
rnaintain heaithy working conditions. Gir,,en the fact that business activities may
harm the environment, the managers aiso need to take aclequate measures to ensure
conservation and protection of the environment.
The intensive ethicai debate since the 1950s has influcnced businesses to tre
more humane, ethical and transparent (Maignan and F-errel, 2003). Moreover, pubtic
corporations adopting the stakeholder approach in managing thcir resources sirould
be respected. Thus, public corporations adopting the corplraie governance approach
that is consisteni with the stakeholder theory are likely to be vierved as ethical
organizations-they are concerned about the interests of stakeholders, including
communities, instead of focusing on wealth rnaximization a1one. 1n addition, public
corporations with a reputation for fair and reliable collaboiation tend to eljoy
successfui cooperative outcomes with their stakeholders (for-res, 19g5). In contrasi, if
they do not take social factors into accouilt, thei: interests are jeoparclized (l,alrtos,
2A0D.
Corporate Governance .139 ,,
In summary, the stakeholder perspective provides an alternative explan ation to the

debate on corporate governance. It can be viewed as an extension ofthe agency theory
in rvhich the roies and influences of other interested parties in a public corporation
play crucial roles in determining its governance structure. It extends the concept of
agency reiationship in which the controllers do not only have fiduciary duty to protect
the wellarc of shareholders but also the stakeholders of the public .o.poruiiorri.
Next, we shall look at the other two alternative theories of corporate governance,
namely the Property Rights Theory and Social Institution Theory.
5.6.3 Property Rights Theory

As noted earlier, a corporation is its own legal entity, as if it were a person. The
prinrary purpose of a corporation is to conduct business, which requires it to brilg
together various parties such as shareholders, controllers, customers, suppliers and
empioyees for the said purpose. These parties have their own stake or cliim against
the corporation. Often, these ciarms are conflicting, which makes it challenging for
the controllers to determine according to whose interest the corporation shtulcl be
managed. Further, ailocating resources to other constituents other than shareholders
will result in a reduced r,vealth for the latter.
The Property Rights Theory offers a solution to this predicament. It proposes that
fProp"rry Rh*
a corPora'ion should first and foremost serve the interests of its owner. In practical
Theory argues rhar
terlrs. this theory asserts that the primary objective of a corporation is to make profits rhe owners have
ibr ils shareholders. This argument is based on three premises. Firsr, when the orvners properry righrs over
r'r'ish to corlduct a husiness in a corporate form, they are said to be exercising thcir ihe corporarion rhar
'i'asic
itldividual rrghts to incorporate. They use the corporation as a rneans to can\. ihey have invesred in.
out their trusiness. 81' doing so, the owners are said to be merely exercising their They have rhe righrs
rndiviclual right to coutract, that is to conduct their business ,,r,ith their orvn propertv. by virrue of owning
Second' lhe corporatioti issues shares to the uwners as evidence of on,nerihip. 'Ihe the shares of rhe
share is considered as property of the owners, and by extension, the corporatjon ald corporacion.
its assets are considered their private property. Third, owners have certain property
rtsitts accorcled to them and these rights are protected by the law. The right to control
is cortsidered as a fundamental property right of the owners. The other right is to
assume responsibilitv over the way the corporation is run.
Given this background, controllers must give priority to the interest oi the
sharcholders rn4ro o\,trn a corporation" I'hey do not have rights to deploy c()rporirte
rcsources for thc purpose of serving the interests of other constituents su;h
as thc
enrpiovees, cttstomers and suppiiers (Friedman, l97A).ln short, this theory
asserts
that irL a corporation, shareholders are supreme i.e. the interests of shareholclcrs
are
primar1..
'fhe
Protection of the welfare of other constituents is accordetl by the cr)ntract
that governs the relationship between the corporation and each constituent. 11
aldition, the government is responsible for pioviding such protection througlr
the enactment of various regulations. Hence, ih. irt.r.rt of cuitomers,
employe*es
a.nd suppliers should not be of concerned to corporate governance.
Iistead,
the focus of corporate governance is to strengthen t^he abiiity of shareholci.ers
to
controi the corporation. This aim could be achieved by making sure the
controllers
are accountahle to shareholders through various control mechanisms
such as
shareholder voting rights, internal and eiternal audit, highiy independent
boar.i of
directors and ir rclepenclent directors.
Next, Ive slrall examine the Social Institution Theory, rvhich is simiiar to the
Sta l-.ehoider Theory.
4A Busrness Ethir:s
5.6.4 Social lnstitution Theory

Recall the concept of separation of ownership and control in public eorporations"
This concept has implications on the nature of corporate property. According to this
concept, shareholders surrendered control and responsibility over their wealth to the
controllers. in this sense, they are not regarded as true owners but merely the main
providers of finance. The controllers have great power [o control the resources of
public corporations. Then an important question arlses--according to whose interests
should they manage the resources?
This theory asserts that corporations do not.exist by themselves" Instead, it is
fhirh..r)r rtg*t 1 the society that allows them to conduct their businesses and supports their survi'ral
rhat corporations will
The society gives its approval through the state. In other words, the state regulates
not exist wirhout the
supporI and sanction
the use of corporate property. Hence, their existence is a privilege, not a right. So,
of rhe sociery. Hencg corporations should not ignore the need to ensure that their activities and decisions
rhe managers of rhe do not cause harm to society as a whole. In view of this argument, the controllers are
corPorarions have required to exercise their powers in trust for the entire society (Dodd, 1932)' This
ro ensure they do theory, honever, does not deny the fact that that public corporations need to make
nor get involved in profit for their sharehoiders. It is just that they must not achieve this objective at the
activiries or make expense ofthe society.
decisions rhar will Dodd (1932) argued that public corporations were economic institutions that
harm rhe sociery.
served both the interests of societl, and sharehoiders. Public corporations have become
pubiic institutions instead of merely private properties of the shareholders. As such,
ihey have social responsibilities torvards t}-re employees, customers and the society
as a nhole. In this respect, the controllers shoulcl not be seen as exclusive servants to
shareholders. They need to balance the conflicting interests of the various stakeholders
in their public corporation. The controllers have to assume public responsibilities to
do well and avoid harm.
Let us now look at the common corporate governance mechanisms that can
be implemented in a public corporation. We first need to be clear about the aim of
these mechanisms. Corporate governance mechanisms are aimed at ensuring that
the controllers make decisions and allocate corporate resolirces with the objectrt'e of
maximizingwealth forthe sharehoiders and to promote the wellare of the stakeholders.
\Are should also bear in mind that these mechanisms shor,rld work in a comprehensive
and interdependent way to ensure their effectiveness.
5.7 CORPORATE GOVERNANCE

MECHANISMS
In this section, we will take a look at a few common e oi porate governance mechanisms
T-".".g*l.t I that could be put in piace to protect the interests of the o\{ners and stakeholders. We
"f
corporate governance
should consider these mechanisms as monitors of the or-res rvho need monitoring, the
mechanisms are
internal and exrernal
controliers. Some of these mechanisms are availablc within the corporation; hence
mechanisms. they are classified as internal governance mechanlsms. The tnternal mechanisms
that are most commonly examined are the board of directors, independent directors,
board committees, board compensation pracrice-r, director's traitting, internal c ontrol
system and internal audit, external audit and shareholder aciivism.
:
Meanwhile, the market for corporate control or takeover market and the
regulation or iegal svstem are the two commonly researched external governance
mechanisms. However, in this section, we will focus briefly on the role of regulation
only. The market for corporate control is not very active in Malaysia, but it can be a
powerful governance mechanism to discipline errant managers. Figure 5.7 illustrates
the position of monitors in the corporate structure.
:ttoriidite Constituents Monitors Controllers
Figure 5.7: The position of monitors in the corporaie structure
5.7.1 The Board of Directors

In the tramelvork o{'Agency Theory, ti're board of directors is a r.erv importr,nt and fTh. b"rrd
porverfr-rl control mechanism to mitigate agency probiems. Owners eiect directors to "r
directors is rhe
lhe board, and in theor,v, the board of directors is the on,ners' first line of del-ence most important
against any aLtempt to expropriate their wealth by professional managers. The boar.i corporate governance
of drrectors' :ole is to provide an rndependent oversight of management (Walsli. mechanrsm. I hey
and Seward, 1990), hold management accountable to shareholders for its actions should be the
(Mizruchi, 1983), and ensure shareholders'wealth is maximized (Denis, 2001). In a shareholders' first line
nutsheli, the board of directors govern and oversee the management of the company of defence against
rhe self-inreresis of
and ensure that the managers give priority to the interests of the shareholders Case
for Review 5"1 illustrates the importance of accountability of the board of directors to
shareholders lor their actions.
42 Business Ethics
-B""d The management consists of a group of individuals employed by the board tcr
"f
d*..;J run the company and perform its daiiy operations. In reality, however, the value of
drreccly acr,ounrabie
the board's contributions is not apparent, and in fact, it is a subject of much debate.
to shareholders.
They should be the
Boards have been known to be a 'rubber stamp' to management decisions i.e. lack of
gatekeepers for ihe independence against the influence and control of the management team and often
shareholders ancl times failed to safeguard the interests of shareholders aswitnessed in corporate scandals
cn(Lre a'l Jc(lclOnS such as Enron Corporation, WorldCom, Adelphia, Tyco International, HII{ Insurance,
are in line wrth and most recently, American International Group, Lehrnan Brothers, Salomon Smith
the oblectives ancl Barney and Satyam Computer Services. In the Malayslan concentrated ownership
inrerests of rhe environment, the board of directors may be dominated by family members who are
shareh olders inclined to extract benefits for themseives at the expense of minority shareholders.
Securities Commision (SC) took NasionCom Directors to Court
Accountability of direcrors is central io corporate governance. Dtrectors musr be accounrable ro

shareholders for rheir acrions and rhe exercise of power vesred upon them The SC had called upon
company ciirecrors ro acr in good farth and fulfrl the accountabiliry aspecL of therr duty ln thc spirit
of accc-,untabiltry, direcrors and officers must reaiize that rhey are purting invesiors at risk by reporrirrp
misleading and inaccurare information about their corporate performance and value. The drrecrors
were ac.cused of submirring false informarron wirh regard ro NasionCom's 2005 i'inancial stalemenls
Ihe SC's invesrigarion revealed that NasionCom's group revenue of RM-l94,984.186 as reflecred
rn rrs 2005 financial sraremenrs conrained a toral of RM143,-] 09,727 sales thai were nor Lransac[ed
These sales were recorded in rne financial statements of rwo NasionCcm subsidiaries, namely
Nasroncom Sdn Bhd and Express Top-up Sdn Bhd.
ln rhis enforcemenr actron againsr NasionCom directors, the 5C had shov,rn rhar they roo;
accourrrability of directors seriously. They would nor hesitate to prosecute direcrors who were found to
have violated ihe rules on accounrability. The direcrors and companies should noi iake the enforcernent
acrion lightly for which the lack of accountabrliry could undermine ihe invesror confidence The SC
would take corrective acrion ro ensure irs credrbility as the marn regulatory force of the Malaysian
financial markets. lts regularory role is crucial to the vibrancy and effrciency of ihe [inancal markets
(Adapred from Minoriry Shareholder Warchdog Croup, 20 April 2007)
The increasing incidents ofcorporate scandals in the last ten years have brought
Tr*.-ffip*,;;l about an aggressive effort to reform boarci of directors. The r.arious reform initiatives
element of a
mainly stem from the realization that the board can be a potent monitoring mechanism
board of direcrors
is independence
if certain aspects such as the board structure is improvcd anrl gir.en more attention
from rhe influence
by lawmakers, regulators and sharehoiders. Important structural elements of a board
and control of include the board leadership structure and the number of inciependent directors.
rhe professional With respect to the board ieadership structure, the variahle of greatest interest
managers. is the nature and characteristic of top leader.,hip positrons in a firm, nanrely the
chairpersoir of the company and the chief executive o{ficer. Elements of board
'' :'.''
Corporate Governance ,tr.43..
ri;:
structure determine the effectiveness of board monitoring. Effective board monitoring

is a crucial component of a robust corporate governance mechanism. Firms tend
to benefit from strong board monitoring capability because it helps to curb the
opportunistic behaviour of managers and enhance the credibility and reliabiiity of
financial reporting; thus, reducing information asymmetry and agency problems.
Roles of the board of directors

Shareholders appoint members of the board of directors in a generai rneeting to fB"*dr;f d-'"e.ro"
represent their interests in the company. Shareholders give them power and authority have borh leadership
to control and allocate the company resources and make decisions on their behalf. ln and control roles.
return, the board ofdirectors is accountable to the shareholders. Perks (1993) defines
accountability as the obligation to give an account. As such, the board of directors as
a collectivc group is required to justify its actions and decisions in controlling and
managing the company to the shareholders. Keasey and Wright (1993) posit that
ensuring accountability of the board and management is one of the two key elements
of a robust corporate governanc 'nechanism. The other element is the supervision
of management perfortnance. In a nutshell, the board of directors has two important
roles--leadership and control.
In their leadership role, the boards of directors formuiate company policics
lnd determine the overall strategic direction of the compan?v. They are expected to
supervise aqd scrutinize the strategic formulation process led by the Chief Executive
Officer (tEO) [o ensure that the strategy is in linc rvith thc vision and mission of
the cornpanl'. They need to ensure that the management team mar,?ges the business
u'ith the objective of providing good returns to shareholders and at the same tinte is
a1 tentive to tl're interests of stakeholders.
In their control role, the boarcl of directors is required to monitor the perforrnance
and activities of the executive management team so that they consistentll. pursue
shareholders' obiectives and interests. They carry out the responsibility as caretakers
or guardians for shareholders in a transparent and accountable manner. 'fhey are also
r"equired to cnsure thal the company coinplies with all larvs and regulations gor.e rninu
the business.
Board leadership structure

fhe board of directors must have a clear division of responsibiiities betu,een the
chairperson of the board and CEO so that there is a balance of power and to prevent
faEo drdt,y **,r"
.creates a very
ol']e person lt om having unrestricted power to make decisions. The chairperson ol thc . powerful execurive in
board and CIIO are pcir'verful positions in a company. Hence, the roies of chairpersor-r a corporation. Hence,
and CEO should not be exercised by one person. The chairperson is responsible fbr corpbrare governance
leading the board of directors and ensuring its effectiveness. In order to ensure thal code recommends
meetings are properly facilitated, and the board properly ied, thc board rvili nor mal11, two different persons
i:lect among tlremselves a chairperson of the board. In summary, roles of a chairperson holding these two
.rre as follorvs: key positions in a
company to prevent
I To lead the board as a whole, and in particuiar, in the meetings of the board one person from.
of directors ar-rd general meetings. having unfetrered
e To ensure the proper practices and procedures are observed in the calling of powers.
meetings and to decide on agenda items that would emphasize on important
issues lacing the company as lvell as strategic issues.
c 'Ib ellsure the whole board plays a fuli and constructive part irr de,.,eloplng
and determining the company's strategy and overali business and con'rniercial
objectives.
44 Buslness Ethics
r To ensure clear and timely information in relation to the company is given to

the board.
r To ensure effective communication between the company, the shareholders,
executive management and other stakeholders.
r To take a concerned view of the developmental needs of each member of
the board such as the induction programmes and continuous education and
training.
r To promote the highest standards of integrity, probity and corporate
governance in the company.
r To be concerned with future succession planning of the board and executive
management.
r To report and sign off on the company's financial statements.
The CEO, on the other hand, is the leader of the management team at and below
board level. He has the daily executive management power, controls the allttcations of
organizational resources and impiements board decisions and company policies. In a
nutsheir, the CEO performs the following roles:
r To ensure that the company business is properly and efficiently managed.
r To assist the chairperson in drar,ving up the agenda fbr board meetings by
providing input in relation to important strategic issues facing the business.
r To ensure that the executive team implements ti-ie decisions of the board and
its committees.
r To highlight and update the chairperson on compiex and sensttite issues
that might affect the company and maintain a consistent dialogue with the
chairperson.
r To consult lt,ith the chairperson and llie coml)any secrelary on board-
approved procedures and matters reservecl for the board's decisions.
The chairpersor. and the CEO positions make up the board leadership structure
of a company. Board leadership structure can be categorized into dualit,v and non-
duality. Duality structure means the posts of chairperson and Cl,O are held by the same
individual. Non-duality structure, on the other hand, necessitates difl'erent individuals
holding each position separately. Both elements are the primary determinants of an
independent board. Board leadership structure, in this instance, provides an insight
into the degree of board independence. Tireoretically, non-duality structure signifies
greater board independence because it avoids the concentra[ion of porver ln c,ne
individuai who can dominate decision-nraking. in particuiar, influencing decisions
that are not in the best interests of the shareholders.
lndependent directors
An independent director simply mealls a director who does not have any. personal or
s"-r
"f
;'eCt;I
"f-rd business relationships with the company or its officers, u,hich could interfere ivrth
must have a
sufficient number
the exercise of independent judgement or the abilit.,' to act in the best interests of
of independent
a compan)'. A higher ratio of independenl directors' participation implies greater
directors to ensure degree of independence of the board from the executir.e management's influence in
rhat rhey are making decisions. Boards that are more indepenclent are seen as effective monitors
independenr from of management as opposed to boards that are infested by drrectors with famiiy or
the influence of business ties to firm manageinent (Shamsui Nahar, 2004).
rhe professional The relatrve independence of the board can be implied by looking at the ratio
managers. of independent directors' participation in the buard. A higher ratio implies gi'eater
independence of the board. Independent directors are also known as independent

non-executive directors. As non-executive directors, they do not have executive
management responsibilities in the company i.e. they do not get involved in managing
the company on a daily basis. They dedicate their time to attending meetings and
deliberating on company issues and evaluating proposals given by the management
team.
Independent directors are usually individuals with vast skills and knowledge in ll;J6."d.*
managing companies and serving board of directors. They also have well-establisheC direceors provide a
networks or connections with regulators and industry players. They can bring in check and balance
technical and non-technical expertise to the board. These elements help the executive element in the board
of drrecrors. I hey
managernent to see 'a big picture' or macro-environment factors by looking at issues
ensure that rhe
from a broader perspective in setting the strategic direction as well as formulating
corporate manager5
strategic plans for the company. Independent directors can challenge the view of the
do not control rhe
management by asking questions until they get an acceptable answer. This scrutiny is decision-making of
done in order for the management to consider every possible risk and potential of the the board and steer it
-
company, say, in a strategy formulation exercise. to promote rheir self-
bther than contributing their speciaiist knowiedge and expertise in the interesrs and personal
deiiberation and decision-making process of the board, independent directors provide agenda.
a check and balance mechanism against the domination of the executive trairagement
team because they have no relationship or affiliations u,hatsoever with the company
and its officers" Hence, the element of biasness may be controlled in which they may
make an independent or objective stance on conflict of interest issues as well as
scrutinizing corporate activities and management proposals obiectivell'.
In short, independent directors piay a very important control role to ensure that
the board of directors allvays strives to protect and pursue the interests of shareholders
in its decisions. They monitor the performance and activities of the management team
so as to ensure they are in line with shareholders' objectives. Independent directors
are relied upon to give outside and objective views to challenge the ideas presented by
the management team and to control the CEO from abusing his power and making
decisions that benefit hirnself only.
Board committees
The purpose of establrshing board committees within a board structure is primarily fB".rd....l,**
to assist the board in decision-making as well as supervising the management team. are meant to
f he MCCG (2000) recommends that firrns establish board committees to divide rvork help the board of
among board members so that they can accomplish more in their iimitecl time, u'hici"r directors to examine
ultimately contributes to an effective board. Most importantly, boarci t.ommittees specific issues of
remunerarion,
are needed to support the control role of the board The three most common board
nominatron of
committees in Malaysian listed firms are tire nomination, rentuneration and audit
directors, top
committecs.
executives and audirs.
They report to the
lrlom inatio n co m mitte e board of directors.
The role of the nomination committee in corporate governance is paramoui-rt. This
committee is a crucial component of an effective board.It is responsible for selecting
and nominating the right candidates for directorship and top managemen' team for
the board's sanction (Ruigrok, Peck, Tacheva, Greve and Hu, 2006). The corrtmittee is
also respo'rsible for ensuring a periodic review of size and composition of the board is
carried out so as to reflect the needs of the business. A nomination comriittee should
be composed of majority independent directors.
I
I
t
I
I
t.
5 Business Ethics
n co m mitte e
Re m u n e rati o
A remuneration committee forms part and parcel of a desirabie board stmcture

and procedures to enable the boa-d ofdirectors to be a potent corporate governance
mechanism. The MCCG (2000) states that the main task of remuneration committee
a
is to devise a board compensation plan that is linked to individual director's
performance and corporate performance as well as industry benchmarks" T'he board
of directors as a lvhole makes the final decision on llre remuneration of each director
based on the recommendation of the remuneration committee. A remuneratiorr
committee shouid be composed of majority independent directors.
Audit committee
Malaysian Bourse has made it compulsory for public corporations to establish an
audit committee beginning 1 August 1994. The arrdit committee's formation and
composition are fully regulated by the stock exchange listing requireinents in
Malaysia. The audit committee is seen as the most crucial oversight body within a
board due to the fact that it helps to ensure the quaiity of the financial and control
systems. Furthermore, according to the Agency Theory, an independent and
effective audit committee reduces the severity of information asymmetries between
shareholders and corporate managersi thus, attenuating agency costs. The audit
committee rvorks closely with the external auditor in ensuring the independence
of the financial reporting process. It oversees the audit and verification process of
financral reports. The audit committee ensures that the external auditor is able to
exercise his professional judgement ano it is not inflr-renced bv tl're closeness of- the
relationshtp u,ith the client con-rpanv or rts officers/directors, rnonclar,Y rervards or
remuneration ent icement.
Board compensation practices

'I'he board of drr-ectors as a wirole must deliberate on thc issues of board compensation
R"r"*ar--r* I practices focusing on the extent to nhich the director-s and managers are remuneraled
of direcrors and
top executives
in way,s that align their interests u,ith those of thcir firr-ns ()r^'nL'rs. )ettsetr artd
plays a crucial Meckling (1976) underscored the irnportance of ir-rcentive alignment solutions to
role in corporate agency problems rvhen they proposed tirat executive compe nsation should be designed
governance. in such a way that can reduce the degree of conflict of interest betrveen shareholders
Appropriately and managers.
devised remuneration Theoretically, an eft-ective compensation system is the one that motivates
systems can morivate managers to forego their opportunistic behaviour .rnd focus on value nraxirnization
managers ro forego activities. The cornpensation system should consist o1 a combinatron of short-term and
their'self-in terests long-term cornponents. The short-term cotrrponent includes annual salary increment,
and realign rheir
bonus or any other benefit-in-kind for the executives.'I'1ris cornponent is meant for
interests with those
reu,arding strong current performance and motivating executirres to strive har.lcr
of shareholders.
in creating value for shareholders. The long-term component inciudes the incentive
plans such as the sirare option scheme to encourage ri-Ianagers to focus on building
long-term sustainability of the firm and to discourage short terrirism.
Tlie MCCG (2000) places great emphasis on the aspects of board remuneration
in which it shouid reflect the responsibilities and commitment of the board members.
The principles adopted by the MCCG (2000) with regard to directors' remuneration
are as foilou,s. First, directors' remuneration package should be linked to individual
and corporate perfbrmance so as to ensure that it is abie not onlv to attract, motivate
and reward good performers but also to a.,'oid pavrng excessive pay. Second, eact, firm
needs to have a remuneration cornmittee, mainly or u,holly conlposed of non -executive
directors, whose tasks being to make recommendations to the board pertaining to the
remuneration of the executive directors. Finally, the board as a whole is responsible to
make decisions relating to directors' remuneration.
Directors' induction and training

A director's induction programme is a one-off in-house programme organized by the fD"..r*r *.d
company to introduce newly elected directors to the company and its ke' officers" co be skilful and -
The overall purpose of induction is to minimize the amount of time taken for the new knowledgeable
director to become effbctive in his or her new job. The development of an induction to carry our rheir
programme should be tailored to the needs of the company and individual directors. fu ncrions effecrively.
Nevertheless, there are four common aspects of a director's induction programme: So, they need ro
conrinuously update
r To convey the organization's norms, yalues and culture to the nerv starter. and upgrade their
r To communicate practical procedural duties to the nelv director, including skills by atrending
company policies relevant to a new employee. appropriate training
r To convey an understanding of the nature of the compai)y, its operations, programmes.
strategy, key stakeholders and external relationships.
r To establish and develop the new director's relationships with colleagues,
especially those with whom he or she will interact with on a regular birsis.
Directors' training is a continuous professional deveiopment programme

organized either in-l-rouse or externaliy for all directors. Directors must strive to
continuously extend their hnowledge and skills in ordcr to bc cffcctivc. Thc,v nccd
io undergo professional development programmes so that they can keep abreast
of char-rges in the regulatory requirements such as company law, securitics lalv,
taxation larv and corporate governance code, acquire and update their skills anci
knowledge in risk management, strategic and management supervision, as weli as
harness their professional expertise such as infl.rencing, conflict resolution and
chairing skiils.
Effectir,e corporate governance can be achieved if directors are competent
and skilfui irr carrying out their expected roles in directing and controlling the
company. In Malaysia, continuous training for every director is compuisory for all
public corporations. This requirement is stipulated in the Bursa Malaysia Listing
Requiremcnts. Every director must attend Mandatory Accreditation Programmc
(MAP) and Continuing Education Programme (CEP).
MAP is a one-off event to train directors on various aspects of securrties and
company larvs. CEP is compuisory for directors to attend annually to ensure
they continuously update themselves on developments in the securities indr:strv,
particularly in areas of corporate governance and regulatory changes. Conrpanies
can organize various types of training programmes for their directors such as
mentoring, schemes, forinai directors' training courses> formal personal developnrcnt
programnres, seminars and conferences and in-house company workshops.
5.7.2 lnternal Control and lnternal Audit

internal control system is an important eiement of corporate governance because
it helps to enhance the accountabiiity of the board of directors in ensuring that
shareholder s' assets are adequateiy safeguarded against the exposure to risks and
expropriation. T'he IJ.K. Turnbull Report (1999) and the MCCG (2An) recommend a
sound internal control system, which is meant for facilitating operations- rdentrfying
and nranaging risks within an organization for the achievement of the urganization
or shareholders' oDjeetir.es.
18 Business Ethics
The board of directors is fully responsibie for establishing ancl reviewing the
h.,;'d;;l--l effectiveness of an internal control system. The management team is responsible for
procedures help the
implementing and monitoring tht' internal control system. The internal control systern
company ro prolect
its investmenrs and
can assist the board to ensure adherence to internal policies, safeguard the company
assets. lt is subjecc
assets, prevent and detect fraud or error and ensure accuracy and completeness ofthe
to an inrernal audit accounting records.
process. The effect of a faiied internal controi system cart be devastating as demonstrated
by the collapse of Barings Bank Plc. in the 1990s. Hence, it is an important aspect
of the board's accountability to shareholders. The MCCG (2000) has off'ered some
guidelines in setting up and evaluating firms' internal control system. Moreover, the
Bursa Malaysia has made it mandatory for public corporations to disclose the process
and adequacy of their internal control system and risk management framework in
a form of a narrative statement in the annual report and accounts. Specifically; the
general objectives of internal control are as follo.*'s:
r To ensure the orderly and efficient conduct of business in respect of systems
bcing in place and fully impiemented. Controls mean that business Processes
and transactions take piace without disruption with less risk or disturbance
and this, in turn, adds value and creates shareholder value.
r lb safeguard the assets of the business. Assets include tangtbles and
intangibles, and controls are necessary to ensure they are optirnally utilized
and protected from misuse, fraud, misappropriation and theft"
I 'lb prevent and detect fraud. Controis are necessary to unco-r,er any operational
or financial irregularities that nught bc the result of thefl or fraud
r To ensure the completeness and accuracl, of accounting records" Ensuring
that all accounting transactions are fu1l,v and accurately recorded, that assets
and liabilities are correctly identified and valued, and that all costs and
revenues can be fuiiy accounted for.
r To ensure the tirnely preparation of financiai information, lvhich applies to
statutory reporting of year end accounts, fbr example, and also management
accounts, if appropriate, for the facilitation , rf effective management decist*rtt
making.
The board of directors relies on lhe irrternal audit function to review the
;*""t*a;-----l effectiveness of the internal control system. Internal audit function complements
[uncrion assists the
the role of internal control system in reducing the frrm's overallrisk exposure. Given
board of directors
to review the
the importance of monitoring and reviewing firms' exposure to various rrsk factors,
effeciiveness of the internal control systems har.e become part of the ,iubject matter of auditing. In thrs
company's internal respect, internal auditors piay an important role in helping the board to review the
conrrol procedures, system of internai controis and the financial reporting process. Most importantly,
internai audits can mitigate the extent of information asynrmetry and agency risks in a
firm by attesting to the reliability of a firm's publishcd financial statements (Ashbarrgh
and Warfield, 2003).
The internal audit department is established to prov ide a service to the organization
in which it performs an independent appraisal activity on the internal control and
risk management system. It is actualiy a control rvhich functions by examining and
evaluating the adequacy and effectiveness of othcr controls within a company. In
view of the crucial role of an internal audit department in providing an independent
assurance and verification of the effectiveness and adequacy of the internal controi
and risk management system in a company, it is pertinent for the chief internal arrditor
to report directly to the audit committec. This r:rporting structure helps to support
and strengthen the need for the internal audit team to function and act, independent
of executive management.
5.7.3 External Audit

In a contractual relationship between shareholders and djrectors, the latter are fE""r.rkr.,dL
entrusted with the control over the resources of the former in the mosl efficient function verifies
and effective way. Hence, the corporate governance model that encapsulates this the accuracy and
reiationship of accountability is based on the idea that when ownership is separated reliability of financial
from control, directors need to be accountable to shareholders. reports on behalfof
One method of showing accountability is by way of quality corporate and financial shareholders.
reporting through the participation of an independent external audit. In fact, quality

reporting by management is one of the most important corporate governance goals
(Gramling et a\.,2004). J.he annual external audit by an independent external auditor
is particularly aimed at achieving that goal. The external audit serves as a monitoring
tool to alleviate the agency cor,s due to the separation of ownership and control
(Ashbaugh and Warfield,2A$) and enhance the confidence of shareholders (Fan and
\\rong,2005).
External auditors are viewed as important gatekeepers to protect the interests
of capital providers from financial manipulation and compliance risk. In vierv of
this crucial role, it is pertinent for tire external auditor to be objective and fair in
perfcrnning its function. Shareholders will not trust a firm's financial statcmcnts if
they are not confident with the objectivity and fairness of the e,,ternal auditor. It is,
therefore, pcrtinent for the external auditor to be indepenclent from any influence or
pressure from the executive n-ranagement team of a firm.
The independence of the external auditors may also be questionable if they
also provide non-audit services with substantialiy greater fee income than the audit
fees to the same client companv. Corporate scandals such as Enron, WorldCorr
and Satyam Computer Services have l,ighlighted the failure of externai auditors in
ensurinq their independence from the influence of the management teanr, which
ultimately led them to condone the dissemination of inaccurate and false tlnancial
reports to stakehoiders.
5.7.4 Shareholder Activism

Shareholder activism is the exercise and enforcement of tl-re voting rights of fG;r,;h...'
shareholders against the board of directors at the company s annual generai not be passive
'h"rtd
meeting (AGM). Shareholder activism arises when sirareholders believe that the owners where they
board of directors has failed in its duty to pursue and protect sharel'rolders' intcrest. allow the board and
Sharcholders, for example, can withhold r.otes for directors r'oho do not attend board managers to fully
meetings or who have conflicts of interest. They can, in fact, vote against the proposed conrrol their own
:itrategy if they are not convinced that it can boost the performance and competitive company.
advantage of the company. Some examples of shareholder activism by institutional
shareholders in the US are as follows.
r California Public Einployees' Retirement System (CaIPERS), a public en.rployee

pension fund withheld votes against five directors of Hewlett-Packard Co. for
approval of non-audit work for the auditors.
r Shareholders at Hewlett-Packard rejected a plan fbr generous sel,rrrance
packages at its AGM.
)tl FJrrsrness tthrcs
r CaIPERS urged General Electric's shareholders to demand that its executives'

share options be performance-related.
r Glass, Lewis & Co, a proxy advisory firm, withheld votes against three
directors of PeopleSoft Inc., citing unusual customer rebate aimed at fendino
off a hostile bid from Oracle Corp.
r Illinois Board of investment, a pension fund, withheld votes against the
chairman and two board members of Safeu'ay Inc.
r Shareholders at Shell threatened a revolt over its directors' remuneration"
Another important element of shareholder activism is having a two-way dialogue

Th.brrd.f I between shareholders and the board of directors. The purpose of this dialogue is for
directors should
the shareholders to have a say in the decision making process of a board of directors. In
rnainiain a regular
dialogue with
reality, activism is usually championed by institutional shareholders. In this respect,
shareholders and the the chairman of the board is responsible to ensure that the board has regular meetings
larrer should make with the institutionai shareholders.
use of rhis channel Issues of concern that are normally discussed during the dialogues include the
of communication companlr's financial performance, internal controls, succession planning in the
ro relay their board of directors and the company's acquisition or disposal strategy. Examples of
grouses and ro seek large and important institutional shareholders in Malaysia are the Social Security
explanation from rhe Organization (Pertubuhan Keselamatan Sosial), National Equity Corporation
former abour any (Permodalan Nasional Berhad), Pilgrimage Board (Tabung Haji) and Armed
issues of concern.
Forces Fund Board (Lembaga Tabung Angkatan 'l'entera). These four organizations
founded the Minority Shareholder Watchdog Group (MSWG) in the year 2000 as a
part of the government's initiatives to protect the interests of rninority shareholders
through shareholder activism. Other institutional shareholders include insurance
companies, unit trust fund companies, pension fr-rnds and professional fund
managers.
MSWG has been actively championing shareholder activism in N4alaysia by
providing a platforn, and a collective voice to both retarl and institutional rninoritl'
shareholders. MSWG also advises on voting at general meetings of public corporations.
Among others, MSWG monitors public corporations in rvhich its founding meml:crs
have equity stakes on issues such as questionable practices by management of public
listed companies, breaches and non-compliance lr.ith the corporate governance code
and failing financial performance.
Corporate governance would improve if shareholders play a nlore active role in
making their views knorvn to their company andior use their voting po\\rer against
the board ofdirectors ifthe board does not sufficiently address their concerns and do
not act in the best interests ofshareholders. Activrsm can encollrage better corporate
goyernance because it pressures the management to avoid negative publicity. An,v
act of reprimand by shareholders is seen as bad publicity for the board of directors
or management. So this can keep them on their toes at all times. Also it is more
constructive for shareholders to shou, disapproval o1 a company and its boarci of
directors than simply selling off the shares they hold.
In summary, it is pertinent for the shareholders of public corporations to behave
like owners in rvhich they need to show great interest in the running of the company.
Shareholders must be willing to work together wilh the board rn achieving their
wealth maximization objective i.e. ownership with responsibility.
Corporate Governance i 51
5.7.5 Reg u lation

T'he primary objective of regulation is to restore and enhance public confidence in lR{,,l..ry' .
the business environment by introducing stronger self-regulatory standards and framework airns ro
ru1es. In Malaysia, the main regulatory forces entrusted with the duty to protect regulate corporate
investors include SC, Bursa Malaysia Securities, Bank Negara Malaysia, Companies behaviour to ensure
it is in line with rhe
Commission of Malaysia and the Royal Malaysian Poiice Department. Table 5.1 shorvs
established standards
the relevant provisions of laws and their significance in providing protecttr,n for the
and rules: . ,'
investors in MalaYsia"
Table 5.1
Regu lators,
Securiries Commission Capiral Market and Services Mostly related to securities offences.
Acr 2007 (CMSA) and the
S.317A of CMSA gives rhe SC power ro
re I eva nt
Securities Conrmission Act
prosecute directors for breach of fiduciary legislation and
(1ee3) duties their significance
in protecting
l
l,qulsa ,lnllaysia Securicies ,, 1 Li5ring,iequilem.enr1,(].Q01) , t1p,91g1 mandator,y-:dilqlosure obligations
i nvestors
on Public corPorarions
Bank Negara Malaysia Banking and Financial Mainly regulates Iisred banks and financiat
lnstitutions Acr (1989), now institutions in relation to ownership
known as Financial Services and directors'appointments and
Acr (2013) disqualifications
Companies Commission of Companies Acr (1965) S.132 relatesto the fiduciary duiy ol'
Malaysia directors of both pi-ivare and public
companies
The Royai Malaysian Poiice Penal Code Prosecutes criminal breach of trusl cases
Departmenr under sections 405 ro 409 and chearingi

fraud under secrions 415 ro 4)0
(Source: The Srat Starbzweek, 2A10)
Bricfly, the roles of regulation in corporate Sovernance include:

r Ensuring timely disclosure of critical information.
r E,nsuring compliance with various regulations, such as occupational health
and safety and environmental law
r Ensuring proper discharge ofduties by directors and executives, etc.
-lhe focus of the reguiators is on strengthening the lau.,s and tak-ing srvift
f L^r^,r -d ,.g.il.il"*
enforcentent action in a firm and fair nlanner against errant market players rt'ho hart-n require mandatory
investors or damage the integrity of the capital market. Laws and reguiations serr,e compliance failing
as control ntechanisms to ensure companies, directors, executives and emplovees which companies
obev the laws and observe good corporate governance practices. Laws and regulatiot-t.s and their officers
usuaily mandated full compliance failing u.hich penal punishment may be meted out can be sublecied to
various penalties and
to errar,t parties.
punishment.
Non-adherence to regulations by companies and directors may learl to the
occurrence of compliance and reputation risks. Case for Review 5.2 illustrates the
enforcement action that can be taken by a regulator of corporate goverlrance for
breach of a law by top executives of a public listed corporation.
Business lthics
Securities Commission (SC) Charges Three Former Executives of Transmile
SC took three former execurives of Transmrle ro couru and charged rhem for aberrrng the company
in making misleading statements. Two of rhe former executives were ai:o independent non.executive
direcrors and members of the audic commitree As members of rhe audir commirree, they had
knowingly allowed Transmile to issue misleading srarements with regard to its f inancial performance
to Bursa Malaysia Securities Berhad. SC also offered compounds of RM500,000 each to the two
independent non-execuaive direcrors.
This swift enforcement action showed rhat rhe SC would not tolerate any abuses of power and
wrongdoings by those in fiduciary duty to prorect shareholders'interests. They could expect that
,.,,9!e,5C would take srern action against the cransgressors that caused massive losses to rnvestors.
This action is nor only timely bur also sends a dererrent message ro orher garekeepers such as
. manjgement, externai auditors, internal audirors and shareholders tirar their foremost role is to
protect and enhance the o'edibility of the Malaysian capital marker.
(Adapred fram Minority Shareholder Watchdog Group. n d )
Recall in Section 5.6, the MCCG adoptecl a hybrid approach to ttre implementation
of various corporate governance best practices. h-r thrs approacl-r, a f'erv of the best
practices have been made compuisory for public corporations to implement. The
mandatory requirement came trbout u,hen the Bursa Malaysia Securrties incorporated
those best practices rnto its Listing Requirements. l'he Bursa Malaysia Securities inay
impose fines and/or publicly reprimand d jrectors and public corporations for failure
to comply n ith the provisions of the Listing Requ irements. The mirndatory corpor ate
governance-related provisions are listed as follorvs:
r One-third of the board of directors nrust consist of independent directors-to

raise the bar on independence ofthe board.
r The board must have an audit committee at all times.
r The audit committee must coi'nprise a minimum of three directors with the
majoritybeing independent-to cnhance the independence of the committee.
r At ieast one audit commrttee member must be a member of the accounting
profession, having suitable qualifications in thc discipline.
Next, we wiii take look at some comnlorl ethical issues rn corporate go\rernance,
a
which mainiy stem from the conflict of interest betlveen the shareholders and
controllers. Most importantiy, the various issues illustiate the importance of corporate
governance in public corporations.
i5,B ETHICAL ISSUES IN CORPORATE

GOVERNANCE
In this final section, we will examine a few common corporate governance issues
in public corporations. If you look closely, most of the issues originated from the
unethical practices of corporate managers. Ineffective corporate governailce provides
an opportunity for them to commit such misconduct. Hence, one may conclude that
corporate governance and inculcating an ethical climate should come hand in hand
in a quest io combat or minimize the tendency of corporate managers to abuse their
power to the detriment of various stakeholders.
We shall focus our discussion on the following common issues of corporate
governance:
r Financialmanipulation
r Inflateddirector'sr:'uuneration
r Excessive business risk taking and lack ofrisk control
r Poor communication of information
5.8.1 Financial ManiPulation

The board of directors is accounl,able to report the financial health and status of the l%t**p-r"
corporation to shareholders. Shareholders, investors and othcr users relr'' on financial scandals exhibited a
statemelts to make rlreaningful analysis about the performance and prospects of the common feature-
that was accounting
corporation, lvhich in turn aid them to nrake inforrned decisions. Hence, accuracy,
irregulariiies
tiilteliness and completeness of information are paramount to them. Further, financial
and frnancial
reports should show balanced assessment of the corporation's financiai position. As
manipulacion.
stated earlier in this chapter, tlre contrcilers have an Llpper hand in assessing and
controlling the information about the corporation than the shareholdcrs. In fact,
rhey are the ones who prepare the financial reports for shareholders, \Are have learned
'I'ransmiie,
from the scandals of Enron, WorldCom, Satyam Computer Services and
hou, the controllers manipulated financial reports to their advantage to the extent
of causing giant corporations to collapse. The following cases for i-evien' 5.3 and 5.4
summarize the gravity of this issue-er.en the judiciary meted out a strong deterrent
sentence to the offenders.
On a related point, the board of directors must ensure that the corporation
prepares financial reports in accordance with tl're established accountiugs standards-
l{oit i-po.tantly, t}re financial reports should be subject to an independent audit.
Recali i1 the earlier section, we discussed the role of an external auditor in providing
a.ssurance and verification of the reliabiiity of financial reports. One important
question remains-is the auditor irrdependent from the influence of the corrtrollers?
The independence ofan external auditor is crucial to ensure shareholders have access
to reliable and complete information about the financral health of the corporation.
The case of Xerox Corporation and KPMG LLP illustrates this issue.
'1
54 Business Ethics
Transmile Berhad
The company had issued fake invoices to a few clienr companies for delivering some services. Some
of these client companies were dormant Transmile deliberately issLied such fake invoices in order ro
inflate profits in the income statement. The Securities Commission (5C) found thar rwo independent
directors and also members of rhe audir commitree aberred the issuance of misleading financial
statements. SC compounded them RM500,000 each. The KL Sessions Courr sen[enced rhe rwo
former independenr direcrors ro one year imprisonmenr and a fine of RM300,000 (rn defaulr of six
monrhs imprisonment).
(Adaprcd fro m www.sc.co m. my)
MEMS Technology Berhad
Two directors aurhorized the issuance of misleading financial statements io Bursa Malaysia Securiries
Berhad. The income s[atemenr reported inaccurare revenue figures, which consisied r-.f fic,r,iLious sales
of RM30,000,000. Both direciors pleacied guilry irr the Kuala Lumpur Sessions Courc bui. r'eceived a iight
sentence of RM300,000 fine each. The SC appealed rhe sentence in rhe High Courr and succeeded.
The Courr imposed a custodial punishment by senrencing them ro six months imprrsonmenr and
upheld rhe fine. The rwo directors appealed to the Courr of Appeal bur were unsuccessful
(Ad a pred fro m www.b u r sa m al ayst a co rn)
The Securities and Exchange Commission (SEC) rn the US would be charging several KPMC errployees,
includrng a former auditor and two cLlrrent employees, for rheir role in rhe accounrrng srandal in
Xerox KPMC was the auditor of Xerox in 2000 r,nrhen rhe SEC discovered a huge oversraremenr of
profirs in its accounrs f rom T997 unril 2000 KPMC had approved tire accounrs in Xerox's 2000 annual
report afier rhe company made mrnor restatemenrs only.
The SEC had evidence that KPMC knew about this accounting irregulariry bur approved ri-re
accounts anyway. The inflated revenues had mrslec the public abour the company's financial postrion
The SEC contended that KPMC partners allowed their close relationships wirh Xerox ro iinparr rherr
ludgement and role as gatekeepers for the publrc Thrs lack of independence led to rhe legal action
by the SEC.
(Adapred front Pulliam and Bandler, 2003)

In the cases of Enron and WorldCom, the external auditors had failed in their duty
to protect the interests of shareholders. Enron's external auditor, Arthur Andersen, for
example, was involved in various conflict of interest situations that jeopardized their
independence. The audit partners had business dealings with Enron's top executives
and they freely socialized with each other after work. Many of Arthur Andersen's
audit partners left the firm to join Enron in top positions. They were aiso responsible
for preparing financial reports in Enron. The audit partners were found to have
helped Enron's top executives to 'adjust' their accounts to show a more i.rvourable
financial health, which misled shareholders into believing that Enron was doing
well financially. In actual fact, Enron had huge debts that caused the giant energy
corporation to collapse. This action was motivated by self-interest.
5.8.2 InflatedDirector'sRemuneration
The board of directors is responsible for deciding the remuneration package of the fwhilr*.*r*rr,i*
controllers and they usually make such decisions at their own discretion. For example, system can alieviare
in Malaysia, the law does not require the board of directors to seek shareholders' agency conflict, ir
approval for remunerating directors cxcept for the share option scheme. Shareholders may also creaie a
certainly do not mind the corporation paying the controllers high salaries and benefrts corporate goVernance
so long as the remuneralion package commensurate with the financial and individual problem when ir
is excessive and
I performance of the controllers. The controliers should be rewarded for outstanding
iacks alignment to
perforniance to provide an incentive for innovation and risk-taking as well as to
performance.
attract scarce talent to run large and complex public corporations.
In the framework of agency theor1,, the directors'remuneratron is an important
nrechanism to align the interests of the shareholders witir those of its controllers.
I-lorveyer, this mechirnism does not alrvays work well and it is often subject to abuse.
Ihe main criticism of directors' remuneration is it has become too excessive to the
extent of eroding shareholders' value. The following examples sholv the abuse of
drrectors' remuneration in public corporations around the rvorld.
r in 2009, shareholders of Royal Dutch Shell criticized the board of directors
during the general meeting for paying huge amount of salaries to its executives
despite failure to meet their perforrnance targets (Chazan and Lublin, 2009).
N4ore than halfofthe shareholders voted against the rerruneration proposal.
r In 2008, critics argued that it was irresponsible for the CEO of the AIG Group
to pay big bonuses to its executives when the corporation u.as at the brink of
bankruptc,v if not for the government baii-out. Worse, the corporation used a
portion of the US government bail-out money to pay the honusesl
r ln Australia, the founder and CEO of HiH Insurance, i{ay Williams, handed
out millions of dollars in bonuses to senior executives a fer,r, months hefbre
the company went bankrupt (The Star, 2008).
r L,nron's board of directors aiso announced millions of dollars in bonuses to
its top executives just before the corporation filed for bankruptcy in 200i.
It is also an issue of concern to sharehoiders when the controllcrs are given free
rein to decide their olvn remuneration. They may reward themselves u,ith huge salaries
and other rewalds such as bonuses, pension scheme and other benefits i,vhen the
corporation is not doingneli finenciaily. Hence, corporate governance code cails for
a clear proc':dure to be estabiished for determining the remuneration packages of the
controllers, They should be reivarded based on clear criteria, and most intportantly,,
they should not be allorved to decide their own remuneration package.
l5b Bustness Ethtcs
5.8.3 Excessive Business Risk Taking and Lack of

Risk Control
_-] The controllers must be mindful of the relationship between risk and return in
a,*;''.';" making investment decisions. In general, investors want to be compensated with
exposed to various
higher rewards for the higher risk that they take. investors expect that when a
rypes of risks.
Managers who
corporation takes on additional risks in a business the profits and dividends are
prioritize self-interests to increase as well. It is an issue of concern to corporate governance when the
may rake excessive controllers make decisions to increase profits without giving adequate attention
risks ro promote to the risks associated with the decisions. In this instance, sharehoiders may be
rheir own agenda, exposed to unnecessary risks, which could lead to losses.
which might result in Shareholders expect the controllers to grow the business, and in doing so, to take
shareholders facing additional risks. The controilers may expand the business by way of taking over other
huge losses. companies, for example. But takeover is a risky strategy and it invoives huge funds.
The controllers may be motivated to go for an acquisition spree in order to 'build an
empire' and enhance their prestige and power. They might not give due regard to
risks in the event the takeover fails. As such, shareholders expect that the controllers
will put iu place a suitable risk management system to identify and manage various
risks associated with the business. The following case of HIH Insurance illustrates the
disastrous effects of failure to account for risk m.rnagement system.
The Collapse of HIH lnsurance
HIH lnsurance was rhe second largest general insurer in Australia prior to its collapse in early 200i.
Thousands of its policy l'rolders ended up with worthless policies Fmployees lost their lobs The general
public losr confidence in the insurance industry in Australra. \,\rhat had happened to HIH insurance? The
HIH Royal Commissron repori indicared that corporate governance farled rn the company The CEO
was given free rein ro conrrol ihe company and he had lack of acco.rntabiliry to the board of directors
The investigation also revealed rhar money was wasied on poor and extravagant business
acquisitions. HIH re-enrered ihe US rnsurance market in 1996 and expanded rts UK business tn 1991.
HiH d'd nor have any adequate local market knowiedge before making such decisions The board of
direcrors failed ro put rn place adequate safeguards to manage risk cxposurc in this strategy. lr also
acquired poorly performing FAI Insurance Ltd irr 1998 for a whopping AtlDS300 millron lllH had
ro borrow ro finance rhe acquisirion. ln September 2000, HIH had tc write-ofl its inves:ment rn F,\l
lnsurance.
HIH larer admirred thar ir had overpaid for FAI's acquisirion. The iasr poor in'!/pstment decision that
led ro l--tlH s collapse was the escablishment of a loint venture wrth Allranz Australia Ltd in 2000 HIH sold
off irs,profirable business units ro suppori this joint venture, resukin3 in a negative cash-flow soon after.
(Adapted frorh Dellaportas et al., 2005)

5.8.4 Poor Communication of lnformation

Shareholders rely on information to make various decisions. However, they do not
have direct accessto company information. The controllers have the information nrh" a-*ir, .
shareholders have rhe
because they are directly involved in managing the daily affairs of the company.
right to be informed
They do not only have the information but alsolontrol the manner and the timing of rhe developmenrs
in which the information is reported to shareholders. Not only sharehoiders expect in a company. The
to receive information in a timely and accurate manner, they also wish to be abie to board of direcrors is
raise their concerns and want the board of directors to listen to their views. 'Ihe board responsible ro ensure
of directors, in this instance, is responsible to ensure that the corporation has a clear rhey have an effective
communication policy with shareholders. communicacion ..
The board of directors must establish various communication channels to mechanism wirh rhe
communicate with its shareholders. Amongst others, the board can use the following shareholders,
channeis;
I The annual reports and accounts-it is common for corporations to provide

online versions of tl" annual reports, which can be easily u.."rribl. to
shareholders.
r The dialogue during annual general meeting rvhere shareholders are able to
interact directlywith the chairman of the board on issues of concern to them.
r Electronic communications such as an interactir.e conlpany website and
email to convey importance updates or news about the .o-puny and share
price performance.
r Establish a dedicated investor relations department to handie shareholders'
enquiries and to disseminate the latest information about the cornpany to the
press and other media channels.
r Engage in regular dialogue u,ith institutional shareholders on performance
a nd corporate governance-reiated matters.
Shareholders require accurate and timeiy information becausc information may
affect the share price performance of the corporation. Thev need to be informed Ehar.hdd.r-.q*.
in timely, accurare and
a timeit'manner so that they can make informed decisrons. fhe
follorvinq case lbr complere information
review illustrates the importance of providing timely information to shareholclers,
in order to assess rhe
especially material information about the company. performance of rhe
company and ro make
business decisions.
Whati Coing on in Kenmark?
Kenmark is a furniture manufacturer based in Porr Klang, selangor. lt was firsr

esrablished in Tarwan
way back in 1978 lt began operation in Malaysra in 1989. The Malaysian
operarion was lisred in Bursa
Malaysia in 1997. The founder of the corrrpany,.lames Hwang, was responsible
for ihe rapid expansrol
of Kenmark's business rn Singapore, Australia, London, Hong <ong, Viernam,
US and China. Kenmark
:l a large supplier of goods ro wal-Marr and orher global reraiiers
158 Business Ethics
ln 20T0, the founder and managing director and two other direcrors suddenly disappeared, Ieaving
rhe rwo independenr directors and employees in a lurch. The factory operarrons were rmmediarely
halted and employees feared losing rheir;obs. The managing director's disappearance was repor"red in
the news and a few credirors and.banks were apprehensive abour Kenmark's abiliry to repay its debts
due ro the uncertainry. They forced sell the shares pledged to rhem causing the share price r.o tumble.
Apparenrly, Kenmark had also defaulted in various credir faciliries and a few of its key executives had
resigned. The company share price declined sharply following rl're uncertainry. Abour RMl00mrl in
rnarket value was wiped out wirhin a span of one week.
Bursa Malaysia Securities rnitiared enforcemenr proceedings against Kenmark, rhe managing
director and two other directors for various breaches of disclosure requirements under rlre I isting
Requirements. They had failed to make an immediate announcement to rhe Bursa /vtaiaysra on rhe
disappearance of the managing director, resignation of key executives, cessation of irs opetarrons in
Vietnam and Malaysia, defaulrs in various credit facilities and failure to submit quarterly financial
reports ro Bursa.
(Adapted from The Star, Starbizweek, 2006)
The iearning outcomes for this chapter are summarized as follows:
1. Explain the meaning of corporate governance.

According to Tricker (i984), the term 'governance' is derived from the Greek word gubernare,
which rneans 'to steer'. The Malaysian Code on Corporate Governance (2000) defined corporate
governance as 'The process and structure used to direct and manage the business and affairs
of the company tolvards enhancing business prosperity and corporate accountability with the
ultimate objective of realisrng long-term sl'rareholder value, whilst taking into account the interests
of other stakeholders.' In a nutshell, corporate governance erlcompasses a broad spectrum of
internal and externai mechanisms intended to mitigate agency risk by increasing the monitoring
of managements'actions,limiting managers'opportunistic behaviour. and improving the quaiity
of firms' information flows.
2. Explain in what way that the separation of ownership and control in public corporations could
lead to corporate goyernance problems.
The controi or management of public corporations are distinctly separate from ownership.
Corporate ownership and control is divided between two parties -shareholders and the board of
directors. The shareholders own the firm and the board of directc,rs controi the public corporation.
This structure of public corporation gives rise to the various corporate goyernance prolrlems that
we had witnessed so far. The structure leads to the detachmerit of shareholders as owners of the
public corporation from control oitheir or,vn propertl They rel1,,sn the controllers to protect their
interests but why would the controllers care about the shareholders? They might pursue thetr own
interests, because by nature they are greedy, and lvith power in their hands, they are in the best
position to enrich themselves at the expense of the shareholders.
3. Elaborate on the meaning of conflict of interest in the context of the relationship betrveen
shareholders and professional managers.
The controllers do not own the corporation. They are merely salaried empioyees and likely to behave
differently than the owner of the corporation toward the long-term success of the corporation.
They have the tendency to work inefficiently and focus on short-term profits only in order to
demonstrate success. Focusing on short-term profits enables them to maximize their bonuses
and give them high salaries and perks. Shareholders, on the other hand, expect the controilers to
seek out profitable new long-term investments to ensure the survival of the company in the long
run. As salaried employees, the controllers stand to lose little compared to the shareholders if the
corporation goes bankrupt due to the former's personal agenda. The managers may iook fbr other
employment whereas the shareholders stand to lose their entire investment.
4. Explain the implications of the Malaysian corporate ownership structure on corporate

governance.
In a concentrated ownersllip environment, there exists one large shareholder and a fringe of
minority shareholders. The classic owner-manager conflict in diffused ownership is mitigated due
i-tr the large shareholder's greater incentives to monitor the controllers. However, a second type of
conflict appears (referred to as 'Iype II Agency Problem) in which the large shareholder that is also
a controller may use its controlling position in the firm ro extract private benefits at the expensc:
of rninorit,v sharehoiders through managerial entrenchment or various other forms oI self-interest
related partv t raitsilcti( )ns.
5. Descritre the naiure of the principal-agent relationship in the context of corporate governance.
In a public corporation, agency relarionship exists in the contractual relationship betr,r,een the
shareholders (principal) and controllers (agents). Sharehoiders expect the directors to closely
rnonitor the senior rnanagement teanl to ensure that they lvili r-neet the objectives placed upon
them. Agency problenis arise r'vhen the controllers do not necessariiy make decisions and allocate
resources in the Liest interest ofthe shareholders. In other the controllers do not consistentllr
"vords,
strive to ensLlre the achievement of shareholder rveaith maximization objective. Agency theory
assumes that this situation exists ciue to the conflicting of goals between shareholders and
controllers. The controllers, by nature, are fr-relled by seif-interest or opportunistic tendencies. They
are iikely to displa,v egoist behaviorir-to make decisions that are nrotivated by self interest.
6. Explain the Stakeholder, Property and Social Institution Theories that are applied to the
corporate governance discipline.
. Stakeholder Theory-This theory arglles that corporations should serve a broader agenda of
maximizing wealth tbr shareholders and protecting the weifare of stakeholders. 'l'hrs wider
objective is necessary because the company's actions and decisions have impacts on the weil-
breing of their stakehoiders. The larger the size and operations of a corporatiori, the greater the
impact of its actions or decisions on stakeholders.
* Propertl Rights Theory-v-11is theory asserts that a corporatiun is a private property of
shareholders who exercise their rights to incorporate and to contrirct. By virtue of having
p;operty rights, shareholders have the right to control the corporation. The property right of the
owners in a corporation must be fr:lly protected by the law.
IOU Busrness tth rcs
. Social lnstitutions Theory-This theory indicates that shareholders can exercise their right
to incorporate because the state allows them to do so. Without the sanction of the state,
corporations will not exist. Hence, corporations should not be treated solely as a body that
serves the interests of individual shareholders, but also to promote the interests of the public
at large.
7. Describe the role of various corporate goyernance mechanisms in protecting the interest of the
shareholders and stakeholders.
. Board of directors-The board of directors can be a potent monitoring mechanism to minimize
agency conflict in a public corporation. They must be accountable to shareholders and supervise
the management team on behalf of shareholders. The board of directors must be independent
from the influence of the top executives, especially in making decisions. They should give
priority to protecting the interests of shareholders in making decisions. Board independence
can be strengthened by separating the roles of chairperson and CEO and appointing a sufficient
number of independent directors to sit on the board.
. Board committees-The three common board committees in Malaysia are the nomination,
remuneration and audit committees. Board committees are primarily responsible for helping the
board of directors make decisions on board appointments and remuneration and supervision
of the financial reporting process. The independence of board committees is crucial to ensure
they can effectively safeguard the interests of shareholders. For example, the remuneration
committee is meant to prevent directors from setting their own pay package whilst the audit
committee ensures that financial information is reliable.
. Board cornpensation practices-Whilst a directors' incentive system can heip to align the interest
of the controllers with those of shareholders, it can also cause corporate governance problems.
This situation is possible if the directors are given free rein to decide their own rernuneration.
So, ihe board of directors with the assistance of the remuneration committee musl ensure that
the remuneration package is linked to performance. Further, there must be clear procedures for
determining the pay packages of directors.
. Directors' induction and training-Directors must continuously update their knowledge and
skiils to be effective in performing their function. They need to keep abreast of developmerrt
in various relevant laws governing a business, corporate governance requirements and risk
management. In Malaysia, continuous training for every director is compulsory for all public
corporations. This requirement is stipulated in the Bursa Maiaysia Listing Requirements. Every
director must attend Mandatory Accreditation Programme (MAP) and Continuing F)ducation
Programme (CEP).
. Internal control and oudit-internal controi system is aii important element of corporate
goyernance because it helps to enhance the accountability of the board of directors in
ensuring that shareholders' assets are adequateiy safeguarded against the exposure to risks
and expropriation. Internal control system can assist the board to ensure adherence to internal
policies, safeguard the company's assets, prevent and detect fraud or error and ensure accuracy
and completeness of the accounting records. Internal audit function complements the role of the
internal control system in reducing the firm's oyerall risk exposure. [t is actually a control which
functions by examining and evaluating the adequacy and effectiveness of oiher controls within
a companlr.
. External audit-External auditors are viewed as important gatekeepers to protect the interests of
capital providers from financiai manipulation and compliance risk. In view of this crucial role,
it is pertinent for the external auditor to be objective and fair in performrng its function. [t is,
therefore, pertinent for the external auditors to be independent from any influence or pressure
from the executive management team of a firm.
interests but why would the controllers care about the shareholders? They might Pursue their own
interests, because by nature they are greedy, and with power in their hands, they are in the best
position to enrich themselves at the expense of the shareholders.
3. Elaborate on the meaning of conflict of interest in the context of the relationship betrveen
shareholders and professional managers.
The controilers do not own the corporation. They are merely salaried employees and likely to behave
differently than the owner of the corporation toward the long-term success of the corporation"
They have the tendency to work inefficiently and focus on short-term profits only in orcler to
demonstrate success. Focusing on short-term profits enables them to maximize their bonuses
and give them high salaries and perks. Shareholders, on the other hand, expect the controilers to
seek out profitable new long-term investments to ensure the survival of the company in the long
run. As salaried employees, the controllers stand to lose little compared to the sharehc-rlders if the
corporation goes bankrupt due to the former's personal agenda. The managers may look fbr other
employment whereas the shareholders stand to lose their entire investment.
4" Explain the implications of the Malaysian corporate ownership structure on corporate
goYernance.
In a concentrated ownership environment, there exists one large sharehoider and a fringe of
minority shareholders. The classic olvner-manager conflict in diffused orvnershrp is mitlgated due
to the large shareiroider's greater incentives to monitor the controllers. However, a second type of
conflict appears (referred to as Type II Agency Problem) in which the large shareholder that is aiso
a controiler may use its controiling position in tire firm ro extract private benefits at the expense
of rnrnority sharehoiders through manageriai entrenchment or various other forms of self-interest
relaled part)'- t ransact ions.
Describe the naiure of the principal-agent relationship in the context of corporate governance.
In a public corporation, agency relationship exists in the contractuai relationship between the
sharehoiders (principal) and controllers (agents). Shareholders expect the directors to closely
monitor the senior management team to ensure tha{ they r,r,ill meet the objectives placed upon
them. Agency problems arise rvhen the controllers do not necessarily make decisions and ailocate
resources in the best interest ofthe shareholders. In other lvords, the controllers do not consistentll.
strive to ensure the achieveilent of shareholder weaith maximization objective. Agencl, theory
assumes that this situation exists ciue to the conflicting of goals between shareholders and
-fhe1'
controilers. The controliers, b1, nalure, are fuelled by self-interest or opportunistic tendencies.
are likely to displa,v egoist behaviour-to make decisions tliat are nrotivated by self-interest.
6. Explain the Stakeholder, Property and Social Institution Theories that are applied to the
corporate governance discipline.
. Stakeholder Theory-This theory argues that corporations should serve a broader agenda of
maximizing wealth for shareholders and protecting the weifare of stakeholders. This wider
objective is necessary because the company's actions and decisions have impacts on the weil-
being of their stakeholders. The larger the size and operations of a corporatron, the greater the
impact of its actions or decisions on stakeholders.
, Pro?ert/ Rights Theory-*This theory asserts that a corporation is a private property of
shareholders who exe;cise their rights to incorporate and to contract. By virtue of having
pi'operty rights, shareholders have the right to control the corporation. The prcperty rigirt of the
owners in a corporation must be fuily protected by the law.
4/
IOU LJusrness tth!c-s
. Social Institutions Theory*-This theory indicates that shareholders can exercise their right
to incorporate because the state allows them to do so. Without the sanction of the state,
corporations will not exist. Hence, corporations should not be treated solely as a body that
serves the interests of individual shareholders, but also to promote the interests of the public
at large.
7. Descritre the role of various corporate governance mechanisms in protecting the interest of the
shareholders and stakeholders.
. Board of directors-The board of directors can be a potent monitoring mechanism to minimize
agency conflict in a public corporation. They must be accountable to shareholders and supervise
the management team on behalf of shareholders. The board of directors must be independent
from the influence of the top executives, especially in making decisions. They should give
priority to protecting the interests of shareholders in making decisions. Board independence
can be strengthened by separating the roles of chairperson and CEO and appointing a sufficient
number of independent directors to sit on the board.
. Board committees-The three common board committees in Malaysia are the nomination,
remuneration and audit committees. Board committees are primarily responsible for helping the
board of directors make decisions on board appointments and rernuneration and supervision
of the financiai reporting process. The independence of board committees is crucial to ensure
they can effectively safeguard the interests of shareholders. For example, the remuneration
committee is meant to prevent directors from setting their own pay package whilst the audit
committee ensures that financial information is reiiable.
. Board cornpensation practices-Whilst a directors' incentive system can help to align the interest
of the controllers rvith those of shareholders, it can also cause corporate governance problems.
This situation is possible if the directors are given free rein to decide their own rernuneration.
So, the board of directors u,ith the assistance of the remuneration committee must ensure that
the remuneration package is linked to performance. Further, there must be clear procedures for
determining the pay packages of directors.
. Directors' induction and training-Directors must continuously update their knowledge and
skiils to be effective in performrng their function. They need to keep abreast of developrnerrt
in various relevant laws governing a business, corporate governance requirements and risk
management. In Malaysia, continuous training for every director is cornpulsory for all public
corporations. This requirement is stipulated in the Bursa Malaysia Listing Requirements. Every
director must attend Mandatory Accreditation Programme (MAP) and Continuing E)ducation
Programme (CEP).
. lnternsl control and audit-Internal control system is an important e]ement of corporate
governance because it helps to enhance the accountability of the board cif directors in
ensuring that shareholders' assets are adequateiy safeguarded against the exposure to risks
and expropriation. Internai control system can assist the board to ensure adherence to internal
policies, safeguard the company's assets, prevent and detect fraud or error and ensure accuracy
and completeness of the accounting records. Internal audit function complements the role of the
internal control system in reducing the firm's overail risk exposure. [t is actually a control which
functions by examining and evaluating the adequacy and effectiveness of other controls within
a compan)'.
. External audit-External auditors are viewed as important gatekecpers to protect the interests of
capital providers from financiai manipulation and cornpliance risk. In view of this crucial role,
it is pertinent for the external auditor to be objective and fair in performing its function. [t is,
therefore, pertinent for the external auditors to be indepcndent frrtm any influence or pressure
from the executive management team of a firm.
i
Shareholder activism-Shareholder activism is the exercise and enforcement of the voting
rights of shareholders against the board of directors at the company's annual general meeting
(AGM)- Shareholder activism arises when shareholders believe that the board of directors
has failed in its duty to pursue and protect shareholders' interest" Another important
element of shareholder activism is.having a two-way dialogue between shareholders and the
board of directors. The purpose of this dialogue is for the shareholders to have a say in the
decision-making process of a board of directors. In reality, activism is usually championed by
institutional shareholders.
Regulation--The primary objective of reguiation is to restore and enhance public confidence
in the business environment by introducing stronger self-regulatory standards and rules. The
focus of the regulators is on strengthening the laws and taking swift enforcement action in a
firm and fair manner against errant market players who harm investors or damage the integrity
of the capital market. Laws and regulations serye as control mechanisms tr:r ensure companies,
directors, executives and employees obey the laws and observe good corporate governance
practices.
8. Describe the various ethical issues in corporate governance.

, Financial manipulation
The controllers controi the information about the company. They might manipulate financial
information to serve their own agenda. It is common for errant controllers to report inaccurate
financial information that is misleading to shareholders. Shareholders require the controllers to
communicate corporate information in a timely and accurate manner so that they can rely on
the information to make informed decisions. Corporate scandals such as Enron, WclrldCom,
Transmile and Xerox Corporation have highlighted the disastrous effects of financiai
: manipulation. There vr,ere also instances w{rere the external auditor had failed in therr duty
to protect shareholders by ensuring reliability of financial reports. In those cases, the auditors
compromised their professional independence by helping the management of the client conlpan)/
to'adjust' their accounts.
. InJTated director's remuneration
When directors are given free rein to decide their orvn remuneration, they are likely to abuse
this power and relvard thernseives excessively. Shareholders object to remuneration packages
that do not reward directors based on clear performance measures. The cases of Royal Dutch
Shell, AIG Group, HIH Insurance and Enron demonstrate hor,r, top executives blatantlv paid
huge bonuses to themselves despite poor performance.
" Excessive business risk taking and lack of risk control
Risk taking is important in business because it provides opport,:nities to earn returns. I{owever,
the controllers may take on high risk projects without putting in place adequate risk safeguards
to protect the company from losses. They may undertake risky ptojects to serye their own
agenda for gaining prestige and power and at the same time exposing the assets of sharehoiders
to unnecessary risk. Hence, the board of directors is responsible to establish risk management
and internal control systems so as to safeguard shareholders' assets and investment.
, Poor communication of information
Shareholders rely on information to make informed decisions. However, the controllers might
not release or communicate corporate information to shareholders in a timely and accurate
manner. Often, sharehoiders are kept in the dark about the developments within the company.
The board is responsible for ensuring timely dissemination of material information to the general
i;rvesting public. As owners, sharehoiders also expect the board to listen to iheir concerns and
views. The board should have a clear communication policy to proviCe suitable communication
channels for shareholders to interact directlv u.ith them.
162 Business Ethics
Adverse selection Arises when shareholders are unable to ascertain whether the controilers actually
performed their tasks as expected
Agency cost Costs that arise from the need of the shareholders to monilor the activities and perfbrmance of
the controllers.
Agency problems Arise when the controllers do not necessarily make decisions and ailocate resources in
the best interest of the shareholders. In other words, the controllers do not consistently strive to ensure the
achievement of the shareholder wealth maximization objective.
Agency relationship A contract under which one party (the principal) hires another party (the agent) to rI
I
undertake specified functions on the principal's behalf. The principal delegates some decisron'rnaking t
authority to the agent to en..blc the agent to perform the assigned tasks. I
,
L-
I
!
Annual general meeting A yearly meeting called by the board of directors for the purpose of reporting to the r
shareholders on the current performance and futtire prospects of a corporation. ;
I
Audit committee A body established within a board to oversee the financial repor llng process.
r
l
Board of directors An elected group of individuals r,vho ha'',e legai duty to control the resources and make *-
I
decisions on behalf of tl-re corporations' shareholders. t
l
Board monitoring An internal corporate governance mechanism primarily rllcant to suprervl5q ths !
I
management team orr beiraif of the shareholders. r

?
I
Concentrated ownership A situation where the ordinary share ownership in a public corporation is iargelv l
L
held by individuals, a grollp of individuais, family members, institutions and the government. I
i
Conflict of interest Occurs rn,hen an individual's self-interest conflicts with the obligation of the individual L-
to act in the best interest of another. E
r
,
t
Controllers Consist of both directors and the senior management team of a public corporation. k
s
Controlling interest Gives sharehoiders greater control or voting rigirts to influence the decisrc,ns of the i
corporation. I
*
$
Corporate governance Encompasses a broad spectrum of internal and extcrnal mechanisrns intencled to I
I
initiga'.e agency risk by increasing the monitoring of rnanagements' actions, lirniting managers' opportunistic k'
behar.iour, and inrproving the quality of firms' information flows. 6
r
I
Corporation Legally, an artificial legal person, created under the laws of a particular state or countr),. I
I
I
E
Directors' remuneration The compensation of executive directors and corporate executives, including I
salar,v, honuses, share options and other benefits. i

L.
g
B
7
Egoist An individual rvho puts his or her own selfish interests above rii other considerations. 7
I
i
a
Externalaudit An independent verification process to give assurance on the reliability of finanr:ial reports.
$
k
lxternal corporate governance control Monitoring mechanisms that are available outside a corporation to
control the activities and behaviour of controllers.
iarnily ownership Shares of a public corporation owned by family members.
6overnment ownership Shares of a public corporation owned by the government or its agencies.
lndependence Can be achieved when the board of directors, as well as extertral and internal auditors, are free
fi.om the influence of the management team and free from any interests or relationship
rvith the management
team.
lnternal audit Established within an organization to perform an independent appraisai activity on the
internai control and risk management system'
lirternal corporate governance control Monitoring mechanisms that are available within a corporation to
rontrol the activities of the controliers.
Minority shareholders Sharehoiders that orvn a small percentage of shares in a public corporation. Technicaily,
shareholders that own less than five per cent of total shareiroldings are classified as minority owners.
Moral hazard Occurs nhen the shareholders cannot be sure whether the controllers are pursuing their own
self-intcrests or truly striving to perform their task for the benefit of the shareholders.
hiomination committee A body establisl-red r,r,ithin a board of directors to assist in seiecting and norninating
the right candidates ior directorship and the top managemellt team for the board's sanctiotl.
Performance The achievement of economic and business obiectives.
performance-based remuneration Remuneration that is linked to the overall performance of a corporation.
lXemuneration committee A body established within a board of dire,-tors to heip design directoi.s'
compensatii;n package.
Share options The right to buy a share in the future at the price of the option at grant date.
Shareholder The legal owner of a corporation; a person, group or institutiott owning one or more shares in
: corporation.
5hareholder activism 'I'he exercise and enforcemer-)t of the voting rights of slrareholders against the board of
ilirectors al the cornprany's annlral general meeting (AGN'{).
litake Having an interest or share in undertaking.
lrakeholder Any party that can affect or be affected by the decisions of an organizatioti; an individual or a
group that iras various kinds of stakes or legitimate clairns in the business.
Type I Agency Probtem A situation where the controliers of a public corporation do not share or pursue the
same objeciive as expected of their shareholders.
Type ll Agency Problem A situation where a large shareholder, that is also a controller, is using its controlling
rcsition in a public corporation to extract private benefits at the expense of minority shareholders.
164 Business Ethics
1. Explain the meanings of agency relationship and agency costs.

2, Identify and explain the three implementation approaches of the corporate governance codes"
3. Explain why it is usually desirable ior the chairman of the board of directors ancl the chief executive
officer to be different individuals.
4. Describe briefly the role of the three board committees.
Super lnfrastructure
Super lnfrastructure is listed on the Bursa Malaysia Securiries Berhad. The company is a medium-sized
developer of infrastructure projecrs with rhree offices rn Kuala Lumpur, Penang and lskandar Malaysia,
Johor. The founder and chief executive officer, Rrcky Lee, rs a high-profile entrepreneur wirh a penchanr for
a luxurious lifestyle and risky strategies. A fcw months ago, hc had cxtravagantly spcnr RM250,000 on gold
watches as gifts and insralled a marble and gold barhroom in his office. He also boughr a whopping RM1
million worrh of paintings to adorn rhe guesr area outside his luxurious office.
Ricky is a very dominanr personality in the company. He has a strong hold on the company by virrue of
holding borh the chairman and chief executive officer (CEO) posts. His views are hardly challenged by orher
board members. lt is not surprising that there is hardly any debaie or disagreemenr during board meerings.
Shareholders are very concerned about Ricky's dominance in the board and his pursuit of whar they regarded
as very rrsky straregies. They are certainly unhappy with Ricky's lavish lifesryle at the company's expense. Ricky
just brushed these concerns aside. He said, "l know how to run rhe business and rhey should jusr rrust me to
do my job." Lasi year's earnings were down 20 per cent. Ricky was unperrurbed by the decline in earnings and
boasted rhat he knew how ro rurn rhe profirs of rhe company around this year.
The board of directors comprises Ricky Lee as chairman cum CEO, four executive and rwo non-execurive
directors and two independent directors. Three of the execurive direcrors are Ricky's close family members.
The company has esrablished remuneration, nominarion and audir commirrees. Ricky Lee is rhe chairman of
both rhe remuneration and nomination comrnitrees These rwo commitrees hardly meer to discuss issues
such as che board's nomination and executive remuneration packages. lr is widely known amongsr board
members anci top executives that Rrcky regards corporate governance as irrelevanr to real business.
Super lnfrastructure recenrly appointed an exrernal audiror upon recommendarion by Ricky. This
appoinrment received great atrention in the financial press, parricularly highlighting rhe facr thar rhe same
audit firm also provided consultancy services on Ricky's acquisirion srraregy abour ren years ago.
Questions:
1. Explain the nature of agency problem rhar exisrs in Super lnfrasrrucrure.
2. Assess rhe corporate governance structures within Super Infrastrucrure rn light of corporare governance
best practices.
3. Recommend any improvements you consrder necessary for the corporaie governance struc[ures oisuper
I nfrastrucrure.
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CFIAPT'ER
Corporate Social
Responsibility
:i: l:,
.;{}
LEARNING OUTCOMES

x Defrne stakeholders.
r Expiain a firm's primary and secondary stakeholders.
a Contrast the Sharehoider Theory with Stakeholder Theory.
r Describe the different forms of Stakeholder Theory"
n Explain the meaning of corporate social responsibility.
r Examine the critical arguments for and against corporate social
responsibility.
x Analyse a firm's corporate social responsibility performance ilsrng
Carroll's four-part model.
I Summarize Keith Davis's modei of cor;>crate social responsibility.
T Distinguish between corporate responsibiiity and corporate social
responsiveness.
CorporateSocial Responsibility 169
INTRODUCTION
It is widely accepted that corporate managers have a responsibility

to the shareholders, I, - f*
""*.",rgh
who are the o*n..r of the firm. In the finance-dominated Agency
Theory perspective, firms to merely focus
this responsibility is interpreted as maximizing shareholder wealth. In fulfilling such on creating and
of expanding wealth for
,.rpor.iUitity, corporate managers are required to always act in the best interest shareholders.
all sharehold.rr. ihr., shareholders should be given priority in a firm's decisions
and business dealings. However, in reality, corporate managers do
not only.deal with
shareholders but also interact with other constituents in their daily
activities. These
constituents are called stakeholders, rvhich can greatly influence the firm's
ability
to be a going-concern entity and continuing success. Likewise, the firm's decisions
greatly iff..I tfr. well-being of its stakeholders. As such, corporate managers
have
io take into consideration ihe social objectives in their pursuit of econontic goals.
putting it differently, there is an increasing support for broadening accountability.of
corporate managers to focus n. t only on the interests of shareholders but aiso
the
needs and expectations ofall stakeholders.
*_
t'
In the past two decades or so, rve have witnessed a growing concern on the fs*k.h"ld.r*r" b.
r negative effects of firrns' activities on consumers, employees, local communities adversely affecred by
a.ri the natural environment. The effects of the firm's operations can be felt across
i frrms'actions so it
--i
L is right for the firms
*" national boundaries because many firms have become so large due to their global
to be responsible for
cxpansion. In fact, manv multinationai firms have a net worth that is greater than the their actions.
Gross Domestic Products of some poor and deveioping countries. The,v have so much
power that can be abused at the expense of various stakeholders. We lvili learn more
about this topic in ChaPter 12'
This development serves as an irnpetus for the growing interest in corporate
social responsibility. So a few pertinent questions arise out of this growing interest
and concern-do corporate managers have sociai responsibility to their stakehoiders?
What is the nature oi such responsibilrties? I{orv do firms prioritize and manage the
multiple and often conflicting demands of their various stakehoiders? Is it sufficient
for corporate managers to mereiy react lo the demands of their flrms' stakeholders?
Should they be n-,oi. ptoo.tive in anticipatrng their stakeholders' needs and take
actions to address those needs? We are trying to explore the response to these questions
in this chapter.
This &apter covers the topic of corporate social responsibility. First, we will
look at the definitions of stakeholders to set the context of our discussion. Second,
we lvill examine the types of stakeholders and their stakes in a ftrm. Thi'd, we wlll
explore tire different fbrms of stakeholder theories, nameiy normative, descriptive and
initrumental. Then, u,e will learn about the concept and nature of corporatc social
responsibility by examining two models of corporate social responsibilitl', namelv the
Cairoll's t-cur-part and Keith Davis's models. Next, we will examine the debate oi
corporate social responsibility. The debate focuses on two issues: (l) arguments for and
uguin.t a firm to be socially responsible, and (2) the nature of the social responsibilities
oi a firm. Finally, we will delve into an action-oriented concept of corporate sociai
responsibility known as corporate social responsiveness. However, to begin with, we
first need to learn about the primary constituent that will benefit from the corporate
social responsibiiity concept, n'htch is the stakeholders.
174 Business Ethics
6FTIATHoLDERS --
6.1 DEFir\irr
-
There are many ways of defining a stakeholder, some of which are shon n in Table
6.1. There is no consensus as to how best to define stakeholders" One of the earlier
definitions focuses'on the bi-directional or two-way relationship between a firm
and its stakeholders (Freeman , 1962). Stakeholders are any group of irdiridrals who
are able to affect and is affected by activities and decisions of a firm in pursuit of its
objectives.
Sh..h"k.rr..y t*l Common stakeholders of a firm include shareholders, ernpleiyees (including the
taken as one of r-he management), customers, suppliers and communities. Sometimes, stakeholders can
stakeholders. be in an organized form such as employee or trade unions, consumer associations,
community activists and environmental groups" Larger and more compiex
organizations can have many more stakeholders than these. For example, stakeholders
of a large multinational corporation or a public university can have a variety of
stakei.older groups compared to a convenience store or a night market trader in a
local neighbourhood.
Businessmen are required to fulfil their social responsibility due to the concern
of the effects their actions might bring on the welfare of others (Davis, i967)" Eval
and Freeman (1993) extended the definition of stakeholder b1 suggesting a test to
determine whether a group or an individual can be considered as a stakeholder of a
firm. This tcst is bascd on trvo principles, namely the principle of corporate riehts and
the principle of corporate effect. In thc first principie, firms are required to respect
the rights of others whilst the second principle says that firins are responsible for the
effects oftheir actions on others.
Clarkson (1995b) emphasized that stakeholders are any group or an rndivrdual
u,ho have a'stake,' 'claim' or'interest'in a corporation. Recall in Chapter 5 we stated
that a stake is a share or an interest in something- in our context, a firm. If an
individual has a stake in a firm, he or she has an important connection to the flrrn
A shareholder has an interest in a firm by virtue of holding a share of the busincss. A
very important element of this definition is that stakeholder"s are risk-bearers in which
'without the element of risk, there is no stake'(Clarkson, .l995b).
A stake may be taken as a claim too. Recall in Chapter 5 we deflned a claim as
a demand or assertion for something that is due Claims can be direct or indirect.
Each stakehoider group has different expectations about what it wants and different
ciaims or stakes upon the firm. For example, employees demand to be paid fair u,ages
and to be provided lvith a safe aird heaithy workplace. Meanwhiie, customers wanl
to be charged a fair price and demand that a firm ensures its products are safe for
consumption.
Table 6.1
Some early Freeman (1962) Can affect or is affected by rhe achrevement oi rhe firm's objectives.'
definitions of
stakeh olders
Evan and Freeman (1993) 'Benefit from or are harmed by, and whose righrs are violared or
respected by, corporate aciions.'
Clarksorl
CorporateSocialResponsibility 171
Based on Evan and Freeman (1993), Crane and Matten (2010) defined a
stakeholder as:
'... an individual or a grouP which either is harmed bv, or benefits from, the
corporation; or whose rights can be violated, or have to be respected, by the
cor po ra I ion
This definition captures tire essence of the relationship between a firm and its
stakeholders. Each firm has different groups of stakeholders depending on thc- nature,
operations and location of its business. In fact, a firm may have to deal with different
stakeholders depending on different situations, tasks or projects. Hence, in view of
this variation, it is difficult to clearly identify a specific group of relevant stakeholders
in any given time and situation. Nevertheless, a firm can generally identify its
stakeholders as customers, employees, suppliers, shareholders, community, etc'
In summary, a stakeholder refers to a specific person or groups of people, who have fFl*d r*-,*ff..
an interest or a claim in a firm and can affect and be affected by the firm's decisions stakeholders and in
and actions. The management of the firm ought to determine how the interests of such turn stakeholders
groups can be incorporated or represented in their decisions and actions. Further, can also affect rhe
firm. So, stakeholders'
corporate managers need to take a more inclusive approach in managing the firm by
inrerests have to be
taking into consideration the effects of their decisions and actions on stakehoiders
considered in firms'
rather than taking an exclusive approach of focusing on maximizing shareholders
decision-making.
u,ealth only. They cannot deny that the survival of the firm very much depends on
their int.,raction and treatment of both the shareholders and stakeholders.
Next, r,r,e will look at tl-re different types o{'stakeholders. There are many wa\rs
to categorize or classify stakehoiders. In this book, we will focus on primary and
secondary stakeholders.
6.? TYPES OF STAKEHOLDERS

A firm's stakeholders can be categorized into primary and secondary stakeholders IP,-"ys,.k.hdd."
(Clarkson, 1995a). Primary stakeholders have a direct stake or claim in a firm. They are rhe most
are said to have a direct ciaim because a firm engages in a direct economic relationship influenrial so firms
or transaction r,r,ith them. The economic relationship is derived from cor;tractual have to treat them
connection between the firm and its stakeholder groups. For example, shareholders well
contribute capital, customers purchase products and services and suppliers suppl1,
materials to the firm. This classification emphasises to what extent that the stakeholders
affect the firm. The participation of the prirnary stakeholders is necessary tc-r ensure
that a firm is solvent, so clearly the firm must strive to keep this group huppy. lf an,v
primary slakeholder group, such as customers or suppliers, becomes dissatisfied and
withdraws their participation in a firm, the firm will be seriously damaged or unable
to contiliue as a going concern.
Secondary stakeholders have an indirect stake or claim in a firm. They do not Il..".drty
have a contractually determined direct economic relationship with the firm. They will srakeholders may -
rrot affect the ahility of the firm to continue as a going concern. Nevertheless, failure not be as influential
to address their concerns may alfect the firm's reputation and public standing. For as the primary
example, farlure to quickly address negative publicity highiighted in the rnedia due stakeholders, bur
to product safety issue may damage the firm's reputation. Similarly, failure to ensure rhey can negarively
affect the reputarion
food products are safe for consumption may prompt the government to in'pose strict
of firms.
and often more costly regulation of the firm's production processes. Table 6.2 outlines
the two types of stakeholders and their stakes in a firm.
172 Business Ethics
Table 6.2
Types of Shareholders Profits-return on nvestment
i
stakeholders ancJ :' i'r:::1!'i1-1 r:'::: ;:: tsefe .,;,r',&

their stakes
' and healthy working cohditions'and faii'wa$e! "'l :.t]
Customers High quality products ar a fair prlce
i:. :r: i' , ,i : ;;: .' -, Consistent market and prompr payments
Local lnvestment in the lc-.,ial communltles
Covernmenr Source of revenue rhrough business taxation; ensures

compliance wirh the laws and regulations
Source of business news, influences public opinion
Trade bodies Adherence ro trade teguiatto,rs
:j.L :: ,. I
groups
Soci-r pressure groups Protection of rhe environment and socier-al welfare
In the next section, we shall anaiyse the relative importance of stakeholders using
three relationship attributes-legitimacy, po\ver and urgenc)'. A firm has multiple
stakeholders and their claims may be competlng. Hence, this arralysis enables the firm
to assign relative importance or priority to competing stakeholder clairns.
6.3 ANALYSI NG STAKEHOLDERS'

RELATIVE IMPORTANCE
Firms deal rn,ith multiple stakeholders, and rather tl-ran addressing the demands oi
each stakehoider individually, they respond to the demands simultaneously. However,
it is unlikely that firms will give the same prioritl' or imptrr tance to all stakeholders'
Agle, Mitchell and Sonnenfield (i999) proposed that firms determine the importance
or salience of their stakeholders by analysing tl-riee attributes of each stakeholder--
legitimacl,, power and urgency.
---I This analysis is important for tlvo related re3sons. First, tl"re analysis helps corporate
^n.trt*,
srakeholder attribures managers to deternrine the relative influence tirat each stakeholder has over the firm. Thus,
is imporrant to they can identify rvhich stakeirolders have the most influence over the firm's ol'rjectives
determine rhe and strategy. Second, stakeholder salience determines whether a firm will take ineasures
salience of each to address their interests and how soon or fast they will rcacl to rneet the demands of
srakeholder group. a particular stakeholder. Corporate managers will usually attend to tire demands oi a
stakeholder group that have the most influence. For erample, pritnary stakeholders have a
high degree of legitimacy, power and urgency in a firm" Thus, managers are likely to place
greater importance on this type of stakeholders (Mitchell et al., 1997).
Srh.*. ,
----l Firms need to continuously perform the analysis of stakeholder attributes
"f
stakeholder will because it is likely that the importance of each attribute to a stakeholder may change
determine how fasr throughout the relationship and over time. For examplc. a stakeholder may be
firms respond to its influential at one stage but that does not mean it wili continue to be powerful at other
demands. times. An organizational life cycle will also delermine the degree of poweq legitirnae y
and urgency of a stakeholder. This issue will be explored in further detail in Sectiori
6.3 of this chapter.
CorporateSocial Responsibility 173
Legitimacy refers to the extent of validity or an appropriateness of a stakeholder's llh". r*lb,*t

claim to a stake. Primary stakeholders have a legitimate interest in a firm. For example, of srakeholders are
shareholders, employees, customers and suppliers have high degree of legitimacy due legitimacy. power and
to their contractual relationship with the firm. High legitimacy of claims increases urgency.
a stakeholder salience to a firm. In short, legitimacy of a stakeholder's claim will

determine rvhich stakeholders 'really count' (Mitchell et a|.,1997).
Power refers to the abiiity to exert influence over a particular decision. Primary
stakeholders have a high degree of power that they can exert in the firm. Their
concerns are taken into account in the firm's decision-making process. For example,
employees in top management actively participate in decision-making and their views
are regularly consulted.
Finally, urgency refers to the extent to rvhich stakeholders' demands or claims call
for an immediate attention from the firm. A delay in addressing an urgent demand
or claim is unacceptabie The urgency of a claim or demand depends on its degree
of sensitivity and the importance of the relationship to a firm. For example, the firm
needs to immediately address the concerns of employees'unions due to an impending
threat of strike. Likeu,ise, the trrn is required to response or act immediately to a
threat of consumers' boycott due to the poor quality of its products and services.
In the prer.ious chapter, r,ve have reviewed the Stakeholder Theory and in the
next section, we will look at the three perspectives of the theory, which provide the
justifications or reasons for corporate managers to adopt the stakeholder approach to
manag a firm.
6.4 rHnrr prnSrrCtrvEs oF

STAKEHOLHOLDER THEORY
ln Chapter 5, we have examined the salient points of Stakeholder Theory. In a nutshell, fThr.. frrr"
this theory argues that firms have a wider fiduciary responsibility to a broad range of "r
Stakeholder Theory
stakeholders other than to their sharehoiders. This argument is based on the fact that attempt to explain
a firm's actions and decisions have an impact on its stakeholders. The larger the flrm, or jusrify why firms
the greater the impact it brings to its stakeholders. Hence, the firm cannot simply should treat rheir
ignore their stakeholders and focus on shareholders only. In this section, ne sliall stakeholders well.
revierv the drfferent perspectives or forrns of Stakeholder Theory, namely normative,

descriptive and instrurnental (Donaldson and Preston, 1995). Lach of these three
perspectives attempts to explain the motivations for firms to respond to stakeholder
concerns or justify Stakeholder Theory.
6.4.1 Normative Perspective

According to Donaidson and Preston (1995), normative perspective is the core of
the Stakehoider Theory. It attempts to explain the motivation for a firm to take into
consideration its stakeholders' viervs in decision-making. It is important ior us to
note that firms have moral or ethical obligations to look after the welfare of not only
shareholders, but also ail their stakeholders. This moral obiigation is derived from
the bi-directional understanding of stakeholder relationships. Stakeholders affect the
firm and are also affected by the firm's acl;.ons. So, firms' actions or de,:isions have
to bc ethical. Corporate managers must take into account the effect of their actions
174 Business Ethics
or decisions on stakeholders. Likewise, although honouring stakeholders' interests

might not promote the strategic interests of the firms, they must not simply ignerre
them because doing so is deemed unethical.
Normative perspective is based on Kant's Theory of Duty, which was discussed
in Chapter 3. Firms have civil duties that are important to increase or maintain the
net good in society. Failure to perform these duties will result in a lack of cohesion
in society. This perspective rejects egoism, dictating that neither the firm nor the
individual stakeholders should exist solely to serve its own ends (lones and Wicks,
1999). In short, normative perspective is categorical in which it says
'Firms should not
(should) do this because it is wrong (right) thing to do.' Stakeholders should be treated
based on some underlying moral or philosophical principles'
6.4.2 Descriptive PersPective

Descriptive perspective attempts to describe and explain the behaviour of firms
and :lreir managers in dealing with various stakehol<iers. For example, corporate
managers will treat stakeholders well if they have all the lhree attrihutes of high
legitimacy of claims, great power to influence decisions of the firm, and urgency of
isiues to be addressed. Stakeholders that do not possess such attributes are deemed
Iess important. Jawahar and Mclaughlin (2001) assert that firrns do not always treat
their stakeholders as equally important at all times. Instead, the treatment of each
stakeholder group varies across the organizational life t.ycle.
Firrns are likely to consider some group of stakeholders as more important
than others because of ti-reir ability to influence the needs of the {irms at an)/ glvel')
organizational life cycle stage. For example, during the start'up stage, firms are
relatir.ely unstable and issues of deveioping a business plart, obtaining fund,s arrrl
tirr-ring to entcr a rnarketplace are of great significance to the firms' sun'ival. So, at
this stage, firms are likeiy to place great importance on shareholders, creditors and
customers. Shareholders are the primary source of funds to fir-rance the business
whilst custoners are important to generate revenues for the flrms. In contrast, at the
decline stage, firms will place great importance irn their customers in order to gairt
a new market or to improve market share. In short, the strategy that firms adopt in
their relationship with stakeirolders depends on the reiative inlportance oia particular
stakeholder group in relation to other stakeholders.
6.4.3 Instrumental Perspective

This perspective argues that a firm must manage its stakeholder relations lvell rn
order to niake profits. For example, if a firm selis def"ective products and ,,harges
unreasonably high prices, customcrs will not buy its prcc1r-rcts and many o{'its extsting
customers lvill migrate to competitors. Hence, corprtrate managers have to brlance
and meet the needs of various stakeholders. ]ones (1995) argued that firms will be able
to gain a competitive edge over other firms if they treat their stakeholders based on
mulual trust and cooperation. Stakeholders, in this instance, are considered part of
a firm strategy to achie.re corporate performancc goals such as profit maximizatiott
and financial growth. Hence, this perspective argues that there is a justification for
treating stakeholders wel1, because such ireatment is necessary tor firms ttl achieve its
economic goals.
:
t.
II
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I
I
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Corporate Social Responsibility , . t75
': : I
After reviewing some forms of Stakeholder Theory, we are now ready to delve into
the concept and nature of corporate social responsibility.
: o.3 THE CONCEPT AND NATURE

OF CORPORATE SOCIAL
RESPONSIBII-ITY
Corporate social responsibility (CSR) means that firms are not only responsible to Il-.r *- r.q,r*d .
shareholders but also accountable for the effect oftheir actions on various stakeholder adopt CSR for which
groups. Firms have an obligation to take actions that protect and enhance the weli- their acrions affecr
being of their stakeholders other than promoting their own inrerests. Firms are the welfare of rhe
expected to protect the welfare of their stakeholders by avoiding negative impacts that stakeholders.
their actions can bring onto them. For example, firms should ensure their products
are of good quality because defective products can cause injury or even death" As ft.rr
enhancing the welfare of stakeholders, firms can do so by generating positive benefits
for society. For example, firms can give financial support for the social activities of
the locat community. In his iandmark article arguing the case for and against business
taking on social responsibilitl', Davis (1973) defined CSR:
'... the firrn's consideration of, and response to, issues beyond lhe narrttw
e t,ononric, technical, ttnd legal requirements of the
Jirm. It is the Jirrn's obligation
to evaluote in its decision-n'Laking processes the effects of its decisions on the
external social ,,stem in a manner that will occomplish social benefits along
wilh lhe traditional economic gains whi;h the firm seeks. It n'teans thett socinl
responsibility begins where the law ends. A firm is not being sociolly responsible
i,f it rnerely con'Lplies with the minimurn requirements of the lau,, becau.se this
is y,hat any good citizen would do.'
The CSR concept promotes the idea that firms cannot exist in a vacuum.
They need the support of both sharehoiders and other stakeholders to survive.
Firms have economic and legal obligations to their shareholders as rveli as other
responsibilities to the stakeholders. So, other than being responsible fbr the actions
that affect stakeholders, firms need to take into account the interests of stakeholders
rn their decisions. In short, firms do have responsibilities beyond making a profit
for shareholders. CSR extends the fiduciary responsibility of corporate managers to
stakeholders because they also have legitimate claims on the firra. Thus, we can see
that this concept represents the stakeholder model.
In Malaysia, Bursa Malaysia Securities launched a CSR framework for public ITrn, A4rl4,srI
listed firms in2006. The framework emphasizes that CSR is more than phiianthropy four dimensions of
and community initiatives. CSR is defined as 'open and transparent business practices CSR are community,
that are based on ethicai values and respect for the community, employees, the wor:kplace,
environment, shareholders and other stakeholders to deliver sustainable value to rnarketplacq and rhe
society at large' (Bursa Malaysia, 2AAq.In 2A07, Bursa Malaysia made it compuisory environment.
for all publrc listed firms to disclose CSR initiatives in the financiai reports in a form
of a CSR statement. The CSR framework highlights four dimensions of sustainable
practices as shown in Table 6.3 below.
w
I /b Busrness Ethrcs
]J
Table 6.3
Bursa Malaysia's .:
lnvestmenrs or donarions rn capital, time, producis, servrces, management
CSR Dimensions knowledge and orrrer resources that bring posirive impact on local communirres
I
,tt*
I
Markerplace Activities io encourage and influence shateholders, vendors and customers to
behave in a sustainable manner across the value charn
I
The government of Malaysia has introduced a few initiatives to encourage I
corporate Malaysia to embark on CSR" Amongst others, flnns makirrg donations to
approved institutions or organtzations enjoy higher tax deductions, and in 2002 the
government introduced the CSR Prime I'[inister's Award to recognize and appreciate
the conlribution of the corporate sector to society. Public Bank Berhad, one of'the
iargest and most profitable commercial banks in Maiaysia, won the inaugural award
I
in2007.
In the next two sub-sections, rve will examine the nature of firrlrs' social
responsibilities. We will look at two modeis for this purpose. The most established
lI
and accepted model of CSR that explains the nature of firms' social responsibilities is
the four-part model of corporate social responsibility by Carroll (1979). 'J'he second
model is derived from the notion that i-i-re exercise of corporate powers comes with the
responsibility to improve the welfare of the society. Keitti Davis pioneered tiris idi:a in
u,hat he called the 'iron Law of Responsibiiity'.
It
i
6.5.1 Carroll's Pyramid of Corporate Social
Responsibility T
l
F-rt *ad a ---l Carroll (1979) suggest there are four levels of social responsibility-econortic, icgal, i
fulfil all four layers ethical and philanthropic. The definition of each responsibility helps us to understarrd I
b-
of responsibiliry the nature of firms' social responsibilities and the expectations of thc societ,v of
r
concurrenrly. each responsibility. Each of the four responsibilities is interreiated and can be best
expiained by imagining a pyramid that has four layers. At the base of this p,vramid of
corporate social responsibility is economic responsibility followed by iegal, etl-rical and
philanthropic. This pyramid is depicted in FigLr',e 6.1. Irrrms need to sirrrultaneously
fulfil all the four layers of responsibility. Hence, a firm's total corporate responsibility
is the sum of its economic, legai, ethical and philanthropic- responsibilities, whrch
aims to promote long-term benefits to society at large.
Econoil-------_l Economic responsibiiity requires firms to be profitable so that shareholder:, can
responsibility requires earn a reasonable rate of return on their investrnent and employees can be gainfully
firms to be profitable employed to support their lives. Likewise, customer: require firms to produce quality
for rhe benefit of goods and services at a fair price. Suppliers seek to do business with the firms in order
srakeholders. to survive. In short, the first responsibility of firms is to be a functioning economic
unit and a going-concern entity. Firms should be committed to maintaining a strong
competitive position and a high level operating efficiency in order tr:r achieve a
successful position on the market. Carroll (1979) suggest that all firms are requrred to
meet these economic responsibiiities.
:
CorporateSocialResponsrbility 177
Desired by sociery
Expected by society
Requrred by sociery
Required by ,oii.ry
(Source: Crane and Marren,2010)
Figure 6.1 : The pyramid of corporate social responsibility
Legal responsibility requires flrms to obey ail lau.s and adhere to regr-rlations that I L.grtr.rp".tbill,y
are reievant to business operations. Lau.s codify society's moral views, thus society requires firms ro obey
imposes iegal obligations on businesses. For example, company laws require the laws in rheir business
directors to discharge their fiduciary duty to managing the assets and investments dealings.
of a firm. This duty requires them to always act in the best interests of sharehoiders.
Likewise, firms are required to honour all contractual obligations to all business
partners. According to Carroil (1979), the fulfilment of lega1 responsibilities is
required of all firms.
Ethical rcsponsibility requires firrns to do wl-rat is riglit, fair and just in its dealing Erh"rk.tp"r.rrbrlr,y
with all stakeholders cven if the law does not compel them to do so. Firms Lave to act requires firms ro
in a ntanner consistent tvith expectations of societai mores and ethical norms. For avoid harm and do
example, stakeholders expect firms to avoid questionable practices that could harm what is right, just
them. Thus, the management of a firm must strive to practice ethical leadership. and fair.
These expectations of the stakeholders are based on the fact that the lay,s are not
enough to govern all corporate behaviour and actions. Firms are expected to fulfil
these responsibilities beyond the requirements of economic and Iegal resp,rnsibiiities
(Carroll, 1979).
Philanthropic responsibiiity is something that is desired or expected by the society m.-g, g""d
rather than being required of firms. Firms voluntarily fulfil this responsibilit), in ordcr corporare citizen
tti 'give back' to the society that supports their existence and well-being. The society is the essence
does not require firrns to engage in corporate philanthropy, nor are they obliged to of corporate
carry uut economic, legal and ethical responsibilities. 'Giving back' in this ;ontext philanrhropy.
includes donating cash for improving the community's quality of life and supporting
its activities. Other examples include providing recreational and childcare facilities
for employees, supporting recycling activities of a local community, sponsoring sports
events of local schools and giving scholarships tr; needy students. In Malaysia, during
Ramadhan and festive seasons commemorating Eid Mubarak and Chinese New Year,
many firms engage in philanthropic activities such as sponsoring breakinq of fast and
donating to the poor, elderly and orphans.
i:
1/B Business Ethics
According to Carroll (1979), society does not require or expect firms to

fulfil philanthropic responsibilities, but it is something good to have if firrns
can afford to do so. Firms are not considered unethical if they do not meet these
responsibilities. Case for review 6.1 highlights some examples of Malaysian firms
and corporate captains engaging in philanthropic activities by 'giving back to do
good for society.' '
Domino's Pizza inrroduced an annual specially designed educatton seminar <,alled rhe Domtno's
Supporrs Schools (DSS) in 7OO2 ro help students to improve rl-reir performance in academrc and
co-curricular acriviries. The programme also aimed to develop che srudents' social well-berng and
ensure that th., learn about career options and developmenl.
Usaha Tegas Berhad, a company controlled by Tan Sri T" Anarrda Krishnan, srarred rhe Yu f-ai
EdLtcation Foundation in 2003 with an initial grant of RM25 millron. l-he foundarion donated RMir
million ro esrablish a Chinese rraditional studies deparrment at L.]niversrty TunkrL Abdul llahrnan
ln 2003, Usaha Tegas founded Harapan Nusantara, an educarton iuntl foruserl on ,V\alays to !ponsor
srudents ro artend foreign universitys'rwinning programmes at fulalaysrart prlvare univerciries.
ln rhe afrermarh of rhe rsunami in December 2004, the AmBank group donated RM250,000 tcr
rhe Malaysian Tsunami Disasrer Fund, a collaboration wrth a local newspaper The Croup also
contribuied 15,000 blankets worth RM330,000 for rhe Aceh tsunarnr \/rf trms
TheRHBbankinggrouphasbeensponsorrngthe'MissingChrldren ReunitrngFarnilies'prograrf nre
since 2007 The Croup helps ro locare missing children through placing cf ar.lverttsement5 1n malor
newspapers and posting piclrres of missing children in all rheir ATM machrrres nationwrde as rveil
as alerting mobile phorre users.
DiCi Berhad, a major relecommunication comparry, provided computef and lnterner r-onneclit,' '
for underprivileged children and school children who sought treatrnent in hosprtals
ln 2008, Tan Sri T. Ananda Krishnan conrributed abour RM5 mrllion ro rhe openirrg of the A"4onrfort
Cirls Cenrre rhar included a dormitory and training cenrre where gtrls could learn baking, corrtputel
reparr, graphic design and other vocations.
Tan Sri Syed Mokhrar Albukhary, a major sharehol.der of Malaysia Miriing Corporation and rhc
founder and soie donor of Albukhary Foundation, a Muslim cl-r.rrity thal assisis the disadvantaged,
conri'ibured funds io conduct remedial classes in English, Scient.e and A4arhemarics for 20,000
underachieving srudents from poor rural families each year.
. ln early 20'1'1, Berjaya Corporation Berhad founder and one of tfre riches'- men in Malaysra, ian Sr-
Vincenr Tan, pledged to donate at least half of his wealrh io charity
Each of the four levels of responsibility may be related to cliff'erent stakeholders.

For example, economic responsibility greatly aff'ects shareholders and einployees
because their livelihood depends on the financi;l position of a firm" Whe n companies
go bankrupt, employees lose their jobs and are unable to support their famrlies
financially. The Enron case is a good example where its collapse affected the ernployees
adversely. The employees did not oniy lose their johs but also their retirernent benefits.
CorporateSocialResponsibrlity 179
Meanwhile,phiIanthropicresponsibilitiesthatrequirefirmsto.giveback,tothe
loial community in which the firm operates' IoL:Y-plt,
society mostly aifect the
to build Ronald
McDonald's Malaysia has contributed substantial financial support
centre in cheras'
McDonald House in the vicinity of the National University Medical
Th. hor.r. provides accommodation for families of out-of-town patients that
are
seeking medical treatment at the irospital'

In a nutshell, CSR requires firmi to make profits, obey laws, be ethical an{ Sive
U".[i. r".iety. iuble 6.4 provides examples o] the socially responsible activities of
firms.
products Provides safe working environmenr Table 6.4

,tioffers safe and.good qualigy
Examples
. Practises retYcling Promotes erhicai practices ar workplace
of socially
Donations to help natural disaster vicrims responsible
lj'Donato to chariable fi rms
a ctivities
. Employees serve as volunteers Funds local communitY services
.: Provides:healcfcarq to p.9o!:e5! p-eople r. Commitments to Prevenl Pollution
. Cives scholarshiPs to students Responds quickly to customer complains
. Allocates funds to help address social Sponsors skills rraining programmes for local
programmes youths and underPrivileged women
ir-r this section, we ha\re revier,ved the four ievels of responsibility

that firms
shor-rld strir.e to fulfil. Stakehoiders require firms to meet
their economic and
leqal respolsibilitjes and at the san-ie time expect them to address social
concerns
.ri.uprr,iur.d in ethical and philernttrropic responsibilities' Next, we will exanrine an
Davis'
alternatir.e mgdel of corporaie social responsibilitv introduced by Keith
6.5.2 Keith Davis's Model of Corporate Social

ResponsibilitY
In 1960, Keith Davis argued that cSR would pave the way for firms to enjoy long- I irir.* '-in
'1ron Larv of
term econo,-rrc benefitsl He articulated this idea in the weli-known proposrrrons lrsrr[1
Responsibilitv', ,.r,hich states that the social responsibility of a- business correlates with
[it rns' acloprror o]
its social porr;... He associared social power *ith th. size of the business. Thus, larger
LSL rn lrurrnrss
busrnesses have greater social ,"rpo,-,iibiiities than smaller businesses. It is in

the best ileri !rt)r"!
interests oi a business to behave responsibly because failure to do so might lead to

the
lists
loss of its sociai power and legitinai,v. Davis (1960) proposed a rnodel of CSR that
down five propositions.
Proposition 1: Social responsibility arises from sociaI Power

This proposition suggests that abusiness has a great influence on and Power over social
issuei ,.r.h u, .-plol'-.nt, environment and community deveiopment' This assertion
is particularly true when firms have become so large that even the government and
market mechanisms are unabie to control their activities and behaviour. As such,
society requires firms to be responsible for the sociai issues that arise from the exercise
of their power.
180 Business Ethics
Proposition 2: Business shall operate as a two-way open system

This proposition states that a business receives inputs from society and hence, should I
disclose its operations to the public. Inputs, in this context, are suggestions or views
I
of society on actions to be taken to promote the welfare of sr:ciety, which a business

must be willing to listen to. The business should disclose all the actions taken to fulfil I
its sociai respoi'rsibilities and society must pay attention to such diselosure. ln short, a
I
beneficial relationship between a business and in the community in which it operates

can only be achieved and sustained if there is an open contmunication between both
I
parties and willingness to work together.
Proposition 3: Business should thoroughly analyse the social costs II

and benefits of its activity, Product and service before Pursuing it
Business must consider the short-term and long-term benefits and consequences of Lts !
operations before proceeding with any business decision. I
Proposition 4: Consumer should absorb the social costs arising t

from each activity, Product or service I
Business should reahze that some socially beneficial activities can reduce thett
profitability. Hence, society should not expect the business to L,ear the cost of sucl
r
activities completely. Instead, the cost should be passed on to tl'ie consumers in the
t
form of higher prices for the goods or services related to these activities.
Proposition 5: Business institutions, as citizens, have the

f
responsibility to become involved in certain social problems that

are outside their normal areas of operations t
Although a business does not contribute to a social problem, it should be held
,.rponiibl. to help society solve such a problem if it has the expertrse to do so, like any t
good .itir.n. This proposition is premised on the notion that the business wi]1 stand I
io benefit from a generally improved society, thus, it ought to share the responsrbility
to promote the welfare of society. F
In the next section, we will examine the argument against and for CSR in ordet F
to further comprehend the objection and support for firms to allocate resources and
efforts to promote the well-being of their stakehoiders.
t
6.6 THE DEBATE OF CORPORATE E
SOCIAL RESPONSIBILITY
Th"-r=*..." --l In the previous section, we have seen that there are various ways of describing the
against CSR are nature of firms' CSR. Now, we shall examine th^ arguments against and fbr CSR ln
largely influenced order to give a balanced view of this concept. The arguments for CSR basically provide
by the classical rational justrfication for firms to undertake CSR initiatives" The argunlents against
economisr, Milton CSR are primarily based on the classicai ecolromics point of view as articulated hry
Friedman. Milton Friedman, a Noble-prize rvinner. The more recent argument against CSR Ls
based on the criticism that it is nothing rnorc than a publicity stunt to cover the reai
Corporate Social Responsibility 181,,
, :i
intention of generating much more profit for the business. You will be able to use this
knowledge to ludge the extent to which a firm has fulfilled its CSR and for you to
make a more balanced business judgement in your future career in business. First, let
us look at a few arguments against CSR'
6.6.1 Arguments Against CSR

Classical economics
'fhe classical economics argument holds that the idea that firms have social
responsibility is against the functioning of a free market system. Th'e most influential
classical economist in America and the UK is Milton Friedman, a staunch proponent
of a free market system. According to Friedman (1962), business's function is
economic, not social. The only social obligation or responsibility that a management
of a firm has is to maximize profit for its shareholders. Shareholders are the focal point
of the firm. This view could be considered the 'narrow' perspectivr on CSR. Firms
can achieve this goal by focusir,g .rn producing goods and services and selling them
at competitive prices to society. Firms should not be distracted from this important
economic function. Firms do not have a moral obligation to undertake CSR initiatives
unless the shareholders benefit from them. If a firm uses corporate resources to solve
social problems, it ivill reduce efficiency and impair profitability.
Fri.lman's argument is derlved from the Agency Theory perspective of _the
firm in which corporate managers are responsibie to the shareholders only. When
they manage the firm, they are acting as the agents of the shareholders instead of
acting in their private capacitl,. So, they cannot simply use corPorate resources to
adr,ance the weli-being of society. Friedrnan (1970) believed that corporate managers
that spend money on charitable causes or try to satisfy the stakeholders other
than shareholders u,ere at best misguided. He interpreted social issues and social
responsibilities to mean non-business issue: and non-business responsrbilities. The
concept of CSR is inconsistcnt with the role of a business, which is to make money
and maximize shareholder r.r'ealth. Seeking profit is a moral obligation. CSR is seen
as endangering this motive.
He further argued that solr,,ing social issues should be the function of a free
economy (the private sector) failing which the government (the public sector)
and legislation should take on such responsibility. However, he agreed tirat firms
must obey the law and clo not cause I'rarm to others in carrying out their business
operations. This argument is in line with the idea that firms have economic,legal and
eihical responsibilities. He also criticized the proponents of Instrumental Srakeholder
Theory as a form of CSR. He considered that undertaking CSR to promote the iong-
term interest of a firm as 'window-dressing' at best and morally wrong.
In short, Friedman did not deny that firms have economic, Iegal and ethical
responsibrlities. He was against the idea of corporate philanthropy, e.g. making a
lonation to a charity, school or hospital because such activity distracted corporate
inanagers and distorted profitabiiity.
lncompetent to deal with social issues

Firms do not have the necessar) technical and social skills to deal with social issues
or make socially oriented decisions (Davis, 1973). Corporate managers are trained
1c be competent in managing the finance and operations aspects of a business, thus
tirey shoulcl focus on this special area of competence only. It is dange'ous for the
w
182 Business Ethics
I
managers to accept responsibility for something that they are not equipped to handle
or something that they do not know about. The responsibility to solve social issues
such as product defects, unemployment, poverty, teen violence, school truancy, etc. I
would be better handled by democratically elected public officials. The public gave
them the mandate to develop public policy to solve such social issues.
Com petitive disadva nta ge

Undertaking CSR initiatives is not without a price" Firms will have to bear the cost
of doing so, which put them at a competitive disadvantage. Competitor flrms that do
not adopt CSR wili earn higher profit as a resuit of a lower cost of doing a business.
For example, in Malaysia, there is no law requiring all restaurants to obtain 'halal'
certification, but many restaurant operators go the extra mile to ensure their supply chaiir I
only uses 'halal' ingredients in order to obtain a 'halal' certification from the relevant
religious authority. They will have to incur additional cost for doing so. Meanwhile,
their competitors that do not take a similar initiative are still able to attract a srzeable I
numl er of Muslim customers albeit at a lower cost. They will earn a higher profit.
This argument is also especially relevant in today's global environment where iaws
and regulations are likely to differ from country to country. Multinationals imposing
stricter safety requirements and more rigorous testing to ensure the saiety of their
products than the law requires will incur higher cost than the local firms that do not
observe such higher safety standards due to the absence of stringent regulations ern
product safety. As a result, there is unequal competition among {irms operating the
sarle type of business. Responsible firns are put at a disadvantage c.ompetrtively
lndividuals have moral responsibility

Critics argue that placing moral responsibility on a firnr is misguided because only
human beings have moral responsibility fbr their actions. In thrs context, corporate
managers or individual businesspersons are the ones to be held responsible socially
instead of a firm" Hence, a firm should nol be required to set aside a surn of mone,v
for a social cause in the name of corporate social responsibility. This argurrr('nt is
essentially iinked to the classical economics idea that firms should not bear the cost to
solve social issues for which it impairs profitabiiity"
Stakeholders bear the cost

Firms that allocate funds and incur cost for engaging in CSR will ultimately pass on
some of those costs to their stakeholders in orde. to recr)vcr thern.'l'hrs cost is borne
by stakeholders in the form of a higherprice of products or sen,ices. For example, a
factory mav need to build its own waste disposal system or trcatment piant to avoid
polluting the nearby river or drainage system. 'l'he cost of such an initiative rnay be
imposed on consumers in the form of higher price of the frrm's product.
Dilutes the primary purpose of a business

This argument stems from the classical economics point of view that a business exists
to sen e its shareholders, i.e. to create wealth for shareholders. Hayek (1969) considers
CSR as an undertaking that is unrelated to the 'proper aim' of a business.
Next, rve shail look at the arguments to support firms to adopt CSR. lvlost
arguments represent the business case for CSil. where firrns enjoy the bene{lts of
adopting CSR.
:-,
CorporateSocial Responsibility 1183,
6.6.2 Arguments for CSR

Good for the business in the long-term
The most compelling argument is CSR promotes the firm's own self-interest- Fh.;ffiilE..
enlightened self-interest. Putting it differently, it pays for the firm to be socially CSR are primarily
responsible. Firms will enjoy a good reputation and gain trust from their stakeholders derived from the
if they promote their well-being. Reputation is considered as a valuable intangible insrrumental for:m of
asset as it enhances the loyalty of customers and other business partners. Ultimately, srakeholder model.
firms can ensure their long-term profits and continued existence.

A good example to illustrate this argument is the )ohnson & )ohnson Tylenol
incident in 1982. The CEO took a decisive stance to recall the product immediately
when several people died in the Chicago area. He did not wait for the authorities to
complete their investigation to take such an action and lived up to the company's
credo that placed customers' safety first. Initially, |ohnson & Iohnson's share price
took a heavy beating in the share market and profit tumbled. It turned oul at-t
irresponsibie party tampered -,' ith the product packaging and laced Tylenol capsuies
n ith the poison cyanide. The company was not at fault at all. Subsequently, |ohnson
& ]ohnson gained higher customer trust and enhanced reputation for putting
consumers' health and well-being first. In the end, the company enjoyed higher sales
and better share price performance.
Likervise, firms that are knou,n to treat their employees fairly and allocate
adequate funds for employees' personal and professional development as well as
ensuring rvorkplace safetl, wili be able to attract and retain cluality and talented
emplo,vees to rvork for them. Other business partners such as high quality and reliabie
vendors rvould compete to do business rvith the firm if it pays its suppliers promptly.
As a result, the firrn lvill be able to obtain a steady supply of high quality materials ancl
ensure timely production.
Prevent future external interference

Socialll- responsible firms rvill ensure that business policies do not adversell, affect
their stakehclders. 1'hey have high self-discipline standards to fulfil the expectations of
society. in this instance, external interference such as future government intervention
rn the form of costly requirements to comply with new regulations can be prevented.
Excessi't,e government regulation can curtail business freedom and limit decision-
making flexibility. In short, firms can ensure greater corporate independence from
the government.
Businesses have the resources so let them try

In contrarl, to the argument that businesses are not equipped to deal rvith social
issues, they actually do have the resources to do so. For example, firms have a pool of
talented managers, expertise, and most importantiy, capital to handle social problems.
Dar.is (1973) argued that businesses should be given an opportunity to deal with social
problems because they have the required resources and so many others have tried
to do so but failed. Carroll and Buchholtz (2009) suggest that there are so:ne social
problems that could be solved only by businesses, such as ensuring a safc w'orkplace
and products, engaging in fair advertising, ensuring continuous supplies of essential
food items and protecting shareholder rights.
184 Business Ethics
It is the right thing to do

The final argument to support firms' adoption of CSR lies on the moral point of
view that promoting the welf.ire of stakeholders is the right thing to do" Firms do
create social problems such as pollution to the environment that might affect the
quality of life of the local community, product defects that might injure consumers
or even cause death, and employing children and illegal immigrants. Firms then
I
must voluntarily take the responsibility to rectrfv such social problems. Failure to
voluntarily do the right thing will result in legai intervention such as court action
against the firms.
I
In the next section, we u,ill learn about an extension of CSR, which is known as
corporate social responsiveness. In a modern and giobalized world, it is not enough
for firms to embrace CSR in order to meet the expeclations of various stakeholders.
Firms should be more proactive in anticipating the needs o1 their stakeholders and
take the necessary actions to meet those needs.
6.7 CORPORATE SOCIAL

RESPONSIVEN ESS
C"rp"rr* *.,,l--1 A more contemporary aspect of CSR is encapsulated rn a concept known as

re.sponsiveness is corporate social responsiveness. This concept n,as cleveloped by Ackerman and
an extension of the Bauer (I976). They criticized the CSR concept for whrch it gave too much ernphasis
CSR concept that on the obligations of firms to do good for the society as opposed to making sure
focuses on actions that they actually fulfil those obligations. They further argued that firms sl.iould
rather rhan merely
go beyond determining the actions to be taken to meet stakeholders' demands.
idenrification of
Instead, they should respond to those demands proactively. Thus, a more dynamic
firms'obligarions.
and action-oriented CSR is preferred, i.there firms should be assessed bl their
ability to respond to sociai demands (Frederick, 1994). For example, a firni
provides childcare facilities for its employees so that the1, can have a peace o1 mind
T;;",sh --_l and concentrate on their work fully without having to worry about their children's
for firms to merely safety and weil-being.
identify and fulfil Corporate managers should place more emphasis on their readiness to respond f
rheir obligations
I
to social pressures, which depends on the L.rocess, procedures, mechanisms and
ro srakeholders.
behaviour of corporate managers. Thus, to be responsive, corpc-rrate managers need
lnsread, they need
to be proactive in
to use firm resources to anticipate social probienrs and take a proactive action
I
determining.the
to devise policies, programmes and methods to address them" llhe cases of Son1,
needs of the society Corporation and KPMG Malaysia below iliustrate the c:oncept of corporate social
and do something io responsiveness. II
meet those needs.
t
r
Is
j
CorporateSocial Responsibility'185
Sony Promotes Work-Life Balance.and Health of Employees
sony appreciates rhe diversiry of irs workforce and takes initiatives

ro offer versatile working styles
sryles in order to help
so thai employees can be more productive' Employees have flexible 'i"orking
have ro luggle between
rhem ro balance work and home life. Sony recognizes rhar many employees
Almosr all female employees take
rhe demands of work and caring for children or ill famrly members.
childcare leave afrer giving birth About 90% of them return to work
thereafrer'
in response ro the employees'need, Sony devised a policy to make it easier for the employees
for childcare and nursing cate
to rake childcare leave. Employees can rake up to 20 days'paid ieave
has flexi-time' where
This system applies co both male and female employees ln addirion, Sony also
can also work from home
eligible employees have reduced working hours for childcare' Employees
members'
wlien they are involved in child rearing or providrng nursing care for family
and menral illness due ro longer working hoirrs anci
Realizing rhe increasing incidenrs of physical
have access to lndusrrial rnedical
rhe siress of handling complex rasks, Sony ensures rhar employees
external counsellirig ro seek
practitioners and counselling services. Employees can go for in-house and
also undergo special rrarning ro
advice on their hea6h probL*s and work-related problems. Managers
frorn developing into serious illnesses'
identify symproms of disorders ar early srages and to Prevent them
(Adapred from: SonY MalaYsia, 2004)
Case
Coral Reef Conservation Efforts by KPMC

younger genelat on
KPMC Malaysia recognizes rhe importance of crearing awareness an'rong rhe
The accounl-ing firrn has
abour rhe value of reef ecosystems and rhe current threats facing marine life.
Marine Park for school
been organizing and sponsoring an annual coral reef camp at Tioman lsland
by facilitating the
children since 2009 Employees of KPMC have been direcrly involved in rhe camp
programme,
Srudenrs getto participate in hands-on activrties such as snorkelling and a visit to the rurtle
sanctuary during the 4-day 3-night camp The camp aims to expose studenrs
'
to basic ecology
and gain knowledge on rainforesr and coral reef ecosysrems' . Most importantlY,
the camP creates
awareness and understanding of the effects of potiuiion and irresponsible
human aciivitY'on rhe
natural environment.
ln 2011, KpMC conducred the Eco Dive programme in collaboration wrth Reef Check
Malaysra
of the
to conserve coral reefs. This programme subsequently became an anntlal activitl" The aim
programme is ro collecr data on coral reefs off the coast of Tioman lsland so rhat their health can
and
t. ior.ty monitored. ln rhe same year, rwelve KPMC volunteers atttnded rhe Eco Dlve course reef
underwaier coral
they managed ro become certrfied eco-divers. They went on to conduct annual
t oral reef
,urr"yr. Th-e data has been used by various related parties and rhe United Narions to track
conservalion pro;ects-
(Adaored from: KPMC, n d.)

186 Business Ethics
of ,h;f";;--.--l In short, the prime focus of corporate social responsiveness is not on the acceptance
philosophres of of a moral obligation, but on the extent of managerial action to fulfil the obligation.
corporate social McAdam (1973) as quoted by Carroll (1979) outlined fcrur philosophies or modes
responsiveness, being of corporate social responsiveness-reactive, defensive, accommodative and proactive.
proacrive rs the rnost These philosophies reflect the four possible business responses to social demands.
desirable mode.
Table 6.5 summarises the four philosophies.
Table 6.5
Four philosophies Reactive Emphasize economic achievernenr and completely ignore CSR.
of corporate social ('Fighr all rhe way') Oblivious ro socral complainrs
respons iveness
Defensive Comply with the minimum legal requiremenrs ro prorecr rhe firm and
('Do only whar is required') t0 meer social expectations.
Accommodarive Accept CSR and try to sarisfy economic, legal and erhical responsibiliries.
('Be progressive') Behaviour is consisrent with socieral values and norrns dr.re to external
pressures.
Proacrive Most comprehensive rype of response.

('Lead rhe indusrry') Comply with all CSR requirements, including philanrhroprc ones
Lead social initiarives and prevent negarive effecrs of rheir acriviiies.
Anticipare social problems and de';ise actrons rr-i soive rhem
In this sectiolt, we ltave reviewed the concept of social responsiveness. It can

be considered as an extension or imp:ovement of the CSR concept, in rvhich firn-rs
are required to fulfil their economic, legal, ethical and philanthroprc obligatrr ns to
varior'rs stakeholders. However, firms should not merely do the minirnum that would
satisfy their obiigations to the society.'fhey are required to be nrore proactive - that
is to actively seek to meet social needs even befbre the stakeholders make an official
demand or claim against them. By taking proactive steps for CISR, firms c an contribulc
towards improving the quality of life of their stakeholders and mitigate the adverse
effects of their actions.
The learning outcomes for this chapter are summarized belolv:
l Define stakeholders.
A stakeholder refers to a specific person or groups of people, which have an jnterest or a claim in a
iirm and can affect and be affected by the firm's decisions and actions
2. Explain a firm's primary and secondary stakeholders.

Primary stakeholders have a direct stake or claim in a firm. They are said to have a direct claim
because a firm engages in a direct economic relationship or transaction with thern. The economic
reiationship is derived from a contractual connection between the firm and its stakehoider groups.
Secondary stakeholders have an indirect stake or claim in a firm. They cio not have a contritually
determined economic relationship with the firm. They will not affect the ability of the firm to
continue as a going concern. Nevertheless, tailure to address th,.ir concerns mav affect the firm's
reputation and public standing.
Corporate Social Responsibility 187,
J. Describe the different forms of stakeholder theory.

. Normative form
This form of stakeholder theory tries to explain the motive for firms to adopt CSR. Firms
undertake CSR because they have moral or ethical obligations to look after the welfare of not
only shareholders but also all their'stakeholders. This moral obligation is derived from the bi-
directional understanding of stakeholder relationships. Stakeholders af{bct the firm and are also
affected by the firm's actions. So firms' actions or decisions have to be ethical. Thus corporate
managers should take into consideration the views of its stakeholder in decision-making.
. Descriptiveform
This form of stakeholder theory attempts to describe and explain the behaviour of firms and
their managers in dealing with various stakeholders. Corporate managers prioritize their
stakeholders based on three attributes, namely legitimacy, power: and urgency" The importance
given to each stakeholder also depends on the stage ofan organrzational life c1,clg.
, Instrumental form
This form of stakeholuer theory attempts to provide justification fbr firms to adopt CSR. Firms
must manage its stakeholder relations well because such treatment is necessarl, for firms to
achieve the goal of value maximization, and most importantly, their survival and continued
SUCCCSS.
4. Fxplain the meaning of corporate social responsibility.

There are rnany nays of explaining the meaning of CSR. Simply put, CSR requires firms to be
responsible to both sharehoiders and stakeholders. Thei are accountable for the effect o{ their
actions on r.arious stakeholder groups. Firms are required to protect the welfhre of tlre ir stakeholclers
by avoiding negative impacts that their actions can bring on them.
5. Examine the critical arguments for and against corporate social responsibility.
Arguments against CSR
, C,lassical econamics
The ciassical cconomists, Friedman in particular, argued that firms do not har.e social
responsibilrty. Instead, the responsibility to soive social issues shouid be ieft to the goyernment
and legislation. The only social and moral responsibility a firm has is to make profit fbr its
sirareholders. CSR is said to endanger this motive. Corporate managers cannot use firm resources
to solr.e social probiems, but they can do so in their private capacity'. The firm, irowever, must
obey iaws and regulations, and should not get involve in fraud and deception in its business
dea lirrgs.
. Incontpetent to deal with social issues
Firms are not equipped to soive social issues. Corporate managers do not have the necessary
tecl"inical and social skills to deal with social issues or make socialiy oriented decisions. Tl-reir
competency is in managing a business, which should be their main f"ocus.
. Competitite disadvantage
Firms have to bear the cost of undertaking CSR, which can reduce th.ir profitabiiitl,. In the end,
firms will be less competitive from other firms that do not incur the cost of adopting CSR i.e.
they have higher profit.
. Individuals have moral responsibility
lVloral responsibility should be placed on individuals, not the firm. So, corporate managers
should be held responsibie for their actions instead of a firm.
. Dilutes primary purpose of a business
CorporateSocialResponsibility 1Bl
J. Describe the different forms of stakeholder theory.

. Normalive form
This form of stakeholder theory tries to explain the motive for firms to adopt CSR. Firms
undertake CSR because they have moral or ethical obligations to look after the welfare of not
only sharehoiders but also all their'stakeholders. This moral obligation is derived from the bi'
directional understanding of stakeholder relationships. Stakeholders affect the firm and are also
affected by the firm's actions. So firms' actions or decisions have to be ethical. Thus corporate
managers should take into consideration the views of its stakeholder in decision-making.
, Descriptiveform
This form of stakehoider theory attempts to describe and expiain the behaviour of firms and
their managers in dealing with r.arious stakeholders. Corporate managers prioritize their
stakeholders based on three attributes, namely legitimacy, Power and urgency" The importance
given to each stakeholder also depends on the stage ofan organizational life cycle.
, lnstrumental form
This form of stakeholcc: theory attempts to provide justification for firms to adopt CSR. Firrns
must manage its stakeholder relations well because such treatment is necessary fbr firms to
achieve the goal of value maximization, and most importantly, their sun'ival and continued
SUCCESS.
4. Explain the meaning of corporate social responsibility.

There are many u,ays of explaining the meaning of CSR. Simply put, CSR requires firms to be
responsible to both sirarehoiders and stakeholders. They are accountable for the effect of their
actions on various stakeholder groups. Firms are required to protect the rveifhre of their stakeholde rs
by avoiding negative impacts that their actions can bring on them.
5. Examine the critical arguments for and against corporate social responsibility.
Arguments against CSR
. Classical economics
The classical economists, Friedman in particular, argued that firrns do not have social
responsibiiity. Instead, the responsibility to solve social issues sl-rould be lefi to the govcrnment
and legislation. The oniy social and moral responsibility a firm has is to make profit for its
sirareholders. CSR is said to endanger this motive. Corporate managers cannot use firm resources
to solve social problems, but they can do so in their private capacity. The firm, however, must
obey laws anci regulations, and should not get invoive in fraud and deception in its business
deal i ngs.
" IncomPetent to deal with social issues

Firms are not equipped to solve social issues. Corporate managers do not ]rave the necessar\r
technical and social skiils to deal with social issues or make sociaily oriented decisions.
'lheir
competency is in managing a business, which should be their main focus.
" Competitive disadvantage
Firms har.e to bear the cost of undertaking CSR, which can reduce their profitability. In the end,
firms will be less competitive from other firms that do not incur the cost of adopting CSR i.e.
they have higher profit.
. Individuals have morct responsibility
N{oral responsibility should be placed on individuals, not the firm. So, corporate managers
should be held responsible for their actions instead of a firm.
. Dilutes primary purpose of a business
1BB Business Ethics
Requiring the firm to look after social issues will cause it to deviate frorn the purpose of its
existence, which is to create wealth for shareholders.
Argumentsfor CSR
, Good for the business in the long-term
Firms can benefit from undertaking CSR. The benefits come in the forms of enhanced image
and reputation, trusting relationship with stakeholders anC higher business partners' loyalty.
These so called ingredients are necessary for the long-term survival of the firms" In short, CSR
is good for the business.
. Prevent future external interference
Firms can prevent the government's interference in terms of imposing new and expensive
regulations by being socially responsible. The new regulations will not be necessary to govern
corporate behaviour because firms have already shown high self-discipline standards to fulfil
the expectations of society.
. try
Businesses hat,e the resources so let them
Firms do have the necessary resources to deal with social issues" They have a pool of talented
managers, expertise and capital, so they should be given an opportunity to deal itith social
problems. Others have tried to do so but failed. Firms can solve social problems arising from
their business operations such as ensuring a safe rvorkplace and prtiducts, engagtng in fair
advertising, ensuring continuous supplies of essentiai food items and protecting shareholder
rights.
. It is the right thing to do
Frorn the moral point of view, promoting the rvelfare of stakeholders is tl-ie right thing to do
Firms contribute to social problems such as poliution, product def'ects, chrlcl labour and hiring
illegal immigrants. So it is right for them to voluntarilv take the responsibility' lo rectify such
social problems.
6. Analyse a firm's corporate social responsibility performance using Carroll's four-part model of
corporate social responsibility.
A firm's CSR performance can be analysed based on four types of responsibiiitl', namel,v econontic,
legal, ethical and philanthropic. These responsibilities represent the expectations or demands of-
the firm's stakeholders. The assessment u,ill determine the extent to which the firm has met each
of the four responsibilities.
The firm is said to have fulfilled its economic responsibility il it is able to function as a profitabie
economic unit so that shareholders and stakeholders can benefit frorn their relationship rvith the
firm. Shareholders can enjoy a relatively good rate of return on ,heir investment rvhereas ertployees
can be gainfully employed to support their iivelihood. Horvever, it is not enough for the firn-r to
focus on short,term profit only. It is expected to be a going concern. "l'hus, the firm's strategy
should reflect this expectation.
The firm's legal responsibility can be assessed based on its track record and beiraviour in
adhering to relevant lans and regulations governing its business. The firms should also strive to
honour all contractual obligations.
In terms of ethical responsitrility, the firm is said to have inet this responsibility if the actions
are deemed right, fair and just by the stakeholders. The firm shorrld do all these even if the law does
not compel it to do so. Firms have to act in a manner consistent u'ith expectations of societai mores
and ethical norms.
Philanthropic responsibility is voluntary in nature. The firin's phrlanthropic responsibility carr
be assessed by looking at its rnonet ary or non-monetary contrrbutron to society in order to promote
the community's well-being.
CorporateSocialRespons,brlrty 189
7. Summarize Keith Davis's model of corporate social resPonsibility.

Keith Davis argued that adopting CSR enabled firms to enjoy long-term economic benefits" Firms
have social responsibility due to their sociai power, which can influence and shape society. Larger
firms have g..ut.. influence on the livelihood of the community in wl-rich they operate. So firms
should behave responsibly because failure to do so might lead to a loss of its social power and
Iegitimacy.
Divis's model comprises five propositions as outlined below.
. Social responsibility arises from social Power-
. Businesses shall operate as a two-way open system'
. Businesses should thoroughly analyse ihe social costs and benefits of its activity, product and
service before pursuing them.
. Consumers should absorb the social costs arising from each activity, product or service.
. Business institutions, as citizens, have the responsibility to become involved in certain social
problems that are outside their normal areas of operations
8. Distinguish between corporate social responsibility and corporate social responsiveness.

Corpor"ate social ,..po.rribility focuses on the obligations that firms have on their shareholders
and stakeholders. Fiims should identify such obligations based on the demands or claims of their
stakeholders. Typical obligations include economic, legal, ethical and philanthropic.
In contrast, corporate ro.iul responsiveness focuses on the extent of managerial action to fulfil
the obligation. It is a more action-oriented form of CSR where firms anticipate the needs of their
stakehoi'ders proactively and take measures to fulfil those needs or expectations. Firms, then,
should be assessecl baseci on their readiness to respond to those needs by establishing an appropriate
process, policies, procedures and mechanisms.
Corporate Social Responsibility The idea that firms should be accountable for the effects of their actiotts on
a wide range of stakeholders as opposed to shareholders only.
Corporate social responsiveness A more action-oriented approach to CSR ir, which firms actively anlicipale
the needs of their stakeholders and proactively take action to meet those needs.
Descriptive perspective A form of stakeholder model that attempts to describe and explain the behtiviour of
firms and their managers in deaiing rvith various stakeholders'
Economic responsibility An obligation of a firm to be profitable in the long-tcrm so that sharelroiders arrd
stakeholders can benefit from their reiationship with the firm.
Ethical responsibility An obligation of a firm to be fair, just and io do what is right in rts dealings rvith all
stakehoiders, even the lau'does not compel them to do so.
lnstrumental perspective A form of stakeholder model that attempts to justify managers to treat their
stakeholders well because such treatment wiil enable the firm to achieve ils economic goais.
Legal responsibility An obligation of a firm to obey laws and adhere to regulations governing its busrness
operations.
w
190 Business Ethics
I
Legitimacy An important attribute to determine the relative importance or salience of any stakeholder
group. It refers to the extent of validity or an appropriateness of a stakeholder's claim to a stake in a business.
tr
I
Normative perspective A form of stakeholder model that attempts to explain the motivation from a firm to
take into consideration its stakeholders'views in decision-making.
Philanthropic responsibility Gifts and contributions made by a business to the local community and non-
I
governmental and non-profit organizations as a way of giving back to the society that supports its existence.
Power An important attribute to determine the relative importance or salience of any stakeholder group. It
refers to the ability of a stakeholder group to exert influence over a particular firm's decision"
Primary stakeholders The most influential group of stakeholders that has a direct stake or clairn in a firm
due to their direct economic relationship with the firm. The firm's long-term survival depends on the support
of this group of stakeholders.
Secondary stakeholders A group of stakeholders that do not have a direct stake or ciaim against a firm
because it does not have a direct economic relationship with the firm" Whilst this group does not directly
affect the long-term sun.ival of the firm, it is capable of ruining the firm's reputaiion if the firm f'aiis to
address its concerns.
Urgency An important attribute to determine the relative importance or salience of any stakeholder
grouP. It refers to the extent to which a stakeholder's claims or demands call for intmediate attention from
the firm.
1. IIow can firms assess the relative importance of their stakeholders? Why is this assessment
irnportant?
2. In your opinion, which is the strongest argument for corporate sccial responsibility? Explain your
answer.
3. Review the CSR policies of a company of your choice. Would you ulassify their policies as normarive,
descriptive or instrumental? Give examples to support your answer.
4. Do you agree with Friedman's argument? Explain why or why not?
5. Illustrate with appropriate examples the pyramid of corporate social responsibility.
6. Explain the difference between corporate social responsibility and corporate social responsiveness.
Give an example of each.
Corporate Social ResPonsibrlitY 191
The Conquest of a Giant Retailer

billion in sales' The
lndonesia, singapore and Brunei with RM15
ABC is rne largesr retailer rn Malaysia,
companyemploys50,000employeesinthefour.o'nt'ituandservesaboui20millioncustomersperweek'
to Irome improvemenr and
products from groceries and household items
ABC carries an exrensive range of friendly service and high
Ieisure producrs. The company has
a core or roy"al cusromers who rove rhe fast,
always ensures the
qualrry producrs with lower pii..r. The
CEo who is also rhe grandson of ABCIs founder
Week
lives up ro irs credo of supplying consumers
with low-cosr quality goods Lasr year' Business
company
reportedthatABCWaSoneofrhemostprofitablecompaniesinSourhEastAsia.assured of a pleasanr shopplng
service Customers are
Employees receive good rraining in cusromer this
friendly r.rqy^r:-r:tl:: *n.""ver rhey need help However'
experience where ABC's-employees aie lnd
goodrmageistaintedwithcomplainrsagainsrthewayABCtreatsitsemployees.lnlndonesta,forexample,
with only lirtle overtime
employees complained rhat they were
forced to work,round the clock, without or
they ate immigrant
pay. The backroom employees recerve
low pay and few or low beneflts' marniy because
ABC was accused of
their rest and meal breaks ln Malaysia'
workers. Employees ,r.'oft.n asked to sacrifice clearlli against rhe
do menial lobs' These employmenr pracrices
are
hrring illegal immrgranrs with low pay to
but ABC gor away due ro weak enforcement
of laws
lav;, -- -^*^r-;- ^{,
WhiisrCuStomersloveABC,smalllocaisundryshopsandnrerchantscomplainofuniatrCor.npeIItlon,
ManywtnroutofbusinessbecauseABCseilssimilarproductsburarlowerpricesABCcouidaii.ordto in Malavsia'
giu.,, t-ry irs supplrers for large orders. ln addirion'
offer lower.prices due ro hefry discounrs rhose from chrna and
glu., p'io'i',y ro foreign pi'rducts such as
nrany local suppliers complained thar ABC rountries due
Bangladesh.5ome even had ro close their
irsin.,'' ABC buys irs products from these two
ro cheaper prices' grear rnarket porential
an aggressive expanston st rategy due to rhe
- L'c omhrrlrer] nn an
1n lndonesia, ABC has embarked on
stores are due to
and Norrhern Sumatra next year' Ten new
ABC plans ro open 20 stores each in East Java ln some oI the nevr
severe resistance from locai conrmunir'tes
be opened in Sulawesi this year. ABC receives and after rhe
noise and other forms of pollurion during
locarions Their main grouses are traffic.ong.r,ion, ir-r Malaysra' ABC
consrrucrion of rhe new srores. They do no,
irun, ABC's presence disturbing their daily irves
illegal imnrigrants ttr
gers rhe same resisrance, bur at a lower scale.
The main grrevance rs rhe empioyment of
locals due ro a sudden influx of forelgn workers
consrrucr new srores, which raises securiry concerns "ong
ln their area.
company to be sociallv
receives wide support and many consider the
ln spiie ol irs critlcs, ABC and 5g[vi6s ABC
thousands of iobs, low prices and hrgh value
responsible in addirion ro being a provider of scholarshlps to
also underrakes some iniriarives io give back
ro the sociery For example, ABC awards annual
underprivireged famiries in rncronesia and Malaysra
l h.e company rs
secondar y schoor chirdren from poor and bags N\oreover' lt
practices such as recycling and using paper
also acrrve in promoring good environmenral the publrc aboui
by local environmental groups to educate
also sponsors educarional programmes organized
recyclrng lnd oiher environmental topics'
Questions:
using carroll's four-parr CSR model'
1. Assess ABC',s corporate social responsibility lf
irs various programnres? Hovr woul(]
2. HasABc baiancecl irs economic and social responsibilities through
you imProve ABC's CSR Perfor;riance?
by irs various stakeholdersl
3 Whar should ABC do wirh regard to the issues raised
. : :-1,.::.:
:"";1w Business Ethics

-'_.a:..:
Ackerman, R.W. and Bauer, R.A. (1976). Corporate social respotlsiveness. Virginia: Reston.
Agle, B. R., Mitchell, R. K" and Sonnenfeld, |. A. (1999). Who matters to CEOs? An investigation of stakeholder
attributes and salience, corporate performance, and CEO values . Academy of Management !ournal (a2):5a7_
525.
Carroll, A.B. (1979). A three dimensional conceptual model of corporate social performanc e. The Academy
of Management Review, (4): a97 - 505.
Clarkson, M.E. (1995a). A stakeholder framework for analyzrngand evaluating corporate social performance.
The Ac ademy of M anage ment Review, 20 (l) : 92-L17.
Clarkson, M.E. (1995b). A risk based model of stakeholder theory. In Proceedings of the Second Toronto
Conference on Stakeholder Theory. Toronto: Centre for Corporate Social Perfbrmance and Ethics, University
of Toronto.
Crane, A. And Matten, D. (2010). Business ethics. New lbrk: Oxford University Press,
Davis, K. (1960). Can business afford to ignore social responsibiiities? Cali.fornia lvlanagernent Review, Z:70
76.
Davis, K. (1967). Understanding the social responsibility puzzle: What does the businessman owe to society?
Business Horizons, 10: 45 -50.
Davis, K. (i973). The case for and against business assumption of social resporlsibllities. Academy ot'
M anagement Journal, 16: 312-322.
Donaldson, T. And Prestcin, L.E. (1995). The stakeholder theory of the corporation: Concepts, eviderice and
inrplications. The Academy of Managem;nt Review,20(i): 65-91.
Evan, W.lVi. and Freeman, R.E. (1993). A stakeholder theory of the modern corporation: Kantian capitalism.
In'T.L. Beucharnp &N.E. Bowie, eds.,Ethicaltheory andbusiness,T5-84. Nervlerse\,: Prentice Hal1.
Frederick, W.C. (1994). From CSRl to CSR2: The maturing ot business-society tlrought. Busitress and Society
Rcvictv,33: i50-164.
Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston: Pitnran.
Freeman, R. E. (1994). The politics of stakeholder theory: Some future clirectigns. Business Ethies
Quarterly,
4:409-421.
Friedrrran, M. (1962). Capitalism andfreedom. Chicago: IIniversity of Chicago Press.
Friedman, M. (1970). The social responsibility of business is to increase its profits. lley,York'l'imes Magazrne,
13 Septemb er: 32-33, I22, 126.
Hayek, F'A. (1969). The corporation in a democratic society: In whose interest ought it and wili it be
rrn? In Ansoff, H., ed., Business strategy. Harmondsworth: penguin Booxs.
]ones, TM. (1995). Instrumental stakeholder theory: A synthesis of ethics and economtcs.I'he Acarlemy of
M an ageme nt Revi ew, 20 (2): aA 4 - a37.
CorPoratesocial Responsrbrlity 193
\Î;'L" A r- llqqq\ (-nnrreroenr stakeholder theory.

(1999). Convergent Academv of Management Review
theorv' Academy Rev' 2412):
|ones, T. M., & Wicks, A. C.
206-221.
|awahar, LM and Mclaughlin,

G.L. (2001). Towardg 2 fls56riptive stakeholder theory: an organisational life-
_ cycleapproach. The Academy of Management Review,26: 317'414'
Citizenship Focus - Rainforest-to
KpMG (n.d.). Coral Reef Conservation Programme. KPMG Corporate
Reef (R2R) programme. <www.kp*g..or.r7MY/en/about/CSRlcoralreefconservation/pages/default.aspx>'
Accessed on l2 August 2014.
Business and Society Review/
McAdam, T.W. (1973). How to put corporate responsibility into practice.
[nnovation,6: B-16.
identification and salience:
Mitchell, R. K., Agle, B. R., & Wood, D.I. (1997).Toward a theory of stakeholder
Review,22:853-886'
. Defining the piinZipt. of who and what really counts. Academy of Management
Sony Malaysia (2014). Support for employees undertaking child care or nursi.ng care. CSR Reporting: Human
Resources. <wwwsony-rr.ilSor-tytt foi.ri-r.port/employees/diversity/index.html>. Accessed on 12 August
2014'
CHAPTER
Common Issues
at the Workplace
% IrQ
LEARNING OUTCOMES
At the end of this chapter, you should be :ble to:

Explain the types of wlristleblowing and the justification for
blowing the whistle.
lllustrate with examples the meaning t f trade secrets and conflict
of interest in an organizational context.
Conceptualize privacy from individual, employee and consumer
perspectives and differentiate between privacy and surveillance
at the workplace.
Apply ethical principles to justify the need to slrsrain and respecr
privacy as a human right.
rriq 1ii. i La -j
: .rir';: i i :i rl
.:' ,i)
.rl.,al:,,
7.0 INTRODUCTION
An important aspect of human resource management in a company is managinu

ernployec relations. Managers spend a iot of time and effort on managine their
u'orkforce for tI-re obviotts reason of sustaining a beneficiai reiationship that will
promote productivity and enhance the company's perforrriance. In a nutshe1l,
employers and en-rployees are involved in an intricate relationship that is critical to the
surr.ival of the company.
Employees certainly have economic significance because they bring in their skilis,
efforts, energy and productivity to the employers. In return, they expect the employers
to compensate then'r for making such a contribution. However, the employee-emplover
relationship is not at ali rosv due to various issues that may have ethical rar'ifications
to both parties.
Whiist employers expect ernployees to perform, they must also recognize that the
latter are also concerned about the way the company treats them. Hence, it is crittcal
for both ei-rployees and employers to pay attention to the issues that mav jeopardize
their relationship and ultimately, affect the performance of the company.
This chapter covers the topic of common issues at the workplace foeusing
on the employee-employer relationship. We shall explore some of those critical
issues in this chapter. In particular, we will focus on workplace issues relating to
uvhistleblowing activities, trade secret protection, conflict of interest, empioyee
privacy at the rvorkplace, discrimination, issues relating to women in the workforce,
sexuai harassment, rights and duties of employees, occupational safety and health,
and finally, the due process in terminating an employee. We shall approach this topic
from the perspectives of both empioyees and employers. They need to play their roles
i'.) ensure a conslructive economic relationship for the benefit of all in the company.
196 Business Ethrcs
WHISTLEBLOWING
We have briefly covered the topic of the whistleblowing policy in Chapter 5 of this
book. We learned that whistleblowing is an essential element of a comprehensive ethics
Programme becauSe it could help organrzations to uncover serious risks associated
with fraud, corruption, workplace safety, environrnental hazards and discrimination"
In this section, we shall explore this topic in greater detail by examining the definition
of whistleblowing so as to clearly distinguish this activity from other a-ts of reporting
a wrongdoing. Next, we will examine the types of whistleblowing and ethical
justification for it to take place in an organization.
Wl"rrbbb*,.g I To begin with,let us recall the meaning of whistleblowrng, nhich is the release
is che release of of information or evidence of immoral or illegal behaviour by an employee or former
informarion or employee of an organization to someone within the organization who has the authority
evidence of immoral to investigate, prevent and punish the perpetrators. We need to take note of a few
or illegal behaviour pointr relating to this definition.
by an employee or First, whistleblowing takes place only when a (past or present) member of
former employee of an organization voluntarily reports such information. A whistleblower can be
an organizarion ro
any employee (or former employee), brut those rvho are in p,rsitiorrs of power and
someone within the
privy to confidential and sensitive information arc expectcd to blorv the whistle.
organizalon who
has rl-.c aurhoriry to
Examples of such employees include company secretaries, accountants, internal
i nvesrigare, prevenr
and external auditors and financial executivcs. -['hcrc[orc, a busincss journalist who
and punish the Lrncovers evidence of corporate scand.,]s and exposes it to the public domain is not a
perper rators. whistleblor.t'er. Likewise, a person who -,vitnesses a criminal ac-t and rnakes a police
report is not a whistleblower.
Second, whistleblowing does not take place if'an employec spreads gossip about
other employees' personal l-rabits or indecent behaviour or takes retaliatory action
against his or her s,rperior for reprimanding him or her. The evidence or infbrmation
released by al employee must be pertaining to matters of substantial importance or
of public interest such as practices that violate larvs or regulations, infringemc,rt of
human rights, threats to public heaith or safuty, financial rnalpractice or activities that
are not consistent with the objectives of the organization.
Third, whistleblowing can also arise in a situatron where an employee has
information about his or her superior's wrongdoing and reports it to someone else in
a position of authority within the organization. Sirnilarly, an employer can blort: the
whistle when he does not get a response from his reporl o1-wrongdorng that he matle
through a normal channel of reporting in an organization, tbr example, giving the
rnformation to his immediate superior.
Further, whistiebiowing takes piace if an einplol'ee has inforrnation or evidence
about wrongdoing as opposed to a mere allegatron that cannot be sLibstantiated with
credible evidence that is not publicly available. Whrstlchlowers usually rnake the rcport
out of a sense of professional and ethicai responsibility -fhe aim of whistlebloweis is
to prevent harm to others or to an organization as a ivhoie, rather than securing therr
own personal interests. They believe that public interest can he more important than
organizational interest, especially when it is not ccirsistent with the former. They se,.
aside loyalty to their organizations to protect public interest.
We learnt in Chapter 4 that organizations should establish a clear written policy
and procedure to encourage whistleblowing. Emplo).ees r,r,ho have evic1e.r., ot
information about wrongdoing face two ethical dccisions--whethcr to blolv the whistie
and to whom to blow the whistle" Hence, a whistleblowing policy and procedure is
crucial to encourage whistleblowing and to prevent ernployees frorn disck;sing the
Common Issues at the Workplace 197
information to a third party such as politician or the press, which could damage the
reputation of the organization. Nevertheless, a whistleblower tends to resort to such
action if the organization does not have a clear procedure for whistleblowing or it fails
to take any action to investigate and punish the r,r,rongdoers following a report by the
former.
In a nutshell, u,histieblowing is actually a yoluntary practice that is made through f0..g,*;;--r
a formal or informal reporting system whereby a person of lesser authority and should strive to
power is abie to inform a person of authority within an organization of wrongdoings encourage inrernal,
or malpractice, so that positive actions can be taken to uncover such misdeeds. A whisrleblowing by
nhistleblowing procedure must also specify explicitly the protection given to a ensuring a clear
whistleblower against any retaliatory actions. Otherwise, the procedure is likeiy to and comprehensive
faii to encourage employees to come forward with evidence of wrongdoing for fear of whisrleblowing policy
reprisal and safety concerns. and procedure.

Employees should be
Next, we shall delve into the two types of whistleblowing-internal and external.
encouraged to report
Organizations should strive to encourage internal whistleblowing by ensuring a
any wrongdoing or
clear and comprehensive whistleblowing policy and procedure. Employees should be
illegal practices and
encouraged to report any wrongdoing or illegal practices and their identity should be their identity should
kept confidential. be kept confidential.
7.1.1 lnternalVersus ExternalWhistleblowing

There is a misconception that ivhistleblorving can onl1, take place if the inforrnation ft.*"d
is released into a public dornain. A whistleblower does not nccessarily have to 'go whisrleblowing arises
public' u.ith his or her information of immoral or unlalvful conduct. Howe',,er, when a whistleblower
it is necessary for the information to be released outside normal channels of reports rhe evidence
communication (i.c. reporting directly to his or her irnmediate supervisor), because of wrongdoing
the superior may be involved in the misconduct. Iniernal whistleblowing arises when to scmeone of
a rr.histleblor'r'er reports the evidence of wro,rgdoing to someone of authority within aurhority within
an organization
an organization (other than his or her immediate superior or the CEO) and hopes
(other than his
that tire recipient of the information will take action to deai lvitir the misconrluct or
or her immediare
illcgal practicc.
superior or the CEO)
Organizations tnust have a ciear procedure for internal whistieblowing to prevent and hopes rhat rhe
abi:se. For example, the procedure specifies the channel of reporting the information recipienr of rhe
such as an employee can direct or pass the evidence of misconduct to the chief information will rake
etl'rics officer, cotnpliance officer, company secretar)'or independent directors of tire action to deal with
organization. Some organizations establish an ethics hotline for the same purposc. the misconduci or
Most importantly, the internal rvhistleblowing mechanism must ailorv enonymity illegal practrce.
to be effective. Hor,r'ever, the main challenge to this approach is that empioyees are
reluctant or uncomfortable to make a report for feai of reprisal despite assllrance
given tirat they will be protected frorn any adverse consequences. In Chapter 4. rvc
indicated that protection tbr whistleblowers in Malaysia was clearly enshrined in the
reu4y introduced legislation known as Whistleblower Protection Act 20i0.
!\rhrstleblowing is a risky activity. Whistleblowers face the risk of being excluded,
harassed by their organization or colleagues. For example, Sheron Watkins of Enron
suffered from retaliatory actions from Enron following her report of accounting
irregularities to Kenneth Lay, Enron Chairman. Her computer was confiscated. Enron
moved her office from an executive suite to a smaller office. She aiso found out that
Enron had considered terminating her employment, but did not do so. Other forms
of retaliation include transferring or reassigning the n histleblowers, restricting therr
activities, access to information or access to other organizational resources, with the
irrtention of isolating them from other employees.
198 Business Ethics
Employees will be discouraged from disclosing wrongdoing internally if ths

organization fails to take action and instead reprimands or intimidates whistleblowers
for doing so. Some whistleblowers were fired after making a report of misconduct.
For example, Donna Busche, a manager of environmental and nuclear safety at
Hanford Nuclear Reservation in Washington, USA was fired after filing a safe[
complaint relating to design flaws that could lead to a radioactive leak at the plant
(Second whistleblower cries foul in Washington nuke plant firing, n.d")" As such, some
whistleblowers tend to go public by disclosing thc information to the media, regulators
or politicians" Further, internal whistleblowing will not take place if the organization
has a 'culture of hush' or a culture of preferring to 'keep things to ourselves' and
misconstrues obedience for loyalty.
E'*r.d------l External whistlebiowing arises when emp;ioyees tvho discover corporate
whisrleblowing arises misconduct choose to bring it to the attention of external parties, such as taw
when employees who enforcement agencies or the mass media. Callahan and Drvorkin (199a) observe that
discover corporate employees are likely to use media as an externalu,histlebiowing channel when there is
misconduct choose no effective response to an internal report, when top level management is involved in
ro bring ir ro rhe the miscondrict, or when they fear retaliation from employers above the level of their
arrenrion ofexternal
supervisors.
parries. such as law
Whistleblowers tend to choose mass media to report their employers'illegitimate
enforcement agencies
or rhe mass media.
activities because they can remain anonymous arrd the rnedia trusts them (due to
credible evidence) and they can choose to release it at an appropriate time. However,
when employees choose to report corporate misconducl through the mass media,
they tend to suffer a severe and more comprehensive forrn of retaliation from their
employers than when they report the wrongdoing internally (Drn,orkin and Baucus,
1998)" This situation arises because the mass media report js hkely to bring adverse
publicity to the organization. Organizations rnay vier'r, externai whistleblowers as
disloyal and fire them or subject them to other forms of retahation prior to the firing.
On the other hand, fear of retaliation and a retaliatory environnlent motivates
employees to resort to external channels of reporting (Nlrceli and Near, 1984). In a
similar vein, whistlebioling is an effective conduit to bring about organizational
change to put an end to tl-ie lr,rongful practice rn the organization" C)rganizatlJns are
forced to rectify the situation ir-r-rmediately or at Ieast initiate prompt investigation into
the allegation.
7.1.2 Justif ication for Whistleblowing

Aithough whistleblowing is an important anci irraisenorlhv activity to uncover i1legal,
immoral and iilegitimate corporate conduct, it can also be an immoral and problematrc
action to both individuals and organizations. Whistleblorvers rnay be seen as traitors
or disloyal i,vhilst the organization suffers from advcrsc repercussions. According to
De George (2006), employees may be morally jr-rstified to blou, the whistle under the
lollowing corrdrtions.
Driven by appropriate moral motive

Employees disclose evidence of wrongdoing in order to expose activities, practices
or products that pose a serious threat to public safetv aird health" In addition, it is
morally justified to stop dishonesty or some unethicai behaviour in orcler to protect
the interests and reputation of the organization. In contrast. immoral rnotives include
revenge, malice, violation of privacy and cr-,r,fldentiality, to get attention or"profit or
simply to cause trouble for their employers. in short, rvtristleblov.'ing is not moral\'
justified if it is meant to advance one's personalagenda or interests.
Common lssues at the Workplace 199
Employees' immediate supervisor or the internal whistleblowing

channel failed to take appropriate action
Consistent with loyalty to their organization, employees should first use the internal
line of reporting-up to the board of directors-to report wrongdoing, before blowing
the whistle pubiicly. If they have tried and exhausted all the normal lines of reporting,
including the internal whistleblon ing procedures, and failed to elicit any positive
response> then it is morally justified to blow the whistle to external parties.
Employees must have strong or credible evidence of wrongdoing

It may be difficult to establish whether evidence is credible or not, but employees must
assess whether a reasonable and impartial person would be convinced that wrongful
actions have taken place if he or she is shown the evidence. Other,,vise, they may be
putting themselves at unnecessary and serious risk.
Employees must have good reasons to justify blowing the whistle

Whistieblowing is justified if an employee reasonably gxr..,s that by providing
evidence of wrongful actions, it will lead to the organization taking steps to remedy
the situation, aird more importantly, it does not pose a serious risk to him or her. If
there is a slim chance that necessary changes will take place follon'ing the report, then
he or she is not obliged to blow the whistle. It is not worth the effort to go through
challenging times foilor,ving the whistleblowing act if the chance of success is far less
than the extent of nsk and danger that the employee has to endure.
In the next section, we shall examine the issue of trade secrets rn'hich organizations
strive to protect in order to remain competitive.
7.2 TRADE SECRETS

IA,rr.1. *..*
a valr-rable asset
because the
Inlormatiorr is a valuable business asset that could possibly give an organization a
organrza,"ion may
competitive edge against its competitors. A trade secret is a vaiuab,le asset because the
have sperrt plenry
organization may have spent pienty of money to acquire or deveiolr the inforrnation of money to acqutre
and it has a significant impact on its financial position. Hi tech companrcs in the or develop the
softrvare industry such as Apple and Samsung, for example, ciosely guarcl therr tradc rnfornration and
secrets. The,v have been involr,ed in numerous court proceedings due to ailcgatiex"rs ttf ir has a sigrrificant
r-iolatioi-r of trade secrets. Likewise, Coca Cola has a secret formuia fbr its carbonatetl rmpact on its
drinks. It ts r-rot patented, but remains a secret to its competitors. Closer to home, financial position.
Secret Recipe cioseiy guards its secret formula for baking delicious cakes.
OrgaLi:izations closely guard their trade secrets so as to avoid them frorn being Ilt-.e w"'rd
known to otlrers. If information has no value to competitors, it is not necessarl'to be lntellecrual Property
kept confidential. Then, it makes sense for the organization to protect it. Tradc secrets Organization
are also known as proprietary data. Ernployees play a crucial role here in safeguarding (WPO) defines
trade secrets and ensuring that the information does not fall into the hands of trade secret as any
confidential busirress
competitors. They have a moral and legal obligation not to reveal it. Emplove rs face
information including
a chailenging task to prevent employees from selling or using their trade secrets,
manufacturing or
especially the employees n ho have left the company.
irrdusrrial secrets,
The World Intellectual Property Organization (WPO) defines tradc sc..rct as which gives an
any cor-rfidentiaibusiness information including manufacturing or indusirial secrets, organization a
which gives an crganization a competitive edge. A trade secret nlust be unknorvn ttr competitive edge.
240 Business Ethics
competitors. Otherwise it will not be a secret. Virtually any information can be a trade
secret so long as it is not known to others and the proprietor protects its confidentrality.
Hence, trade secrets are the intellectual property of the organization. Examples of
trade secrets are sales methods, distribution methods, consumer profiles, advertising
strategies, iist of suppliers and clients, manufacturing processes, formulae, patterns,
ingredients or chemical composition of products, design of a machine, methods of
quality control, results of market research and financial projections.
r'rdesec'ec;-----l Trade secrets may be known to competitors through commercial espionage,
may be known breach of contract where employees or any other parties that have knowledge of such
ro competirors information either voluntarily release or sell them for personal benefit. Theft of trade
rhrough commercial secrets is unfair competition. Ownership of trade secrets gives the right to protect
espionage, breach them from being wrongfully acquired by others" Trade secrets can be considered as
of conrract where a type of property whose owner is entitled to certain r:ights. However, unlike patents,
employees or any
copyrights and trademarks, trade secret protection does not require any registration
oiher parries that
and it is not limited by time. However, without permission of the holder, others are
have knowledge of
such informaiion
forbidden from using this type of proprietary data.
either voluntarily \,!brld Intellectuai Properties Organization (World Intellectuai Properties
release or sell them Organization, n.d.) outlines three conditions for information to be considered a trade
for personal benefir. secret:
r The information must be secret i.e. nol revealed or known to others that are
not supposed to have the information.
r It must have commercial value because it is a sc'cret.
r The rightful owner of the informatiorr has taken reasonable steps to keep it
secret. For example, imposing confidentialitv agreernents, restricting access
and cautioning employees who har.e access to the information about its
secrecy.
Let us look at an example to further comprehe nd ttre concept of a trade secret.

Company X has ur,dertaken rigorous research and tests to improve its quaiity control
mechanism so as to ensure high quality produc-ts that can be sold at premium price.
The company has been the market leader ancl is highly profitable compared io its
competitors ever since the implementation of the mechanism. This quality control
know-how ciearly provides Company X rsith a cornpetitive edge over its competitors.
Company X, therefore, closely guards this knolr,, how and certainly does not want
its competitors to know about it. It has taken stei.rs to ensure that oniy a handful of
key employees know about this trade secret and they have been cautioned to keep
it confidential. Company X made sure that each emplo,vee that has access to this
information signs a confidentiality agreement. In this situation, if a competitor
company obtains such information without the consent of Cornpany X, it is in
vioiation of Company X's trade secret.
Empioyees who have access to trade secrets and tl'ren disclose then-r to others ol
use them fbr personal advantage are said to have violated confidentialiry, rvhich rs an
important element in the employee-empioyer relationship. When they are subjected to
a confidentiality agreement, employees will have an explicit coniractual obligation not
to disclose the trade secret, as in the earlier example about Company X.
Other than taking steps to protect trade secrets, employers must also improve
their enployee reiations to treat their employees fairly and keep thern happy. Often,
unhappy employees use their knowledge of the company's trade secret as a bargaining
point to secure alternative employment with a compctitor contpany or esrabhsh their
own business that is in direct competition with fbrmer emplsysl. Arguahlv, this
'heir
approach is less expensive and messy than gorng through iegal proceedings to seek
recourse from errant employees.
Cornmon issues gt t[9 Workpla.qe. 2.A1
-., :
Conflict of interest may arise in any professionai relationship, such as betlveen fC".fl", ,,.r*
"f
board of directors and shareholders and external auditors and a company. We have occurs when
examined this concept in Chapter 2. llowever, in this section, we will focus on conflict employees have
of interest in the employee-employer relationship. Empioyees are expected to be loyal

persenal ,in terests
rhar inrerfere wirh
agents of their employers. Avoiding conflict of interest situations is one of the primary
their obligaeion co
obligations of an employee towards his employer. promote the interesrs
1h... ur" -urry ways for an employee to show loyalty to his or her.employer. of rheir employers.
One way is to prevent the employee'.s personal interests from getting in the way of the Employees are said
employer's interest. As loyal agents, employees have an obligation to act in a manner to be involved in a
consisient with the objectives and interests of their employers. They must not abuse conflict of inrerest
their official position to obtain personal benefit. A code of ethics normally specifies when rhey give
practices that may lead to conflicts of interest in an organization" priority to their
The employee and the erployer are in an agency relationship. Employees are personal agenda over
agents of the employers (principal). 'fhey have a duty to act in the best interests of their rheir job duties. By
employers. Conflict of interest occurs 'i.vhen employees have personal interests that doing so, employees
make decisions or
interfere with their obligation to promote the interests of their ernployers. Employees
behave in a manner
are said to be involved in a conflict of interest when they give priority to their personai
that give them
agenda cver their job duties. By doing so, employees make decisions or behave in a - personal gain or
,iunn.. that girre them personal gain or advantage thal may harm their empioyer's advantage that may
interests. harm their employer's
Next, rye shall delve into conflict of interest at the workplace, a contemporary i n terest s.
topic that is r.er,v much discussed in today's competitive rvorld of global business.
7.3.1 Conflict of lnterest at the Workplace

Contlict of interest in an employee-employer relationship may arise in one of the
fb11on,i ng situations:
t When an employee uses his official position for personal financial goin or to
benefit a compan)t in which he or she has a financial interest.
In Chapter 4, we gave an example of top executives who use corporate
funds for private purposes such as golf club memberships, vacation travel,
renor.,ating their homes and corporate jets for their family travel. The-v are
clearly abustng their official position and power in the compan)' for perst-,na1
gain. As another exarnple, an employee is a tender manager in Company A. He
also has financial investments in a company that supplies goods to (lotnpany
A. The employee uses his position or polver to influence the decision to artard
a contract to the supplier comPany.
a When an effiployee's external financial or other interest may inappropriately

influence the way in which he or she performs his or her official respotliibilities.
This situation highlights that conflict of interest need not be flnancial. For
example, a procurement manager is a member of a tender coinnrittee that
awards a project to a company owned by his spouse. He participates in a
dcliberation and evaluation of the tender document submitted by his sPouse's
company. His affection and love for his spouse influence his evaluation
and those of other committee members. Clearly, he has exerc:sed a biased
judgement in evaluating the tender appiication at the expense of other bidders.
202 Business Ethics
When an enxployee receives 0r giyes a bribe or kickback for persanal finqncial

gain.
A bribe is the act of giving or receiving any gratification or rervard in the
form of financial or other advantage of high value for performing or not
performing a task in relation to a person's job description. For example, I
purchasing manager demands a bribe from a vendor in return for selecting I
them as the main supplier of the company. The vendor agrees to give a sum
of money to the purchasing manager in order to secure the supply business. A
kickback is a form of bribery. It is a sum of money given to someone in return I
for facilitating a transaction or appointment. For exampie, a medical doctor
receives a kickback in the form of a hefty commission from a medical sales
representative for recommending and buying medical supplies and drugs for I
their clinics or hospitais. This unethical behaviour is also unlawful in mani
countries.
When an ernployee receives gifts, entertainment, hospitality and other beneJits I
.from clients and business associates.
Receiving gifts or entertainment may lead to a conflict of interest, particularly
if it influences the employee's judgement or call iirto question hrs integrity. I
However, it is not airvays straightforu.arcl or easy to determine lr.hether such
behaviour is morally questionable or not. For exarnple, somc companies
prohibit acceptance ofcash or cash equivalents (gift cards or cheques), tickets I
to major entertainment or sporting er.,ents, cigarettes or alcohol rvhilst other
companies do not have such a policy" Shau,and Barn. (2010) outlined several
factors to be considered to determine the r-norality oiaccepting gifts as follows:
- The value of the gift-is the value nominal or substantial enough to
-
influence a business decision?
The purpose of the gift-is the intention to bribe an emp1o1,ee or to jnfluence
r
his busrness decision?
- The circumstances under which the gift t'as git'etL or rtt'eived-is the eifi rI
given in conjunction with a festival slilson or opening of store or spc'cial I
event or is it given without any specific event? Is the gift given openlv or I
secretly? f-
t
I
- The position of the person receiving the gi'ft*-is the person receir,ing the gift I
in the position to make a decision or ai-,Je to influence the dectsron? i
- The acceptedbusiness practice in the industry is it a norm to gii,e or recer\-c

r
gifts in the business? For example, it is an accepted business practice in the i
US service industry to give tips to r,r'aiters and u,ailresses in restaurants, or I
hotei staff, to reward gooci sen ice. r-

I
- The company's policy-does the company hu,e a polio, to prohibit giving
or accepting gifts or set a limit to the value of gifts that can be given or I
i-*
accepted? This policy is usually specified in the code of ethics o1 the I
!I
company.
- The law of the country-is there a lar,', fortridding gir.ing and accepting
I
!
gifts? Some countries legally forbid giving and accepting gifts, for example, F
I
l
among government employees. When there is such a law, then any gifl ,
l
trarisaction is unacceptable.
!--
When an effLployee eilgages in direct cottipctition with his ar her employer. I
i
A conflict of interest occurs when an gn:ployee or his or her spouse establishes 1
t
a similar business that is in direct conrpetition with his or her employer. For t-
example, B works in a bakery in Bangsar Lltama titat suppiies fresh bread and I
i
I
r
Common lssues at theWorkplacs 203
pastries to nearby restaurants, cal6s and convenience stores. B's husband has
just received some gratuity payment due to his retirement. He used the funds
to open a bakery within the vicinity of Bangsar Utama. After her work shift
and during weekends, B will help her husband to r un their shop" Both of them
also visit the restaurants and cafds in the area to market their products.
t When an employee engages in insider trading.

Insider trading involves buying and selling of securities by people rvho have
price sensitive information that is likely to affect the price of the securities
of a company. Such possession allows the insider to benefit from the trading
of the securities or is important to make an informed investment decrsion.
Price sensitive information is material information that is yet to be released or
made public. Examples of price sensitive information include negotiation for
a large business contract or impending mergers or acquisition, failure to meet
profit forecast, losing a major client, legal action by creditors, etc.
The insider stands to make massive gains or avoid massive losses by
buying or selling the s: :urities before the material information is released
to the public. Only a few people have or know about the price sensitir.e
information by r..irtue of their position or role in a company, such as directors,
top executives, external auditors, investment bankers, company secrL'teries
and share dealers. Ken Lay, the former CEO of Enron, and his colleagues, for
example, allegedlv sold off their Enron shares knowing that it would filc lor
brirr-riiruptcy lvhilst at the same time advising othcr inycstors to hold on to thc
shares.
'lhere are three elements fbr insider trading to tak-e place. First, the
buying and selling of a company's securities is done by an 'insider', r'r,hich
r-efers to the peopie in a corporate setting rvho are likely to'be in the kr-rur't-'
about the material corporate information oi'matters. The concept of insider'
jncludes those persons that have relationships rvith or are connecteci to an
insider or the company such as business partners, empioyees, farnily rnem'Ders
or others that have been tipped off by the insider. Second, the tracling of
company securities is carried out pursuant to the possession of the rraterial
and non-public information regarding the company. Finaili,, the rnformation
u.ill ]rave an effect on the company's securities price once it is disclosed to
tl-re general pubiic. lnsider trading is unethical not only because i1 is a ibrrr-r
of conllict of interest but also because it promotes unfair competition, tr,1-rich
could undermine investor confidence and the integrity of the capital rr-rarkct.
a \,{hen an en-LPloyee uses confidential information of the employer for personol
gain ctr interest.
We have discussed this situation in Section 7.2 of this chapter in rn,hrcl'r
entplo-vees that have access to their employer's trade secrets or other
confidential information voluntarily release or seli them to others. such as
competitors, for personal benefit or for their other business interests
As companies face a variety of conflict of interest situations, it is important to
prevent them because of their ethical andlegal implications. Some of the corflict of
Lrterest situations are illegal, which expose the company and eilployees c,-rncerned
to legal risks. such as iawsurts and criminal prosecution. How can conflict of interest
situations be prevented or managed? Organizations should establish a forrnai or
comprehensive ethics programme, rvhich includes amongst others code of ethrcs,
rompliance programmes, ethics hotline and clear policies and procedures ior carrying
iiut business acttvities such as proclrrement, investment and customer relationship.
2O4 Business Ethics
We have discussed in great detail the various elements of a formal ethics programrnq
in Chapter 4.
7.3.2 Types of Conflict of lnterest

Velasques (2006) classified two types of conflict of interest-potential and actual
conflict of interest. First, potential conflict of intcrest arises when an employee has an
interest that could potentially affect the way he makes decisions for the employer but
he has yet to be assigned such a responsibility or task to make the decision. Going back
to our earlier example on the procurement manager, his spouse's company submits a
tender for bidding a project in his company, but he is not in the tender committee that
evaluates and makes the decision to award the contrai.t to his spouse's company.
Second, actuai conflict of interest occurs when an employee has an interest that
could potentially influence the way he makes a dectsion on behalf of his employer
and the employer has actually given him the authority to make such a decision. For
exa.-lple, the procurement manager is actually involved in the decision to alvard the
contract to his spouse's company when he sits in the tender committee.
7.3.3 Preventing Conflict of lnterest Under the

Malaysian Legal Framework
As conflicts of interest can lead to criminal offences, it is pertinent for us to examine
briefly the Malaysiarr legal framervork w'itir regaru1 lo thi-u issue. \{e wtl1 fbcus on
the roles of the Malaysian Anti-Corruption Corrn-itssion (ll'IACC) and Compantes
Commission Malaysia (CCM) in prer.enting, conllict of interest in Malavsian
companies. To begin with, Iet us be clear that couflict of interest or corrupt practlces
can occur in both the public and private sectors. Further, it is nrong to assume that
every conflict of rnterest case is a criminal off'ence" For example, a social scientist in
a university r,vho receives funding from Facebook to conduct a study on the effects of
social media on society might find it difficult to he rnrpartial in reporting hrs trsearch
findings" But this conflict of interest situation mav not lcad to a criminai oifence or
dishonestl,.
According to Han (n.d.), a criminal offence arrses rvhen a conflict of interest
situation resulted in an improper or dishonest act irr rvhich the offender takes
advantage of his or her employ,er or gains persc,nal benefrt or: obtains the same for
third parties. For example, giving trnd takinc a bribe as.,'r,e11 as engaging in insider
trading are ciearly against the lau, in N4aia),sia. In contrast, eslabhshing a business that
is in direct competition with one's employer is Lrrrcthicai but not necessarily unlalvfu[.
Next, we also need to note that there are .spccilic provisions of lalvs that deal
with conflict of interest or corruption in the public scctor rnvolving government
employees and officials. For erample, the Anti-Corruption Act 1997 (ACA) and the
Emergency (Essential Powers) Ordinance No" 22, i970 allorv fhe MACC to investigate
such corrupt practices. Hower.er, Malaysian lalv does not hai'e similar provisions to
ITi. rtn.fry* criminalize cases of conflict of interest involr,ing private secior empioyees who abuse
Anri-Corruprion their position other than cases that involve givirrg and taking bribes or gratification
Commission (MACC)
(Han, n.d.). Nevertheless, the MACC has a role to plal.in preventing corruption in all
manages caSes
sectors in Malaysia, which we shall examine now.
relared to corruption
and leads ihe
various iniriarives ro The Malaysian Anti-Corruption Corr,mission (MACC)
combar corruption The MACC was established in ]anuary 2009, replacing its predecessor, the Arrti
nationwide.
Corruption Agency (ACA). It is the sole body that is independent, transparent and
professional in curbing corruption. 'i"he MACC manages cases related to corruption
and leads the various initiatives to combat corruption nationwide. The key role of the
MACC is to eradicate corruption, abuse of power and maipractice in order to create a
corruption-free society. The specific functions of the MACC are as follows:
r To detect and investigate corruption offences.
fTh. Mrtarr""
r To educate the public against corruption. Anti-Corrupcion -
r To enlist and foster public support against corruption. Commission Acr
.-
r To detect the risk of corruption in practices, systems and work procedures in 2009 serves as a ,
all sectors. rool ro enforce and

r To advise as deem necessary on the likelihood ofthe occurrence ofcorruption" prevent corruption
and prescribes
The MACC has introduced a few initiatives in relation to its role (Community
the srructure and
Education Division, Malaysian Anti-Corruption Commission, 2013). We shall cover funcrions of rhe '
a fen, such initiatives here. First, the Malaysian Anti-Corruption Commission Act MACC.
2009 senes as a tool to enforce and prevent corruption and prescribes the structure
and functions of the MACC. Tirere are four core offences under this Act--soliciting I rl""r".* f*r*."
and accepting bribes, offering and giving bribes, making false claims and abuse of offences under
position or office. The MACC also investigates and prosecutes cases relating to giving rhe MACC Act
and receiving gifts in the civil service. lJnder the MACC Act 2009, under certain 2009-soliciting and
accepting bribes,
circumstances, these practices can be classified as a form of corruption.
offering and giving
Sec,,nd, the N4ACC created a 'name and shame database' on its rvebsite to highlight
bribes, making false
the detaiis of offenders and those under trial for public viewing. The objective of this
claims and abuse of
initiative is to create higher awareness on the seriousness of the crime of corruption. posirion or office.
Next, the MACC collaborated with the Malaysian Institute of Integritl. (lIM),
Transparency International Malaysia (TI-M), Bursa Malaysia, PEMANDU, Central fTh. Mrcc *.r*d
Bank of Maiaysia and Companies Commission of Malaysia (CCM) and Securities a 'name and shame
Con'rmission of N{alaysia (SC) to engage corporate companies to make an offrcia} darabase'on its
piedee to uphoid integrity in their processes, procedures and policies. This initiative website to highlight
rhe derails of
rs knorvn as the Corporate lntegrity Pledge (CIP). Companies that signed tire pledge
offenders and those
made a commitment that they wiil not engage in corrupt practices and rvill strive tct
uncier trial for public
create a corruption-free business environment. As at 2B August 2014,444 companies
viewing, ro creaie
havc signed the pledge.
higher awareness on
Finaily, the MACC through the Malaysian Anti-Corruption Acaciemy conducts the seriousness of
a training programme called Certified Integrity Officer Programme (CelO) in ordcr corruption.
to create an integrity-based rvork culture in both the government and private sectors.
Under this programme, the N4ACC wili give certification to those officers of an [1. ,he C*p"{r"
organization that have completed the training programme. They .Lre called Certit jccl lntegrity Pledge (ClP),
companies make a
Integrity Officers (CelOs). CelOs are to assist the MACC in the corruption prevention
commitment that
initiatives. Various organizations such as Petronas, Telekom Malaysia, Feida Global
rhey will not engage
Ventures Holdings Berhad, Pilgrimage Board, Tenaga |.Iasional Berhad, Johor in corrupt practices
Corporation, Amanah Raya Berhad, Royal Malaysian Police and Road T'ratisport and will strive to
Department have participated in this programme. create a corruprion-
Now, we shall briefly look at the role of the Companies Commission of Malaysia free business
(CCM) in promoting anti-corruption measures amongst officers of the private sectors,
in particular, company directors that have fiduciary duties towards the comp an1.. We
shail direct our attention to the issue of conflict of interest only.
rh" C"-p-*f .1
Commission of
t Malaysia (CCM)is
The Companies Commission of Malaysia (CCM) rhe main regulatory
The CClvl is the main regulatory body fbr companies and businesses r;i Malaysia. body for companies
I and businesses in
1t is the guardi;l and enforcer of various legislation governing corporate conduct
Malaysia.
ZUO Busrness Lthrcs
w
:,
and businesses such as the Companies Act 1965 and the Registration of Businesses
Act 1956. Sections 131, 131A, L32 and 132(2) of the Conipanies Act I965 specifically
govern conflict of interest situations involving company directors. We need to note
that laws require mandatory compliance, hence, failure to comply is an offence and
legal action can be taken against them. These provisions of laws are discussed in brief
in Table 7.1. I
Other than Other than administering laws governing corporate and business conduct, CCM
adminrsrerrng---l
laws also issued code of ethics for company directors, which covers corporate governance,
governing corp.lrate relationships with shareholders, employees, creditors and customers as well as their I
and busi ness social responsibilities and the environment. An excerpt of the relevant codes relatino
conduct, CCM to avoiding conflict of interest is as fbliows:
also issued code ol'
erhics for company
r A director should at all times exercise his powers fbr the purposes they were I
direcrors
conferred, fbr the benefit and prosperity of the company;
r A director should disclose immediately all contractual interests whether
directly or indirectly with the company; i
r A director should neither divert to his own advantage any business opportu-
nrty that the company is pursuing, nor may he use confidential information
obtained by reason of his office for his own advantage or that of others; I
r A director should at all times act u,ith utmost good fhith towards the company i
I
in any trernsaction and act honestly and responsibly in the exercise of his
powers in discharging his duties. I
I
Table 7.1 i
Provisions of Seciion 13.1 Requires company direcrors that have a direct or an indirecr inreresr in a contract
laws governing or a proposed contract to disciose rhe interest at a meetlng of direcrors.
conflict of
Secrion 13iA Sripulares rhat direcrors thar have such inrerest as indicared in Secrion 131 are
interest situatiorrs
p;ohibited from pariicipating in the discussion ro consrder the conrracr as weli
involving company
as from voting on rhe same. Directors who farl to comply wirh this requirement
directors under the
commit an offence and rhe company has rhe rrght ro cancel rhe ionrract. lf found
Conrpanies Ar:t
guilty, rhey can be rmprisoned for five years or fined RMl50,000, or borh.
1965
Section l32 Prescribes che prohibrtion against improper use of cornpany's property, positron,
corporate opportuniry or compeLing wirh the company. This provision strengthens
the duties and responsibiliries of directors in which ir requires rhem io exercise
their power for a proper purpose, in goo,J fairh and rn ihe besr interesrs of the
( om pa ny.
Secrion 132(2)
Next, we shall cover privacy.

Common Issues at the WorkPIace ZU/
',t:J.4 PRIVACY
privacy has often been regarded as a controversial issue. Some people may even
vierv that it is of less relevance in today's contemporary global society, highly driven
by information and communication technology (ICT) which Promote freeclom of
speech, expression and information sharing" Virtual communication at r.:al time
within a click of a finger is the norm of today's global society. The availability of
social networks such as Facebook and Twitter, as well as mobile chat applications
on smartphones such as Whatsapp and Telegram, practically allows an individual
to share limitless information with others, whether in private or in public. On our
computers and smartphones, we sometimes receive information which challenges
or. o*n privacy, not to mention the unsolicited junk mails received in our letter
boxes at home and email inbox. We sometimes wonder where the senders get or-rr
addresses from, since we do not recall providing such personal information to them.
One may even pose a logical que ..tion-what right do these people have to oLitrightly
invade a person's prir.acy?
The tremendous advancement in computer information and cotnmunicatiotl
technoiog], seriousl,v ca1ls for protection of privacy, a human right, as peopl<,' are
becoming somervhat open and transparent in addressing issues, be it persoiral,
organizational, business or non-business. People are now taking privacl' matters
ioi granted. Imagine our personai data travelling freely from one person to antlther
and from one organization to another without our prior consent Such scenarios are
certainly an invasion of one's privacy rvhich ought to be protected as a right.
Tiiis topic ain"is to educate the younger generation on the value of privact'and
reernphasize its importance in the study of business ethics. It will firstly examitrc the
various spectrunts in the definitions of privacy, the difference between privacv and
surr.eiilance, followed by the justifications on the importance of protecting Pr.l\rac)'
from moral and ethical dimensions. This topic will also cover the legislation st ipulated
in Malaysia to protect individual privacy in the global ICT era.
Before we dwell further on privacy as a workplace issue, let us deline and
coneeptualize it from a personal/individual perspective.
7.4.1 Defining and Conceptualizing Privacy

The concept of privac,v is a n,idely accepted legal and moral notion but has uncertain ll}r*y r'.h"t. I-
leeal and philosophical foundations (Moor, 1990). In general, privacy relatcs to the confidentiality of
confrdentiality of information of private individuals. Difficulties, hou'ever, oflcn ari.e informatron on
in elefining privacy because it may differ between individuals due to manl' clill-erent private individuals.
claims on the right to privacy in different situations. A prir,.rcy, issue to onc pcls()ll Difficulties arise ro
may not be a privacy issue to another. For example, a photo of a lady taken by N{r. def ine privacy as a
A and posted on his Facebook page and shared with his friends without her prior concept because ir
may differ between
consent may not be seen as a privacy issue to some but to others, it is, if the 1ad1' vicws
individuals due
that her privacy is violated because she did not expect Mr. A to share her photo rvith
io many differenr
others. Therefore, in analysing this scenario, what is a right of privacy not'ld then
claims on the r:ight to
depend on the context of rvhich an individual's right would have been vioiatetl. privacy in different
Below a.e three classic definitions of privacy: situations.
r The right to be ieft alone.
r The claim of individuals to determine for themselves when, how a nd to '"r'hat
extent information about them is communicated to others.
208 Business Ethics
r The condition of not having undocumented persotral knowledge about ons

possessed by others.
Samuel Warren and Louis Brandeis in 1890 defined privacy as the right to be left
alone (Warren and Brandeis, 1984)-free from intrusion; the most comprehensive of
rights and the right most valued by civilized men (Mehafdi, 2000). Their definition was
concerned mainiy with the pubiication of idle gossip in sensation-seeking newspapers
(Boatright, 2007)"
Srr*l \^,r*" -l ln their famous lB90 Harvard Law Review articie, Warren and Brandeis provided
and Lr:uis Brandeis a sensible analysis and evolutionary justification for the right to privacy. Ihey argued
defined privacy as r-he that privacywas an emerging right that needed to be recognized due to political, social
right io be lefi alone and economic changes. They also claimed that common iaw is not static but undergoes
continuing growth as culture deveiops (Moor, 1990). Therefbre, privacy laws should
protect the 'privacy of private life' from unwanted publicity. While televisions ano
computers, as publicity media, were not yet available during Warren and Brandeis's
time, today, reality television programmes such as Melodi on TV3, which update the
audi. ^rce on the latest gossip of show business celebrities, mav fall under this category
ifthe coverage invades the celebrities'personal lives.
Alrrt'-\rt/.r*---l Whilc Warren and Brandeis covered a broad scope of the definition of privacy
defined privacy as the as non-intrusion of private 1ife, Alan F. Westin (1967) ciefined privacy as the claim of
clarm oi indiviciual: individuals to determine for themselves when, hou, and to u,hat extent information
ro detern.rne I'crr about them is cornmunicated to others. Therefore, inclividuals themselves will have
rhemselves when, to assess the kind of information that they nould like others to know about them
horv and ro whar since information may be classified a: public and pnvate" If tbr example, Miss Arny
exrent rnformation sends her photo to a group of friends through lracebook, then it is assumed that it
about them rs
is no more a prir.ate piece of information unless she specifically informs her frrends
cor-n r-n rr rricateci icr
not to share the photo rvith people she is not acquainted with. This definition thus
orhers.
throws back tire comnritment of protecting person:rl prir,ac,v to the individuals
themseives based .rn the type and extent of personal intormation they u,ish to share
with others.
p*.* -----l Another definition by WA. Parent (1983), building on Ailan F. Wlstin's
explained privacy information-reiated definition explained privacy. as the condition of not having
-r.ry-q
as the condirion undocumented personal knolvledge about one possessed by others. However, this
of not having does not mean ali information about oneseif but onl,v those facts that an individual
undocumented does not want to be widely known to others. It rs necessary that the definition be
personal knowledge restricted to'undocumented'personal informatioli because some facts that individuals
about one possessed commonly seek to conceai are a matter of public knorvledge and can be known lvithout
by orhers Oniy
intruding into their private lives. As an exampl., rvhen a job application is made, we
rhose facrs rhai an
share a lot of personal information that are docur-nentcd to potential employers such
individr"ral does not
as qualification, marital status, age, last dralvn salar,v, etc. Once this information is
wanr io be widely
known to others are revealed to the potentialemployers, we trust that it r,r,ili i'rot be shared or used by other
private informarion. peopie or third parties. This demographic data u,i1l bc used in the shortlisting process,
We reveai such information to these prospective employers since we are keen to join
the organizations. Although this information may be regarded as public facts, any
leakage to other parties without our consent is also regarded as violation of privacl
since we would like to restrict the sharing of this information with our employer to'
be only" After all, we are revealing personal information 1'or a clear purpose-to seek
employment with that particular employer.
Assessing invasion of privacy

We have so far discussed the three definitions of privacy above. Privacy, as a right
''
Cornrnon lssues at the Workplace
1no
to be left alone, though comprehensive, is too broad a definition, leading some to

conclude that a better understanding of privacy as a concept will be to assess or focus
on the control of personal information (Desjardins, 2009). From this dimension, the
most obvious case of violation to privacy is when other people know our personal
information provided by others without our consent, perhaps, through forrvarded
enrail, social media postings by others or through other communication channeis"
However, it seems unclear if we are to claim that our right to privacy is invaded.
Certainly, there are numerous occasions, especially in a working envit,lnment,
whereby our personal information is shared with others, especiaiiy among the HRM
personnel as part oftheir job function.
-
Philosopher, George Brenkett argued that the informatiortal sense of privacy
involves a relationship between tr,r,o parties, A and B, and personal information X
about A (Desjardins,2009). Privacy is violated if B comes to know As information
(i.e. X) and no relationship exist between A and B that rvould justify B knorving As
personal information. Therefore, to assess whether one's privacy has been violated
depends on his/her relationship with the person or persons who come to know a
particular piece of personal infortrration, in this case, X.
Let us create a scenario. Mr. A has borrolved money from Miss C to settle arl
urgent housing loan rvith a commercial bank. Only Mr. A and Miss C knorv this
and Mr A has told Miss C to keep it as private and confidential. Mr. A n-reets the
: bank officer in charge, through a business relationship to settle the loan. But if l\4r.
As borrowing from Miss C is made knon,n to a third party rvho docs not have any
relationship with Mr. A (including the loan officer himseif since his job is oni,v tcr
ensure that Mr. A settles the loan sum. He need not knorv the source of the settled
amount.), this is considered as violation of Mr" As personal privacy" Surely, lVIr. A
does not u,ant this private infbrmation to be openly knowtr to just anybody, not to
mention the ioan officer himself. Limiting access of personal inforinatiott on1,v to
those with whom one has a personal relationship is an in-iportant lvay to preserve
his/her personai integrity and individuality. Thi.s will prove important r'vhen te
vierv privacy from the employment context and consicler the employer-employee
reiationships at the workplace.
We may wonder why the privacv issue is highlighted nowadays. Ileloiv are three
major reasons to explain its emphasis in this age.
r Advancements in ICT
r Vast arnount of information collected for organizational decision-making
r Signification grou,th in database marketing facilitated by advancen-ients in
TCT
7.4.2 Why has Privacy become an lssue in the

Global Era?
As mentioned in the introductory part, progress and advancements in ICT have m;*;"f pil.y---
challenged individual/personal privacy although IC'f has facilitatcd overall occurs when other
communication, a significant achievement of the new miilennium. Toda1,, it is very people know
easyto share personal information, viervs, comments, crrticisms or even gossip through 5Omeone's personal
social media. Although freedom of speech and expression have become the norm, one information provided
may violate individuai privacy from a moral perspective, if he or she does not respect by others without his
privacy as a human right. For example, gossip or taking pictures of sometrite from a or her consent.
smartphone without his/her permission and sharing with others through sc:ial media
-retu.orks such as Facebook and Twitter for various reasons. Prtvacy is a negative
right-the right to be free from outside interference. Humans, as a matter of dignitl',
210 Business Ethics
reserve certain private information to be shared with only those who have established
relationships with them. However, individual privacy may be threatened if the private
infbrmation is shared by others or manipulated to the advantage of other parties. The
il.y h"' fi;tl creation of smartphones, though seen as an innovative initiative, has aggravated this
an issue in rhe problem since information sharing in real time is now possible, challenging individual
global era due ro privacy if not used appropriately"
i
(.1) progress and Privacy has become a major issue in government and business institutions in
advancemenrs in recent years for numerous reasons. One main reason is the vast amount of personal
lCT, (2) the vasr
information collected by the government, banks and Internet businesses in the I
amount of personal
course of making organizational decisions. For exampie, the lncome Tax Department
information collecred
has practically all the personal data of employees of registered organizations
for organizarional
decision-making rn
or employers to enable it to trace tax payments and collections. Simiiarly, banks
rhe public as well through online inter-banking services are bound to have substantial customers'
as pnvate secicrs, personal information to facilitate daily formai business transactions" l,eakage of
and (3) significanr private personal information collected by these institutions is certainly a violation of
growrh in darabase individual privacy.
marketing facrlirared Let us examine the following newspaper article for a better understanding of the
by ICI above reason.
I
I
'Blacklist' Civil Servant Sues Firm for RM2m

t
t
KUALA LUMPUR. A 45-year-oid crvil servant from Rompin lrled a RM2 milliorr negligence surr
againsi CTOS Sdn. Bhd. yesLcrday for biackiisring him luhari Alr, a Heairh Deparrmenr employee,
claimed his srarus had affected hrs applicatron for a car ioan last rnonrh. lle named CIOS, baseC jn I
Megan Avenue, Jalan Tun Razak, as the defendanr The suit wa; filed by a firi-n of M.K Crhmarr and I
Co at rhe High Court C.rvrl Regrstry here.Juharr claimed he had also rried ro make sirnilarapplicarions
with orher instirutions bur failed. He said Bank Perranian Malaysia informed hrnr on 12 June rhat
his application has been rejected because of a RM3,050 debr. As a resulr of rhe CTOS informarion, I
banks and financial insrirutions had declined ro give him loans as he allegedly had a bad record, he
added.Juhari claimed he had not owed anyrhing ro anyone or any financial instirurron as srared jn rhe
II
record. He claimed rhat CTOS had provided informarion ro banks and financial insrirutions wirhour
hisknowledge,approval andconsenr,wirhrheinforrnationgainedrryirhourhisapproval Ileclaimed
^-i-,
CICS had no tighr to keep such information in irs darabase as he had no knowleclge of ir and could
not'verify the rruth of such information. Juharr said it was an invasion of privacy which wenr agarnst r
rhe law" He is seeking declararions rhar he dc,es nor have an\, debr anC thar rhe CTCS acrron rn
blacklisting him was wrong.
I
He is also seeking an injunction to prevent CTCS from producing or publishrng hrs name as f
person who had'unpaid debrs He is seeking RMl,030 in specral damages as a resulr of rhe search he
had ro make'foi being blackllsred; and RM2 million in exemplary and general damages.luhari was
,:,pu4zted as'ctl howCTOS gained rhe informarion on him as he h.d not raken a loan or owed anyone. I
'l'l believe llm'noi th only one in such a predicament as
rhere may be orhers involved," he said.
::1sourr",
New Srraix Times, Saturda/. 7 July 200t) r
I
I
En. ]uhari claimed that CTOS had invaded his privacy. Is this a fair accusation
from an ethical point of view? From the above case, |uhari took legal action to resolve
his conflict with CTOS. Based on your reasoning, could this conflict be resolved
without having to go to court in an attempt [o ensure justrce?
We have examined two reasons why privacy has become an issue in the global era
nowadays. The third reason is the significant growth in database marketing facilitated
by computer technology and advar-rced information systems. Companies specializing
in data coliection are able to provide direct marketers with customized mailing lists
that target groups with the desired characteristics. This development has posed a
challenge toindividual /personal privacy and at times could impose threats although
from a business dimension, this is seen as an innovative business strategy to increase
sales in the quest for profit maximization.
Next, we shall differentiate between privacy and surveillance.
7.4.3 Differentiating Between Privacy and Surveillance

Surveillance may be defined as a systcmatic investigation or monitoring of the actions fs**lilr*" -
of one or more persons. It is no doubt intertwined u,ith privacy although both are may be defined
clearly defined and contrasting concepts. While privacy is aimed at protecting the as a systematic
right of indir.iduals from being intruded, the main objective of survelllancc is to pierce investigation or
the prir.acv shield, sometimes justified by the vierv that 'if you have done nothing moniroring of the
\\'rong, y,ilu should have nothing to hide'. In simple terms, surveillance is spying actrons of one or
on others' activities. 'l'he primary- aim behind a surveillance activity is to collect more persons. lts
main objective is to
information about the individual's concerns, tireir activities or their associates for
pierce rhe privacy
specified reasons.
shield
Data surveillance is defined as a systematic use of personal data systems to
investigate and monitor t}'re actions or communications of one or more persons. It
ma\- occur an1r11,]-ta.a for numerous reasons. For example, consumers are being
monitored through hidden close circuit televrsion (CCTV) carneras rvhile shopping at
complexes nor'vadayrs as part of a surveillance process to reduce theft cases. Similar11,,
at the w-orkplace, so.rne organizations monitor employees' u,ork perfornlances
through CCTVs and assign personnel on confidential basis to check on empioyees'
e-rnail interactions/excl-ranges for organizational efficiency and effectiveness. Some
ma),e\ren do video surveillance through iridden video cameras. One may ask to rvha{
extent employers or businesses have the right to undertake consumer and ei-nployee
surr.eillance?
\\'e have so far defined privacy, explained reasons wl-ry it has beconre :ln issue
itou-adays and differentiated surveillance u,ith privacy as concepts. We shall next link
the privacy concept and its rele.,.ance in business ethics from three perspertivc\:
r Individuallpersonalprivacy.
r Eirrployee privacy such as use of personal information for recruitment and
selection, performance appraisai, promotion and eligibility of employee
benefits.
r Consuiner privacy relating to primary and secondary use of information.
lll [Jusrness tthrcs
7"4"4 lndividualPrivacy
p,^q, b, *c,*-T We learnt in Chapter 3 under the Theory of Rights that privacy is a negative right
righr ie rhe ,ghr of i.e. the right of human beings to be free from outside interference" 'Ihis has been
human beings ro be recognized through the Universal Declaration of Human Rights and adopted by
free frc,n ourside Malaysia as a member of the United Nations. However, are existing laws sufficient
inrei-ference to protect individual right to privacy from all dimensions? Must we have new
laws to cover intrusion to privacy considering lire vast developments in computer
technology? Some moral philosophers ha.,,e viewed that there is no need for us to
dwell on this issue further as existing legislation is sufficient to address violation
of privacy even in the ICT age. 1'his may be rational if the society recognizes and
respects privacy as a human right. But the issue is-does society still recognize it as
a right to be respected?
In Malaysia, prior to May 2010, there were only minor clauses that were concerned
with privacy in the Penal Code and Minor Offences Act. There was no comprehensive
act that dealt specifically with privacy issues. You may recall the two controversial
intru.>icrn of privacy cases covered in the media in 2008 and 2009 respectively, i.e. on
Elizabeth Wong's nude photographs shared through the Internet and mobile phone by
her own ex-bol,friend and a video of Datuk Chua Soi Lek engaging in sexual acts with
an unklorvn woman, and the iimitations of cxisting lan s in defending their cases as a
matter of dignity and integrity.
However, r,vith the technological adr.ancenrents in N4alaysiar-r society, the Personal
Data Protection Act 2010 (PDPA), a pr ivauy spee rlie legislation rvas finall-v passed by
the Malaysian Parliament in earll,lvfai'2010. It officially took effbct on I January 2013.
The key objective of the PDPA is to regulate the processing r:f personal data by data
users in the context of personal transactions, rr.ith the intention of saleguarding the
data subject's/owner's interest (Murni and Ratnar,r'ati, 2011).
Quoting from the words of t1-re Deputy Nlinister of Information, Conirnunications
and Culture, Datuk Joseph Salang:
'The act ;,r,'ill play a crucicrlrola in sofr:gttardin! the intere:ts ol indit,iduals, ctn,l
makes it illegal for corporatc entities or indit,i,luttls to sell per"sonal inforrratici::
or alloyv the use of data by third Ttartie s,
(Bernctmt, 20lz).
We shall re-examine this nerv larv in greater detail tor,vards the end of this sub-
chapter wlien rve cover privacy laws in Maiavsia.
7.4.5 Individual/Personal Privacy at the Workplace

in Chapter 3, r,r,e noted that individualprir,acy is a negative nght from human rights
priirciples-to be free from outside intert"erencc. Applying this at the workplace. 1et us
pose the foliowing questions in reality:
r As human beings, to lvhat extent do we have the right to personal privacy?
r Tci what extent should employers intrude in the personal lives of their
employees?
r To rvhat extent is personal privacy applicablc at the workplace?
Common lssues at the Workplac e 213
Employers today would scarcely dare to intrude so openly in the private lives of
employees because of the presence of privacy laws but they possess less obvious rneans
of acquiring the information of employees (Boatright, 2007). Employees, on the other
hand, being a resource or input in the production process and an intellectual property
of the employer are obligated to comply with employers' procedures, policies and
guidelineu.
Today's employment scenario commonly features the availability of tools to take
drug tests, assessment instruments to assess the level of employees'honesty aird other
personality traits, extensive computer networks for storing and retrieving personal
empioyee information and sophisticated telecommunication systems with concealed
cameras and microphones for supervising employee's activities. Some employers
irave also conducted genetic testing to screen employees for genes that can make
them more vulnerable to chemicals at the workplace. Aren't such initiatives violating
individual privacy in a moral sense while they are common busiuess management
practices nowadays? Aren't they intruding on the right of empioyees to be left alone
and freedom from outside interference? Do employees have a choice not to put up with
'interfering' employers during ttreir employment?
Let us read and reflect on this interesting surveillance case and appreciate the
negative outcomes that may happen in one's life if privacy is intruded upon.
Email and lnternet Usage at Work - Big Brother is Watching Youl
The case of Rrchard Chang may be 1n extreme example of what can happen when employees are
exposed to surveillance in the office, but it is nevertheless represenraLive of a nurnber of problenrs that
have begun to enter rhe modern workplace. As reporred in rhe Cuarulian newspaper in 2005, senior
managers in the UK burlding society Abbey had been receiving anonyrnous malicious documenrs,
causing them to draw up a list of 600 suspect.s in the company. Arrong orhers, rhey put Rrchard
undersurveillance, secretly checking his emaiis, computer, and ei,ci'r frngerprints on hrs water bottles.
When called to rvhat he r,hoLrghr was a routine meeting v'iith hrs supei-iors, it turned int.o a gruelling
two-hour investigative rnterview in which he cliscovered Lhe full exteni of the firm's surveillance of
his life. He returned to his desk, wrote a suicide note, climbeC onto a balcony on rhe fifth floor oi rris
building and jumped ro his death.
Employers have access to their employees' emails and companies are increasingly cracking down
on employees who misuse the internet, writelokes or smurty cornments aLrout coileagues or sirnply
abuse company time whrle surfing rhe web. ln 2003 a UK survey iound out rhat 3l per cent of
employers,had deak with between two and five disciplrnary cases relared ro email abuse in the past
year. Oqe case even reported punishing as many as ten workers for lnrernet and email abuse On ihe
!!S,fe,.aregood reasons to suggest rhar emplovers are well withirr their rights.
.-;-.,,.i. -..: .-..
i'
;t*!l]r-: "- l:.-,
and Matren,2007)
,/ l4 Busrness tthrcs
7"4.6 Consumer Privacy

Consumers, in the study of marketing ethics, are viewed as 'kings' and businesses are
supposed to acknowledge the importance of consumer sovereignty, i.e. the right to
buy or not to buy a product or service. Yet, they are targets for information gathering
to boost sales. Businesses view this as part of developing their marketing strategies to
stay competitive in the global market.
In addition, the installation of CCT'Vs anu video cameras at retail outlets are
regarded as common features in the technoiogical ICT era. These used to be part
of the surveillance techniques that are used to monitor employees, but today, even
consumers are victims, much as businesses may justify its use to reduce potential .I
theft. Certainly, these actions challenge consumer privacy. ,l
Tl* ***hr.-,. t The main threat to consumer privacy comes from the expiosive growth of database
consumer privacy marketing. The countless bits of information generated in each transaction are now
comes from the used to generate lists for direct mail and teiemarketing solicitations" The barcode i
explosive giowth of scanner technology and the Internet have made it possible for companies to track the
darabase marketing. purchirsrng behaviour of consumers and this has raised privacy concerns, more so by
The countless birs those who value their rights to privacy. Why should consumers'purchasing habits be
I
of information monitored? Yet, business people validly justify and claim it is a business marketing
generated in each
strategy to stay competitive in a challenging g1obal environmentl
transaction are now
If such is the case, how do rve then baiance the privacy needs of individuals i
used to generate
r,vith business needs? Perhaps, busiiesses must firstly acknolviedge and accept the
lists for direct mail
imporrance of upholding privacy as a human right in order to lind the right balance
and telemarketing
solicitarions.
between these two rather contrasting needs.
i
But wh,v do n,e need to value privacy so highly and hold that it ought to be
protected as zr right rn the first place? The follor'ving rvill jLrstify it from LItilitarian,
Kantian a nd Islanr ic perspcrtir es.
I
7.4.7 The Ethics of Protecting Privacy

Utilitarian perspectives
Utilitarians weigh tl-re good and bad consequences of incomplete or: inaccurate
t
information. Let us analyse employee personal data gathering by employers from a
rvorkplace context. It may cause rrore harrn than good if rnformation is incomplete
or inaccurate, thereby violating privacy as a right. If the information is inaccurate,
t
it can jeopardize an employee's career. For example, inaccurate information on an
empiol,ss's pertbrmance appraisal ar-rd/or health status may deprive him/her of
promotion opportunities. It can also affect a person's morale and integrity. Therefore, i
I
if empioyers are to gather personal information on ernployees for decision making at
the workplace, they have to cnsure that the information is accurate and up to date. They
also have to perform data auditing as a rnatter oi accountability and responsibrlity in
processing personal data disclosed to thern by respective empioyees. I
Next, we shall examine the good and bad consequences of surveillance activities,
piercing the right to individual privacy. Observing workers lvith hidden cameras or
eavesdropping on business conducted over the phone are generally considered as i
unethical, much as it is surveillance activity by empioyers to sustain work efficiency
Although employers may justify that they want to catch dishonest employees, such
spying practices may also lead to loiv employee morale and motivation due to lack of l
trust of employees'commitment to tvork.
*
t
Whatever harm done to employees by invading their privacy has to be balanced

in utilitarian calculation against the undesirable benefits that these practices produce
for both employees and employers. Employers must not only consider their business
interests but also employees' well-being, in this case, a right to privacy. Perhaps,
employers must be honest and transparent with employees when explaining their
policies and guidelines on privacy issues for better appreciation by employees, although
employers may perceive that it is their right to develop policies and guidelines to be
I
followed by employees.
Next, let us justify the need to protect privacy from Kantian arguments.
Kantian perspectives
As Immanuel Kant's theory promotes goodwill and actions performed as a duty
to feliou, humans, the theory therefore links privacy to having respect to persons.
In other words, the defence of a right to privacy involve autonomy and respect for
individuals. Hence, by invading a person's privacy, it violates the principle of respect
for persons and prevents him/l,,r froil making a rational choice as an autonomous
being.
Privacy and identity as earlier defined by Aian F" Westin (1967) is of value
because of the role it plays in developing and maintaining a healthy sense of personal
identity. Privacy is also of importance in promoting a high degree of individuality
and freeCom of action among members of society. Although there are critics of these
argumcnts bascd on thc littic cvidcnce to prove such normative statements, this vielv
is justified from a moral perspective since humans by nature do.,rlue individualism,
independence and freedom of action.
In fact, Stanley I. Benn (1988) er.en notes that utilitarian arguments for a right of
privacy are not able to shou. what is moral11, wrong rvhen a person is secretly obserr.,ed
rvithout any actualharm being done" But respect for persons wiiisustain an objectron
even to secret u,atching, which ma1, do no acrual harm at all. This argument seerns to
support that sun eillance activities with an intention of spying may not be calleci fbr
at ail out ofrespect for persons.
Another vier.t, by Charles Fried (1984) explains that privacy is of value because
it provides a 'rationai context' for some of our most significant ends, such as love,
friendship, trust and respect. Invasions of privacy destroy one's own rntegritv as a
person. In f-act, privacy in itself is essential for respect, love and trust among humarrs.
Tht'se are intimate relations and intimacy is created by the iimited sharing of personal
information about ourselves that is not knor,r,n to other people"
Privacy and its role in the human socialization process

Several philosophers have suggested tirat the key to a more satisfactory theory of
privacy can be constructed by understanding the way individuals are socialized in a
culture (Boatright, 20A7). For exampie, according to Jeffrey H. Reiman (1997), prl\racy
is an essential part of the complex social practice by means of which the social qroup
recognizes and communicates to the individual-that his existence is his own-and
this is a pre-condition of personhood. There are certain beiiefs about what ought to
be private in the process of human growth and maturity. The ability to mairrrain the
confidentiaiity of personal value of information is the halimark of an autonoirous
individuai pr:ivacy. A person has to recognize what is private. Helshe is responsible for
the good and bad consequences.
216 Business Ethics
Protection of privacy therefore safeguards social norms, the 'rules of civility', tirat
in significant measure constitute both individual and community. While we have
intellectually rationalized the need to protect privacy from contemporary ethical
dimensions,let us finally examine it from a religious context.
Privacy from the Islamic viewpoint

i
Isiam, as a way of life, places great importance cn the fundamental human right to I
privacy. T'his is evident from relevant verses of the Holy Quran. To quote:
I
'Oh ye who believe! Avoid suspicion as much,.for suspicion in some csses is a
sin: And spy not on each other, nor speak ill of eaclt otl.ter. Would any of you like i
to eat the JTesh of his dead brother? Nay, ye u,ould abhor it. But Jear Allah: For I
Allah is Oft-Returning, Most MercifuL.' I
L
(Al Hujurat, 49:12)
Next: I
'Oh ye who believe! Enter not houses other than your own, until ye, have asked
permLssion and saluted those in them: that is best.for you, in order that ye may
heed (what is seemingly).'
(An I'lur, 24:27).

From Islamic principles, it is absoluteiy rvrong to spy on the secrets of others,
including those hidden or stored inside computers, despite one's suspicion. Certainly,
this also refers to surveillance activitres of all forms if the intention is to spy on others.
It is also proliibited for any person to come physically into one's property without
pernlission (or logically into one's corrputer resources and spy on data) for curiosity
or to look at their contents without prior pennission of the owner and he should be
aware of the limit of the given permission (Mansoor A1-A' alr, n.d.; Tamrin Amboala
et ul", n.d ).
The Prophet has gone to the extent of instmcting his followers that a man should
not enter even his own house suddenly or surreplittously. Hc has also reiterateci that
good Muslims are those who leave other people's business alone. To qr-rote a hadith
from Inram Malik Ibn Anas, 'It is betterfor a Muslim to mind his own business'(Malik
ibn Anas, l9B9).
'fo summarize, much as prir.acy is a human right ar-rd jr-rstified through
conventional ethical theories aird rational judgements, it is also religiously promoted
from Islarlic contexts. Hence, it is dor"rbly iustiilel that privacl. nlust be protecterl as a
human value in respect for individual dignity and autonomy as a human being.
Let us norv exantine the Malaysian lau,s to protect prir,acl as a right.
7.4.8 Privacy Laws in Malaysia

The Maiaysian Constitution does not explicitly ciiscuss or cover privacy. Hence,
it does not specifically recognize the right to privacy, aithough it does provide for
related rights such as freedom of assernbly, speech and movement. Other laws with
implications to protect privacy include the Cornmunications and X,{ultimedia Act
(CMA), the Anti-Corruption Act, the Companies Act, the Computer Crrimes Aet
(CCA), modelled after the United Kingdom's Ccarputer Misuse Act of 1990, the Penal
Ccide and Minor Offences Act.
Common lssues at the Workplac e 21i7
With the rigorous ICT developments, Malaysia has movecl forward to gazette I Secrion
234 of
privacy laws for protecting individual frivacy in the cyber age. Section 234 of the eommunicario6 -' '
Communication and Multimedia Act 1998 prohibits unlawful interception of and Mukimedia
communications, commonly referred as cracking or hacking. Acr 1998 prohibits
The Computer Crirne Act 1997, enforced in 1999, prevents any unauthorized unlawful interception
of communicarions,
access to computers, programmes, data and other IT information. The unauthorized
access to computers is further classified as (i) unauthorized access with intent to - commonly referred
i ro as 'cracking' or
commit or facilitate further offence (ii) unauthorized modification of thc contents
of any computer and (iii) wrongful communication of the means of access (Tamrin
Amboala et al., n.d.).
In addition, the Personal Data Protection Act (PDPA), supposed to be enacted
tilp;;.;;; --
Act 1997, enforced
by March 2002,was finally passed by Parliament in 2010 and enforced on 1 January in 1999 in Malaysia,
2013. This act is aimed at preventing abuse of the personal data of citizens for preventS any
commercial purposes. Its enforcement has been delayed due to the numerous requests unaurhorized access
for exemptions by business institutions (Munira Sulaiman, 2012). to computers,
Under this Act, it is illegal for corporate entities or individuals to sell personal programmes,
information or aliow the use of data by third parties. The enactment of the Act gives data and other
the public more control over their personal data. Whenever consent is required for lT information,
i.e. hacking or
data processing, it will have to be given ciearly ratirer than implied or assumed. On
cracking someone's
the other hand, organizations need to do continuous data privacv auditing to ensure
ir.rformarion.
compliance rvith the law as they norv have to shoulder increascd responsibility and
accouirtability in processing personal data disclosed to tl-rem. fP**.rl nr--
PDPA is similar to legislation to protect personal data enacted in other countries Prorecrion Acr
such as Hong Kong, New Zealand, Canada and the European Union. Under this (PDPA), passed by the
;\ct, offenders, if convicted, will be iiable to be jailed for up to two years or l'rned Malaysian Parliament
RM300,000 or both. The public is urged to be carefui about information they share in 2010 and enforced
online, especially in social media applications (Bernama, 12 L)ecernber 2012). on 1 January 2013 is
To conclude our sectioll oil privacy, rve note that nelv cyber larvs ]rave beeir aimed at preventing
introduced to protect individual privacy in the ICT era. It is du1,v enlorced for abr-rse of personal
data of citizens for
retributrve justice, should people coir-imit offences resulting in harm and injustice.
commercial purposes.
Ilowever, laws alone will not be able to ful1y protect individual privac,v. Indir,iduais
themselves will have to play their role to protect their own privacy as a right. 'l'his rvill
be made possible if one personally determines what coirstitutes I'ris or her privacy and
upholds it as a principle or value in life.
Both Utilitarian and Kantian arguments point to a key insight - irrivacy is
important to uphold individual dignity and u,ell-being. Islamic principles have
also acknou.ledged the importance of protecting privacy as an indivirlual right. In
additioir, privacy is a unir.ersally accepted human right that needs to bc respected,
be it in private life or in the conduct of br.rsiness. Violation of a right to privacl. may
lead to injustice, an unethical act lvhich needs to be rectified under ali circunrstances
to uphold human dignity and integrity. Finding the right balance betrveeu business,
employees'and consumers'needs and expectations is a great chailenge for business
iirms as they utilize new technologies in this global era. Privacy certainlr. requires
.l'he
a coordinated solution of many involving parties. responsibilit,v of 14alaysian,
based businesses rvill be to develop and implement transparent privacy policies to be
effectively communicated to employees and other stakeholders, apart from complying
with availabie privacy iaws for justice.
Next, we will cover discrimination u,ithin the employment context follorved by
;:ffirmative action.
218 Business Ethics
7.$,,., DISCRIMINATION AND

AFFIRMATIVE ACTION
Zk bil.rr*r, L* I Globalization features diversity of the workforce, an outcome of human resource

Ied ro diversiry of mobiiization across nations, greatly facilitated by trade liberalization policies anri
the workforce, an formation of trade blocks u*orrg member nations. Human resource mo-bilization is
outcome of human apparently seen in all regions to capitalize on the available job opportunities across
resource mobilization nations, supporting the increasing production process of goods and services, economic
across narions. greatly growth and overall enhancement of consumer welfare (Khalidah et a1.,2012)"
facilitated by trade
Workforce diversity relates to differences in demographic factors such as age,
liberalizarion policres
gendeg race, ethnicity, sexual orientation, socio-economic background, talents anii
and formarion of
capabilities. While diversity is seen to be a positive feature in today's global age, it
irade blocks among
member naiions.
also brings to surface a moral issue to be deliberated in business ethics-the act of
discr:mination at the workplace within a cross-cultural environment. The 21" century
_l
W"rkf";d*.r",y seems to show a commitment to equal treatment for individual rights, providing each
relates ro differences person with equal opportunity at work and in life in general. With these sentiments,
in demographic inequality of treatment will be more often seen as an unjust act, what more with ;
faciors such as discriminative acts.

age, gender, race, This sub-chapter wili initially introduce readers to discrimination as an ethical i
erhniciry, sexual concept and how to apply it with in the employnrent r ontext Tf will rationalize that not
o rientario n, all cases of unequal treatment are discriminative. Further deiiberations u,illbe made
socio -economic to explain why discrimination in emplovment is a wrongful act based on conventional i
background, talents
ethicai theories and principles. Follorving the understanding on discrimination, it will
and capabiliLies
irrtroduce readers to the concept of affirmative action and justify that it is not reverse
discrirnination although it is a form of unequal treatment. The arrn is to strengthen
the readers' understanding of drscrimination and affirmative action as two inter-
r
iinked concepts, while studying business ethics as a subject. Finally, ethical principles
n ili be applied to justify affirmatir.e action lor social iustice. i
7.5.1 Defining Discrimination and its Scope I

D*",',n,,,;;;l Discrimination is a wrongful act whereby a person is deprived of or marginaliz.ed
wrongful acr whereby from enjoying some benefits or opportunities bccause he or she is a nrember of a
a person is deprived group toward which there is substantial prejudice. For example, Mr. A is auadernrcally I
of or marginalized qualified, talented ar-rd has perfornred very weil during a job rntervierr". Hou,ever,
from enjoying because he does not belong to the salre race as the manager he is supposed to report
sbme benefirs
I
to, he is not offered the job. The job was offered to a candidate of the same race with I
or opporruniries
a lolver quaiification" This is an acl of discrimination because there is no good reason
because he or she
is a member of a
to treat Mr. A unequaliy coinpared io other candidates due to racial differences.
group towards which
The manager who interviewecl Mr. A seems to have prejudice torvards him since he i
rhere is subsiar.rtial
belongs to a different race. Ethnicity is rarely a job requirement in most positions
prejudice. at the workplace. on this account, it seems to suggest that Mr. A is a victim of a
I
discriminative act in the course of seeking employnent. !
Discrimination can happen in various aspects of life, be it social, economic or
political. It rnay happen in employment, housing, education and many other areas
of pubiic life. However, in our study of busiitess ethics, rve shall emphasize on r t
t
Ccmmon lssues at the Workplace 219
discrimination in employment at the workplace-hiring decisions and compensation

rnatters such as pro*otion, salary and fringe benefits.
Generally, discrimination may take different forms as follows:
Forms of discrimination
r Gender/sex
r Religion
r Natiorralorigin
r Age
r Handicapped
At the workplace, gender discrimination may occur. For exampie, women are not
given prcmotion opportunities as much as the male employees due to stereotyping.
filhil;kpr..e-
gender discriminarion
The organization assumes that female employees are not as capable as their male may occur due ro
counterparts. Such unjust acts are certainly not called for based on comparable stereotyping.
lvorth arguntents, what more th. richts arguments. If there is a female staff capable of
holding a challenging position, she should be given the opportunity to prove herself.
By ignoring her capability and treating her with inferiority, a discriminative act has
been performed that is both wrongful and unjust.
Similarly, discrimination may exist because of differences ln religion, national
fur-rlr.,t, ,.rt ,hr, b.d
origin, aqe factors or e\ren health status. For example, a qualified blind person to discriminaiion
is percetr.ed to be unable to do a job as cfficicntly as another candidate who is such as stereoryping
physically norn-ial. He ma,v be exclLrded in the shortlisting pro,-ress itsell'aithough are certainly nor
the job may be performed by a blind person, if given the opportunity. Er,en if he is called for based on
calied to attend the interview, the job intervie\^/ers are unwilling to recorrmend hin-r comparable rvorth
although he possesses all the credentials and talents because of one mere reason-he arguments, whar
is a handicapped personl more the rights
Studies have shown that discrimination happens around racial, ethnic grollps, arguments.
gender and financial status aspects (i.e" poor peopie are being discriminateci as
compared to the high income groups) (Boatright, 2AA9). We note that as responsible
humans, we are expected to uphold justice and fairness in all aspects of lite. At the
worliplace, irr managing ethics and diversity, managers must duly exercise jr-rstice and
fairness to all employees and avoid discriminative practices, be it on a personal or
organizational level. Managers must establish employrnent practices that are iegal,
fair and do not discriminate against any organizational rnembers (iackson e/ a/.,
1992). Gendcr or racial discrimination, discrimination due to religious differences,
handicapped people, etc. must be avoided under all circumstances in thc name of
humanity. Certainly, these are wrongful acts of unequal tre atment rvhich challenges
social justice.
7.5.2 Unequal Treatment Versus Discriminative Acts

!\'e have just introduced discriminatior-i as a negative ethical concept and defined
its broad scope. Let us pose a question is unequal treatment always discriminative
and therefore unethical? Although, we have earlier noted that discriminatjcn is a
wrongful act, we cannot generalize that ali unequal treatments are discriminative.
Some unequal treatments may be classified as discriminative acts but some may not.
For example, preferential or seiective hiring in employment i.e. giving 'preferences'
220 Business Ethics
to a particular job applicant based on job-related reasons or some justified grounds,

much as it appears to violate the ethical commitmelrt to equal treatment.
T et us create a scenario. A vacancy exists for the post of a civil engineer and the
job scope has stated that the incumbent has to be physically strong to take on outdoor
tasks in rain and shine to monitor the construction of a high rise building in the
outskirtsofametropolitanarea.Qualifiednewmaleandfemalegraduatesarecalled
in for an interview. However, the position was finally offered to a male graduate.
In this situation, it is unlikely that it is classified as a discriminative act since the
candidates have been duly informed of the demanding job scope and requirements,
expected duties and working conditions.
Perhaps, it is justified to take a maie candidate to fill such a challenging position
since it requires masculinity and toughness; more so to monitor the foreign general
workers/labourers of different cultural backgrounds at the worksite. There is good
justification to consider a male candidate instead of a fbmale candidate, assessing
the consequences of the recruitment exercise and the potential implications that may
follc' ,, the process. To summ arize, preterential or selective hiring under justified
circumstances may be undertaken at the workplace. Not all unequal treatment
is therefore discriminative. Preferential hiring may not be a wrongful act if the
justification is reasonable although it is a form of unequal treatment. We shali revisit
this employment issue in our discussions on affirmative action later in this chapter.
Next, let us create another scenarlo. An international commercial bank had
just l'reen set up in Kuala Luntpur and it was recruiting new staff. In the media
advertisement, it did not specificalll rnention the nationality of applicants, so many
job-seeking foreign candidates applied for the positions. 'I'hey were called for the
interview but in one of the sessions, the interr,iewers indicated that they rvere looking
for loca1 candidates only without grving valid reasotrs. Aithough to sotne business
peopie, it may be seen as a preferential hiring activity, such acts may be perceived tc,
be discriminative or even manipulative because the foreign candidates may not have
applied for ihe posts if the bank had been transparent at the initial advertising phase
of the seiection process. Obviousiy, this is a case of unequal treatment, rvi-rich maybe
an act of injustice because of a simple reason-the candidates had not been earlier
informed that the bank was looking for local candidates to fill the vacancies"
While we have created simple business scenarios and engaged in rational
discussions to assess whether certain actions are discriminative or otherlvise.
let us further elaborate on discriminative ancl non-discriminatir.e acts for better
understanding.
One may ask: How do we categorize whlrther an action is discrirninative or
not as it seems rather situational and dependent on the actions and circumstances?
Boatright (2009) suggested that one kind of discrrrnination occurs u,hen there is an
express intent to treat members of certain grolrps diftcrently. In other words, one has
to determine whetherthe intention itseif is to discriminate a person out of preiudice
since he or she belongs to a particular group. Sexual harassment, for example, is seen
as a form of gender discrimination (Desjardins, 2009). Bccause a female employee
*l is labelled or stereotyped as a sex symbol or object, she is being sexuaiiy harassed
S.-rrl l-rr.tr"* by her male counterparts. The intention is clea,; to treat her differently compared
is seen as a
with the other male colleagues because shs f s]ongs ter a different gender, a female and
form ofgender
not a male. Professionally, they are no different since both genders have to perform
discrimination.
similar workplace duties and responsibilities. On this account, a woman is seen to be
I
Common lssues at the Workplac e t 221
unworthy and inferior compared tcl a male employee with such unequal treatment.
This is an act of sexual harassment as well as gender discrimination due to the bad
intentions of the male counterparts and negative treatment of the female colleague, as
a consequence of stereot1,Ping.
Ceriainly, the act of sexual harassment challenges justice and rights principles, llire acr ot.*uil -
apart from a woman's dignity. In addition, if a male manager utters before he goes harassment
for un interview session at the Human Resource Management Department

"I hate chalienges justice
women employees. They are just too emotional and I am not going to consider any and rights principles,
"I
female candidatesl " Or during an interview session, a panel member comments,
apart from a woman's
dignity
just do not like her face, so out she goes..." These are clearly indications of gender
drscriminative acts and unequal treatment that are unjustified because of one's
immoral intent and an act of prejudice towards someone or a group member.
Interestingly, Desjardins (2009) highlighted in his book that:
'If a woman is harassed at the workplace because she is a woman, and if this
harassment reaches the point where it interJ'eres with her ability to work, sexual
httrassruent is a case of unjuti sexual discrimination.'
\\re shall further discuss the forms of sexual harassment under a special sub-topic,
'Wromen at the Workplace' in this chapter later. We have just categorized discriminative
acts based on one's conscious intention to discriminate for unjustified reasons such
as
the pere eption of one's unrvorthiness and inferiority.

Next, let us understand the ethical arguments against discrin-ritration in
err"rployment by applying Utilitarian Ethics, Kantian Ethics, Tustice and Rights
priirciples as well is iohn Rawls's Socral )ustice/Egalitarian Theory-, further sub-
dividecl into Difference Principle and Principle of Fair Equaiity of Opportunity.
7.5"3 Ethical Arguments Against Discrimination in

Employment
;he foll,lvrng is a summary of the ethical arguments against discriminatiotl from
r.arious ethrcal theorres and principles. Elaboration rvill foliorv next.
r Utiiitarian'fheory cites the ways discrimination harms rnclividuals, business
firms, and society as a whole.
r Kantian Theory supports the notion that discrin-rination violates human
dignity and respect for Persons.
r Principles of )ustice has highlighted the point that discrirr-iinatio;r is to treat
people differently when there is no good reason for doing so.
r Rights principles clearly acknou,ledges that all hurnans have basic rights
such as respect, privacy, freedom of religion, etc. Discrimination chalienges
i;rdividual rights.
r |ohn Rawls' Distributive Justice/Egaiitarian Theory highlights that sociai and
economic inequalities are to be arranged so that they are both'to the greatest
benefit of the least advantaged' and 'attached to the offices and positions
open to all under conditions of fair equality of opportllnity'. Discriminative
practices are unjustified in a free market system.
2?2 Business Ethics
Utilitarian argu ments against discri mination

I eff i ci e n cy j u stif i cati o n
n
Much as it is acknowledged that preferential hiring exists at the workplace,

discrimination creates an economically inefficient matching of people to jobs. To
elaborate on this drgument, let us recall an earlier case discussed on the candidate
who was deprived of being employed because hr belongs to another race compared
with his manager. Although he has more taient and possesses better qualifications,
he was not offered the position. Instead, the job was offered to another candidate
who possesses lower qualification trut belongs'to the same race as the manager.
Utilitarian T'heory rationally weighs the good and bad consequences of such actions.
If this continues to be an organizational culture, such discriminative acts I'ill lead to
organizational inefficiencybecanse of mismatch of people to positions.Imagine if thrs
is a critical position. Certainly, the less qualified car-rdidate will not be able to perform
as efficiently as the more quaiified candidate, leading to organizational inefficiency
in t1,- long run.
Exte rn ality ju stifi cati on

_1 Employers who discrirninate on the basis of genderlsex, racc' or heaith conditions can
Erplo1-tt -L
discriminate on the impose negative externalities and costs on society. Society has to bear the burden of
basis of gender/ addressing social problem6 created from discrimination. Assume that organizations in
sex, race or healrh the employment process discriminate handicapped peopie although they are qualified
conditions can to fill the positions. Eventually, because they cannot sustain their orvn lives, society
impose negative has to bear the cost. The (]overnment or non-gor.ernmental organizations (NGOs)
externaliries/cosrs to may need to provide welfare or care centres, financial assistance or subsidies to thern,
socieiy. etc. Sirnilarly, if a particular racc is discriminated in employment, eventually-, out of
desperation {br survival needs, they lviil indulge themselves in r.rndesirable professions
such as theft, clrug trafficking, prostitution, etc., which will lead to social problems in
the community.
The consecluences of discrrmination in employment lvjli result in rnore negative
consequences to society in the long run.
Kantian arguments against discrimination

---- -------- ----r From Kant's perspective, obviously, discrimination does not promote goodu,ill
lrearrng people as I
a means to an end and respect for human clignity- If one rvere to piac.e hirnself in tlie position of I
and discriminating the discriminated person, certainly, he r,r,ould not want others to treat him as
at one's whims such. The victims of racial and gender discrimination, f'or example, are not only
and fancies is also deprir.ed of desirable employment but a fundamenta) right to be treated with I
unjusii[ied, seen dignity and respect. Treating people as a means to an end and discriminating at
to be immoral one's nhims and fancies is also unjustified, seen to be rmmoral acts-a chalienge
acts-a challenge
to the principle of
to the principle of universalizability (i.e. to be consistent in our judgements anri
actions as a matter of iogic). Kantianism provides a strong foundation for rights.
r
u n iversalizabrliry.
tndiviciual human rights must be acknowledged and inviolable (Boatright, 2007).
Likewise, the Theory of Rights will fully support that the act of discrimination,
in any manrler, vioiates human rights principies ancl therefore is an immoral act'
r
under all circumstances. b-
T
I
E-
I
t
I
*I
3
I
I
{;
Common Issues at the Workplacr:
Justice arguments against discrimination

Perhaps, the strongest arguments against discrimination are those that appeal to some
principles o{' justice (Boatright, 2009), as advocated by many deontological scholars.
These views point that an act of discrimination is unethical since people are treated
differentiy when there is no good reason or justification for doing so. Committing acts
which make people feel unworthy and inferior through discrimination in any form
are certainly unjust and immoral based on logical thinking, what more from religious
constderations"
For example, front the Islamic dimension, the act of discrimination is none other
than an act of injustice. Quoting a Quranic verse:
'O People! Verily We have created you
Jrom a man and woman and we made
you into various tribes and creeds for the purpose of mutual recognition (not
discrtmtnation and racial pride| Verily the most prestigious and honoured
amongst you is he who fears Allah 'fa'ala most. Verily Allah Ta'ala is all
Knowing" AII Aware.'
(Surah Al- Hujurat, 49: 1 3).
As believers, Muslims are to internalize justice as a virtue. To quote another

related verse:
'Oh 1,6v who believe (those with iman). Stand out
firmly, For God, as witnesses
to jan' dealing . and let not the hetred of others to yott make ylu s:l',erve t0
wrong and depart from Justice. Be just: that is next to piety (toqwa): and fe ar
God. For God is v,ell-acquaintetl with all tlmt you do.'
(Surah Al-M aidah, 5:8) "
Next, recalling from Jotin Rarils's Egalitariar Iheory (note: Rawls's theory
relates to distributive justice), it is cle arly stated tl-rat althougl-r the free market system
acknowledges inequalities in distnbution of power and resources, where it exists,
social and economic inequalities arc to be arranged so that they are both (a) to the
greatest benefit of the least advantaged (i.e. Difference Principle), and (b) attached to
the offices and positions open to all under conditions of fair equalityof opportunity
(i.e. Principrle of Fair Equality of Opportunity). However, there are conrlitions under
which rational persons wouid make exceptions to the first principle and accept less
than an equal share of some primary goods.
While many schoiars view tirat ltawls' theory is very much Kantian in perspectivc,
.fheory
presumably, his Distributive Justice may also apply and relate ic positir,e
unequal treatments such as selective hiring as discussed earlier in this sub,chapter,
a commonly justified practice in human resource management for organizatronal
efficiency. (Refer and recall for nore detail under Ethical Theories in Chapter 3. i e.
under a sub-topic 'Justice in the Free Market Systern'). Obviously, his Principle o1
Equal I-iberty will fully support that discrimination is unethicai.
To end our discussions on discrimination, by and large, we note discrimination
is a morally wrongful act although unequal treatment exists under preferential hiring
at the workplace, not to mention in other aspects of public life, with good intentions.
I{owever, many people have linked discrimination with affirmative action. Some
groups have even made it a contruversial issue, ciaiming that affirmative action leads
to discrimination. Some have also advocated that there should not be any form of
224 Business Ethics
affirmative action because it may lead to reverse discrimination. We will next look at
these dimensions, but before this, Iet us try to see the difference between discrimination
and affirmative action by understanding affirmative action in definition.
7.5.4 Affirmative Action I

I
Affi'.,t,.;;;--l What is affirmative action? Generalll,, it refers tc policies that take factors including
refers to policies race, colour, religion, gender, sexual orientation or national origin into consideration
that rake factors in order to benefit an unrepresented group in areas of employment, education and
including race, colour, business, usually justified as countering the effects of a history of discrimination. l-
religion, gender, The term 'affirmative action' was first used in the United States of America (USA) I
sexual orientarion in 1961 during the presidency of fohn F. Kenned1.. It refers to measures implemented f.
or national origin to achieve non-discriminatron in employment against the coloured citizens. In tlie l
into consideration United Kingdom, affirmative action is known as positive discrimination. Llnequal
l
in order to benefit
special treatment is given to certain groups to correct an inequality problem, be it
an unrepresented I
wealth or distribution of resources. The main aim is to correct a sociai-economic i
group in areas
imbalance within a nation to uphold social justice.
of employment,
education and For ex ample, wornen at u,ork are given preferential treatment based on comparable
business, usually rvorth to correct a social inequality that has long existed in the US employment
justified as scenario. In Malaysia, in the I970s, the Malay race, being the pclorest, has been given
countering rhe speciai beneflts to correct the income disparity rvithin a multi-racial society.
effecrs of a history of
discriminarion.
7.5.5 ls Affirmative Action Reverse Discrimination?
5"r..*";.f*;'-I Literatures on affirmative actior-r seem to suggest that it is a noble act to correct past
affirmative action as injustice over a longperiod of time. Ho$,ever, some critics including Utilitarian tenci
reverse discrimination to claim that affirmativc actior-r leads to reyerse discrimination. Some even refer to
and they are affirmative actior. as reverse discrimination and they are therefore against affirmative
rherefore against action. The strongest objection to affirmative action in the tlSA is that this policy
affirmative action. deprives n hite men of their legitimate rights (Shaw and Barry, 2004) because the '1r 2pL.
now being discriminated against for no fauit of their orvn. Thei, become victims of
circumstances, being caught in tl"re rniddle of socialpolicy to correct a past injustice
committed by their predecessors. As somc of the successful court cases show, their
point is ne1l received by some judges-that affirmative actron has turned out to be
reverse discrimination. Br:t some other judges do not concur u,ith the verdict, thus
sending out mixed messages on the legality of affirmative action.
While \ve are open to the above viewpoints, let us anal,vse and justif,v that
affirmative action is not re\rerse discrimination. Firstly', discrtmination, as rt
is widely understood, is accompanied by prejudice and stereotyping of groups.
Discrimination carries a negativc connotation (Hasictt, 2002). Those lvho perform
discriminative acts are motivated by hatred and are driven by a feeling of superiorit,v
over minorities or other targeted groups. It is synonymous with being biased, bigotry
or racism. Conversely; affirmative action is a resuiL of advanced human endeavour,
self-conscience and commitnient to finding the most agreeable solution to the long
history of human injustice. The intent of affirnative action is thus a noble one,
based on a genuine realization to correct serious wrongs of the past; certainly not'
to take revenge.
In Islamic ethics, an act is judged by its intent-good iirtent implies high moral
rvorth; but bad intent (e.g. to discrirninate soneone based on religious diffcrenccs)
has no moral north, and attracts only God's anger. Prophet Muhammad SAW once
said:
Common lssues at the WorkPlace 225
'The reward of cleeds rlepends upon the intentions, and every) person will get the
reward according to tvltat he his intended"'
(Llmar bin Al-Khattab, Vol. B, Book 78, Number 68)
This hadith emphasizes on the importance of having an intention for

every
good purPose for everyaction'
physicai act that *. ,1ô, and the importance of having a
is right
it utro indicates that intention is the measure for assessing whether an action
out of bad inrentions,
or truthfui. Obviously, since discriminative acts are committed
However, because affirmative action
it is the.efore morallywrong from Islamic ethics.
morally justified
is undertaken out of good intentions, it is therefore a sound and
ethical action.
In fact, the principle of good intent as explained in Islamic ethics is somewhat
only out of a feeling
similar to Kantian ethics i.e. an act has moral worth if it is done
based on good
or au,y to fellorv humans. since affirmative action is implemented
Isiamic ethics as well
intentions, it is therefore a positive action from the viewpoints of
reverse discrimination
as Kantian ethics. Affirmative action is thus not regarded
as
from deontological justification'
7.5.6 Ethics and Affirmative Action

action.
The following are ethical arguments to further support affirmative
Principles of justice
justice' Special privileges
It is in iine u'ith the retributive or compensator)r principle of
i.e' those who,
and due consideration are given to the deprived or marginaiized groups
would
otherwise because of past and present discriminatory employment practices,
is a corrective measure
be excluded from the Job market. Affirmative action seen as
to uphold social justice. It is also in iine with the distributive justice principle
since
affirmative action initiatives always have a noble intent of correcting inequaljty in
a
society's distribution of resources. The first principle of Rawls's ]usticeiEgalitarian

Theory, the Equal Liberty Principle clearly states that each person is to have an equal
right to the most extensive total system of basic libertres (i.e. freedom) compatible
with
a iirnilar system of liberty for all. Everyone has basic rights. Equal share of u'hatever
the
goods are avaiiable is the most that any Person may reasonably expect, given
requirement of unanimor-rs agreement'
Utilitarianism
ib support affirmative action, Utiiitarianism claims that such programines help the
*uloiiiy of people in soclety. Affrrmative action promotes the greatest good for the
graatesi nu-bei. Although it nloy be true that affirmative action has produced some
Inintended side effects si,ch as depriving a few people of their deserved reu'ards, this
is unavoidable in any social policy-since in any process of change there are always
gainers and losers. bverali, the gainers are expected to outnumber the losers' For
Instance, assume that a quota is set fbr a job allocation between the majority and
minority/underprivileged /neecly group" If there are ten positions availabie, rnd three
are reserved for this 'sp?cial' g.orp', (i.e. the minorities/underprivileged/needy
group)'
there are sf ill seven positions avrilubi. for the majority. For the common good, surely'
job'
it is not too much to ask the eighth 'majority' candidate who failed to be given a
to be socially justified
to find alother job elsewhere. Such a small sacrifice seems
compared to the injuries suffered by these 'special' groups, be il in the v-ears past or
ffi
ffir:
'w
aw
226 Business Ethics
"'ffi
present. Affirmative action therefore stands for the greatest good for the greatest
.$r.'
number, as proposed by Utilitarianism. ,-t
sl
Principles of rights
'Protected' or 'special' groups (for example, the minoritiesiunderpriviJeged/needy I
I
group), through affirnative action have a right to different treatment because these I
groups have not had equal or fair access to benefrts as other groups have. It rs fair for
these groups to be given special treatment as a right for the lost opportunities in the
past to correct social inequality. They have a positive right to claim on society; to be r
obligated to provide them with some good or service that they have been deprived of"
It reflects the vital interests that human beings have in receiving certain benefits" E.g.
adequate health care, provision ofchild education and the right to a decent standard T
of living as proclaimed by the United Nation's 1948 Human Rights Charter. Certainly.
job opportunities and the right for survivai fali rvithin these rights
Next, let us analyse the following short business case. i
t-
Discrimination or Affi rmative Action?

T
An esrabirshed ioca oii corporarion, lrerroleum Excel, ls having a recruitment drve for dealers to
expancl irs rerail outlers and compere wrrh major long established multinational oil companres
at. Nation A. in a compararive markei research study to assess the comperrtors'marker shares, T
Perroleum Excel has found iha. irs comperirors have all {ong been appointing dealers who possess
srrong finarrcial standing. They are obvrously rlre rich ones who have accumulated subsrartrral wealth
and resources Their appointment is furrher econornically justified by rhe compeiitors; to ensure th.,t T
the stations are operated effrcrently to reap maximum rewards from the high invesrnrent Ihis wrll
consequenriy lead to higher profits for not only the dealers themselves but the parenr oil company r
roo. Moreover; this straregy fairly resulrs in a'win-win'situarion Coincidentally, rhe malorrty of rhe I
i
appointed dealers belong ro a parricular erhnic group which also controls rhe economy of Nation A.
Assume that tlre CEO of Petroleum Excel is developing the company's 5-year business plan
and srrateg,y beginning year 2A14. ln a managemeni meeting, he sard, "Whrle our competirors
are appoinring rich people to operate srations, let us prioritize and appoint the less prrvilegerll
needy people, provided that rhey can secure sufficient funds and are compe[enr ro shoulder the i
responsrbrlity as dealers. Let us develop a special scheme for rhrs category of dealers. We shall focus on I
I
newly developed residential areas and rhe outskirLs of urban areas as our market niche. Please advrse J
our sales executives to idenrify the potential dealers from the poor eihnic groups."
I
I
I
I
I
l
Based on the case above, identify the ethical issues and differentiate whether it is I
I
a case of discrimination or affirmative action. Would you agree that a certain ethr-ric
group r,viii be reversely discriminated if the t-,EO of Petroieum Excel continues [o i
iI
implement his business strategies as discussed in the case? lustify your views. I
I
I
I
i
a
T
a
,
t
Comnron lssues at the Workplace 227
7.5.7 Affirmative Action in Malaysia as Public Policy

Since 1957
The New Economic Policy as an affirmative action
Malaysia implemented her'affirmative action' (Klitgaard and Katz, r9B3), the New
Economic Policy (Ayob, 2004), folloiving the racial clashes of 1969,to give preferential
treatment in corporate equity, and piaces in higher education to the indigenous
peoples {"bumiputera'), who form the majority (Rasiah and Shari, 2001; Chitose, 2003;
Cohen,2004).
From I970 to I990, the Malaysian New Economic Policy (NEP) served as a form
fhr,h.1r?0-ro
of affirmative action to protect Malay rights, being the indigenous group. Malaysia period, the Malaysian
provides affirmative action to the majority race because in general, the Malays and New Economic Policy
indigenous groups have lower incomes compared to the Chinese who have traditionally (NEP) served as a
been involved in businesses and industries since the nation's independence in 1957. form of affirmarive
The NEP was introduced with a noble aim of alleviating poverty aed narrowing the action ro prorecr
wealth and income inequality gap betrveen the rich and the poor within Malaysia's Malay rights, being
ethnically based communities. The Maiay ethnic group has always been the poorest rhe indigenous group
and remains as the poorest race in Malaysia until today.
A lar.v rvas passed by the government in 1970 for businesses to recruit 30% of
their employees from the Malay/buntiputera race" Scholarships and other forrns of
financial assistance and subsidies \,vere given out by the gor.ernment to the ir-rdigenous
bumiputera communitl'. For exampie, outstanding Malay/bumiputera students were
sent to study at public boarding schools and higher learning institutions and given
special preferences and financial assistance to pursue their studies.
NEP goais rvere corttinued after the 1990s through the National Developrnent
Policy (1991 2000) and National vision Policy (2001-2010). The law on the
fTh. h* * ,h"-
recruitment ol
recruitment of 30% bumiputera participation in the business sector was finaliy lifted 30o/o bumipurera
uirder the present Barisan Nasional governrllent to promote competitiveness rn the parriopation rn rhe
global era apart from sustaining poiitical stability in a multicultural societ1,. The business secror was
government introduceil tl're Nerv Economic Model in March 2010 with the main goai finally lifred under
of transforming Malavsia into a high income and advanced nation with inclusiveness the presenr Bartsan
anci sustainability by 2020 u,ithin a competitir.e global scenario (Khalidah et a\.,2012). Nasional governmenr
The 1 N{aiaysia Concept had also been adopted to prornote unity among the diverse to Promote
ethnic grouPs. (For more information, read the New Economic Policy in Malaysia, competiriveness in
Affirmative Action, Ethnic Inequalities and Sociai ]ustice, edited by Edmuncl ltrence the global era aparr
from susraining
Gomez and ]ohan Sarar.anamuttu, ISEAS, 2013).
political srabiliry in a
Despite the uplift of the law to recruit 30o/o bumiputera in the private sector
mulcicukurai sociery.
as mentioned, there is still affirmativc action implentented to address pockets of
poverty and inequality in distribution of resources issues at present. For example,
although meritocracy is widelv practised today to justify competition and pursuance
of individuai interests, the hardcore poor bumiputera (t.e. Malays and Orang Asli)
r:re still given preferential treatment such as special housing/welfare allocations,
scholarships for qualified children to pursue tertiary education, etc. However, such
benefits are also open to other ethnic groups/races that are poor to promote social
iustice withrn a t'liversity contexl.
Other affirmative actions in Malaysia

\n 2012, special quotas have been allocated for indian students at public institutions
of higher learning since based on 'meritocracy', they fall out compared to tire Chinese
:nd Malays. This is an affirmative action to correct an ethnic imbalance in the
rducation arena.
228 Business Ethics
-Tfre
govern;enCs I The government's disbursement of Bantuan Rakyat 1 Malaysia (BRIM) in 2013
disbursement of
(Note: RM2 billion was allocated during Budget 2013 for this benefit) may also be seen
Banruan Rakyat I as another form of affirmative action initiated to ease the burdens of'the low incorne
Malays,a 1BRlM) rn groups. A one-off initiative, this was disbursed to the head of each household/family
2013 may be seen unit of hard-core poor citizens, irrespective of race, i.e. those earning a monthly
as ancther form of income of RM3000 and below and single citizens of 21 years of age and above with a
affirmarive acrion monthly income of RM2000 and below.
initiared ro ease the Perhaps, it may also be appropriate to inciude lhe zakat system in Malaysia
burdens of ihe low
as another form of affirmative action, though closely linked to Islamic religious
income groups.
requirements. Zakatfunds are consistently disbursed to the B asnafs, with the majority
of beneficiaries being the poor and needy (refer to glossary for further clarifications
Tl* rrkrrtytr.n'l rn I and classification of the groups eligible to receive zakat).In Malaysia, zakat collection
Malaysia is anorher
and distribution are administered by a state governntent-appointed councll, Majlis
form of affirmarive
Agama lslam. The aim is to irelp the needy and least advantaged Muslim citizens, much
action.
as competition and pursuance of individuai interests are encouraged in Malaysia's
mixe l economic system.
Zrk tf,rrdt*" 1
consistently disbursed
Although affirmative action may be a controversial issue in this competitive
ro the B asnaF' global environment which strongly promotes capitalistic features such as competition
wirh the maloriry of and pursuance of individual interests, it should be appropriately implemented by
benefrciartes berng the community as an initiative to redistribute income and nealth to the needy, least
the p,t61' anC neeoy. advantaged or deprived groups as society progresses. Such groups may include senior
citizens, the hard-core poor, single mothers, orphans, the handicapped, etc., who will
n ta*,ta ,"t ,, I mostly be marginalized under a free market system. Affirrnative action is still relevant
colleciron and in a competitive environment nhich recognizes inequalities in the distribution of
distribution are resources and unequai treatment, based on justified socio-ecclnomic and moral
adminrsLered b,v a considerations.
'tdlP 8O\
o| tt tlP'll In a business conteit, affirmative action may be instituted as part of a human
appointed councrl, resource policy. For example, special treatment will be given to qualified candidates
hlallis Agan:a lslam lvho are from a poor family background and so forth, or-rt of social responsibilitl',
provided that they meet the selection criteria. Therefore, such policies are to be
developed rvith consensus and communicated transparently to staff for fair execution
and implernentation.
To conclude, affirmative action should be positively seen to support the needy
and least advantaged raiher than being perceived as an act of reverse discrimination.
Affirrnative action is no doubt unequal treatment but its irrtent is noble; to correct
social inequality in an effort to uphold justice and rights principles. If it is not
implentented accordingly in a competitive soc;ety, inequality in tucome gaps and
resource distribution wili becorne wider, leading to social problems atrd negatil'e
externality costs in the iong run. Society has to bear such costs, some of which were
deliberated in our earlier discussions on discrimination, as a consequence of the
ignorance and assumptions that market forces rvill correct the disparities. Markets
are not always 'Prince Charmings' although the price system coordinates a nation's
economic activities (Tucker, 2003). Market failures exist in reaiity when it creates
problems to society (such as inequality in income distribution). Therefore, society has
io address such issues in consensus for social justice. Business is part and parcel of
soctety from social responsibility contexts, so ivithout exception, affirmative action'
rnay become a feature to be impiemented in orgar-rizations in tlie spirit of corporate
citizer-rship, even if it is not solicited by government laws.
Next, rve will deive into the challenges of women at the rvorkplace.
Common lssues at the Workplac e 221r..,
WOMEN AT WORK
The influx of women into the workforce has been one of the dominant social trends
during the past thirty years (Noor Rahmah., 2012; Desjardins, 2009).In Maiaysia,
between 1970 and i999, the number of women employed significantly rose from just
under 0"9 million to 3 million. More and more women are joining the l\.lalaysian
workforce today. In i999, women accounted for about 34o/o of all employed workers
(i.e. total labour force). In 2011, female participation in the total labour force in
Malaysia was 35.97o/o, its highest value over the past 2l years.ln addition, the majority
of the women in the workforce belong to the 25-34years age group.
Official statistics also showed that the ratio of femaie to maie labour force fTh"* -, -"drr"*
participation in Malaysia registered an increase from 44o/o in 1998 to 44.5o/o in 2000. increase in the
According to the Labour Force Survey Report in 2007, total iabour force participation number of women
rate for Malaysia was 63.2Vo and the female to male ratio increased to 46.40/o.In 2010, in rhe Malaysian
it further increased to 56.680/o, irre hiqhest over the past 20 years (lndex Mundi, n.d.). workforce. The
These figures clearly show that there is a continuous increase in the number of women figures indicare
in the Malaysian workfbrce. It also indicates their significant contribution to the their significant
Malaysian economy as a human resource, pertinent to the production of goods and conrribution to the
Malaysian economy
services.
as a human resource.
'The growth in worneil'-c .jobs in Malal,sia has occurred in alrnosl all sectors o.[
employment and a smoll number of iobs seen as being traditionally.ferninine .
The biggest incrense in tlte nurnher of women employetl has be en in the cle rical
and service jobs, while there has been tt significant portion of *,omen witl't
good educational qualifications rnLtvinq into lnorL' senior po,si/loru.s. Thesc jobs
remain concentratetl in ltublic sector work such o s teaching.'
(Noor I{ahrnah, 2012)
Whal factcrs have c:ontributed to this demographic shift in the N4alaysian

rmployment scenario?
7.6.1 Factors Contributing to the Participation of fs*b*."""*.

factors have, among
Women at the Workplace others, conrribured
Socio-economic factors have, among otl-rers, contributed to this shift since the to this shift since the
1970s. it all began when Malaysia decided to transform fion an agricultural to an 1 970s.
industrial nation. -l'he Maiaysian economic development process, export-,rriented

industriaiization policies and an increase in the educational attainment of rvomen
Ilh. Mrt4,r".-
economic
,,ince the 1970s have all contributed signilic-antl1r 1s an emerging pattern of dual cilreer
development process,
families in employment. Foreign direct inr..estment and the set up of manufacturing export-oriented
nd eiectronic industries have further increased employment opportunities for industrializarion
women. The Malaysian culture has aiso been seen to shift somewhat, acceptrng the poiicies and an
participation of women in employment, to improve the economic status and quality increase in rhe
of life of family units, although they are also expected to play equal\, import,'nt roles educational
r,s wife, mother and lamiiy manager at home. attainmenr of women
.1970s
In addition to socio-economic factors, political and legai lactors have also since rhe
contributed to the increasing participation of women in the Malaysian workforce. have all conrribured
significantly to an
, ire government has always been supportive of developing the fernale workforce
emerging pattern of
:rlrough its educational, economic as lvell as human resource policies to support
dual career families in
Liie economic growth agenda. With higher educational attainments, lvomen were
employment.
230 Business Ethics
able to compete rvith men in technical and non-technical disciplines,

all job scopes such as engineering, medicine, teaching, management, etc" Jhg
Employment Act 1955 in fact has been revised to include special provisions for
employers to comply with, and to consider the welfare of women in employment.
For example, women at work may now apply for maternity leave at 28 weeks of
pregnancy. Women have also been given a legal right to enjoy 60 days of paid
maternity leave and a further 90 days of extended unpaid leave to mairage a
newborn baby. As at 1 April 2012, further provisions were included on sexual
harassment matters to protect the dignity of women at work. You may refer to the
Employment Act 1955 as at 30 April 2012 available online at http;//www.agc.gov.
my/Akta/ Vol.o/o20 6 I Acto/o20265.p df .
The government has even set up the Ministry of Women, Family and Cornmunity
Development to expiicitly show the commitment to and recognition of women's
significant role in the Malaysian society, apart from addressing specific issues typical
to women as a human right.
7.6.2 Women and the Challenges at Work

W}iile these are positive developments highlighted in the Malaysian socio-economic
scenario for society's well-being, the increasing participation of women in the
workforce also poses several challenges to women themselr,es within social and
employrnent contexts. The following are some of the major challenges highlighted in
the study of business ethics as women enter the rvorkforce:
r Stereotyping \\iomen as sex objects even in the working environrnent.
r Discriminative acts-less salary, prestige and potential for promotion.
r Non-acceptance by male counterparts.
r f)iscrimination against pregnant women.
r Combining full-tirne rvork with family obligations.
r Sexuai harassment.
Let us elaborate on each ofthe above challenges.
Stereotyping-women as sex objects

lvomen are naturally born different from men irr their physical make up. Men are
certainly physicaily stronger than women although the emotional and spiritual
strength of the latter may be similar if not stronger. Fronl an Islamic perspective,
\\'omerl are created bv God to complement men, while playing the role of khalifahs on
eiirth; including all aspects of life, be it at home, or in ihe workplace.
'And one oJ His Srgrrs is that He has created you from dtLst, and thcn, behold!
You are human beings scattered..'
'And one of His Srgns is that He created rtates for you

from yourselves, in order
thst you rnay find satisfaction in them, and He has put love and mercy between
you. Surely, there are Signs in this for people who reJlect.'
(Al-Quran, Surah Ar Rum, 20: Verses 20 21)
Women are by no means inferior to men in any way. The problem is, at times,
because of their difference in physical appearance compared with males and
because of their role as men's life partners/h,:memakers, stereotyping exists at the
workpiace. Women are seen as sex objects even in the rvorking environment when
they are supposed to play their professional roles at work, alongside with their male
Common lssues at the WorkPlace 231
counterparts. As a consequence of the gender difference and/or sex label, women may
face sexual harassment by their male counterparts, more so if the profession is male-
dominated. Later in this sub-chapter, we shall discuss at length on sexual harassment
at the workplace as a consequence of stereotyping by male counterparts.
Next, we look at the second listed issue i.e. less salary, prestige and potential for
promotion faced bY women at work.
Discriminative acts-less salary, prestige and potential for

promotion
On the surface, we can safely generalize that there is no discrimination of women
at work in Malaysia. We have acknowledged earlier that Malaysia promotes equal
opportunities for women to prove their potential in the public as well as the private
,..to6 as a human right. Although issues of less salary, prestige and potential
promotion may not be commoniy discussed in literatures within the Malaysian
context compared with the West, women at work do experience these adversities from
which men are spared due to s!-reotyping (Boatright,20A7; Desjardins, 2009; Weiss,
2006).
--
Gender/sexual stereotypes about women's commitment to work or their capacity tC..d.r/=rrrl
for leadership may also interfere u,ith their career advancement up the corporate ladder. stereotypes
Because perceive that rvomen may not be able to cope with the challer-rges about women's
"r,lpioy.rr
work with famiiy comrnitme-nts, they are somewhat 'discriminated commitment to work
to balan;e their
against' by employers. At times, they may be offered less salary, lorver opportunity and or rheir capacrty for
leadershrp may also
,Ltu, for promotion comp.r.red with their male counterparts. Secondary data seems
interfere witlr their
to shott, tl-rat in Malavsia, the biggest increase ln the number of women employed
career advancement
has been in the clerical and service jobs, i.e. the lower paid jobs, much as there has
up the corporate
been a signrficant increirse in emploved women doing administrative and managerial Iadder.
work-from 3.1% in the 1990s to 2L.50/o in 1999 (Noor Rahmah, 2012). This data,
though implicit, may suggest the possibility of women being marginalized or treated
differently by employers in Malaysia.
In addition, greater diversity within the lr,ider society in a global environment also
provides managelnent lvith the opportunrty to find empioyees with a wider range of
talcnts, experiences and abilities, which may sometimes result in gender bias. Quoting
from Desjardins (2009):
'Despite decades of legul and political initiatives to bring equal opportuttiyig5 fG*"r. d["r",
io women, significant Ltnd economic social inequalities remain in the wider wirhin the wider
society' and tlre increasingll' ciit'erse v'orkiorce also has not yet translated into society in a global
incre ttsed tlit,ersit.y in positions of outhority, in equalittt of wages and benefits, environment
aitriin positior.ts o.f pou,er nrtd prestige. Et,idencc suggests that true erlual also provides
opportunity does not yet flourislt within business institutions-' management wirh
the opportunity to
find employees wirh
Non-acceptance by male counterParts a wider range of
This is another challenge, though remote, faced by women at work due to gender ralents, experiences
difference, sexual stereotyping or even cultural influences. Chauvinistic male and abilities, which
counterparts do not seem to openly accept females as equal working partners or their may sometimes result
leaders. Maie counterparts perceive that they are more superior or capabie cotnpared in gender bias
to their female counterparts. Some feel threatened seeing women being promoted.
'Ihey sometimes retaliate or even refuse to cooperate with female counterparts, not
to mention refusing directives and instructions from female bosses. These negative
attitudes among men pose a challenge to rvomen at work, more so wiren they are
supposed to plai signi{icant roies as team members or leaders while filling critical
l5l Busrness tthics
positions in the organization. Professionally and ethically, the male counterparts

should treat women as equals and accept them as working partners, as a matter of
mutual respect for women, not to mention respect for human rights. After all, women
have shown their ability, capabil ity as well as responsibility to assume the organizational
positions in a fair and competitive working environment. They therefore deserve to be
accepted by men as working partners at the workplace!
Discrimination against pregnant wcmen

We har.e just discussed a gender related issue on the non-acceptance of women
by male counterparts. Employers are sometimes biased/ discriminative towards
pregnant women, perceived to be underproductive or less efficient at this phase, while
women are trying to balance their famiiy life with work life. Some organizations
may even impose implicit or explicit policies against pregnant women, suggesting
that women empioyees cannot get pregnant while at work or they will have to leave
service. Employers may view that they are already ethical by cautioning their female I
empiuvees on this policy when service contracts are mutually signed without reaiizing
that they are contradicting with the acts of nature. When a female employee gets
married, they are boundto bear children, the generation of tomorrow, critical to drive I
society's progress and sustainabiiity. T'herefore, treating pregnant \\,omen differentiy,

rvithout justified reasons, is viewed as discriminative, unjust and therefore unethical.
Yet, this is a challenge faced by some \\romen at work in today's global environment, I
aithough Employment (Amendment) Act 2012 rvhich came iirto force on 1 April2012
protects women on maternity lear,e from being dismissed bv employers in Malaysta,
among other related provisions. For more details, refer to Act 265 in Employment Act I
1955 as at 30 April 2072, avatlable online at http://ww\{.agc.gov.my/AktaiVol.Vo206l

Act%20265"pdf.
I
Combining ful!-time work with family obligations

fh..hril.,.g*-f I Combining full-time workwith famil;v obligaiions is certainiy a challenge of dual career I
dual career parenrs parents, a comn-Ion feature in today's capitalistic and materialistic globa1 envirorrrnent. '
in roday's capiralisric Before the 1970's, most rvomen in Malaysia were homemakers. It rr.as a cultural norm,
and marerialisric typical in Eastern society then, for women to stay at horne and manage the family
i
global environmenr is while their husbands were the breadwinners. Women's role at home rvas seen to be
combining full-rime nobie, raising and nurturing children to be good citizens. However, economic grori th
work with family and industrialization, modernism/urbanization and higher educational attainments
I
obligarions I
among rvorten changed this sc,cial scerrario. Yorr may recall that we irave discussed
tl-ris earliei under the sub-topic 7.6.i-'Factors contributir-rg to women's participation
at lhc workplace'.
I
As more women enter the workforce, they havc to f:rce the strains of matntainrng I
their challenging triple roles-as wives, family managers and career women. In fact,
rvhile coping with these roles simultaneously, married working \,vomen have to depend I
liighly on blbysitters, nurseries, family support or even foreign mards to manage the I
children and housework whiie they are at work. Very often, they wili have to make
sacrifices, be it at home or the workplace, although their husbands may contributc I
partly to doing housework or even gir" u helping nand in childcare. It is not un.rri' I
job to balance working life with family life for womeii. In Eastcrn culture, no matter
how successfui they are in their careers, their roles as rvivcs and familv managers I
continue to be equaliy important as their careers in the eyes of their life partners, not I
to mentiorr from societalperspectives too.

In fact, today's social problems among the younger generation and increasing I
divorce cases have been significantly contributed by dual career parents who fail to I
tt:
ra*
. .!!r
..!-
l;alance family life with career life. On several occasions, qualified women may have
to sacrifice their careers for a better family life to reduce stress while trying to balance
s family life with work life, Some have personally deciined promotion opportunities or
tn thr worst scenario, they quit their jobs and found other options such as starting a
home-based business which allnws them to look after their children whiie performing
work commitments as their own bosses. At least they do not have to face the challenges
of being questioned by employers now and then when they have problems at home
r,rhile managing children, etc.
Having said this, certainly, in order to support woil)en at the workplace, employers lErd"yerr r*i -
rnust appreciaie the tripie role of rvomen-an employee at work, as well as a wife and appreciate the triple
a family manager at home. Unless employers are supportive enough to give moral role of women-an
sLrpport to women at work, the challenges of combining full-time work with family employee at work,
obligations will remain a major challenge for today's career women, who are striving as well as a wife and
to balance family life with work life. Perhaps, employers must treat women more as an family manager ar
;:nd rather than as a means at work, much as they are paid salaries to perform certain home.
job functions in the organizationl

'I'he foliowing strategies or approaches may be adopted by employers to support
fs*"g.t r"
l^,,omen at work while adapting to thc fast changing dual career family pattern in the women at work
",pp*,
clohal employment scenario: while adapting to
r Flexible rvork arrangements such as flexi-time, flexi-year, part-time lvork, job the fast changing
dual career family
sharing, working from home arrangements as weil as seasonal staff. These
- pattern in the global
are not only applicable to rvomen but men as well, to support the dual career
employment scenario
pattern in employrnent nolvadays. Such flexible working arrangemelrts will include flexible
l-relp the male and female employees to accornmodate their changing family work arrangemenrs,
patterns and meet the psychological responsibilrties associated with their career planning,
children's erlucatioir and rvell being. childcare centres/
r Career planning, includrng voluntary reduced time (V-time) and career services at the
brcak schemes. workplace, provision
*lr Voiuntary reduced time is a sl.stem that allorvs full-time empioyees to reduce of training on work-
I,r,orking hours for a specified period witl"r a reduction in salar1,. It differs from life balance and
the i.isual concept of part-timc lvork in tl-iat it rs temporary, 1"i11, a return counselling services,
and provision of
to iull-time job guaranteed. Career break scheme is another form of career
information services.
planning. Many \\,omen prefer to spend more time rvith their infants tlian
maternity leave allows.
Childcare centres/services at the rvorkplace. Employers may inr.e,..t in the
" setup o1'such centres/services in the spirit of ethics of care for their empioyees
to ease the challenges of dual career parents in managing their srirall children
lr,hile at work.
a Provision of trainrng on work-hfe balance aird counselling services. Work-
life balance programmes, practices and information can enable employees to
t,a,lance work and personallives in order to manage lifestyle and commitments,
especially women, in performing their family responsibilities. Such
programmes are also aimed at reducing and avoiding the negative impacts of
their participation in employment nowadays. Employees will be in coirtrol of
their rvorking life which can lead to increased productivity, Iower absenteeism,
increased morale and motivation and a happier and less stressed workforce.
r \York-life balance programmes may be in the form of workshops or sharing
sessions to give dual career parents the opportunity to discuss famiiy related
issues where appropriate to manage stress and revitalize emctional strength
in coping with a challenging life. It may be organized specificall; for women
,rr for bnth genders at the sanre time.
234 Business Ethics
r Provision of information services such as childcare referral services and

general advice on work-life balance and ways to maflage stress. Mentoring
initiatives may also be considered. This role would entail helping the female
workers to meet colleagues, to better understand the organization's informal
procedures and customs, and to acquaint them with any other issues
concernirlg rvork/corporate life.
In addition to the above approaches, anrl to reduce work-related prohlems

arising from gender issues such as stereotyprng, etc., training programmes may be T
I
established to help male workers to come to terms with female workers. T'he objecttve
is to get the male workers to support and cooperite with their female counterparts as
rvell as overcome stereotyping problems and the male feeling of being threatened by -
"t
successfui women at work. :
Whiie these strategies are options open for employers to support women at
work,let us examine a survey jointly conducted by Talent Corp and the Association
of Certified Chartered Accountants (ACCA) on women and family issues in
Mal"7'sia (Golr, 2013). The survey has significantly revealed that women have fbund
it difficult to re-enter the workforce after a career break. Women who have taken
a break are also perceived by employers to be less committed than employees who
have ner.er left serr.ice. In addition, they may also be penalized in terms of slower
career progression and bypassed in favour of other candidates. You ma,v recall that
these issues have been discr-issed under challenges faced by women at work and
interestingly, they are still prevalent in the real employment scenario toda,v.
\\rh,v is it hard for r,r.on'len to c.me back to rvork? Talent Corp CEO, |ohan
lVlahmood Merican, explains that this is largely due to iack of framer,r,ork to assist
these rvomen back into the rvorkforce. In addition, many emplol,ers feel there is no
need for suci-r lramervorks to be developed. Ihey also do not see the need to change
the existing system as it is working adequately. Holt ever, 93o/o of the responclents ha.',e
thought olreturn:ng to work ar-rd 637o have indicated their difficulty to re-enter the
lvorkforce.
Why do \\romen 1ear.e their jobs in the first place? About 650/o of the respolrlents
said that they have to raise a family, foliowed by complaints about the lack of rvork-life
balance (43o/r), rn,hile some r,r,anted to care for a family member (380/"). Other reasons
irrclude expensive chiidcare (35%), iack of support facilities for r,r,omen from employers
(34%) and inflexible work arrangements (32yo).
Clearly, these are valid reasons based on justice, rights and ]rthics of Care
principles. It is perhaps tinreiy for employers to seriously make the effort to support
\\.omen r,vanting to make a comcback to work aiter doing good deeds for the familv.
It is also timely for empioyers to seriously deveiop a framework to sr.rpp.,ort womell
at work as a social responsrbility. Referring to the above survey again, 69% .,r.anted
sllpport facilities for rvomen and family which included chiidcare centres, while 40%
said competitive rvages and benefits tvould keep women in employment.
T
The majority of the respondents also revealed that their current or former i
eniployers do not have a formal policy for flexible work arrangements and childcare
slrpporl facilities. It is high time for companies to seriously develop a policy on flexible I
,
r,vorking arrangements and childcare facilities 1't support the dual career family. t
pattern in employment, a common feature in todal"s social system, for the u,el1-being
ofsociety at large. i
\{rhile N,e are zealously discussing the empioyer's commitment and responsibilitres I
to support women at work, what has the legal system providcd to stipport female
employees rn Malaysia? The Ernployrnent Aci 1955 (revised) provides 60 days of I
rnaternity leave, a maximum of five times throughout her employment service. I
Common lssrres at the Workplace 235
Women are further eligible for 90 days of unpaid leave to be applied from the 61" day
after maternity. Husbands are given seven (7) days of unrecorded leave when their
wife deiivers a newborn baby. Maternity leave for female workers in Malaysia is still
short compared to developed nations. The law, however, has yet to cover provisions for
flexibie working arrangements, career breaks, re-entry and retainer schemes, etc. to
ensure women do not lose seniority when they.return to work.
Considering the above, more initiatives shouid be developed and implemented to
promote family friendly programmes at organizational level as a social responsibility.
Certainly, with a consistently increasing trend of women's participation in the
diverse global workforce and a dual career family pattern, it is doubly justified for the
government to take the lead, if employers are not sensitive to introduce change within
their human resolrrce policies and frameworks. Perhaps, an integrated coliaborative
effort betrveen the Malaysian Ministry of Women, Family and Development and
Ministry of Human Resources r.r,ith representation from the employment sectors
(i.e. both public and private) needs to be initiated urgently to address this pressing
issue. A further revision of existing employment acts to include flexi-time, career-
break, etc must be seriousiy examirieC withrn the competitive and challenging global
employment scenario.
We have jr-rst covered a major challenge faced by women at work-combining full
time rvork lvith family obligatior-is. Fina1ly, ive sha1l cover another challenge related to
gender drfference-scxual harassment. You may recall that we have earlier mentioned
this issue u,hen lve v,ere discussing 'stereotvping' as one of the challenges faced by
\,vo[Ien at work.
Sexual harassment
N,lore and more sexrlal harassment cases are heard today and highlighted in the media.
lo cite an example, on 29 August 2012, a former pei'sonal assistant who was sexually
harassed by her boss tvas ar,r,arded RM25,000 with interest by a sessions court here
(The Star, 2012). A 20A2 study conducted by the Ali Women's Society (AWAM) and
\Aromen's I)evelopment Collective (\\rDC) found that 35% of respondents in Malaysia
had experienced one or more forms of scxual harassment (AWAM,2010).
What is sexual harassment? It consists of a n ide range of behaviours and actions,
the most conlmon of these are verbal forms of harassment such as jokes, obscene
language and suggestive reinarks. I\{any consider these 'harmless' and victims are
often accused of over-r'eacting. No matter rvhat the accusations are, certainiy such
harassments chailenge the rnodesty of women.
Although sexual harassment may involr.e either men or women as th.r victirn,
men are not frequent victims of sextial harassment but pose more as the harassers
(Mohd Nazari Ismail et a\.,2007). Sexual harassment cases may challenge the dignity
of women at rvork and such experiences will negativeiy affect the work efficiency and
productivii'r of a female worker if not managed professionally at the workplace. Scxual
harassment, in extreme cases can also be very traumatizing for women resulting in
emotional stress, low productivity and damaged self-esteem.
Conceptualizing sexual harassment

Sexual harassment may be defined as unwelcomed sexual advances, requests for
sexual favolrs and other verbal or physical conduct of a sexuai nature. It also covers
sexual attention imposed on sonleone who is not in a position to oppose or refuse. In
addition, sexual harassment also includes deliberate or repeated unsoliciied verbal
i.omments, gestures or pliysrcal contact of a sexual nature lvhich are unweicomed.
iil
7W
Z3! Business Ethics

,&
&
.,:'
Sexual harassm.n, I Conceptually, sexual harassment can be classified under three types/fbrmsr
;q
can be classified r Sexual threats :x
under rhree rypes/ : Sexual offers
forms-sexual r Hostile working environment.
rhreats, sexual of fers, i
and hostrle wor king Sexual threats and offers are also referred as quid pro quo, sexual coercion or I
environment. psychological harassment.
Sexual threats i
Usually, it occurs when a male denies a female Staff of employment benefits to exact
sexual favours. The female employee is put in a difficult situation to obligate the male's I
sexual demands before she enjoys some benefits or to avoid negative consequences. In I
other words, a male employee is forcing a female employee to perform some sexuai
favours in exchange for some rewards or to avoid harmful consequences. i
Let us create a scenario. I
Lrnda l-ras just been appointed as Mr. As personal assistant. She has to organize Mr.
As business appointments and work commitments. One da1', Mr. A requested Linda to I
stay back to complete some urgent jobs. However, Mr. A, whiie giving instructions to I
Linda in his room, forced Linda to fulfil some of his sexual demands and tirreatened
her-that if she does not fulfil his wish, he will terminate her sen'ice. I
Linda is certainly being sexually threatenecl while she is striving to perform well i
in hcr ncw job.

I
Sexual offers I
Sexuai offers may also occur under similar situations.'Ib create another scenario, Dina
is due for promotion after striving hard to maintain outstanding r,r'ork perforntance I
for the last three years and competing with her male counterparts. Her matrager, Mr.
I
X, openiy suggests to Dina that before he recommends her for promotiori, she has to
have dinner with him and spend a night at his apartment. I
Dina is thus put in a difficult situation--.he.,vouid like to be consider-ccl for

I
promotion, but an unethical act by her boss is chailenging her dignity . If she does not
fulfil his rvish, she will lose the opportunity to be promoted even if she rvorks irard to I
ach ieve her dream.
Hostile working environment I

'fhis is also referred to as sexual annoyance. -.'he sexual conduct or behavlour of
co-rvorkers and others causes a lvoman to be very uncomfortable. It usually happens
in a working environment with a majority of male staff. The males do not seenr I
to respect the particular needs and preferences of the fernales since they are the
m inority group.
It also relates to demeaning behaviour that challenges the modesty and dignity I
of tvomen" For exampie, male counterparts telling lewd jokes. pinnrng up sensational
pictures or displaying pornography, making sexually oriented remarks about
sonleone's personal appearance, and other sei-related actions that make the work I
environment unpleasant.
These can aiso be unwelcomed sexually-related behaviour that are offensive,
hostile, intiiridating to the victim but have no direct connectton rvith an1' job benefits.
The annoying behaviour creates an offensive lvurliirrg environment which affects the
victim's ability to continue working.
r
i
*-
p
i
Common Issues at the WorkPlace 237
at an oil
Let us create a scenario. Julie is a petroleum engineer and she works
teased by her male
rig lvith a majority of male staff. After a hard day, she was being
stre-ss' Some of
counterparts through lewd jokes, etc. as a means io r.dr.e theirivork
as a suggestion to relax
the male staff evenlnvited irer to watch a pornographic film
as her modesty
in the evening. |ulie feels offended and viciimized by their behaviour'
and dignity as a woman is challenged'
The legality of sexual harassment in Malaysia

Prior to 2012, there was only one law to deai specificaily with sexual harassment
cases-section 509 of the Penal code. According to this law:
,whoever intendingto insult the modesty of any women, u-tters in words, makes
woman, shall
any sound or gestie or exhibits any object shall be seen by such
be punished itth imprisonment for a term which
may extend to five(S) years or
ruith fine, or with both.'
other provisions
Today,legal action against sexual harassment can be taken under frod.y, legal action
the l,dustrial Relations Act 1967'
in the Penal boc1e, the Elployment Ac1 1955, and against sexual
part X\r A, a nelr,part of the'Employment Act 1955, was specifically deveioped and harassment can
provisions binding
enforced on t April 20L2 t<t.ur.. ,.".rul harassment. it contains
be iaken under
an employr r to investigate any sexual harassment case when it is reported by an orher provisions
online at in rhe Penal Code,
.*ptoy.*.'Refer to the imployment Act 1955 as at 30 April 2012, avarlable rhe Employment
http ://wrvw. agc. gov.m,Y/Akta/Vol.% 206 I Acto/o20265'p df ' Acr 1955, and the
Interestirigij,, -uny businesses rn Malaysia do not have any form -poiicy
of on
lndustrial Relarions
sc-xuai harassment. fhe lvlinistry of Human Resources is
using its influence to
Acr1967. Part XV
harassment and
encourage employers to aclopt the Code ol Practice against sexual 'fhis A, a new paru ofrhe
the workplace' code. rvas
an internal tnechanism to prevent sexual harassment a-t Employment Act
introduced in 1999. The iode of Practice outiines the statement of purpose, legal '1955 was sPecificallY
hou'
definition of harassment, clescriptions of behayiour that constitute harassment' developed and
should handie complaints' enforced on 1 APril
employees shouici handle harassment, hou'the companies
\\,hat kind o{'disciplinary action can be taken, as lvell as the names and
telephone 2012 to cover sexual
harassment.
numbers for Iodging comPlaiirts.
Iet us
Having *.,]1ioi.d the legal aspects for handling sexual harassment cases,
list the steps to preveilt or counter sexual harassment cases at the workpiace:
lViren it has beer-r determined that sexual harassment has taken place, the
employer has to take corrective action as soon as possible'
provide sexual harassment eclucation and training to all organr; ationai
members, including managers. This initiative is aimed at creating a\vareness
among all employees, especially women, on the hazards of sexual harassment
and hou, to prevent i1 frorn happening at the workplace
Organize s&.rul harassment prevention programmes to make all emploYces
r"Jognize the costs of sexuai harassment and take responsibility to prevent
it'
Its major features are:
- Developing a firm poiicy against harassment, including decent dress
codes, professional communication at the workplace, etc'
- communicating this policy to employees and provide training, where
necessary, to ensure comPliance.
- Setting up procedu.", io, reporting violations and inyestigating all
complaints thororighly with lairness'
Taking appropriate action against the offenders such as dismissal'
238 Business Ethics
b: g d
women"
,:'J 11 ff :::r;
:j not easily
Such cases are :ll':
:: :ilil'": :l :as a .':rryT
reported ? ".ra
whistleblowi
ss in an d istu rb i n g ro r
:iliH.J*:*"_::.:. j,rllil'i.$r#eltTll;?iri:ilil.Jil';:Hl:',T:
j:
ff 5::: *il: LToJ'j,0.:' i:'-'.*P ;
I m a . ;4 ; ;;;:.;., *', il;
+ij;; iliilxTni::l,H
s ia s tig
:::::::T:*;T#;fj:x.r*:i:s::::*;:ffi ;;',ffi
,u, uruitubL
1
#;;;;. ;;;rffi #iil.ilf

better tn nrcrrent co-,,^l l-^-^^^*^-- ,
iS
::::::i;;$.J,.ff ",,,ih,.u,.-;"i;;;;,ratherthanconrro#;[HTJ*.[.]
occur at the workplace.
clre! Likerlise, wornen
:i,..:..:i"*,i:,:t"T,Tj -b;],:lj|11
fi:T*:.': #:i'*Trf "5 L:'::1,"f sexuar r,"*"-""i il;;;;
themselves musr
#J' J:
be
;l'f t':ii:i#xxi:':i:::,'::::::i:::lt]:liir#;;il;il,:;:::::Li
,r'*""ir,"i;,*#;;1,";;ffi ffiiTil;
;; ; il.; j; ;;: ;, i' ;:?:,#
at the workplace" In short *r^-o.^rho-.^r-,^^
tle-'.r,,.,
jl". :::PY::-
,""1:::?l
il lomen -,
erparts"':1.".r'
treat rhem as sex
r
objects ar the workplace.
*d.renectonameaningrur
,yJ,:il.?T;:,,:!i^*1,1,,,*::*:,:1,:i;;;i.'fu
proph"tri,,hamm"Jilw,;hil#,;;:li.,i'.1]
:il:::,:,,:T.^yl!,!:,!:da',of
#;ffi;l'ff[ffi:
'O People! It is true thnt you have certain rights in regard lo your
womert, but
they also have rights over you. Remem-ber
ihat you itav,e taken thent as your
wives, ,nly under Ailah's trust and witrr
His peimission, If the1, abidc b1,),out
rigltt, then to the.m ber.ongs the right to befed'and.toii,.a;,
tiirai,rrl' ;;i;r"r:,
yout" t4/orntr well and be k_ind to them,
for ilrr1, orr rrrur partners and comntittecl
heLpers. Arrd it is your right that trre1, cro
.not
mot ilrieias n,itrt anyone o;f trr.rorrr
1,o, do ,ot approve, as well as,eye-r to be tLrtchasie.,
Next, n'e shall cover a workplace issue that
relates to employees, rights and duties
at the workplace, beirg primary stakeholders
of businesses.
7.7 EMPLOYEES' RIGHTS AND DUTIES
There are very feh'tt'ho control their

orvn working lives. 'rhis statement highlights
a
rcal rveakness" \Arhire the vast majority
of peopre r".c to work, ott ., peopre tvpicalry
determine most aspects of our ,"o.k,
in.luding wheth.. ru"*o.k at all. usually there
of emptoyee rights ihat are .un,n,on in business.
iT,::..":,:::i,l,i'_l.cts
trre re arc legal nghts granted Firsrlv,
to employees on the basis of larv or legal j,dgements
Ihus, employees have a right to u minim.,m
*rg"r-equar opportunity, to bargarr,
collectively as parr of a unlon and so
for,th s..oiity,!;;i;y.. rights might refer
to those goods that empioyees are entitled
to on the uuri, o?.ortractual agreements
with employ:r_s A pariicurar emproyee
might have a right to a specific hearth care
package, paid hoiidays, pension iunds,
etc. Finaily, employee rights might refer to
those entitiements to which
have a claim independent of any particr,rlar
legal or contractuar fu.r:r:'. "-ploy..s
s".}, iigi,t. would originate witt tt.,e respect or,r,ed rcr
them as human beings' Table7-2prJvides
a selectiJn of the most important rights
and duties and the main ethicar
irobrems commonry associated r.,,ith them in rhe
day-to day reality of business.
Common lssues at the WorkPiace 239
Fable 7.2
Rights and duties
1 Rrght ro freedom from discrimination
Equal opPortunirY o{ ernployees as
Affirmative acrion stakeirolders o{ the
Reverse discrimination firm
a
3 Righr ro due Process
a Firing
a DisciplinarY ProceedIngs
a
5 Right ro heakhY and safe working

condirions
Whistleblowing
7 Righr ro freedom of conscience and speech
Fair treatmEnr in rhe interview
'
B Rrght to work
recruirmenr
Non-discriminatory rules for
contract ' Acceptable level of Performance

1 Ducy ro comply wirh labour
a Work qualirY
a I oyalty ro the firm
2 Duty ro comPlY with rhe law ' Bnbery
3 Duty lo respect the empioyer's property ' Working rime :
. UnauLhorized use o( company resource' for

private PurPoses
. Fraud, theft, embezzlement
(Source: Crane and Niatrert.20lA)
need to
prer.iously, we have lbcused ot'r etnployee rights. However, these rights
be corsiderecl in the context oi a sel of riuties
that are expected of empluvces' The
rights of ernployees are more endarngered than
the rights of employ.ers, primarily
since emplovees are more dependent on the
empioyer and face a risk of sacrif icing or
bargaining away their. rights in order to secure
o, i.."1, a job, or face other undesircd
cluties of employees are the duty to colnply
consequences. Among the most important
proPerty Among
with the iabour contiact and the duty to resPect the employer's
acceptable levei of perforinancc'.make
these cluties are the oUtigotiorl to pro'ide an
company resources.and to refrain from il1egal
appropriate use of workirg tinie.and.
Normally, these duties are codified
activities such as tiaucl, theft and embezzlement.
E'thically delicate issr'ies arise
in the employment contract and other legal frarneworks'
,"f*, .*if".l..rr.nfnr.. these duties aiiJ monitor employee compliance'
The next sub-topic will tiwell on occupational health and safetv' a joint
responsibility betrveetr the employers and employees'
240 Business Ethics
OCCU PATIONAL H EALTH AN D

SAFETY
The right to healthy and safe working conditions has been one of the very first ethicaj
concerns for employees, right from the early part of the industrial revolution" loday,
most developed countries have implemented a solid network of health, safety and
environmental regulations that companies have to abide by. The main issue, howevel,
concerns the enforcement and implementation of existing regulations. In practice,
some companies may cut corners on heaith and safety measures through negligence
or in disapproval of regulators. Similarly, many of these guideiines, ro.h u, *"uiing
safety helmet or ear plugs, maybe unpopular among n orkers themselves. This imposes
u I
a tesponsibility on employers to monitor workers' compliance with the regulaiions" f-
The safety of employees at the workplace is the responsibility of the empioyer and I
also the employees. The health of employees is also their joint responsibility. Good
employees have plenty of choices when it comes to job offers. Therefore, companies
I
need to be perceived as offering a safe working environment to ensure thai good I
employees stay in the organization.
in keeping with the economic thrust to industrialize rapid11., there is a l-
corresponding need io put in place safety standards and responsible rvork practices i
in the 'n'orkpiace. The Malaysian government took this initiative by introciucing the
Occupational Saf'ety and Health Act 1994. in so doing, it places the responsibility
of ensuring that the implementation of certain saf'ety and health stanclirds in the i-
I
workpiace squarely on the employer. This Act is an addrtion to the provisions of other
written lar,r's relating to occupational safet,v and heaith. Section 4 explicitly spells out
the objectives of the Act: I
I
r To secure the safety, health and welfare of persons at work against risks to
safety or health arising out of the activities of tlie persons at rvork. r
r To protect persons at a place of work other than persons at work againsr risks I
I
to safety or health arising out of the activrties o[persons at work.

r To promote an occupational environment 1or persons at rvork r,r,hich is
adapted to their physiological and psvchological needs, and
r To provide the means rvhereby the associated occupational safety and
heaith legislation may be progressively replaced by a svstenr of regulations
and approved industry codes of practice operating in combinatron r,vith the
provisions of this Act designed to mainta,n or improve the standards of safety
and health.
It is ciear that the Act demonstrates the intention to cover the ground
comprehensively. Essentially, it airns to promote and secure the safety, healih anr,l
well'are of persons at work and it protects others agarnst certain risks to healtl'r and
safety in connection with the activities of persons at work.
Occupational safety and health is about improving the quality of work life in
general and ensuring that work systems in any workplace be it on the factory floor or in
the air-conditioned office are designed to safeguarii safety and health. Employers will .
have to ensure that the operating of machinery and supervision r-;f harmful substances
and the storage of dangerous things are done at all times in tl-re workplace with
aclequate care and protection for the workers and for others r.vho come into contact
rvith the lvorkplace. However, despite much purlicity and efforts to promotc safetv
al the workplace, for certain industries, the resr.rit seems to be less than clesiral-.ie. as
reported in case for review 7.3.
Common lssues at the Workplace '241
Worksite Fatalities: More Need to be Done?
Safery at construcrion sites, especially high-rise buildings, has becomc a major concern with tt deaths
recorded in 2013 and another six faraliries in rhe first four montits of 2014. Many of rhe deaths were
due ro falls, said Johor Occupatronal SaleLy and Health deparumenL drrecror Cmar MaL Piah.
"ln rhe year 2013,10 deaths were due to workers falling while rhis year, we have recorded five
such cases so far," he rold reporrers after launching a'Fall Prevenrion Campaign'at a construcrion site
in [aman Sutera Utama
The departmenr had noriced an increase in rhe construction of high-rise burldings over the past
few years, which could be a factor in rhe number of worksite faraliries.
"We identified over 500 acrive consrruction work across the state and75o/o of the sites are based
in Johor Bahru, whe : mosi falling accidenrs take place," he said.
Omar added that a slew of safety programmes and campaigns had been introduced to reduce
such fatal incidenrs, including actively engaging developers and main contraciors to create a safer
environment for workers. The deparrmenr would also conduct regular checks at sites to ensure that
developers and construction companies adhered to occupational safety rules and regulations.
"lf the sires are deemed unsafe for work, those in charge could be served with stop-work orders
unril che problem rs recrified," he :aid, adding that the department could also impose a fine or even
charge the companies involved in court.
(Source: Ttre Srar, 29 April 2014)
As far as the general health of tire employee is concerned, an employer could

encourage a rrlore conducive work atmosphere and reduce work stress. Stress is not a
classifiable condition under the Act. Horvever, it can arise at work in a situation where
an employee is required to produce certain expected results using the available rneans
rt his disposal over which he has no real control. Within the work system, this could
Lake place because of irnproperlv designed work processes or inappropr iate work
lools. Stress dr.res not come about immediately, but is built up, a little at a time, untrl it
begins to affect the individual and his performance. When that happens, the worker's
performance at u,ork and his behaviour outside the u,orkplace will be affected.
Apart fion-r the rvork system, some of the other causes of stress are unreesonabie
superior behar.iour, excessive rvorkload, uncooperative colleagues, unrealistic
deadline';, jobs with no prospects, conflicting loyalties and unfair treatment. Where
' he workplace has a combination of these factors, its people will lose their motir.ation
to work hard. Some of the symptoms that rvill surface as a result of such sL;ess will
be manifested in the form of absenteeism, poor performance, mistakes at rvork,
;ccidents, loss of self-esteem and excessive medical visits. When this happens to
,';mployees, the management will have to find workable solutions to get tc the root of
the probiem. Giving due care to employees'psychological needs and at the same time
fostering a positir.e organizational culture which promotes a conducive.vork climate
are certainly lrto of the most effective lvays of resolving stress at rvork- Perhaps we
could look to other countries that have an exemplary record cf occupational safety
end health systcm as sholvn in case for review 7.4.
242 Business Ethics
;l'I
,l
tl.l
The Scandinavians are the Best Example

i
I
Malaysians need ro look to Scandinavian counrries to learn abour improving occuparional safeiy and
healrh,saidNarional lnsritureofOccupational SaferyandHealih NIOSH)c,hairmanTanSri LeeLant
Thye. lle said rhar counrries lrke Denmark, Norway and Sweden are'exemplary in their occupational I
safery and healrh pracrice'. Lee said rhat Ausrralia and rhe United States are also good examples to I
follow bur ihe Scandinavians are leaders in rhe area of making rhe workplace safe for rhe employees.
"They have excelled in rheir pracrice by making occupational safety and health part of their I
work culture. This has made them achieve almosr zero to one accidenr per few thousand employees I
compared to Malaysia's ratio of about 31 out of T,000 workers," he said

tee added rhar Malaysians were getring increasingly conscious about workplace safery as figures I
showed rhar occuparional accidenrs have gone down bv 50% in rhe past 10 years. Besrdes that, Le.' I
advised employe." nor ro pur iheir workers'safety at risk just for the sake of cutring costs in their
respecrive organizarions by not providing the right and adequare personal protection equipment I
"lr is unders[andable rhar employers want to cur cost but ir should nor be done at the expense ,
!
of the employees' safery," he sard.

He also said rhar employees who do not wear proper safety gear especially rn hrgh-risk industries like
orl anci gzS; Consruction and chernical frelds is an offence and the employers could be imposed a fine.
(Source: I'he Srar online, 2j May 2013)
to wrap up our chapter on con-]mon r,vorkplace issues,

Final11,, r.r,e sha1l discuss
termination of service and due process in terminating ernployees.
7.9 TERMINATION OF SERVI CE/

I
UNJUST DISMISSAL
I
Many empiol,ees are constantly at risk of arbitrarily losing tl-ierr jobs for relatively
minor indiscretions or personality clashes. The right to use due process in the
instance of unjust dismissal has a long history in rvorking practices and can be
I
deduced from the notion ofprocedural justice. Promotion, disciplinarl' proceedings
ar-rd firirig are the most common processes where the right to due pro( css is
particulariy important. In the case of disciplinary procedure.s, employees should
I
be subject to these if a clear and objective negiert of their duties and a breach of
their contractual obligations has occurred. The iegal framework provides detailed
codification of employee and employer rights in the case of firing and redundancies. I
l)ue process can be defined as limitations that offer protection against arbitrary
uses o1'authority. Due process in the lvorkplace nould mean that employees have
a right to be protected from the arbitrary use of managerial authority. This means
I
that while employees can be dismissed for- a good ieason, they cannot be dismissed
lor no cause> or even for a cause that is mora;ly wrong. So, in these circurlisiances,
due process rvould establish the procedures that an enrployer must go thrtrugh to I
ensure that the dismissal is not arbitrary.
I
Common lssues at the WorkPiace 243
would be to specify the

So what might such procedures involve? one apProach
job performance'
u...piuUt. reasins for d'ismissal. Reasons such as incomPetent
and economic necessity would be
intoxication, excessive absenteeism, theft, fraud
ccnditions for dismissal'
justifiable. This approach seeks to establish just cause
However, specifying every possible acceptubl.
,"uro, and distinguishing them
from unacceptable -igttt well be impossible' As amust result'
go
typical due process policies outline a procedure through which employers
".uro.rr^b.forehand
tiriough before they can dismiss an employee'
include such things as prior
This more procedural account of due process might
probationary periods' a
warning, documentation, written p"rfor-u.t.e stan?ards,
appealed, an opportunityto respondto allegations
;;..Jby*hich deci"sions canbe is proportionate to the infraction' Thus'
and prior a.t.r,,,irruiion of punishment that
of hiln, k.tow the consequences of failing
an employee should know what is expected
when any problem is first recognized
to meet those expectations, be given a warning
and have a right to appeal any decision,to an
impartial judge'
appeals to the
The strong"rt d'"?".r.. of an employee's right to'due,process
Without due process in the
fundamental ethical concepts o1 ,.sp".t and fairness'
workplace, society is sanctioning an institution
that allows individuals to exercise
the power they have over others without restraint'
Theremightbeinstanceswhereterminationofemploymenlisdueto
situations where the employee
misconduct. Most cases o1'misconduct relate to
breaks an d{press ruie of the organization.
Ali organizations need rules to ensure
a differeir t",
an orderly.vorking cnvironn-reJt. !,ach cornpury"*iu.l,ove :li:].t
depending on the nature of its business. The rules
will normally be given out witl-r
ancl every new employee would be required
to sign
the contract of empioymenl
rules and that he has
.';..i;r;;;, that he has been given a copy of the company
understood them. Conlpur]i", Ior1.1 also post
the rules in large lettering on the
company notice board. Flg.,.. 7.1 is an "xrmple
of company rules that spell out
actions to be considered as misconduct'
The followrng acts shall be considered as misconduct:

reasonable order of a superior'
1. wilful insubordinarion or disobedience ro any lawful and
business or proper! v'
2. Thefr, fraud or dishonesry in connecrion with the employer's
or property'
3. Wrlful damage to or loss of employer's goods
4. Repeated absence rvithour leave'
5. Repeared Ia[e attendance'
of illegal drugs' disorderly or indecent behaviour
5. Drunkenness, fighting, being under the infiuence
7. Repeated negligence or neglecr of work'
8-' \leepi'rg during working hours'
9. Smoking in Prohibrred areas'
i0. Pariicipatrng in illegal indusrriai action'
i1. Falsifying time cards or orher documenls'
12. Cambling on comPany, Premises'
premtses'
13. Possession of a dangerous weapon on company
14. Sexual harassmenc in any form or manner'
which is against the
witt be considered miscanduct' Any other behaviour
Note: The abave are exampres oJ behaviour which
interests of the company will alsa be considered
misconduct'
(Source. Am i n uddin, 21 02)
as misconduct
$:igure 7'1 : Corrrpany ruies that spell out actions to be considered
244 Business Ethics
The learning outcomes for this chapter are summarized belolv:
1' Explain the types of whistleblowing covered in this chapter and the justification for blowing I
I
the whistle.
Internal whistleblowing occurs when an einployee reports credible evidence of wrongdoing in his
organization to a person of authority within the organization hoping that the person will take
quick action to remedy the situation.
External whistleblowing arises when an employee releases credible evidence of wrongdoing in his
organization to external parties such as the mass media and the regulators in order to protect
I
public interest.
Whistleblowing is morally justified under the following conditions:
r Driven by appropriate moral motive such as to protect the interests and safety of the public and
to prevent the organization from reputational damage.
. The employee has made the report to his immediate superior or the organization's internal
whistlebiowing channel but failed to get any satisfactory response.
. Employees have strong or credible evidence of wrongdoing because rvithout such evidence they
may be putting themselves in unnecessary and serious risk.
. Ernplo)'ees are reasonably convinced that by blowing the whistle the organization w,iIl take
I
concrete and irnmediate actrons to remedy the situation.
2. lllustrate with examples the meaning of trade secrets and conflict of interest in an organizational
I
context.
A trade se crel is a vahiable asset because the organi zationmay har.e spent plentv of monev to acquire
or develop rhe information and it has a significant impact on its financial position. Exarnples of
trade secrets include manufacturing process, ingredients, formula methods of quality, control, list
of cher-rts and customers.
Conflict of interest occurs lvhen employees have personal interests that interfere rvith their
obligation to promote the interests of their employers. An example of conflict of interest rs a I
university lectLrrer serving the Shari'ah committee of a commercial bank while receiving sponsored
research from that bank. Another example, a marketing manager is involved in the decision to hire
a market research comPany in which his spouse is an employee to provide marketing slirvey service
to his company.
3. Conceptualize privacy from individual, employee an<i consumer perspectives and differentiate
between privacy and surveillance at the workplace.
-I'here
are th ree delinitions of privacy provided by distinguished scholars:
o Warren and Brandies: the right to be left alone.
Alan F' Westin: the claim of individuals to determine for thernselves rvhen, how and to what
extent information about them is communicated to others.
W.A. Parent: the condition of not having undocumented personal knowledge about one
possessed by others.
Individuals vaiue privacy as a human right, free from external interference. Employees, after
entering into an employment agreement, are no doubt intellectualproperties of the employers.
Thus, they are expected to follow policies, as ra.ell as rules and regulations developed by
enployers" l{owever, as humans, they also value privacy to protect their integriti. Er,en
consumers value privacy, much as theyare the targets of businesses to collect purchasing data
and consumption patterns for strategic planning to gain competitiveness in the global business
environment.
In differentiating between privacy and surveillance at the workplace, surveiiiance may be defined
as a systematic investigation or monitoring of the actions of one or more persons. While privacy is
aimed at protecting the right of individuals to be free from external interferences, the main objective
of surveillance is to pierce the privacy shield, sometimes justified by the view that 'if you have done
nothing wrong, you should have nothing to hide'. In simple terms, survcillance is spying on others'
activities. The primary aim behind a surveillance activity is generally to collect information about
the individuals concerned, their activities or their associates for specified reasons.
4. Apply ethical principles to justify the need to sustain and respect privacy as a human right.
Ethical theories such as Theory of Rights, Utiiitarian Theory, Kant's Theory of Ethics or Islamic
ethics rnay be applied to justify the need to sustain and respect privacy as a human right. Further
elaborations are available at sub-topic7.4.7 i.e. The Ethics of Protecting Privacy
Explain why discrimination in employment is unethical based on Utilitarian Theory, Kantian

Theory and |ustice and Rights Principles.
o Utilitarian Theory cites the ways discrimination harms individuais, business firms, and society
as a whole based on the consequences of the action. Discrimination in employment leads to
inefficiency and externality costs to the society.
r Kantian Theory supports the notion that discrimination violates human dignity and respect for
persons.
. Principles of Justice has highlighted on the point that discrimination is to treat people differently
rvhen there is no good reason for doing so.
. Rights principles clearly acknorviedge that all humans have basic rights such respect, privac1,,
freedom of religion, etc. Discriminatron challenges individual rights.
r ]ohn Rawls' Egaiitarian Theory highlights that social and econornic inequaiities are to be
arranged so that they are both 'to the greatest benefit ofthe least advantagcd' and 'attached to the
offices and positions open to ali under conditions of fair equality of opportunity'. Discriminative
practices are unjustified in a free market system.
For further elaboration refer to sub-section 7.5.3 ofthis chapter.
6. I)efine affirmative action and differentiate it from discriminatory acts.

it refers to policies that take factors including race, colour, religion, gendel, sexual orientation
or national origin into consideration in orcler to benefit an unrepresented group 'in areas of
emplovnent, education and business, usually justified as counter;ng the eff-ects of a histor). of
discrimination.
Affirmative action is thus taken beyond the need to ensure equality of treatment for a certain group
or groups. Affirrnative programmes are designed to set goals, quotas and trme frames for firms to
hire women and rninorities in proportion to their numbers in the labour force. This is solicited by
ialq
D;scrimination, as it is widely understood, is accompanied by prejudice and stereotyping of groups.
Discrimination carries a negative connotation or implication. Those who perform discriminative
acts are motivated by hatred and are driven by a feeling of superiority over minorities. It is
synonymous with being biased, bigotry or racism. Conversely, affirrnative action is a resuit of
advanced human endeavour, conscience and commitment to find the most agreeable solution to
the lolg history of human injustice. The intent of affirmative action is thus a noblc one, based on a
genuine realization to correct serious wrongs of the past, not to take reverrge.
w
w
146 Busrness tthics
,w
.;|r
w
,*ii'
7. Discuss specific work related issues and challenges faced by women at work and recognize the -l
positive approaches and strategies that employers can take to support women at work. #
There are several work issues and challenges faced by women at work. The following are the ry
challenges: I
o Stereotlping-women as sex objects even in the working environment. I
. Discriminative acts--less saiary, prestige and potential for promotion.

r Non-acceptance by male counterparts.
. Discrimination against pregnant women. I
r Combining full-time work with family obligations.

. Sexual harassment.
I
One may elaborate on each issue as per this sub-topic. I
Employers rnay take the following positive approaches and strategies to supPort women at work:
. Flexible work arrangements such as flexi-time, flexi-year, part-time work, job sharing, working
from home arrangements as well as seasonal staff. I
r Career planning i,icluding voluntary reduced time and career break schemes.
. This include V-time (voluntary reduced time) and career break schemes.
r Childcare centres/services at the workplace. Employers may invest in the setup of such centres/ l
services in the spirit of ethics of care for their employees to ease the challenges of dual career
parents in managing their small chiidren while at work.
o Provision of training on u.ork-life balance and counselling services. i
. Work-life halance programmes may he in fhe form of workshops or sharing sessions to give
dual career parents opportunities to discuss familv related issues where appropriate to manage
stress and revitalize emotional strength in coping with a challenging life. It may be organized I
specifically for women or for both genders at the same time.

. Provision of infcrrmation services such as childcare referral services and general advice on
work-lif'e balance and ways to manrge stress. Mentoring initiattves may also be considered. I
This role wouid entail helping the female workers to meet coileagues, to better understand the
organization's informal procedures and customs, and to acquaint her rvitii any otirer issues of I
corporate life. I
I
In addition to the above approaches, and to reduce work-related problems arising from the gentler
issue such as stereotyping, etc., training programmes may be established to help male workers
I
to come to terms with female workers. The objective is to get the male workers to support and I
cooperate with their female counterparts as well as overcome stereotyping problems and the male
feeling of being threatened by successful women at work.
I
Explain the various forrns of sexual harassment and outline the steps to prevent sexual
I
8.
harassrnent at the workplace.
I
Sexual harassment is defined as unwelcomed sexuai advances, requests for sexual favorirs and other
I
verbal or physical conduct of a sexual nature. It also covers sexual attention imposed on someone
who is not in a position to oppose or refuse. in addition, sexual harassnrcnt also includes deliberate
or repeated unsolicited verbal comments, gestures or physical contact of a sexual natLlre which are
I
unwelcomed.
Sexual harassment can be classified under three types/categories:
. Sexual threats
. Sexual offers I
o Hostile working errvironment

i
Sexual threats and offers are also referred as quid pro quo, sexual coercion or psychologicaiharassment.
I
The following are steps to prevent sexual harassment at the workplace:
. When it has been determined that sexual harassment has i.rken place, the employer has t,r take
i
co;"rective action as soon as possible.
I
I
246 Business Ethics
7. Discuss specific work related issues and challenges faced by women at work and recognize the
positive approaches and strategies that employers can take to support women at work.
There are several work issues and challenges faced by women at work. The following are the
challenges:
o Stereotyping--women as sex objects even in the working environment.
. Discriminative acts--less saiary, prestige and potential for promotion.
. Non-acceptance by male counterparts.
o Discrimination against pregnant women.
. Combining full-time work with family obligations.
. Sexual harassment.
One may elaborate on each issue as per this sub-topic. I
Employers rnay take the following positive approaches and strategies to sttpport women at work:
. Flexible work arrangements such as flexi-time, flexi-year, part-time work, job sharing, working
from home arrangements as well as seasonal staff.
. Career planning i'rcluding voluntary reduced time and career break schemes.
. This include V-time (voluntary reduced time) and career break schemes.
r Childcare centres/services at the workplace. Employers may invest in the setup of such centres/
services in the spirit of ethics of care for their employees to ease the challenges of dual career
parents in managing their small children while at work.
r Provision of'training on rvork-life balance and counselling services.
. Work-life halanr:e programrnes may he in the form of workshops or sharing sessions to give
dual career parents opportunities to discuss familv related issues where appropriate to manage
stress and revitalize emotional strength in coping with a challenging lifb. It may be organized I
specifically for rvomen or for both genders at the same time.

r Provision of infclrmation services such as chiidcare referral services and general advice on
work-lif'e balance and ways to manage stress. Mentoring initiatives may also be considered.
This role wouid eirtail helping the female workers to meet colleagues, to better understand the
organization's informal procedures and customs, and to acquaint her with any other issues of I
corporate life" I
I
In addition to the above approaches, and to reduce work-related problems arising from the gender
issue such as stereotyping, etc., training programmes may be established to help male workers
I
to come to terms with female workers. The objective is to get the male workers to support and I
cooperate with their female counterparts as well as overcome stereotyping problems and the male
feeling of being threatened by successful women at work.
I
B. Explain the various forms of sexual harassment and outline the steps to prevent sexual
harassment at the workplace.
Sexual harassment is defined as unwelcomed sexual advances, requests for sexual favours and other I
I
verbal or physicai conduct of a sexual nature. It also covers sexual attention imposed on someone
who is not in a position to oppose or refuse. In addition, sexual harassmenl- also inciudes deliberate
or repeated unsohcited verbal comments, gestures or physical contact of a sexual nature which are
I
unwelcomed.
Sexual harassment can be classified under three types/categories:
o Sexual threats
. Sexual offers
I
o Hostiie working errvironment

Sexual threats ancl offers are also referred as quid pro quo, sexual coercion or pslchoiogical h arassment.
I
The following are steps to prevent sexual harassment at the workplace:
" When it has been determined that sexual harassment has i:rken place, the employer has t,r take
corrective action as soon as possible.
I
I
Common Issues at the WorkPlac e 247
e provide sexual harassment education and training to ail organizational members, including
managers. This initiative is aimed at creating awareness among ali empioyees, especially
*o*"-rr, on the haz.ards of sexual harassment and how to prevent it from happening at the
workplace.
Sexual harassment prevention programmes are aimed at making firms recognize the costs
of
" major are:
sexual harassment and take responsibility to prevent it. Its features
Developing a firm policy against harassment, including decent dress codes, professional
communication at the urcrkplace, etc.
Communicating this policy to employees and provide training, where necessary, to secure
compliance.
Setting up procedures for reporting violations and investigating ali complaints thoroughly
and fairly"
Taking appropriate action against the offenders.
9. Discuss the rights and dtrries of employees in an organization'

There are three main aspects of employee rights that are common in business. Firstly, there are
legal rights granted to employee, o, ih.'buris of law or legal judgements. Secondly, employee
rights
,rrluy ,.I", to'those goods thui are entitled to on the basis of contractual agreements with
"-ployees might refer to those entitlements to which employees have
and finilly, employeeiights
"*pluy"..
a .iaim independent of any particular legai or contractual factors. Among the most important
duties of employees are the d,rty 1o .o-piy with the lahorrr contract anel the duty to respect
the
empioyer's pioperty. These duties are the obligation to provide an acceptable level of perfbrmance,
nrni. nppropriate use of norking time and company resources and to refrain fron-r illegal activities
such as fraucl, the{'t and embezziement.
10. f)escribe the occupational safety and health issues in the context of employrnent'
Most developecl ciuntries implemented a solid network of health, safety and etrvironmental
regulations tirat companies have to abide by. The main issue, however, is about the enforcement and
iJpiementarion of existing regulations. The safety of employees at the workplacc is the responsibility
uf ih. emplovcr and aiso ihe emptoyees. The health of employees is also their joint responsibility.
T'he Malaysian government introduced the Occupational Safety and Health Act 1994. it piaces
t5e responsibiliti' of ensuring that certain safety and heaith standards in the workplace fali on the
e*pio1rer. This Act is an adJition to the provisions of other written iaws relating to occupatior-ral
safety and health.
11. Explairr the due process in the case of termination of service or unjust dismissal'
The right to use ciue process in the instance of unjust dismissai has a long hrstory in working practices
arrd ."n l-,e tleduced fropr the notion of procedural justice. Promotion, disciplinary proceedings
and firing are the most common processes where the right to due process is particuiariy important.
D1,e process can be defined as limitations that offer protection against arbitrary uses of authoritl'.
Due process in tire rvorkplace would mean that employees have a right to be protected from the
arbitiary use of managerial authority. Due process Inay include prior warning, documentation,
n ritten performance itanclards, probationary periods, a process by which decisions can be
appealed, ar-r opportunity to respond to allegations and prior determination of punishment that is
pioportionate io the infraction. The strongest defence of an employee's right to due Process appeals
io tie fuldamental ethical concepts of respect and fairness. Without due process in the workplace,
society is sanctioning an institution that allows individuals to exercise the power they have over
others lvithout restraint.
248 Business Ethics
Affirmative Action It refers to policies that take factors including race, colour, religion, gender, sexual
orientation or national origin into consideration in order to benefit an unrepresented group in areas of
employment, education and business, usually justified as countering the effects of a history of discrimination.
Autonomy Independent. free as rightful human beings.
Bantuan Rakyat t Malaysia (BRtM) An allocation of RM 2 billion was announced by the Malaysian Prime
Minister, Dato' Seri Najib Tun Abdul Razak, during the 2013 Budget. The head of households with a total
income of RM3,000 and below, andsingle (i.e. unmarried) citizens of 21 years and above earning a monthly
income of RM2,000 and beiou. enjoyed a disbursement of RM500 and RM250, respectively (Ministry of
Finance Malaysia, 30 October 2012).
Bribery: The act of giving i ' receiving any gratification or reward in the form of financial or other advantage
of high vaiue for performing or not performing a task in relation to a person's job description"
Bumiputera The indigenous groups of Malaysia. The Malay ethnic group is classified as the main indigenous
group in Malaysia" The legal definition of a Malay as in Article 160 of the Malaysian Constitution is someone
boll to a Malaysian citizen who professes to be a Muslim, habituaily speaks the Ivlalay language, adheres tcr
A4alav custorns and is domiciled in Malaysia or Singapore. The Malay ethnic group comprises the ma;ority of
the population of Malaysia i"e. 63^1% ofthe totai popuiation of Peninsuia Maiaysia and 53.30/o of the populatron
of Malaysia (Department of Statistics Malaysia,2010).
Career breaks schemes T'his benefit gives an employee the opportur-rity to lea',,e the .1ob ancl return a{'ter a
certain period of tinie, to be negotiated betweerr the employee and the entpioirer. This scheme ailorvs for re-
entry into sert,ice at the same workplace without loss of seniority. For example, a female ernployee decides to
look after her ner,vborn baty after her maternity leave and appiies iear.e for tn o years. Career breaks are open
lo men as well as women, aithough in practice they tend to be taken onlv b1, \vomen.
Career planning In the context of women at work and famiiy issues, it refers to voluntar), reduced time and
.areer brcak schenrrs.
Companies Commission of Malaysia: The main regulatorybody, the guardian and the enforcer of r.arious i
legislation governing corporate conduct and businesses in Malaysia. I
Comparable worth A doctrine or principle which holds that men and women should be paid on the same r
scale, not just for doing the same or equivalent jobs but for doing diffcrent jobs of equal skills, effort and I
responsibiiit)..in short, in rewarding male and female employees at nork, tliev must be treated the sarne.
Their salary and rernuneration must be on the same scale or band even if they are doing diff-erent j.bs, to r
recognize their work contributions, measured based on several criteria such as knowledge and sktlls, cluties I
an,,1 responsibil ities, including accountability.
Conflict of interest Occurs when employees have personal interests that interfere with their obligation to i
promote the interests of their employers.
Consumer sovereignty The recognition that consumers are'kings' in the economy. 'ihey have the liberty and I
right to decide whether to buy or not to buy a product.
I
I
Common lssues at the WorkPlac e 249
Discrimination A wrongfui act whereby a person is deprived of or margin alizedfrom enjoying some benefits
or oppoitunities because he or she is a member of a group towards which there is substantial prejudice.
Mortôften, those who perfbnn discriminative acts are motivated by hatred and are driven by a feeling of
superiority over others. It is synonymous with being biased, bigotry or racism.
Externalities Costs and benefits imposed on people or society other than the consumers and producers of a
good or service.
External whistleblowing An act when an employee releases credible evidence of wrongdoing in his
organization to external parties such as the mass media and the regulators in order to protect public interest.
in
Female labour force A percentage of the total labour force to show the extent to which women are active
the labour force.
Flexi working arrangemenr They can be flexi-time, flexi year or part-time work. Within this system,
employees' working houru can be decided for the whole year and then individuals are free to choose their own
*nikirrg times in order to fulfii ihe yearly quota. The employee is given the flexibility to work longer hours
at certJin periocls and reduce workrng hours during certain periods such as school holidays, while retaining
a secure aird regular system of paynrent. The firm is able to take full advantage of a vast pool of full-time,
part tirne. lrtb-sharing and seasonal staff.
Cender./:ex discrirnination A form of sexual harassment; the unequal discriminatirze acts committed by
eomeone because of sexual differences. LIsualiy, it happens when a male perceives that he is more superior
than a female counterpart and performs discriminative acts by sexually harassing her.
Clobalization The global integration of many formal smail economies into one global econotny.
insider tratiing The buying and selling of securities by people who have price sensitive infornration that is
likely to aiJect the price of the securities of a company for an unfair advantage or benefit-
lnrernal rvtrisrEebiowing An act when an employee reports credible evidence cif u'rongdoing in his
,r-ganiz.itiolr lo a pcrsor-r of authority nithin the organization hoping that the persot'r rvill talie quick acti,rl
to remedl. the situation.
fustice An important moral concept with a rvide range of applications, used to evaluate not only the actions
,f indiViduals but society as a whole. ]ustice is synonymous with fairness. I'hc good ones must be recognized
and reu,arded. fhc bad ones must be punished. The quality of being moraliy just or righteousiress, fairness
,:nd equity in just conduct and dealing with others, Self-interest is balancecl u,ith altruistic regard (i.e. concern
for needs and leelings of-others above one's ottn.), respecting rights of others.
t{anr's Ethics A deontological (action-based) ethical theory deveioped by lrmmanuel Kant, a Clerman
the role of'humans to perform good acts
l,irilosopher. It is a theory which promotes goodn,ill and emphasizes
as a dutv t3l,ards feilow humans. An action is morally right if the actor is motivated by goodrvill Action dorle
;r rational principled reasons, i.e. from a sense of duty, has moral worth. Kant chainpioned two categorical
imperatir.es, (l) *. have to place ourselves in the place of the receiving party. If our ae t causes pain to the
..."i"ing party, then the u.ii, irrr*oral. {2) Never treat humans as a means to get soinething. They inust be
treated as an end i.e. as a human being with dignity and respect.
Kickback .\ sllm of money given to someone in return for facilitating a transactlon or appointment.
KhutbatulWada' 'I'he last serrnon of the Prophet Muhammad SAV/. It i; mentioned in almost all books of
Haclith. See AI,Rukhari, l]adith 1623,1626,636]. Sahih of Imam Muslim also refers to this sermon in Hadith
,*
.,,tr
.,1
250 Business Ethics
,1"1
1rr
number 98. Imam Al-Tirmidhi has mentioned this sermon in Hadith nos. 1628, 2046,2085.Imam Ahmed
ll
I
bin Hanbal has given us the longest and perhaps the most complete version of this sermon in his Masnud,
Hadith no. L9774. .,1
Malaysian Anti-Corruption Agency The sole body that is independent, transparent and professional in I
curbing corruption in Malaysia I
Mailis Agama lslam A government institutionlcouncil set up in every state in Malaysia to manage Islamic i
affairs, including zakat collections and distribution to the eight asnafs I
Negative right A right that is correlated with obligations on the part of others to refrain from acting in ways I
that interfere with our own freedom of action. It relates to the right of human beings to be free fiom outsid. I
interference, i.e. right to property, choice of religion, freedom from injury and privacy.
Occupational, Health and Safety (OSH) An area concerned with protecting the safety, health and welfire of i
people engaged in work or empiovment. The goals of occupational safety and health programmes include
fostering a safe andhealthy work environment. OSH may also protect co-workers, familymembers, empioyers, I
customers, and many others who might be affected by the workplace envrronment. I
Occupationai Safety and Health Act "1994 Also known as Act 514, it is a piece of Malaysian legislation which r
was gazetted on 25 February 1994by the Malaysian Parliament. The objectives of this act are: (l) to secure I
the oafety, health and welfare of'persons at work against risks to safety or health arising out of the actrvities
of persons at work; (2) to protect persons at work other than persons at work against risk to safety or health ,
arising out of the activities of persons at work; (3) to promote an occupational environrnent lor persons at !
work lrhich is adapted to their physiological and psychoiogical needs; and (4) to provide the means wherebl.
the associated occupational safety and health legislation may be replaced by a system of reguiation and
approved industry codes of practice designed to maintain or improve the stand ards of safety and health. i
Personal Data Protection Act 2010 (PDPA) An Act passed by the Malaysian govcrnmcnt to protect the abuse
o{ personal data of citizens for commercialpurposes.
I
Principle of Universalizability This is a principle in Kant's Ethics. As a matter of logic and respect for humans,
one's actions must be consistent in his/her judgements, No doubie standards or contradictions from corltrlon I
ilorms" For example, lying is morally wrong and this understanding is acceptecl universally. Therefore, one I
cannot manipulate his/her stand to say that lying is right. Another exanrpie is Robin Hood's act of stealing
frorn the rich to give to the poor is wrong from the perspective of Kant's Theory becausc stealing is universall),
I
accepted as a wrongful act. Although Robin Hood was giving to the f,oor, ure cannot contradict to sa,v that
I
slealing in this particular situation is a rightfui action.

I
Privacy A moral concept which relates to the right to be left alone. It also gcnerally relates to confitlentiality I
of in{brmation on private individuals.
Rights They may be understood as entitlements to something. To have rights is to be entitled to act on our I
o!r'n or to be treated by others in certain ways without asking permission of anyone or being dependent
on other people's goodwill. There are several types of rights-legal and moral rights, positive and negative
rights, general and specific rights. I
Sexual harassment Unrvelcomed sexual advances, requests fbr sexual far.ours and other verbal or physical
conduct of a sexual nature. It also covers sexual attention irnposed on sorneone rvho is not in a positrou I
to oppose or refuse. Sexual harassment also includes deiiberate or reueated unsolicited verbal conrmenls,
gestures or physical contact of a sexual nature which are unweicomed.
I
252 Business Ethics
Masakeen-people who are destitute and extremely needy to the extent they are forced to beg for their
daily food rations.
a Al-Amileen-people appointed by an Islamic Gor-ernment to collect zakat.
a Mu-Allafatul-Qulub*-persons who have recently accepted Islam and are in need of basic necessities. They
w,ould benefit from encouragement by Muslims which would help strengthen their faith.
Ar-Riqaab-slaves who are permitted to work for remuneration and have an agreement from their masters
to purchase their fieedom on payment of fixed amounts.
a Al-Ghaarimeen-persons who have a debt and do not possess any other wealth or goods with which they
can repay that which they owe. It is conditional that this debt was not created for any un-Islamic purpose"
a Ft-sabilillah-persons who have to carry out an obligatory deed which has become obligatory fbr them
and subsequently (due to loss of wealth) are unable to complete that obligation.
Ibn-Lls-Sabeel-persons who are travellers and during the course of their journey do not possess basic
necessities, though they are well to do at home. They couid be given zakat in order to fulfii travei needs to
return home.
I
Expiain the conditions that justify whistleblowing in an organization.
1.
2. Describe the ethical issues arising from trade secret protection.

I
I
J.
4.
Why must employees avoid conflict of interest situations at the workplace?
Discuss the challenges of obserr,lng privacy in the digitai age.

I I
5. Information and communication technology (ICT ) has enhanced netrvorking giobally and f acilrtated I
the development of knowledge-based economies. However, it has also posed threats to individual or I
personal privacy. Discuss these contentions. -J1
6. 'Discrimination happens in ali facets of public life.' Share in class a discriminative incident that you
1
have experienced as a student. Why do you classify it as a case of discrimination?

-t
Assume you have been asked to irnplement an affirmulius 6gtion programme at the rvorkplace with
a diversified workforce. Discuss the steps you would take to ensure its succe ss.
8. Elaborate on three (3) major challenges faced by women at work.
9. Explain how empioyers can contribute towards a work-life balance u'ith the increasing participatlon
of women in the workforce. 1
10. List and explain some examples of employee duties at the workplace.
11. Explain the reasons why both employer and empioyee need to adhere to the occupational saf-ety and 1
health practices at wcrl;.
I
,
L2. What are the procedures that an employer needs to do to ensure that an employee's dismrssal is not I
arbitrarily done'?
I
I
I
?\?
I
1 Common lssues at the Workplace
CASE STUDY
Anita's First Day at Work

Anita had an undergraduate clegree in Chemical Engineering from a Malaysian higher learnrng insrrrurion.
She was sponsored by a renowned multinarronal corporarion. ln return, she v,as to serve this organization
as a contractual arrangement after graduarion. To her surprise, jusr a mon:h afrer her final examination, she
was called to report for duty ar a subsidiary chemical plant producing plasric marerials, based at Senawang
industrial Park, Negerr Sembilan.
Cn rhe firsr day of work, Mr. Kassey, the human resource executive, brought her around the plant to be
inrroduced to ihe shop floor supervisors and general workers. While touring, she was iaken to a drying shed
where an intermediate chemical product was being washed wirh benzene and then dried in the hor sun.
This task was done by general foreign workers and their eyes were watering while striving to complete their
assigned rask. En. Atiz, a supervrsor, was assigned to monitor them ro ensure efficiency and that they meet
key performance indicarors (Knls) set by Dr. Aaron, the plant manager. Anira knew through her readings rhat
benzene is a carcinogenic produci.
Whrle all the general rvorkers r.vere busy completing their tasks, to her shock, a worker by the name
of Sivan suddenly retaliared and refused to continue doing his task due to excessive eye irritation. He also
accused rhe management, sayrng rhat nobody informed him on rhe workplace risks and hazards when he
tori'.ed the piant. Encik Aziz shouced ar him and they ended up rn a frghr. En. Aziz even urtered, "Do it or I
shai dismiss youl" Luckrly, a few of Sivan's co-workers rried to be mecliarors All parries frnally lefr rhe scene
af rer a chailenging 15 mrnutes atremprrng ro calm down the rense siIuation. Anira saw this unexpected scene
rn front of her eyes.
ln another instance, one of rhe supervisors purposely tried to brush her shouldtrs r,i,hen she was passing
bv ancl winked at her. She felt confused and did not have a clue as ro whai he was up ro. Ar 5 p m, she clocked
out and decided to queue for a company-provided hus to Seremban LRT sta[ion Anita srays in Kuala [,urnpr-rr
with her parents and she has to commute daily ro work. During the train .lourney home, reflecrions of her
I
experlcnccs on the lirsr day at work crossed her mind. ln fact, she was so deepiy nvolved in her thoughrs
that she m ssed rhe rrain sration where she was supposed to get off Anira finally arr-rved horne ar 9 p m. and
felt relieved to see her family waiting for her ro have dinner rogether. Bur, beft,re she slepL, she pondered in
suspense on what would be rhe next episode ar rhe workpiace rhe follov;ing day
Questions:
-l ldenrrfy and elaborare on three (3) erhical issues in rhis case
2. Cori-rmenr on rhe working environmenr at rhe chemical planr
3 ls it ethical for Sivan to refuse ro do his assigned task and disobey En Aziz's insrrucrions?
,i Apply Kanr's Theory of Erhics and Theory of Righrs in your analysis
5 Assess whetlrer Anita was sexually harassed on her firsr day ar work
ffi
tr
254 Business Ethics 'u
'ffi_
.ffi
.re1
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&
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CHAPTER
Business Ethics and

Information Technology
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LEARNING OUTCOMES

r ldentify the underlying ethical and social issues in information
technology.
r ldentify the various security threats ol information systems.
r Discuss some current ethical issues in information technology.
r Explain how organizations can establish information system
controls to ensure better information system security.
Business Ethics and lnformation Technology 259
{,8.0 lNrnoDucr!oN
Information technology (IT) has provided much variety in terms of available
information and resources, as weli as new prospects for users, and this in turn has
given much needed understanding of ethics in contemporary times. The risks posed
by unethical adoption of information technology have also increased in tandem with
the increase of IT acceptance in our everyday lives. Some of the examples are the
spread of the Internet, the ability of some devices to capture and store vast atlounts of
personal data and also the greater reliance on information systems in all aspects of our
Iives. However, despite the many IT breakthroughs in recent years, the importance of
ethics and human values have been seriously undermined with dire consequences.
Therefore, developing and sharing information technoiogy guidelines are imperative
as they cor-rid influence individuals'present and future practices. The following are
some examples of serious questions raised on how organizations, managers, employees
I
and users vien ethics in the Conr-Xt of IT usage:
: In the context of the n orkplace, many employees found that their e-rnail and
Internet access were monitored closely by the organization. Ernployers seem
to be balancing the need to manage important company information and
work productivity rvith their employees' need for privacy and self-respect.
r 'i'here also seems to be rampant copyright violations when rnillions of
consLrmers worldwide dorvnloaded music and movies illegally at the expense
of the music and movie producers, causing them millioris of dollars in loses
every year.
r Spamming is often used as a marketing tool by compzrnies to send unsolicited
e-mails to unsuspecting customers.
: On many occasions, it is common for companies to use cookies or spyware
planted purposefully on the compairy's website to track consumers' online
activities and purchases.
r Financial institutions and retail establishments r,vere often tarqeted by
hackers lvho break into their databases and steal customers' information to
Y
commit identity theft, thereafter using the stolen identities to open accounts
and charge illegal purchases.
r Plagiarism and il1egal dorvnload of materiais from the Internet are also
common and rvidespread among students worldwide.
It to be reminded that ineffective implementation of policies thai ?overtr IT
r"reecls
usage nla): cause unique etl'rical issues to emerge. To avoid and address such concerns,
the fbllorving sections tvill discuss the relevance of ethics in lT in the context of
current problerrrs.
;. 8.1 OVERVIEW OF ETHICAL

AND SOCIAL CONCERNS IN
r N FORMAilON TECH NOLOGY (lT)
In today's environment, information technology dominates businesses which have
iruly become IT.enabled companies. As such, we use and process vast ainounts of
data and information collected internally and externaily. This information is then
L
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264 Business Ethics
A.*r*. drr-l disseminatedwithin the business and used by organizations to make operational,
and information managerial and strategic decisions. In business, information is seen as the means
are imporrant to through which organizations expand and increase their capacity to achieve their
organizations in order goals. Therefore, information forms inteliectual capital and organizations value this
to achieve efficiency capital as an important resource. As such, this capital is at risk when organizations
and e[[ectiveness in are faced with ethical and social challenges. There are many and varied ethical and 1
daily acrivities and
social challenges in businesses, in particular tron'data and infbrmation are collected,
decision-making
handled and distributed to ensure that the information is of vaiue to them. The main i
processes.
ethical and social concern is people's fear of losing their personal information; the fear I
of their information being used or made accessible to the public without their consent^
There is also the added threat of information that may contain errors that could affect
the decision making processes, which could threaten the survivai of organizations. I
The ethical concerns that most organizations face are related to privacy, accuracy,
inteilectual property and accessibility. Each of these concerns is discussed in the
following section. 1
8.1.1 Privacy I
With the advancements in IT, especiaily in Internet technologr,, personai informatjon
is now more accessible and easier to collect. Some ol this information might reveal I
I
personal details of a person which may affect professional and personal relationships I
through thc manipulation of such information. X4ore and more people are afraid that
their privacy may be invaded by thircl parties, lr,here personal identifying information
1
is often collected by businesses and stored in r.arious formats, both digitally and on I
paper.
The lnain concern related to prir.acy is nhat kind of information shoulcl people be
required to divulge of themselves and under rvhat conditions should they do it? People I
ought to be cautious when providing their personal information, especially those that
need to be kept strictiy confidential.
There are tu'o main factors that threaten the privacy, of individuals, and thai is the 1
adyancement of information technology, and the value of information. Advances in
information technology, such as the use of fibre optics and telecommunications, have
increased the capabilities of information :;1'stems. Nor.r', most information systems I
have the capability to compute, store and retrier.e data quickl,v. Also, information
systems har.e the capability to monitor information that goe s in and out of a network,
thus allon,ing information to be intercepted by otl-rers. With information no',t,seen as I
a valued resource in organizations, par:ticularli- in assisting managemeltt in strategrt
decision-makrng, organizations are compelied to seek more information. Therefore,
in acquiring information on their customers, organizatjons rnay indirectly coilect 1
personal information, thus invading their customers' privac1,. Threats to privacy rvil1
always be a concern to individuals; however, therc is an arra,y of technologres that
are available that could mitigate some of the risks associated with privacy. One such
1
I
technologlr is the use of encryption technologies that protect data frorn unauthorized
access. Organizations can also use anonymization or pseudonymization technologies
that automaticaliy biur all personal informatior,, whereby personai information to T
authorized persons at a particular point of time through authentication n,ill be just
enough to verify that a channel is secure. Organizations can also use rveb browsers'
interface technologies to display hidden infcrmation about cookies that can alert I
people to threats to their privacy and also remind the m to set therr privacy pa'ameters.
There has been a growing concern arnong -[nternet users worldwide on the erosion
of their privacy. On Data Privacy Da,r,, a survey rvas conducted by GlobalWcbindex
i
Business Ethics and lnformation Technology tbl
and many eonsumers were found to be sceptical of the level of privacy assurance given
by Internet companies as shown in case for review B.l.
-=
lnternet Users Losing Trust in Companies
Every year on 28 January, the world celebrates Data Privacy Day. The day is commemorated to tatse
awareness and to promote dara privacy education. On Dara Privacy Day, it

was reported thar a
study done by ClobalWeblndex, which is a reputable research company, showed rhar there were
increased concerns over privacy matters rn how informarion and data had been used. The survey
done by ClobalWeblndex of 170,000 individuals found thai 560/o of them were concerned about the
effect of rhe lnterner in eroding rheir personal privacy. This was in fact a 5% increase from the survey
conducred in the pasr 2 years. The report also stated rhat among countries around the world, 17% of
lnrernet users in Sweden expressed concerns compared ro 58% in Sourh Korea. A toral of 28o/owete
found ro be using Virrual Privare Nerwork (VPN) tools when online, which eguales ro approximately
millron people worldwide. ln anorher reporr from lpsos Mori, ir was revealed that in the case of
-120
UK, the number of British lnterner users rhat trusred companies wirh rheir personal rnformaiion had
dropped rc 55%, which is an 8% decrease over the last 2 years. The polt ol 2,000 UK lnrernet users
found that an overwhelmingglo/oof consumers would be less likely to click on onlirre advertisemenis,
while a similar 89% of rhose surveyed said thar they avoid -ompanies that they beireve do not protect
their privacy.
(Adapred from 't)K lnternet users'losing trusr' in compantes' by Ellen Hammerr, A,lediaTel i'le'vusltrte, 2E January
2A14)
'l'hc Mala,vsian Government passed a bill on the Personal f)ata Protection Act [i h. M.hr,r*.,
(PDPA) 2010 to regulate the processing of personal databy data users in the context Covernmenr passed
of con-imercial transactions that lt,ill safeguard the personal data and interests of a bill on the Personal
individuals" According to the PDPA, all personal data obtained must have the consent Dara Prrotection
Act (PDPA) 2010
of the olvner of the datir prior to processing it. The PDPA also states that indivrduals
to regulate the
th;rt pror.ide tlieir data have the right to access, correct and control the processing o[
processing of .
lheir personal data. personal dara by data

users in the context
8.1.2 Accuracy of commercial

transactions that
Previously, organizations worked with iess data. Therefore, the only tluality will safeguard the
:,rssurance needed to be performed was on data. In addition, Irlost of the operations personal data
and interests of
and procedures rvithin the organizations were rnanual, and thus the focus was on
individuals.
the output of those business activities. The advancement of Internet technologies
ruch as database management systems and cloud computing has contributed to the
emergence of shared and comoutertzed databases. These technologies also enable
*rganizaticns to carry out more complicated and interconnected Processes. These
nerv technologies allow organizations the potential to collect, handle, and distribute
iarge amounts of data and contain a variely of information. Hence, o'ganizations
have more data to work with in providing relevant information to assist managers in
strategic, managerial and operational decision-making.
762 Business Ethics
Working with vast amounts of data may cause irreparabie harm to organizat
such that inaccurate information are collected and/or disseminated to author
users that can lead to inappropriate decision-making. Effective decision
is driven by accurate information. Therefore, organizations must ensure thaf thl'
information disseminated across and within the organization is accurate. Ethical
issues involving accuracy can be mitigated by determining the basis for the level
of accuracy in any given system and whether it is sufficient, The responsibilities in
attaining data accuracy also depend on the person assigned as the custodian of the
information, in this context the Chief Information Officer. With the advancement
of information technology, organizations can no\{ use automated data entry systems
that caution users of bad data entry, thus improving accuracy.
8.1.3 lntellectual Property

rr..*;..'*ilryl Many debates have arisen as to who has the right to the intellectual property of
four rypes of information technologies, particularly the right to its applications or software. In
intellectual property the software industrl,, intellectuai property rights have become the main concern
righrs relevanr of organizations, especialiy the issues of intangible rights of ownership in an asset
ro sofrware- such as a software program, which includes the source code, object code and idea.
parenrs, copyrighrs, There are essentialiy four types of intellectual property rights relevant to software-
irade secrets and T
patents, copyrights, trade secrets and trademarks. Copyright protection involves
rradcmarks.
the protection of a particular form in which an idea is expressed. However, with the
advancement of information systems, copyright law has been used to protect sof tware
developers from having their softnare copied, and that lncludes the source and object
I
code, as well as certain unique elements of the user interfacc. Softnare developers
can protect their rights by obtaining softivare patents. Ther, can patent for systems,
methods, algorithms, and functions embodied jn the softu,are, In addition, any editing i
functions, user-interface features, compiling techniques, operating system techniques,
program algorithms, rnenlr arrangements, display presentatiorls or arrangements,
and program language transiation methods can also be patented. Patent righrs are
exclusive, therefore any infringement on the rights by another party to use or seli the
patent without the patent owner's authorization is considered illegal. Other ways of
protecting software owners is through trademarks and trade secrets to identify any T
of their software products, services, and progrants on packaging, promotional, and
advertising material. Using trademarks and trade secrets allorv for a much ionger
Iasting protection of the softr,r,are.
8.1.4 Accessibility I
b*hr I
rh.
accessibility of
information systems
In this era of information, a person needs to acquire the intellectuai skills to cope with
information and to use the information to its full potential. Apart from inteilectual
skills, an individual must also have the technical skills to access the information from
I
rhreatens to increase electronrcaliy stored databases that store, convey and process information. By using
the gap between the electronic shared databases, one has access to the ,nformation for a cost. Conversely, - T
haves and the have- some people have the ability to access the informatron databases, b,.rt do not have the
NOTS.
required intellectual and technical skills to make full use of them. Hence, this group
is excluded from taking part in using the information systems, and as such is left
behind. In the long run, the gap betrveen those who are able to access and those that
i
do not know how to access the information sysr.ems may create social problems and
gaps in society. I
I
Business Ethics and lnformation Technology 263
SECURITV THREATS iHAT AFFECT

INFORMATION SYSTEMS
r
Infbrmation systems are also subject to security threats from unexpected

sources'
Valuabie
particularlybusinesses that have websites, intranet and access to the Internet.
thus is considere'i a major
information can be accessed by authorized users, and
the more it is
threat to organizations. The more sophisticated the information system,
.rpor.d to iecurity threats. These securitythreats maybe caused by operating systems'
...."kn"rr.r, network operating systems; weaknesses, default configurations of the
firewalls,
operating systems and network operating systms, netwo_rk devices and
encryptiin ouerkners.r, and poorly written applications. We will look at some of
the
common informatiort security threats in the next section'
8.2.1 Hacking and Cracking

jnside and outside the f thrk-g^"d,r*krg
Security threats from humails are malicious acts by people
orga'ilation. This human threat may manifest itseif in the form of attacks from are malicious acts and
iliigruntled or malicious employees and non-employees who are trying to harm

and relared ro securitY
the threats from oucside
.iisiupr Ln organization. Ivlaiicious attacks from peopie rvithin organizations are
the organization.
da ngerous
inost dangerous, especiaily those who are former einployees. fhey are more
and applications, therefore
because tirey are familiar with the organization's computers
tnaliciotts
are most likely to know lvhat actions will cause tnaxitlum damage'
T]-rese
acts from insiders can affect aii components of the colnputer security-unauthorized
access to informatioir, overload of s1'5136 processing and storage
capacity-and cause
a system crash.
Nlalicious attacks can also come from individuals outside the organization rvhtr fHr.kt.,
".
,h"*-
try to access and brorvse through computer systems to reveal confidential infrrrmation who enjoy going
to the public. Attacks from outiiders are often calied'cracking'or'hacking'- The

term inio a system to
hacker rei-ers to sonleone who enjoys going into a system and using it extensively
in understand how rhe
that they become an expert whole system works.
order to understand how the entire system works, so
in that particular system. In the past, most hackers were persons sought out by
orguniruiions to feret out informaiion. However, technology irencls such as big data
or-,i Irrt..rr.t technologies have created new marketing and operational capabilities'
thr-rs cl-ranging the role"of hackers in the digital world. Norvadays, the term'hackers'
r-efer to inciir,iduals who break into systems without authorization. In other
words,
irackers are people who intentionally overstep their boundaries on systelns for rvhich
the1, do ,rot iror" Iegitimate access> and therefore commit a criminal offence.
Crackers are people who try to break into systems through comlrloll methods f crrrkr,**
such as cracking passwords, exploiting known security rveaknesses, and spoofing of
a individuals who break
*etwor-k. The rnotive of hackers and crackers for going into an organization's computer into a system by
system is normally to disrupt services and the continuity of business operations by

cracking passwords,
spoofing, and
using denial-of,service attaik tools. Many of these hackers and crackers may also
exploitihg weaknesses
want to steal information to sell it to competitors' found in the system.
8.2.2 Computer Viruses

Malicious attacks from parties outside the organizations can aiso come ln the fcrrm
of computer program threats or malicious codes, knolvn as .omputcr virttses or
,nalwaie. Computer viruses that occur in the system can create nuisance, alter
264 Business Ethics
or damage data, steal information, or cripple the system's functions. Examples

program threats or malicious codes include comPuter Program viruses, Trojan horses,
logic bombs and worms. The most common malicious code is computer viruses that
actually contain a destructive program. As the name indicates, computer viruses are
viruses, whereby the destructive program codes attach themselves to a host in a file or
program of a computer system. By attaching themselves to a file or program, they are
able to copy themselves and spread to other hosts via e-mail. 'Ihe computer viruses
can also be spread when users download files from the Internet, or when users open
a contaminated file. Computer viruses are written by individuais with the intention
of creating serious damage to private, business and government computers" Computer
viruses are being written by virus writers eyery year as they feel the need to create new
generations of viruses to rival the latest computing techniques. The more computer
applications and software are developed, the more computer viruses are written, with
hundreds ofnew viruses discovered each year. -r
,"1
t.
8.2.3 Malware, Spyware and Adware -r"

I
Mrl*rr,_ ----l Trojan horse, logic bombs and worm programs are not true viruses as they do not .t
independent
^" replicate. They are categorized as malware. Maiware are malicious independent
programs thar programs that disguise themselves as something useful sucir as a screen saver or build I
I
disguise themselves themselves into a free download. When this malware is loaded onto a computer system,
as uscful applications, it has the ability to capture information from thc system, such as uscr names anr.t
and are able to passwords. Access to user names and p:sswords will then allorv hackers or crackers tcr 1
caprure private remoteiy control the organization's computer system. Malrterrc' can cause significant
irrfornration. Worn'rs,
darlage to prir.acy and security. One form of malr,r''are rs the computer rvonr. Worms
logic bombs and
do not have to attach themselves to a computer program -thev are independent
Trojan horses are t
programs that replicate themseives by sending copies of files to other computers in
dif ferent forms of
malware.
the network. The network infected by the computer wonl rs damaged, as a lot of
bandwidth is used to send millions of messages in the form of spam e-mails. Worms f
usually affect the computer's memory and cause the svstem to be unresponsive. I oqic ,
bombs are also a type of mairvare, but they work differently from the rvorm. Logic
bomb malware remain hidden in the main computer system and rviil only be actir,,ated -r
I
at some point in time, when users begin to use the prograrn then the malu,are will I
begin destroying data in the computer system. Troian horse, another type of malware,
impersonates as an independent and iegitimate softrvare program. It then attaches Y
i
itself to the computer system, and once it is triggered by a pre-set errent or date in the I
!
computer system, it starts to destroy files or disks,

Like malware, spyware is also an independent soft,,r,are program ernbedded in 'r
computer systems. Spyware is used to gather privatc personal infrrrmation that is then I
relayed to third parties that har.e vested interests in tlre information, for example,
advertisers. Spyware applications can monitor keystrokes, scan files, and snoop on I
other applications, for example, chat programs and word processors. Other spyware I
programs can be installed into the main spyware. Spyware can also read cookies, and
change the ciefault homepage on the web browser. Inforruation gathered by the spyware
is then sent to the spyware home base. Spyware is often installed u,hile a person visits T
a website, by clicking on a disguised pop-up u,indorv, or rvhen dou,nloading a file'
{rom the Internet. Although instaliing spyware may expose users to malicrous attacks,
rrsers are usually aware that thev have installed spyware. T
Adware is another form of corlputer progrrm that is maliclous. Advertisements
such as pop-up windows or advertising banners on web pagcs are one form of adware.
Generally, adware is software offered by software developers as free trials. Users would T
1
Buslness Ethics and lnformatiorr Technology loJ
then use the free trial adware, and sometimes even view the sponsored advertisements,
and this infbrmation is captured by the adware. The adware also captures and
reports
users' habits, preferences, or even personal information to advertisers or other
third
part ies.
8.2.4 Non-malicious Threats

rvho
Threats to information systems security can also come from authorized users
are not aware of their actions. Usualiy, these threats come from the empioyees
themselves, such as data-entry clerks and system operators who are unfamiliar
with
the system. Although actions ty these employees are unintentional, they still directly
and indirectly coniribute to security problems. For example, when users use the
Notepad to open a Microsoft Word document, edit and then save this document, they
can cause ,.iiort damage to the information stored in the document. Data entry
or
programming errors can cause a system crash, which can cause valuable data to be
iost, damaged or altered, causinq organizations to operate at a loss.
8.2.5 Spamming, Phishing and Spoofing

and
Spam is any form of e-mail message that contains copies of the same message,
aie fbrced on people that clo not request or require the message. Spamming is usually
done br, r-,rrurthoiir.d individuals, who steal Internet maiis, scan Usenet postings'
or search addresses ,,,ia the web. Spam is normaliy an email message that contains
:omrt-iercial advertisement messages for products and services of dubious quality and
tluestionable legality. Sparn messiges aiso include chain letters, poiiticai rnails and
other forms of ,o,-, l.ornmerciai mai1. Spam e-mails are often ref'erred to as'Internet
iunk mail' and the recipient rather than the sender bears the cost.
phishing is also related to e-mail messages that are forced onto its recipients.
llowever, phirl-ri,-,g is nrore critical than spam, because phishing is used to gather
personal ancl finaircial information by sending e-mails to the recipient disguised as
.cgitimate e-mails. Most phishing e-mails come from weli-known and trtrstrvorthl'
wlbsites such as PayPal, eBa,v, Yahoo and BestBuy that perpetrators use to try and iurc
people into giving up their personal and financial information'
Spooiiilg refers to e-mail messages that appear to have been sent lrom someotle
ither than ihe real sender with malicious intentions, such as virus rvritcrs and
individuals r,r4ro send spam mail. I{ence, they disguise themseh'es as someone usltrg an
;-mail that rs r-rot tileir orvn. Thus, the e-mails cannot be traced back to ths originator'
A critical concern of spoofing is that people do not realize until it rs too late that thev
have received spoof mails.
8.2.6 Denial s{ Service, Abuse of Wireless Networks,

Misuse cf Public Web APPlications
:ometimes organizations receive vast amounts of fake requests sent through their
server by hostie Llsers. These requests can cause the server to crash, making it difficult
for the organization to establirh u .orrrr.ction between its server and its legitimate
;1ients. 'i'he difficulty to establish connections between servers and legitimate clients
is termed as denial oi service (DoS). Hackers use this condition to their advantage by
hijacking anci controiling thousanels of computers remotely to launch massive and
;oordinated attacks. Massive DoS attacks within the organization cal paraiyse a
network systen], resulting in significant server downtime and financial loss-
266 Business Ethics
With the advancement of wireless networks , organizalions can now gain access
to clients'data and information. However, the convenience and flexibility of wireless
networks in providing data and information is often abused by organizations
or
people, and this is referred to as abuse of wireless networks. As the networft5
nr.
flexible and can be conveniently accessed by users, indir,,iduals begin to abuse .,;. n I
the network by cracking passwords and reading network data without having to .,1
. !
.-
physically access the network. The gaining of access to an organization.'s netw-ork
and data by unauthorized users disrupts the organization's activitres. Wireless -t
!_r' ,
networks can also help create new business models in organizations, especially
:
....1 J
the e-commerce business model. As such, e-commerce applications over the

:l
Internet can create vulnerability and abuse of this application. Hackers or crackers
,1
will attack the e-commerce applications directly by evading traditional network i
firewalls and intrusion-prevention systems. Usually, hackers and crackers evade
user interfaces'web applications and steal customers' data, particularly their credit
!
card information, by adding commands into databases.
"l
8.2.7 Computer Theft and Website Defacement -'I

I
Laptops and desktops are important artefacts of information systems and need tg be
protected. The main security concern is that they becorre the target for thieves. Theft
of these items do not only involve the loss of tangible assets (laptops and desktops), i
but also intangible assets. For exampie, proprietarl. corporate data, access codei to
company networks and private information. Other than theft, organizations shouid
also be concerned about their rvebsites. One security concern is i,vebsite cief'acement,
where the r,vebsite is sabotaged by a third party and the attackers often take advantage
I
of undisclosed system vuinerabilities or unpatched systems. In this case, the thiid
party will sabotage the crganization by inserting and altering information that may
lead to negative publicity affecting a company's image and credibilitv.
I
,
8.3 CURRENT ETHICAL ISSUES IN -l

r N FORMATTON TECH NOLOGY (tT)
The foliowing section

I
will address some crlrrreni erhical issue s in the use of information
technologt'. These include issues on consumer prilaci, ivorkpiace surveillance,
location privacl', the globalization of oniine activity and the protection of intellectual
property. This list of issues is certainly not exhaustive brrt provides a sample gf the
l ,
complexity of ethical problems in the context of managing rnformation technologl,.
I
8.3.1 Consumer Privacy
Should consumers be concern or worried every time they engage in e-commerce 1
activities? Would they have the assurance front the retailers that their privacy is"
protected when they perform online transactions? When interacting with company
websites, many peopie are not aware tliat coollie technology pnr.r u serious threat T
I
to their privacy. Cookies are text files that rvebsites send to and retrieve from the
computer systems of web users. Through this tg6itnology, website owners are able
to collect information concerning users' preferences when interacting with them. I
I
Business Ethics and lnformatron Technology 267
However, there is a downside to this technology as the information collected from the
user's computer system can be retrieved and later resubmitted to the retailer's website
whenever the user accesses the site again.
There are both proponents and opponents to the coorie technology. Those who
oppose the technology are concern about the types of customer profiles that can
eventually be generated via cookies. Many are also concerned about the manner in
rvhich the pcrsonal information is extracted, often without the knowledge and consent
fiom users. Many also believe that the practice in monitoring and recording users'
activities while they visit a particular website and subsequently dorvnloading that
personal information is a violation of their privacy. On the other hand, the proponents
of cookies are owners and operators of online businesses who argue that cookies
perform a service for repeat users of their website. By customizing the customers'
preferences for future vjsits, retailers would be able to serve their clients better.
Some forms of technology such as the Privacy Enhancing Technologies (PET)
could be used to assist Internet users rvho wish to detect, biock or restrict cookies
on a selective basis. However, even with this technology, users are nct able to disable
cookies for er.ery website that thev visit as some consumers are required by the retailers
to accept cookies if they want to proceed with a purchase at the retailer's website.
8.3.2 Employee/Workplace Surveillance and Privacy

T'he monitoring of enrployees at the workplace is a common phenomenon even before
the introduction of technology as a surveillance tool. With the invention of better
rlonitoring and computrng devices, there seems to be nou., an 'ir-rvisible supen'isor'
that monitors tl-re activities of employees around the ciock. It rvas also reported irt
a US study that about 45o/o o{ major businesses record and revierv their employe es'
communications and actions on the job. These incltrde checking their telephone calls,
computer fijes and even personal e-mails. As the surveiilance technology becomes less
expensive and easiiy accessible, this has created a situation where it l-ias now become
part and parcel of mor-ritoring employees' behaviour at tire workpiace. This could
include actions such as monitoring horv long an employee spends on the t,:lephone
completing a transaction (sucir as seiling a product or resolving customers' problems)
or the number of breaks that the employee takes. In terms of employees' rights to
privacy, is empioyee surveiliance ethicai? Violating individual privacy might be seen
as an ethical issue as the lack of re spect for privacy seems to violate and interfere tvith
the personal development of the individual's personality and identity. It can also be
seen as a sign of disrespect and trust tolvards the particulirr emplo,vee.
On the other hand, from the point of view of the employers, the justification
ibr allowing monitoring and surveillance at the workplace stems from the problems
they have to deal tn,ith, such as theft, to increase workers' productivity and the nced
to linrit personal use of technology. There seems to be fears arxong companies tirat
their employees might abuse the power given to them through such actions as sexual
harassnrent, negligence in hiring and supervision, pornography and cyberstrlking.
So, the only way to stop or discourage these occurrences is through the means of cyber
rnonitoring. The question therefore wouid be to what extent is employee monitoring
.:gitimate? In the context of Western society, it is generally agreed that employers have
a genuine concern in employee aetivities that can be subject to scrutiny, such as their
actions wiren on the job. At the same time, there is an understanding that there should
le boundaries to employee monitoring and few would support the installat,on of
:;urveillance cameras in company toilets. Holvever, it is not allvays clear where exactly
the hmits of legitimate surveillance are.
ffi
ffi
lffffi
268 Business Ethics s
.ffiel
,d$ffi
Currently, there seems to be a growing number of companies willing to pay good

money to invest in high-tech surveillance devices to watch over the behaviour of their *tr&l
employees. One of the companies that manufacture these devices is Hitachi. As shown ,.i(fri
in case for review 8.2, this device is sophisticated and would be able to track and s*
record the activities of employees within the office. ' -{.t
:l
:::-l
:.1 |
aa
Beware! You Might be Watchedl

I
t
There was a new producr in rhe marker to rrack the movemenc of empioyees in rheir workplace i
Elecrronics man'. racrurer Hitachi recenrly unveiled a hrgh-rech lD badge thar not only rracks an
employee's exacr locarron wirhin the offlce, bur also keeps a record of all ihe other siaff members rhey -1
have spoken ro, for hov; long and how energetically. The device was dubbed the'Business Mtcroscope'
as ir would be able ro send ro an employer such informarion as the durarion an employee spends
our of their cubicies or even how long they, spend rime in rhe torler Besides berng able to mont[or
which employees spend rheir days without much productive woi'k such as gossiprng with frrends,
rhe new device worrld also be recording how energetic rhe employee is durtng grQup meetings ln
the company website, a message posted abour the devrce menrioned that 'Bustness Mrcroscope uses
sensor rechnology to measure and analyse inner company commun cation and acrivities'. Htiachi said
ihe rechnology was designed ro help boost efficiency levels in rhe woi'kplace and to help employers
realize and react to problems rhar may orherwrse have gone unnoticeci Howerrer the product was
unlikely ro be pr:pular among emplo;,ees. Hitachi in a statement sard rhat they hope ir wr I help
boosr employee cooperation, leading ro a better atmosphere The Business Microscope rs by no
means rhe firsr surveillan:e.device io be markered rowa.rds employers for use in the lvorkplace Many
companies already employ'ln[ernet moniroring'sofrware that scans sent and received e-mails, as
yvell as monitor the websites they visir over ihe course of the working day These systenrs ofte,-r
auromarically send alerrs direcrly to the employer when company rules are belteved ro have been
broken. ln 2008, Microsofr filed a parent for software rhat allowed workers ro be tracked remoteiy,
monitored their competence and productiviry, and even measured personal informatlon such as
body cemperature, blood pressure and facial expressions. Microsoit abandoned rhe prorii-ict shortly
after the paient was frled.
(Adapred from 'ls your boss wacching youl' by John Hall, DatlyMatl onllne, 6 Februar)t 2a14)
-'i
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8.3.3 l-ocation Privacy

I
!
Through the Global Positioning System (GPS) technologies, it rvould now be possibie i
to track or pinpoint a particular object or person't location at any given tirne. This has I
1ed to concerrri or-, the privacy issue known as location privacy. One ofthe technologies
often used is RFID which consists of a tag with an embedded microchip and a readet t
The device is used mainly fbr coinmercial applications such as tracking items sold at I
retail stores, functioning as smart labels that n-rake it easier to track inventories and
I
Business Ethics and lrriormation Technology 269
1 safeguard merchandise from theft or imitation. When used in a proper situation,-it

<ioeJnot seem to be controversial. However, RFID in the not-so-distant future might
be utilized for the purpose of trackinghumans (criminals, the elderly, disabled and
children) ancl this might posed a legitimate concern on the extent of the use of the
technology in privacy matters. So, despite some benefits of RFID, a number of pubiic
concerns touching on location privacy will need to be addressed.
8.3.4 Globalization of Online Activity

With the rapid advancement of the Internet where almost everyone has access to its
infor:mation, the jurisdiction for governing speech, hacking' fraud or any other online
activity became a major concern. The question here is n'ho regulates the Internet and
to u,hat extent laws are enforceable across different countries? In the context of the
international nature of the Internet, legai regulations enacted by a particular nation
may har.e lesser clout in another country and hence the difficulties in enforcing these
laus when violations or ethical lssues pertaining to the usage of these technology
occurs. Nevertheless, the Internet may also be a force that could drive countries to
cooperate with each other.
In certain countries, despite the globalization of the Internet and online activit,v,
there seems to be a concern on the amount of information tirat could be accessed b1'
the citizens of the country. In case tbr revieu, 8.3, the Chinese government censured
sopre of the Internet bascd companics such as Facebook, Twitter and YouTube. Thc
amout1t and t,vpe of information avarlable to her citizens are ccqstantly rnonitored
and blocked.
Facebook ln China: ls That Censorship?
Alrhough Facebook has become parr and parcel of everyday lil'e for most of the people wc'rldl'vide.
ir ren-rains off limirs ro the '1 3 brllion people (one fifrh of the rvorld population) ol China Facebook
has.l.2 billion'monrhly acrrve users'globally where abouL 757 rrrliron rvrll log in almosr daily io its
ihar in Chrna, the application was blocked by the'Creat Firewall of China'
sire. Thei-e was a loke
Visirors to China often face the impossibilrtres of uploading and updaring the l'acebook pages
Besides Facebook, orher social media applications blocked by Chrna's communtst governm.ont
'Tiananrne n'
include Twitrer and YouTube. Even some particular'sensitive' Coogle :earcher-. sttch as
or even 'Tibet'and'Taiwan'were blocked. These were deemed unsuirable ior China's populatron lhe
aurhoriries employed armies of censors with sophistrcared equipmeni to block and monitor various
sires. Due to the censorship, alternarive homegrown websites in China such as Werbo have become
7,, ' v'e!y ?o-pular. Restrictions in all rhese homegrown websites were easy to enforce as their servers \^/ere
t locared in China, so rhe censors could just delete and block any post Jr pictures rhat they deerned
to be offensive.
(Aclapred from'The Creat Firewall Blocking Facebook ln China'by Mark Stone, SkyNews, l Febrttary 2014)
274 Business Ethics
8.3.5 The Protection of lntellectual Property

Pr*,-l,t a" r*d a I Any product of intellectual activity such as a music score, a screenplay, computer
protect invenrions, software or new formula or drugs are referred to as inteilectual property. Ownership
lncluding products rights over intellectual property also includes patent of inventions, copyrights and
and processes. The trademarks. As intellectual property has become a source of increasing value t6
holder of a patent organizations in the 21't century, protecting these rights has become a challenging
can srop a rhird parry task. With the advancement of technoiogy, it has now become easier to copy and
from making, using distribute pirated CDs or even illegally download computer software, music and
or selling his or her videos recordings over the Internet.
invention for years. The idea behind the principles of intellectual property laws is to ensure that the
inventor, designer or author of the book, music, computer software, for example,
are protected and hence rewarded for their hard work in their creative endeavour-s"
a6rGh;p,"".;-l Different countries have different degrees of enforcement rn,ith regards to intellectual
original works of l
property rights. Although many of these countries have a comprehensive law that i
aurhorship, including specifically speit out the protection, in actual reality enforcement of the laws are
writren, rnusical and
often less than desirable. Due to weak enforcernent, many irresponsible parties -1
dramatic works as
took advantage by engaging in piracy and theft o{'intellectual propertyr Two of the
well as photographs,
countries notoriously known for their relaxed enforcement and rampant vioiations
soirware and audio
and vrdeo recordings.
are China and Thailand, where iliegai and pirated softi,vare and luxury n atches, bags
and computer software are readily available.
There are several directior-rs affected companies could take to seek remedies
in case of intellectual property violation. Irirstly, they could lobby their own t
respective goyernments to push for sterner international action. For example, the IJS I
A r"d.nr.k pr.tects] government has taker-r action after companies snch as Microsoft complained about
I
the name ofyour massive copyright infringements in China. The t-lS government threatened to enfbrce
product. lt prerrents
sanctions and 100 per cent tariffs on Chinese products before the Chinese government 1
other businesses from

relented and promised to tighten enforcement of rntellectual property regulations.
using rhe same name
Secondly, firms affected could also take matters to court. In 2006, Starbucks won a
to sell rheir products,
thereby preventing
landmark copyright case in China against its r.iolator. Thirdly, companies may also I
rhe confusion choose to stay out of countries where intellectual property larvs are weak, rathe' than
anci deception of taking the risk of having their ideas pirated by local companies. In addition, firms wili
conSumers_ also need to be extra vigiiant to ensure that the pirated products were not sold in therr I
I
own home market or other countries but to be contained 1ocai11..
The violation of intellectual property has become so rampant in certain countries
that the violators even had tl-ie audacity to make the store, ambiance and staff believe
that they were hired by the genuine compan\r In case for revierv 8.4, the fake Apple
stores found in China had gained rvorldrvide attention for the perpetrators' ingenious
-1
display of attention to detail in copying everything that encon-ipassed Apple's look I
i
and feel.
Fake Apple Stores in China
It was reported that 22 bogus Apple stores were discovered in the city of Ku,rming in China When
pictures of the stores were circulateci on the web, rhe auihcriries wcre quick to investigare and look
for che copycats. Preliminary investigations found five pnony 3iores, trnro of which were shut tlcwn
I
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I
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Business Ethics and lnformation Technology
all .I
due to operaring wirhour license. All 22 srores were found to violate the inreliectual property law as
ihey were using Apple's brand and logo illegally.
The discovery of rhe fake srores cam'e about when an American iiving rn the ciry inadvertently
discovered rhese shops and evenrually posted the info in her blog. Ihe blogger calling herself
'BirdAbroad'described rhe stores as a'beautiful rip-off'due ro the extenr the pirares took ro copy
rhe decorarion and even armosphere of rhe real Apple srore. The blogger also described how in
the bogus store, employees were seen wearing T-shirts and sporring lanyards often seen worn by
aurhenric Apple sraffers. The posring prompced rhe authorities to rake action and the Admiltrsrrattorr
for lndusrry and Commerce in Kunming revealed thar these stores were guilty of violaring many of
Apple's regisrered rrademarks. The shops were ordered to stop using Apple's logo as the Chinese
iaws forbid copying other companys'logos and trademarks wirhout permission The Kunming retail
regularors said rhat rhey would be more vigilant in monitoring any violations and had set up a hotline
iso'that rhe public coulq ,er-,orl any other unauthorized violations.
(Adapred from'Chinese aurhorities find 22 fake Appte srores', by BBC Netvs, 12 Augusr 2a11)
8.4 MANAGING INFORMATION

SYSTEM SECURITY
As information systems become more complex, so do the ethical and social issues,
vr"rinerabilities and threats. Organizations face many problents in securing their
information systenrs; ethical and social issues sucir as privacl', intellectual Propert)',
accessibility, andvulnerability and threats such as computer viruses, malu'are. hackillg
and spamming are major security concerns. Thus, it is crucial for organizations to
manage the security of their information systems and mitigate the risks thel' f2..
by iniesting in information systems security. However, implenrenting a successful .[n
security policy will be one of the biggest challenges for the organization. this
section, lve will explore the various sieps that organizations can take to inrplement
aad adopt security policies that are manageable.
8.4.1 Ouarantine Software

Organizatit,ns can install quarantine software such as anti-virus, anti-adrvare and antt
spyware to protect their information systems against viruses and nalicious softlvare.
By havilg effective access control and regulariy updating quarantine soft\t'are,
organizations can keep their computers free of viruses or malicious software. There
are a variety of quarantine software developed in the market, for exampie, Norton
Internet Securitl., ZoneAlarm Security Suite and McAfee \rirusScan. Most of these
developers offer firewall, anli-virus, anti-spam, anti-spyware and parental control (for
horne offices) at desktop levels and most of these quarantine software, particularly
anti-adware and anti-spyware, are signature-based. It is advisable for organizations to
install a number of quarantine software to ensnre effective protection. Organizations
nred to install anti spam software on their servers to ensure that their e-maii messages
272 Business Ethics
do not contain spam. Unwanted messages such as spam will result in productivity
loss and a waste of computing resources. Now, most Internet service providers try to
reduce spam on their servers before reaching their subscribers. Organizations nggd
to select anti-spam software that is easy to use, low in cost, manageable, and most
importantly has effective anti-spam mail delivery.
8.4.2 Operating System Peneti'ation Software . .ifi

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Severai steps can be taken to guard against downioading free patches offered by
hackers and crackers, that is by installing several operating system penetration -.i.
software. Organizations can use the patch-management softlvare by automating the .t
I
distribution of authentic patches from multiple software vendors. The penetration I
software can then be used to scan systems and assess system propensity, and make the
--l
systems effective in countering malicious threats. However, for the penetration to work, .t
]
organizations must regularly update the testing techniques to detect ever-changing 'l
thre. rs and vulnerabilities. Network firewall is the most common operating system
penetration softlvare installed by organizations to ensure that internal addresses are ll
:i
not revealed to unauthorized users. Anti-sniffer software is used to mitigate data-
sniffing threats and to scan networks using encryption.
Spoofing attacks can also be detected using operating svstem penetration so{irvare
by installing all the server patches released by vendors. Other forms of penetration
software such as \rOIP gatekeeper, \rOIP media controller, and broadcast serr,er
shouid be installed by organizations to monitor scn ice usage at various points in the
network. This software car) also be used to monitor system packet perlormance and
router applications on cor-]\rerged networks. If any abnormal activity is detectcd, the
software will automatically alert the persons in charge"
8.4.3 Security Policies and Procedure lnitiatives

Programmed threats are ongoing and ever-changrng. Therefore, apart from insi.rlling
quarantine and penetration softrvare, organizations need to design and implement
information systems security poiicies, procedures and initiatir.,es. 'lhese information --
t
systems security policies and procedures shouid effectively protect organizatiotts

against unauthorized access. Designing and irlplen-ienting informatiort systems
security policies and procedures can create awareness among empkryees against
vulnerabilities and threats torvards information systems. The content of these securitl'
policies and procedures should be on maintainirig in house and off srte backup copies
of corporate data. The policies should also inclrrde nrstalling sofir,vare that can be
quickly restored in the case of a system failure. In addition, t}-iere should be policies
on server operating systems such as Microsoft Windon,s XP and Windorvs Server
2003, and also procedures on fireu,alls and routers that can eiiminate threats before I
i
they reach the user's desktop. By establishing a good system der.elopment policy,
organizations can guard against a 'trap or back door', and can renlove the 'back door'
as soon as the new system development is completed. 1
The information systems policies and proc:dures relating to firewalls should I
focus on creating a controlled environment, such as the use of passwords. Firms

shouid have in place policies that require all ernployees to have passu,ords to ensure
access to information by unauthorized users rs reduced. Apart from policies and
procedures on firewall and anti-l,irus soft$,ar-e to secure sysiems, data er;cryption
policies and procedures are also important. Private information transmitted over
wireless networks shouid be encrypted at the data level although it is sent over a pubiic I
I
Business Ethics and lnfornration Technology 273
network. Data encryption policies and Procedures provide good preventive controls
against data theft by unauthorized employees who steal them for personal gain'
These
p-oli.i., and procedures should include policies on access controls, for example the
ur. of pusswords, smartcarcl security, uttd firg.tprint reading biometric security' If
the organization has sufficient financial resources, a more sophisticated biometric
securiiy device such as retina identification and voice recognition is encouraged.
Otire. forms of data encryption policies and procedures should focus on
employees' system access. Employees must be aware of these policies; they need
strong
prsswords and the organization should enforce company-\'\ride pass'word change
Ln a .eg,rlar basis. Employees should only be allowed to access data pertaining to
their jo[s. preferabll., oiganizations should maintain a system activity log as a for-m
of deiection controi. Computers in public areas within the organization must be
equipped with a physical i.."r. control protection device, such as lock and cabie,
uturn, or tracking software. Information systems security procedures to monitor
servers and applications should also be designed to identify potential problems
and
terminate *uli.iorrt requests, and web application abuses- In this case, organizations
can implement employee access control procedures, where'prompts' aliow authorized
employees to gain access to certarn information, lvhich is off lirnits for others.
Inftrmation systems shouid also have security procedures such as background checks
on employees n'ho rvill have access to proprietary information' Businesses should
also focus on policies and procedures for inteliectual property and shoulcl enrploy
;rfiornevs ,n ,r.i up inteilectual property policies to protect them. The policies should
require employees to sign a non-compete and non-disciosure agreement.
To consolidate your learning, the learning outcomes ale summarized belon':
l. Identify the underlying ethical and social issues in information technology.

The four main ethical challenges that most organizations face are those related to privacy' accuracy,
intellectual property and aciessibility. The main concern related to privacy is-n'hat kind of
information shouta people be required to divulge of themselves and under u,hat conditions should
they do it? Peopie need io be cautious rvhen providing their personal information, especiaily those
thai need to be kept strictly confidential. Organizations must alsL) ensure that the information
disseminatecl across and within the organization is accurate. Ethical issues involving accuracy can
be rnitigated by determining the basis for the level of accuracy in any grven systeni and whether
it is suflicient. Many debates have arisen as to rvho has the right to the intellectual property of
information technoiogies, particularly the right to its applications or softrvare. In the software
i,dustry, intellectual prop.ity rights have become the main concern of organizations, especialiy on
the issues of intangibfe rights'of ownership in an asset such as a software program that includes the
source code, objei codelnd idea. There are essentially four types of intellectuai property rights
relevant to software-patents, copyrights, trade secrets and trademarks. The flip side of theability
to access the information databases is that there are those who c1o not have the required intellectual
and technical skilis to access the databases. Hence, this group is excluded from taking pari in
using
the information systems, ancl as such is left behind. In the iong run, the gap between those who are
able to access and those that c1o not know how to access the information systems may create
social
problems and gaPs in societY.
274 Business Ethics
2" Identify the various information systems security threats.

Security threats fromhuman actions are malicious acts bypeople inside and outside the
These threats may be attacks from disgruntled or malicious employees or non-employees trying
harm and disrupt the organization. Malicious attacks from people within organizations are the "
most dangerous, especially those who are former employees of the organizations. These malicious
acts from rnsiders can affect all components of a computer security system, reiating to unauthorized
access to information, overload of systems processing, storage capacity and system crash" Human .-
threats can come from individuals inside and outside the organization who try to access and browse
through the system to make private information public. Attackers from outside the organization
are often referred to as trackers' or 'hackers'. Computer viruses are destructive program codes
that attach themselves to a host' either as a file or program, and then copies themselves and
spread to other hosts via e-mail, or when downloading files from the Internet, or when opening a
contaminated file. Trojan horse, logic bombs and worm programs are malware which are malicious
independent prograrns disguised as something useful, such as screen savers or are built into a free, ,
download. Spamming, phishing and spoofing are threats that attack e-mail messages, spoofing
being the most critical, where senders disguise themselves as someone else and use e-mails that
are not their own, which therefore cannot be traced back to the originator. Denial of service, abuse
c''f wireless networks, and misuse of pubiic web applications are examples of the consequences of
information securitybreaches among people and organizations.
3. Discuss some current ethical issues in information technology.

The common current ethical issues in infonnation technology include issues on consumer privac1,,
workplace surveillance, location privacy, the globalization of online activity and the protection of
intellectual property.
4. Explain how organizations can establish information systenr controls to ensure better
information system security.
Organizations can protect their information systems against vir"uses, malware, adware and spyware
by having effective access controls and'installing regularly updating quarantine software, such as
anti-virus, anti-adware and anti-spyware. Several steps can be taken to guard against doi.l,nioading
free patches offered by hackers and crackers, by installing several types of operating system
penetration software. Organizations can use tire patch-management software by automating
distribution of authentic patches frorn multiple software vendors. Apart fr:om installing quarantine
and penetratiorr software, organizations need to design and implement information systems
security policies, procedures and initiatives. These information systems security policies and
procedures should effectively protect organizations asai nst ui,a uthorized access.
--t
Computer crime The use of a computer to comrnit illegal activities.
Computer ethics The stanriards and issues of conduct related to the creation and use of informatron systems.
i
Cookie A type of message sent by a web server to a rveb browser that is stoi ed in a user's compllter and is sent
1
back to the server each time the user's browser requests a page from '.hat server.
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Business Ethics and lnformation Ter:hnology 275
Copyright protection This involves the protection of a particular form in which an idea is expressed. With
the advancement of information systems, copyright lawhas been used to protect those who have developed
the software from having their software copied, and that includes the source and object code, as well as
certain unique elements of the user interface.
Cracker An individual that breaks into a computer system with the intention of doing damage or committing
a crime.
Hacker An individual that gains access to a computer system without authorization.
ldentity theft An individual that steais another individual's personal information such as credit card
number and identity card number with the purpose of using this information for their own personal
gain.
lnformation privacy An ethical concern that relates to how rnuch of the individual's personal information
can be revealed to third parties.
lnformation property An ethical conLern that relates to who u,ould own the information about an individual
and horv this information can be transferred, sold and exchanged.
lnformation security system A formal procedure and process set up by the organization to safeguard its
informaLron systems from ttnauthorized access or use.
Malware A form of malicious softu,are or programs such as the \,\rorm or Trojan horse.
phishing A message sent to users of computer systems in an attempt to trick users into giving aw-ay their
personal information such as banking information and creclit card numbers.
Spam A form of electronic junk maii.
Spam filter The hardware or softrvare used to stop sparn and other e-mail threats such as phishing, vrrust\
and nralrvarc.
Spyware The software or application that has the capability to gather user information via an Internet
connection and with the help of a knowledge-based system.
Trojan horse A malicious and destructive computer code containing instructions hidden from the user
to perlorm underlying functions that can disrupt the system. T'he computer will appear to function
normally.
Unauthorized access The process of an individual gaining access to personal and ser-rsitive information of
other users.
Virus A lbrm of malicious or destructive program that disrupts the normal functions of computer systems.
Virus prevention A set of activities designed by organizations to detect and prevent computer viruses"
Worm A form of malicious or destructive computer code designed to copy and replicate itseif throughout
the computer netrvork.
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276 Business Ethics
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1" Security is not a technology issue, it is a business issue. Discuss this statement" .lh$
:'
.':.i
2. Explain how spamming, phishing and spoofing can be threats to individual users. What would the ii
consequences be to individual useis and to business organizattons? Discuss.
3. Compare and contrast the security situations of individual uscrs and business organizations" l r,ti
]1
4" Internet technologies have become the most significant technolog.ies used in organizations. f)iscuss
some of the threats that Internet technologies are exposed to. i
!
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5. Describe how organizations can create security awareness among their ernployees.
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Bell's Data Collection on Wireless Customers-ls lt Ethical? {

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t
Lonsumer groups are challenging Bell Canada's rracking of how its wireless customers use the web, what
they warch on TV and their phone call parrerns in order ro deliver targeted online adverrising. Bell ls gorng
beyond its role as a provider of relecom services, according to the Public lnteresr Advocacy Cerrtre and r,he t
I
Consumers Associarion of Canada
"Whar you're paying for is an uninlerrupred re ecom service, not for an ad-based serrrit.e supporred
l
by behaviour-al rargering, which is the Facebook-Coogle model," lawyer John Lawford of the Publtc lnrerest I
I
Advocacy Centre said on Monday
The consurnergroups have frled a cornplaint with rhe Canadian Radio-television and feLecomtnurll.atron!
-l
Commission (CRIC), describing rhe praciice as an abuse of privacy They want Bell L'o be ordered l:o siop t
collecring rhe data The CRTC said ir was studying the complaint and ivould not cornrnent furrher. Tire
Offire of rhe Privacy Commissioner of Canada said that ir has received more than 150 complaints about Bell's
-l
dara collecrion. lr is invesrigaring wherher collecting this data is compliant with the Personal Infc.,rmariorr I
Prorecrion and Electronic Documenrs Act, the federal law which covers the collect.ion, use and disclostrre of
informarion rn commercial activitres.
Bell said irs dara collecrion program is not breaking any federal relecom rules or prrvacy guidelines and I
noted rhat customers can opr our ar any irme. "Because customers wcr;ld receive random online aclverttslng
I
irr any event, rhey won'i acrually be seeing more ads, but they will see ads of greate r inrerest to them," Bell *i
spokesman Jason Laszlo said in an e-mail.
Laszlo also said Bell could segmenr a large group of cuslomers to advertisers who are interested in
I
gaining, for example, but rhe adverrisers would not see any specific derarls about rhe customers. Llell said rt
expecrs ro expand rhe programme ro orher cus[omers in rhe future, which could include its lnternet and TV' 1
;ubscribers. The relecom gianr announced last August ihat it would collect consuTners' dara to pur targered I
ads on mobile devices ro be able to compete with search engine Coogle and social neiwork sire Facebook,
which offer ads to cunsumers based on their inieresrs.
But Lawford said he believes rhe opt-out rate for Bell customers would be low, addrng it's r-rsually well under
10 per cenr in rhese kinds oi circumstances. "They catch all of the people who have too many other things to do
witli rheir life," he said from Ottawa. Lawford said Bell will srill be collecting data on cus[omers who have opred
out of rhe program, bur rhey would nor be senr targeted ads based on their behaviour lnstead, rhe informarton i
will be used for cusromer profiles and markering reports that could be so d ro rhrrd parties.
I
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Business Ethics and lnformation Technoloqy 277
Bell wrll end up with a huge database rhat can be subject to breaches, loss or theft, he added" lr's gorng to
get'messy' if it is hacked or if Bell gives access to domestic surveillance agencies such as the Canadian Security
lntelligence Service (CSIS) or the US based Nacional Security Agency, said Lawford, the organization's execurive
direccor. The NSA's surveillance programmes ftave scooped up phone data from millions of American users
and President Barack Obama has said he will place Iimits on the way the intelligence communiry accesses
phone records. ln the U.S., brg telecoms Verizon and AT&T also allow their cLlr,tomers to opt-out of data
sharing But critics have said that even with personal identities stripped out, rhe information srill can be sold
to third parries who would ger a profile of customers' habits and interests.
Rogers said ir does nor rrack customer information rhe same way that Bell does. But Rogers does note
thar rrs privacy policy says it uses'cookies'or messages to find people's accounts. Rogers also says advertisers
who place ads with Rogers.com may use cookies to record web browsing activiry. Rogers also has a program
for irs cusromers ro sign Lrp for texr messages that willalert ihem to deals when rhey are near specific retailers.
(Adapted from 'Advocacy groups challenge Bell's data collection on wireless customers', Edmonton Jaurnal,
by Luann LaSalle, 27 January 2A i t)
Questions:
l Does Bell create an ethical dilemma? Why or why not?
2 Do allegations about Bell have any merir?
3. ln your opinion, what shourld Bell d': to address public concern on this marter/
Association fbr Computing Machinery (ACM) (2013). ACM code of ethics and professional conducf. <online
at u,ww.acm.orgiabout/code-of-ethics>. Accessed on 5 March 2014.
Australian Computer Society (ACS) QAID. Australian Computer Society code of ethics. <http://www.acs.org.
aul---datalassets/pdf-filel0005l7B35/Code-of-Ethics.pdf>. Accessed on 19 February 2014.
IiBC Nervs (12 August 20li). Chinese authorities find 22 fake Apple slur-:rs. <hltp://rvwrv.bbc.com/nervs/
technology-14503724> Accessed on 12 August 2011.
Brey, P. (2007). Ethical Aspects of Information Security and Privacy. In Petkovrrl, l\{. & }onker, W., eds.,
Securty, P"ivacy, and Trust in Modern Data Management.Herdelberg: Springer.
Chen, D.W. (lB February l99B). Man charged with sabotage of computers. The New York Times. <http://www.
nytimes.com ll99Bl02l|\lnyregion/man-charged-with-sabotage-of-computers.html>. Accessed on 5 january
2014.
China Internet Network Information Center (CNNIC) (2010). Internet develc,pment in China in 20fi. <wnrw
cnnic.net.cn ldtyggldtggl2Al1A5l1'20110509_20B13.html>. Accessed on 3 March 2014.
Floridi, L. (2009). Netrvork ethics: information and business ethics in a rretn'orketi society Jtturnal of Business
Ethics.90: 649-659.
g
278 Business Ethics
Hall, J. (6 February 2Ol4).Is your boss watching you? Surveillance device tracks employees' movements in the
office, sends details of conversations and even times their toilet breaks. Mail Online. <http:ilwww.dailymail.
co.uk/sciencetech/arti cle-2552858lWorkplace-surveillance-device-tracks-employees-movements-office-
sending-boss-detaiis-conversations-colleagues-long-time-spend-toilet.html>. Accessed on 6 February 2014"
Hammett, E. (28 January 2Ol4). UK Internet users 'losing trust' in companies. MediaTel Newsline. < http:l/
mediatel.co.uk/newslinel2Ol4l0ll28/uk-internet-users-losing-trust-in-companies/>. Accessed on 2B Ianuary
20t4.
Institute of Electrical and Electronics Engineers (IEEE) (2012).IEEE code of ethics. <wrt'w.ieee,org/about/
corporate/governance/p7-B.html>. Accessed on 26 February 2A14.
|iang, J. (1995). Computer Systems, Database Systems and Communications Network Security and
Conjidentiality" China: University of Electronic Science and Technology Publishing House.
LaSaile, L. (27 ]anuary 2014), Advocacy Groups Challenge Bell's Data Collection on \{ireless Customers.
Edmonton Journal.
Laudon, K.C. and Laudon, I. P. (2007). Essentials of Business InformaLion Systerns (7'h Ed.)" New |ersey:
Pearson Prentice Ha11.
Moh,l. Saiieh, N.A. (2014). Security and Ethical Chailenges in N{anaging Inforrr-ration Svstems.Information
Systt ms: An Intrctducflorz. Selangor: Oxford University Press. pp. 242-258.
Ner,r,berr1,, B. (2010). Katrina: Macro Ethicai Issues for Enginte rs. Science and Engineering Ethic-c, l6: 535 571.
Orvens, W.A., I)am, K"W. and Lin, H.S. (2009). Technology, Policy, Law, arud Ethics R.egcrrcling U.S. Acquisitrort
and LJse o,f Cl,beruttack Capabilifle-s. Washington DC: The National Acaclernies Press"
Stone, 1\4. in China.,Skl'Ner,r's" <http:i/news.sky.

(4 February 2014), The Great Firewall Blockrng Facebook
com/story/1206329hhe-great-firewall-biocking-facebook-in-china>. Accessed on 4 February 2014.
TaviLr.ri, Il.
(2004). Ethics and Technology: Ethical Issues in an Agt c,l lrtformatton and Cortnunt;Lttiott
Technology. New Tersey: |ohn Wiley & Sons, Inc.
D.K. (2011) Security and ethical issues in IT: an organization's perspective .Internationrtl Journal of
Tir.r,ary,
Enterprise Computing and Busines-s. i(2): 1-i3.
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CHAPTER "',
'
h{arketing Ethics
and Consumerism
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LEARNlNG OUTCC_MEs

I Explain the concept of marketing.
I Describe the theories of marketing ethics.
I ldentify and explain ethical issues in product development.
I ldentify and explain ethical issues in packaging and labelling"
I Describe ethical issues in pricing.
I Describe ethical issues in advertising.
I Explain ethical issues in retailing.
4 ldentify and explain ethical issues in ihe use of direct marketing
I Describe what consumer ethics and customer resPonsibility are.
I Explain the company ethical review.
280 Business Ethics
9.0
This chapter begins by providing a detailed definition of marketing. The benefits of

marketing will be elaborated upon, followed by a discussion on the criticism received
by marketing. The theories of marketing ethics will be explained. including the '1
Hunt Viteli General Theory of Marketing Ethic*, and the Consumer Ethics Theory. :
Thereafter, the ethical issues in product development, including value duratron, safety ,r"a
.t*
and environmental impact, will be highlighted. This will be followed by extensive
I
discussions on the ethical issues in packaging and labelling, pricing, advertising, I
retailing, and the use of direct marketing. Lastly the various aspects of consumer .jI
ethics and customer responsibility will be introduced and discoursed" I
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MARKETING IN DEFINITION _l
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The essence of marketing is frequently explained in terms of the four P's-product, I
pricing, promotion and placement. Marketing involves all aspects of creating a product
or service and bringing it to market where an exchange can take place" The marketing
definition from Kotler et al. (1999) stated that:
Mrrk.,-g -, r*d I 'Marketing is a socidl and ntanagerial process b), tvhich irLdit,icluals antl groups
and managerral c:btain u,hat tlrey need and want through creating, o.ffering and exchangitrt
process by which prodttcts o_f'value with others.'
individuals and
groups obrain The concept of an exchange between a seller and a buyer is central to the 'market'
what they need and is the ccre idea behind marketing. Whether exchange actually takes place depends -l
i
and wanr through upon whether the two parties can agree on the terms of exchange that n,ill leave I
creating, offering and them both better off (or at least not worse off) than before the exchange" Exchange
exchanging producrs is frequently described as a value-creating process because it normally leaves both
i
of value wirh others. I
parties better off. I
There are many benefits of marketing, and in general, ma rketing has been credited
r,vith the foilowing: -1 I
,
r Brand marketing I
Brand marketing is said to provide an assurance of quality and a 1eve1 of

--t
trust and security that customers welcomc in a diverse antl multifaceted
I
marketplace. Marketers have also been applauded for helping their suppliers
to improve standards and their own quality of production and deliver,v.
r Competition
T'hrough the competition marketing promotes, increasing numbers of people
I i
have been provided with more and better quality goods and services than
!
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previous generations have ever experienced. This has also been done at a I
I
lower cost than prior generations couid rmagine. Through the information'
marketing provides, customers can make more krlohrledgeable decisions
than their predecessors about which products are abie to meet their needs
and desires. It is true that fear is used in sonre advertisements, but it may also
move peopie to protect themselves and their families in ways they would nol
. : i:, r,
otherwise consider.
m Contributing to economies
Marketing is also praised for contributing to the economies of developing
nations. It brings them goods, services and knowledge of products that
they would othenvise not have. Though marketers have been accused of
corrupting other societies and imposing materialistic values, it remains the
case that many people in developing.countries enthusiastically desire to have
such consumer goods available.
r Social marketers
Marketing techniques when used by social marketers have addressed social
concerns such as leprosy and AIDS. The results have been rather'dramatic
in some areas. For example, in sri Lanka, the levels of leprosy have dropped
dramatically. In short, marketing is said to bring multiple and important
benefits to people in both developed and developing countries. In addition,
due to the current business climate, marketers must also increasingiy accept
responsibility for the environment. Some companies in anticipation of
the changing attitude +owards environmental protection have even taken
proactive measures. Trrumph International |apan has a line of underwear
made from recycled polyethylene terephthalate bottles used commoniy to
hold mineral rvater and soft drinks. Taiwan's Acer developed the rvorld's
first 'green' computer that has a CFC circuit board, which is expandable by
using a microchip, thus increasing lifespan and uses less energy. Recyclable
packaging is also rrsed,
Nonetheless, marketing can be seen as a double edged swoiti. Despite the many
benefrts associated rvith ma rketir-rg, it 1'ras its ow'n share of criticism. Ti're condemnations
of marketing are both lvell-knolvn and widespread. They are raised not only in
N,lala,vsia but occur in most countries around the world. in the wider spectrum, the
follor,r,ing are some common criticisms on the inappropriate use of marketing:
r Advertising
Advertising is a favourite target of criticism. The use of sex and fear to
increase sales, not to mention its deceptive practices, are condemned by
many. Retailers are often charged with privacy invasion. For example, when
customers use their credit cards at retail stores, the data frorn their use not
only informs the company rvhich goods to restock but also mined as part of
a data profile lvhich data processors can deveiop on individuais an.l varior-rs
market segments. Similarl1', telemarketers are criticized for intruding on
people's privacy.
a How marketers treat their business customers
Marketers are also blamed fbr how they treat their business custotners. For
example, salespeople offer money, bribes or other 'special considerations' ttr
sr,ppliers or retailers to obtain speciai favours. Large retailers are attacked
for exercising their considerable economic power over smaller retailers and
suppliers. Some of these methods hinder open competition. For example,
some of them demand that smaller retailers only stock the products from
their company rather tiran those of others.
a Marketing criticized as being wasteful
Marketing has been criiicized more generally as simpiy being wasteful,
spending biilions of dollars to persuade people to buy products they do
not need. It is accused of bringing about commercializaticn of society and
human relations. It is admonished for promoting both matrrialism and
colsumerism. Marketers are said to nurture conditions under which people
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282 Business Ethics
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take their identities from the brands they buy and wear, as opposed 1s
developing their own, non-commercial identities. The current problem of
obesity is attributed, at least in part, to the marketing practices of fast forid
producers and advertisers.
r Anti-globalization protests relates to marketing
International marketers have been charged with imposing the values of their
home countries on the countries in which they do business, destroying local
businesses and manipulating people to want things they cannot affbrd" The
efficiency, rationality and uniformity brought by international marketers
have been attacked under the banner of the 'McDonaldization of society'
(Ritzer,2000).
In Malaysia, we have often heard of unscrupulous practices by companies in their

bid to make more profit or to influence customers. Beiorv are just some examples
of questionable marketing manoeuvres by the sellers in Malaysia, which have been
reported in several local news media:
r 'Iraders often take advantage during the festive seasons (such as Hari Raya,
Chinese New Year and Christmas) to 'dump' their expired or irnitation goods
in pre-packaged hampers. It has become so rampant that the lr4inistry ol
Domestic Trade and Industry has to come Lrp n,ith guidelines for traders tcr
display the packaging and handling cost of each hanrper. Other recluirements
irrclude listing non-halal goods in hampers and ensuring that the goods are
of good quality and have at least a six-month lifespan before the expiry date.
r It rvas reported tliat for a rnere 10 sen, custr)ilrers personal data are being
sold to unauthorized bodies. A iist of 1,000 entrres contarining r-)anles, mobile
phonc numbers, type of credit card owned ancl issuing banks, and place
of r,vork costs only RMl00. Malaysian conslrmcrs are regular-ly harassed
by unsoiicited sales cal1s, messages and e-maj1s. Customer particr.rlars in
databases are vulnerable-flom loyalty cards and telecor.nmunications
companies to hor"rsrng developers to members-oniv club. and there r'r,i11 bc a
demancl for it as it represents a list of potential customcrs.
r In anotherreported case in the media, a customer bor-rght a powder foundation
from a beauty shop and 'lvhen she returned honre she sart it \\,as a darker
coiour than the tester. She tried to get it exchangecl at the store but the sales
people were rude and refused to let her change it even though she pointed out
to ther:-i that it was a different colour from the tester. She later took it up n,ith
the company HQ and much iatcr was tolC she could change it, bul they r,vere
out of stock. The whole thing caused the customer a lo1 of anxiety.
r In another case, a customer bought a mobile phone but later found that the f'ace
plate had detached from th,-: LCD screen rviti-rin a week. The customer took the
phone to the service centre in Kuala Lumpur but they did not have stocl,. So
he took it to Petalin g |aya.Three days later, he picked it up and the pirone n as i
in working condition. However, iess than a week later, tt came loose again. The
customer went through the whole hassie anolher three times. Eventually the I
screen went blank. This iime the custome" asked to change the phone at the .
,.
shop as it lvas clearly defective but the shop refused to entertain him.
So, are there remedies to address the common grouses brought out by crlnsumers?
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In Malaysia, there are laws to protect custorners altltough soine have criticized that
these laws are \rague and ineffective. Please rea,,1 case for review 9.1 rvhich drscusses
the lar,r's that protect consumers in Malaysia.
. r rl
ll:
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According to the law...
ln Malaysia, there are rhree main laws rhat cover the situations addressed above. These are rhe
Contracts Act, rhe Sales of Coods Act, and the Consumer Protecrion Act ]999.
These laws talk about the rmplied guarantee regarding producr qualiry and express guaranrees by
manufacturers. They stated ihat if rhe product does not measure up in rerms of expecred qualrty,
consumers can take it back and the seller must offer consumers a refund, a replacemetrt or a different
product of the same value. The only exceprion to this rule is innerwear. Bras, panties and orher
inrimare clothing are not replaceable for hygrenic reasons. Returned products must be accompanied
by a receipr or a credir card slip as proof of purchase. Shops generally offer back cash for cash
transactions. lf consumers paid rheir purchase wirh a credit car,l, mosr shops will reverse the charge
rarher rhan pay back cash. This mighr rake up to ten working days ro show up in rhe cusromers'
starement, depending on how swift the sysrem works lt is always advisable ro check rvhar terms and
conditions apply before customers buy. As consumers agree to tlreir contract once they buy, they
would be expecred ro take their business somewhere else if they do nor iike rhe ierms offered
(Adaprcd from'Shoppers' Woes' by Maria Daniel, The 5tar, I Seprember 2007)
Next r,r,e shall examine some theories on marketing ethics. This section is
important as it will give you the fundamentals of the interactiott between sellers
and buyers in market transactions. 'Ihis rvill act as a guide -,r'hen you go tl'rrough the
sections on sorrre ethical issues faced br, marketers as weil as consumers.
9.2 THEORIES OF MARKETING ETHICS

'fhe theories of marketing etl-rics can be dir.ided into trvo main components'
r Tlie Hunt Vitel1 General Theorl. of Marketing Ethics
r Consumer Ethics Theory
Before we take a closer look at the two rnarketing ethics components, let us discu:;s
the broad take on the interaction between sellers and buyers in a business [ransaction.
frh.r. r.,*"
components of
: , tire study of marketing ethics, ne have to understand trvo sides of the coin. On one marketing ethics-
side is the dilemma faced by suppiiers or sellers of the products and on the other iiand on one side is the
is the ethical diiemma faced by buyers or consumers. When business transactions dilemma faced by
{).cur, it inr.olves both the briyer as r,vell as t}re seller as both are accountab}e ft r their suppliers or sellers
actions. The ethical diiemmas frorr-r both of these parties are unique in their own of the products and
on the other hand is
::als and are shown in Figure 9.1. Frorn the sellers'side, theyrvouid often face several
rhe ethical dilemma
t,ossible ethical dilemmas including whether to offer a bribe to secure a contract, and faced by buyers or
acivertising decisions rvhich may inr,olve decrdrng whether to allow manipulative or consumerS.
C,":ceptir.e advertisirg. These are just soine of the possible dilemrnas faced by the seliers
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284 Business Ethics

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besides others such as channel decisions, competitive relations decisions, product
decisions, packaging decisions and pricing decisions.
' i
On the other hand, consumers are also not immune to having to deal with ethical - I
issues of the business transaction. In dealing rvith sellers, they would be constantly
exposed to the questions of ethics such as is it alright to return a damaged goods to the ,
Selling Decisions
. Bribery
. Selling trade secrets
. Disparagingcustomers
. Misrepresentation
- Disclosure of customer rights
. UnFarrCiscrimination
Advertising Decisions
. Falseadverrising
. Deceptiveadvertising
. Bair-and-switclr adveriisrrg
. Promorional allowances and services
Channel Decisions
. Exclusrve dealrng . A.ctively benefiring
. Exclusive territorial disrributorships from an illegal activity
. Tying agreemen[s
. Dealers' rights " Passively benefiting at
Exchange rhe expense of others
Competitive Relotions Decisions
. Antr-r ompetitrve acquirition " Actrvely benefiting
. Barriers tc entry irom deceptive b:r
. Predatorycompetition Exchange
legal practices
Product Decisions . No harm/no fbul

" Producr additions and delerions
. Patenr protecrion ' Recycling/doing good
. Product quality and safeiy
. Product warranty
" Harnrful producrs
Packaging Decisions
. Fair packaging and labelling
. Excessive cosr
. Scarce resource
. Poilution
Price Decisions l
. Price fixing I
I
. Resale price maintenance

. Price discriminarron
.
1
Deceprive pricing
Figure 9.'l: Ethical dilemmas faced by both sellers and buyers in their interaction with
each other
*
seller when the damage is their own fault, not telling the truth when trying to negotiate
the price of a new car and taking unauthorized photographs using your smartphone's
camera in a book store. These are just some examples of ethical dilemmas faced by
consumers and rve shall examine this further in our next s.'ction.
9.2.1 The Hunt-Vitell General Theory of Marketing

Ethics
One of the best known descriptive accounts on ethical decision-making was developed
by Hunt and Vitell (i986). Although the model has undergone some important
revisions over the years, it is still essentially the same. It is based on a complex
mixture of background conditions; individuals perceive ethical problems, alternatives
and potentiai consequences. They then engage in a twofold process, part of which
is deontological and part teleological. Together, the product of these processes is an
ethical judgement rvhich results in intentions to behave accordingly and consequent
behaviour. The consequellces of this behaviour then act as a feedback mechanism.
The Hunt and Vitell (1993) generai lhcory of marketing ethics is displayed in Figure
9.2. Note that the section of the mociel outside the dashed lines represents the general
theory, while the section inside the dashed lines represents the model for business
professionals and managers.
Cultural environment
(a) Religion
(b) Legal system
(c) Code enforcement
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i I orgar*;*tioiaf eiiyiicn
rl, \, ,i .
i I (a) inrQrmar norms
i | (Dllormal
itt,,I ' - .
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r, :
i | (c) Code enfolcqmglt :

l_------_-___ - _--, --_
F:gure 9.2: The Hunt-Vitell General Theory of Marketing Ethics

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286 Business Ethics

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According to Hunt and Vitell (i986), ethical judgement is the process of'
::,
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considering several alternatives and choosing the most ethical alternative" Normative i
:i
ethical theories are classified into trvo categories-deontological and teleological : !'
:a
theories (Murphy & Laczniak, 1981). Deontological theories focus on the decision
maker's specific behaviours or actions, while teleoiogical theories focus on the
consequences of these behaviours or actions. The Hunt Vitell model ties both the
deontological and teieological theories together. The rnodel gives an individual the
opportunity to compare various alternatives and perceive the possible consequences
of each alternative for various stakeholders. The decision'maker has more than one
option to choose from. The HunfVitell model also requires the decision-maker to
compare various alternatives. In the model, the concept of 'ethic' can be weighted.
The decision-maker is required to weight various alternatives and ciroose the one
considered most ethical.
9.2.2 Consumer Ethics I'heory

Consumer ethics refers to the moral values and beliefs that individuals or groups
observe when they bu1., consume and dispose of products ancl services. Ethical issues
involving consumers are equally as important as marketing and acivertising practices.
Hou,ever, in the past, there \vas a noticeable lack of attention given 1o this area of
ethics. The original consumer ethics theory by N4uncv and \/itell (1992) consists of
four distinct dimensions:
r Activeiy benefiting from iiiegal actn'ities
r Passively benefiting
--l r Activeiy benefiting frorn deceptive but lega1 practices
7,*t-*r, Erh"t r No harm, no fcul activities
fheory consists oI
four dimensions- The first dii,rension signifies the beliaviour in which the consumers activeiy take
actively benefitting advantage of a situation at the expense of tlie seller. Iror exirmple, a customer gives
f rom iilegal activities, rnisleading price information to the cashler lvl'ren the price tag has been peeled ,,if.'lhe
passively benefiring,
second dimension consists of a situation where consumers r,r.,ere passively benefiting
actively benefiring
themselves due to the seller's mistake. An example of this situatiot-t is when a cllstomer
from deceprive but
gets too much change aird does not inform the cashier. l'he third dimension represents
legal practices, and
no harm, no foul actions in which conslimers were actively involved in unethical but not necessarily
acrivi ries. illegal practices. For example, a customer keeps quiet when a lvaitress at the fast lbod
restaurant serves hirn first instead oi the otlrer custorner iining up irr lront of him.
The final dirnension refers to the behaviour tl"rat is not seen as harmful to others" An
example of this situatior-r is the act of spending an hour trving on different shoes and
not purchasing any.
-l'heir findings revealed that actions in the first dirnension are initiated by
consumers, and most of them perceive that these actions are illegal. 'Ihe second
drmension involves actions where consumers passively benefit from sellers' mistake.
The third dimension is also initiated by the consumers, however, these actions are not
perceived to be illegal. Yet, they are still morally questionable. Study finclings indicated
consumers believe that it is more unethical to actively benefit from an illegal activity
than to passively benefit. Finally, the fourth dimension involves actions that most
consllmers perceive as not even being unethrcal at ali. Most of these actions involve
the copying of rntellectual property s,tch as s,rftware, tapes or movies (Srvaiclan ef al.,
2004;virell, 2003).
)
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,{ctively benefiting from an illegal activity

. Changing price rags on merchandise in a retail srore
. Drinking a can of soda in a supermarket without payrng for it
" Reporting a lost item as'stolen' to an insurance company in order to
collecr the money
Passively benefiting at the expense of others

' Cetting coo much change and not saying anything
. Lying about a child's age in order to get a lower price
" Not saying anyrhing when rhe waitress miscalculates the bill in your
favour
Actively benefiting from deceptive but legal practices

. Returning merchandlse to a store by clarming rhat lt was a gift when ir
was not
. Using an expired coupon for merchandise
. Not relling the trurh when negor iating rhe price of a new automobile
No harm/no foul
. Using computer sofrware or games tlrat you drd not buy
. Spending over two hours rrying on different dresses and not
purchastng any
. Retu.ring merchandise after trying it and nor lrkrng it
Recycling/doing good
. Buying producrs labelled as 'environmentaliy frrendly' even if they
Con't work as well as competing products
. Purchasing something made of recycled materials even rhough rt rs
more expensive
. Rerurning to the store and paying for sonrerhing rhat the cashier
mistakenly did not charge you for Degree of
. Correcring a bill that has been miscalculared in your favour Unethicality
Figure 9.3: Five-Factor Structure of Consumers' Ethical Belie{s by Vitell and lluncy (2005)
In 2005, the consumer et1-rics theory rvas modified and a r-te\'v din-rension that
represents coltsumers' desire to recycle products and 'do tire right thing' rr'as added
(Vitell & X4uncy, 2005). An exarnple of this situation rs not purchasing products from
companies that consuiners believe are not treating their employees fairly (refer to
Figure 9.3).
9,'3'' ETHICAL ISSUES IN PRODUCT

DEVELOPMENT
llusinesses are under considerable pressure to develop products that vrill he far-oured
br. customers over those of their competitors. Part of the pressure to ievelop new
ffi
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2BB Business Ethics I
4?4
There are three --l products derives from the declining profits associated with products that have been .:l
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matn erhtcal around for some time. It is significant to take note that a large percentage of the many ri
1
issues in product products that businesses sell today did not exist a decade or two ago. This illustrates ,:t
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devclop.nenr-va ue the importance of innovation. I
durability, safety Let us consider three important areas of ethical issues in product development-
anci environmental
value durabiiity, safety and environmental impact.
rmpaci.
9.3.1 Value Durability

Value durability of a product refers to the likelihood that a product will continue
I
I
to maintain its value over time. This may not occur for a variety of reasons. Some i
!
products are designed with current fashions in mind and may consequently lose their
value (as they go out of fashion) quite quickly" Others are made cheapiy so that they
break down more quickly than others. Some lose their value because they are replaced
by new technological developments and some products might be built such that they
do n. : incorporate, but seek to block the use of, technohgical developments that could
make more durable and valuable products"
Many argue that marketers have a responsibility to produce products u,hose value
rn,ill not decline in any of the ways noted above. This is unlikely since technological
advances do occur and people's taste in clothing, cars etc. niay change.
9.3.2 Safety
Proclucts may pose safety risks in a rvide variety of wa,vs. Thrnk about tobacco, heavil,v
sugared cereals, fatty foods, larvn mon ers and other machinerl'that can l tl.lurc a Person,
as well as pesticides and poisons. If you are to think deeper, almost an1'product nray
pose dangers and become hazardous under certain conditions. Those safcty risks rnay
arise from the marcriais of the product, its design, metl-rod of use, how tlre product was
advertised or some combination of the above. In developing new products, marketers
must be alert for the possible harm that the proposed products may cause.
A traditional guideline has been that a marketer's responsibility is to produce the
products which peopie will buy and it is the customer's responsibilit.v to determine
u,hether, and to rvhat extent, such a product may cause them harm. Of course,
companies are not to conceal features of a product that may be harmful, but it is up
to the custorner to acquire reievant information regarding the product and to act
accordingly. In short, caveat emptor (let the br-ri'er beware) guides both custonrers and
companies. In as much as customers must be wary of the exchanges c,-,mpantes offer
them, they must aiso iook out for themselves. This vierv holds that there is a lack of
trust between seilers and bu1,ers.
For most customers today, products are of stich complexity that it rs diffrcirlt, if
not impossible to know what product features may result in their own harm, or the
harm of others or even the environment. The assumption that is made by the caveat
emptor doctrine simpiy does not hold in the case of the cars, computers, smartphones
or medicines lve buy. Customers are at a significant disadvantage. In this instance, a
more credible ethical guideline for marketers rvould be that they must exercise due'
care in their production and marketing c.f a product. Therefore, marketr'rs must take
all reasonable measures to ensure that their products do not have f'eatures that rvill
cause harm to customers. This does not mear, that people rnight not t,e harmed by
a product. Someone who buys a pocket knife and accidentaliy cuts his {inger shortlv
after does not have a reason to complain to the manufacturer. Instead, ftrr a customer
a
I
Markelrnq Ethics and Consumeristrr ZBq
defective in some manner'

to have a justified complaint, the product must have been
The marketer must have failed to exercise due care in designing
or producing such a
defective product, i.e. he must have been negligent in some
sense.
ln summary, companies cannot simply place a product on the market and expect
consumels to protect ihemselves from possible harm from the
product' They are in
a position to know, far better than customers, what
the real and potential dangers of
them'
the product are. Hence, companies must seek to protect the custom..lt.ugui,::
could cause
Doing this requires that they study various potential situations which
from happening' The
harm to the customer and then devise ways to prevent mishaps
on the shoulders of the
due care standard places these ethical responsibilities squarely
companies.
9.3.3 Environmental lmPact

the environment can
The impact of the products that companies choose to produce on
be quite significani. corporatiorrs need to think of ways
in which they not oniy reduce
products
the negative impacts of their products on the environment, but produce
Since the impact of
that ha've a benevolent effect (N4cDonough & Braungart,2002)'
of
current products ma1, last generations, thro,-rgh poliution and the consumption
resources, the companies iniich produced the products are
regarded as the cause of
negative effects'
those aff:cts. Therefore, they also ha'*'e to bear responsibility for the
'Ihey cannot deny responsibility since it is their customers who have brought and used
theii prodr,rcts. Assuming responsibility n-ray involve changing P':oductio.n processes,
as r,veli as tl-re materials .ir"d io make the product. Both
changes can make then-r less
envircnmentally harmful and more suitabie for recycling'
that
Many of the products we presently use are designed and built in such a way
approximates
etther they cannot be repaired or their repair requires an expense that
to, if it isn't greater than, the price of a new p;oduct. The product that is throwtl arvay
are made
must be carried to a scraPyard anil thron'n au'a)'. Often, these products
with scarce materiais that are poisonous and ma,v leak into groundrvater or give
off toxic fumes that may reach rvhere people live' Companies should consider that
such prorlucts need to be rnade in a manner such that they can either be
serviced or
recycled. Companies also ought to market products that have a minimal impact
on
the environment and can meet foreseeable sustainability standards.
9,4 ETHICAL ISSUES IN PACKAGING

AND LABELLING
Most of the products we buy corne with some kind of packaging ivhich is labelled.
Both packaging and labeliing serve multiple purposes and raise some ethical issues.
Packaging .o-., in an endleis variety of forms and may serve to protect the product'
make
heip iJitJdistribution (from manufacturer to wholesaler, retailer and customer),
its theft much more cirfficuit, or attract customers as rvell as make the dispensine
of
the product itself much more convenient. In addition, it also has symbolic, ai'sthetic
and emotional aspects. Packaging can n-iake a product look'special', higiiiight
its best
features and make the customer feel good upon opening it'
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290 Business Ethics s!r ,
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The use of labels on packages has grown immensely in recent years. Ihey may
,*
identify a product, but also describe the product, provide important information
about it in the form of contents, place of origin, how it should be cleaned and seek to #ffi
promote it. As with packaging, labels are not oniy a means of dispensing information. ,:
For example, labels on clothing do not just inform consumers about who made the
,.
product, but may have emotional and psychologicai purposes as u'ell.
In both these areas, marketers face ethical challenges concerning the information
that customers need to have or should have regarding the product" Hence, companies
have the responsibility to address the issue of deception and adequacy of information
in their products'packaging and labels.
9.4.1 Packaging
Erhi.rtr**t t Among the many ethical dilemmas marketers need to address when it comes to
involving packaging packaging, the following three are among the most important-the use of packaging
are commun,cation to reveal or to disguise the nature of the product being ofT'ered for sale; the safety the
of contents, safery packaging provides; and the environmental impact of packaging.
and environmental
impact. Commu nication of contents
Any companies will seek to place a product in a package that presents rt in its best
light, while making the item look appealing and desirahle fo f he custorncrs. As srrch,
packaging can reveal (and also hide) what it encioses. An ethical issue arises rvhen
this effort amounts to a form of deception, in that it hides undesjrabie aspects of the
product for which the customer ltould otherwise reject it. l:or ex;rmple, nht:n fruit or
vegetable dealers place the rotten fruit or vegetables at the botlorn r:rf the package the y
are selling, they are trying to conceal the truth about the content. Ariother famiiiar
example is when a small amount of cereal or chocolate is placed in a much larger box,
to make it lcok as if the custon-)er is making a large purchase. In this n,al,, packaging
may make it appear that the contents of a package are greatcr than they real11, 319
Safety
It is the responsibility of companies to ellsure the safei,v of the products they sell
through packaging. It requires that the product the customer rccr:ives rs the one the
seller intended them to receive, i.e. not somethirig that has becn altered in w'a\.s that
might compromise the consumer's safetv. Marketers have to seek rr,a\,s to ensure that
their products are not harmfuliy modif ied. In strme products, for exampie fresh fruit,
this is hardly possible. With drugs and other fbods, it is possible. Hence, sellers now l
enclose products in severai levels of safety packaging" It is the underlyrng principles

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that companies are ethically responsible for ensuring that the product customers buy l
is not only the one they believe they are buying, but also one that has not been alterec-1 -i I
in ways that will harm them. I
The second issue concerns children who might be able to get hold of a product, I
such as drugs or poisons and do harm to themselves through consumption or using -.1
I
it. The ethical issue concerns the responsibility to ensure tliat individuals rvho are I
cognrtively and motivationally immature and lack the understanding of what might
harm them are not able to gain access to these products. Thc practical u,;ry is ensuring
that sufficient safety is built into the packaging so that the product's intcgrit,v and use I
will be protected without rendering the prodr:: t impossible to open.
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Marketing Ethrcs and Consumerism 291
Environmental impact
Though packaging serves many purposes, once a customer has used or consumed
the product, the packaging is thrown away. This raises addirional ethical questions of
wasiefulness and harrnful environinental impact. What responsibiiities do companies
have in regards to this aspect ofpackaging?
Ethicaliy, it would seem that a minimal amount of packaging should be used to
accomplish the purposes. Often, companies fail to consider whether there are simpler,
more effective or less wasteful ways of providing a product to the customer. Most of the
time, companies often fail to consider what happens after the usage of the packaging.
For example, we often see mineral water botties and wrappers along the roadside. The
underlying ethical principle here is that companies should use a minimal amount of
packaging materiais, and those they use should be recyclable, recoverable or reusable.
An important part of the responsibility for fulfilling this principle lies with companies
who, though they have greater knowledge and abiiities, do not use them to help set
an example for more reasonable nackaging activities. Such responsrbilities are not
simply individual responsibilities oi-lust one company but should be the collective
responsibiiity of all marketers.
9.4.2 Labelling
'l'he labe1 rs practicall), the last point of contact betrveen companies and consumers,
a last opportunit,v to convey some information or warning to the customer. As such,
rvhaterrer form iabels ma1, 12p. (text, pictures or other visual representations); thel'
'Ihe,v can tell customers,
nray pror.ide extremely valuable information for customers.
ibr'eiample, ."vhat is in a package thel'cannot otheru,ise inspect, or r,r'hen the product
ntight be expected to perish, or whether it contains a substance that might harm a
.rr1o-.., out of *hrt substances the product is made, rvhere it rvas produced, ho$'it
should be used, cleaned or cliscarded, etc. ]ust as labels may be helpful, they are also
the source of many ethical disagreements as well-
'fhere are tno central ethical issues regarding labe11ing. The first has to do rvith fr*"..r"r1 .rh,.d
the nature and antount of information that companies are obligated to place on a issues regarding
labelling are
labei. The second has to do r,vith tl-re potential deceptiveness of a label. Labels might be
information and rhe
deceptive, but they might also be used to make up for potentially deceptive packaging.
use of deceplion.
lnformation
\,l,hat information rnust labels include? If customers have a right to know u'hat they are
bu,ving; then rvhat cioes that right inciude? Can customers clair-r-r that particular labels
must contain certain information? There are no simple answers here. It u'i1l depend
on ihe prorluct, the informatiorr involved, as well as those people lvho are potentlai
custorners. Companies also need to consider that some of those lvho Purchase or use
their prodrict are iiliterate. Those individuals might need to have different labels than
literate consumers.
Deception
When marketers use certain terms, omit certain details or make it difficult to find
the relevant information on a label, customers may end up beiieving what rs false. For
example, a product that advertises itself as 'light' or 'lite' might reasonably be thought
to have fewer calories or less fat. Holvever, some manufacturers llse thes. words to
rerer not to those ineanings but instead to the colour or the texture of the product.
?.92 Business Ethics
Information on the package might also be deceptive through the way it is presented
and the size in which it is presented. If consumers are in a hurry and do not read the
small print on the labels that indicate that the product is actually somewhat different
than they might otherwise think, they may be deceived into believing that the product
they are buying is better or different than what it really is. l,ikewise, companies have
tried to deceive customers through misleading labels that state the levei of salt, sugn1,
fats, etc. contained in the product. The only thing that is shocking about all this is
that companies are then surprised when customers express their lack of confidence
I
in their products. I
Case for review 9.2 shows an example of the change in product name as well
as labelling due to the changing times. A name that is acceptable and has become
synonymous with clean teeth might no longer gain acceptance in the future. T'his might
be due to the fact that an acceptable iabel, logo and even packaging might be deemed -t
offensive with new awareness and sensitivity among consumers and marketers.
'!
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From Darkie to Darlie

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Darlie, formerly Darkie, is a roorhpasre brand of Hawley & Hazel Chemical Company. First
manufacrured rn Shanghai in '1933 and later based in Hong Kong and Taiwan. Hawley & Hazel was
acquired in 1985 by rhe US corporarion Colgaie-Palmolive, akhough ihe product is not marketed
by Colgare-Palmolive. Darky, or darkie, is a rerm used primarily in the Unired Stares and Britain to I
refer ro black people, and is now generally considered a racial slur. The packaging featured an image
-1
of a wide-eyed, smiling dark-skinned black male wearing a rop hat, spyglass and bow-tie. Due ro rhe I
conrrasr wirh rherr dark skin, ir was a common misperception that the teeth of rhe people of African
I
origin were exceprionally whire. ln 1985, after Colgate-Palmolive acquired Hawley & Hazel, rhe English
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name of rhe roorhpasre was changed ro 'Darliel and the image on the packaging was alrered to show I
a racially ambiguous face in a top hat. The Chinese name of the brand ('Black Person Toorhpasre'),
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remains the same, and a Chinese-language adverrising campaign reassured customers that 'Black
-1
Person Toorhpaste is siill Black Person Toorhpaste'. The toorhpaste remains popular in some Asian I
;
countries such as China, Malaysia and Thailand.
r-i
(Adapted from'Cc;lgate's Distasteful Toothpaste' by Hodgerts and Luthans,2004) i
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9.5 ETHICAL ISSUES IN PRICING -1

I
Marketing discussions of pricing often portray it as a technical, objectir.e undertakrng I
wholiy answerable through marginal anaiyses, cost plus prictng, return on investment I
studies, etc. Such discussions often take place at a very high level of abstraction.
Among the items marketers are to consider are the price customers expect, wlierher the I
product is a new or established one, the cost of the procluct, the nature of distribution I
channels, possible competitive reactions, the compatibility of this price with the firm's
objectives, the level of demand and tlie implications or consequences of the price for
those who are asked to pay it.
The price of a product is an important (although not the only) consideration frh;;,h'..
for customers. Among the ethical issues regarding prices are-what knowledge the issues in the erhics of
pricing-customer
customer can have regarding the price; deceptive aspects of the price; and various
knowledge of the
special circumstances (e.g. natura] disasters and new products) that may al'fect the pi:ice, deceprion and
price. special siruations.
9.5.1 Customer Knowledge of the Price

Most of the ethical issues regarding what customers know about the prices of products
have to d<, with deceptive practices companies are involve in. There are a fett', however,
that concern the customer's knowledge of the price.
What information regarding prices are customers entitled to and companies
responsible for providing? ShourJ a business provide full information on how prices
are determined? In generai, it does rlot seem reasonable that customers have a right to
know how prices have been determined. For example, how Apple arrives at the price
ofthe nen, iPad or even how Proton arrived at its car prices are usually not revealed
to the consumers. These determinations may involve confidential processes within a
business to which customers cannot claim a right to access.
On the other hand, customers have a right to know lvhat the true and total
financial cost of a prospective purchase rvill be to them. This must be presented in a
u,a)'that discloses, rather than disguises the full price to the customer. Companies are
concerned rvith the profit margin. Customers are concerned about getting valtte at a
reasonable cost tor their purchases. 1n addition, this information should be availabte
to customers in a timely rnanner, i.e. before they have had to decide whether or not to
buy it. To learn lvhat the price is at ti-re check-out counter is to learn the price too late.
Hence, the prices on products in a retail store should be clearly marked. A barcodc
that onl1, rnachines can read is not sufficient. A customer's right to know r.rha1they
mr,rst pay is what is at stake hcre.
\\r}ren customers are buying a product on credit, or through an instalment pian,
they not only have a right to knon,r,r,hat the monthly palrments will be, but also whal
r,r,ili be the total price to them, after the last payment is made. They have a right to
knorv u.hether there n ill be extra fees or charges added to their purchase. For examprle,
car buyers should knon, about various preparation charges, holv much tle interest
n,iil be as r.vell as other fees. Tl-rese are features of the total price which the companies
should reveal to the customer.
9.5.2 Deception
Too often, companies try to deceive customers such that their patrons nlay find it
difficult to know what the full price of a product is, or understand the significance of a
particular price. Customers are deceived regarding the price of the product. Tlie efforts
companies ntake to disguise or hide the true price to the customer of a particular
product are unethicai. They can do this simply by not telling the customer what the
total price is until after an agreement is reached. For example, a hotel might offer a
room for avery reasonable price but then charge the customer with additi,,nal hidden
i.es such as 'resort', 'energy surcharges', 'communication charges', etc. Those who pay
294 Business Ethics
by credit card may be offered reasonable interest rates hut other hidden charges e1
special conditions added on to it in effect raise the cost of its use.
When companies conceal the information to which customers are entitled to
know to the extent that customers end up not knowing or misunderstanding what the
real price is, they are, in fact, engaging in a fbrm of deception. Sometimes companies
just simply do not tell customers the full price, or reveal it in ways that are extremely
difficult to understand or to detect. This may be a form of 'soft' deception, but the
result is the same. The outcome is customers cio not have the full infbrmation and do jl
not know what it is they are committing themselves to spending when they buy the
product.
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9.5.3 Special Situations

The pricing of a product might be altered in any number of 'special situations', for l
example, during a natural disaster. if a flood has just hit the state of lohor, people
might bc v,'illing to pay greatly inflated prices for bottled ttater, power generators or
building materiais. The ethical dilemma here wouid be, is it legitimate or morally -
i
right for businesses to charge a higher price?
In this kind of circumstances, there are people rvho may be desperate for certain
products and their safety and health may be at risk" If companies can charge any
amount that customers are willing to pay at that tinre, the companies are taking
advairtage of buyers' desperation and weakened position. Tb dtt this is to explott them
as customers.
Another example where a different special circumstance arises occllrs when a
new product is being introdr-rced. One pricing strategy rs that o{''market skirnrr-iing'.
This is tl-re practice of charging a very high price for a nerv product at the rntroduction
of the prodnct to the market, Among the justifications offered for this practlce are that
it lviil cover R&D costs, that it suggests high quality to custorners, that the 'newness :
of the product is worth a premium to customers, that it r,r'ill help match the levr:1s of I
customer demand lvith those of the firm's production abilities, and that after time,
the business can lower the price of the product, thus making it seem desirable to more
people.
Suppose that the special situations involve an on-going critical situalion such as
HlN1, where peopie's lives are at stake. The firm might developed a vital drug that
is not available elsewhere. Should the compan),use a marginal annlvsi.s to determine
its price? In the US, pharmaceuticalcompanies ciaim that higher prices arelustrfied
in order to engage in the research and development required to produce the drugs
that har.,e been developed in recent years. Horvever, who is responsible [or seeing that !
those peopie who are sick and dying get the drugs the,v rrced? if this 1,*g1g lfis sole
responsibilrty of the drug manufacturer and if fuifilling that respotrsibility wor-rld I
drive the drug manufacturer into bankruptcy, then there rvould be ver,v felv drug
manufacturers u,ho would be motivated to work on develop new drugs. T'his certainly
is not a win-win situation and the outcome is undesirabie for everyone. However,
having said that, drug manufacturers also cannot be left to soleiy dictatc the market '
price at their own whim and fancy without some form of control. Goternntents,
i
non-governinental groups and international bo<lies also share in the responsibility as 1
do the r.ictrms and their families. Where speciai situations arFi concerned, there are
muitiple parties that are responsible.
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Marketing Ethics and Consumerism 295 l:l
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ETHICAL ISSUES IN ADVERTISING

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9.6 i
The forms advertising can take are limited only by the imagination of marketers' They
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include everything fiom print media, television and radio, the Internet, billboards,
i
and
posters, point-of-p"urchase displays, school bus.es, bathroom doors to sky-writing
ih" bu.r*.r pulled behind airplanes. In short, almost any place in which an advertising
message .u, b" displayed has been used to carry some advertisement' Advertising
is notinly difficulito escape, it is becoming craftier and subtler these days, based
on extensive studies in consumer psychology and behaviour. The understanding of
what appeals to and can motivate people is much greater today than in past decades'
Adveriiiers seek to use that knowledge to accomplish their purposes' The consequence
and
is that advertisements have wide ranging and significant impacts on individuals
society.
lf the buying and selling of products is a morally permissible form of exchange fErhkd t**t
relationship, then the question we must ask is which of the ways companies use to in adverrising
inform urd to influence customers are morally permissible and which are not' involve truth in
advertising, pufferY
Adr.ertising is one area in particular in which this question must be raised. Do certain
and rhe desire for
kinds of advertisements go against important marketing values and norms? It is hardly deceprion, offensive
surprising to find that.most forms of advertising involve ethical issues of deceptron, advertisements and
manipulalion, harm and value integrity. manipulation.
9.6.1 Truth in Advertising

The current economic system lvould suffer a significant decline iiadvertising r'rrere lo
stop; tt would be considerably iess efficient. in this sense, it is better for aiI involved
in business transactions, especially producers and marketers, to advertise' In any
economic system, some way of making knon'n what is available, its price, features,
how they reiate to customer's lives, etc. is necessary. Advertising satisfies this need for
infornration.
Advertisements that make factual clairns about a product may make tliem witl'r
regard to their cost, availabilitl,, quality, construction, uses ctc. Issues of truth plal'
an extremely important role here. An advertisement tells the truth if what it (or some
part of it) states or portrays, captures or reflects, in some substantive or materially
relevant manner, the actual characteristics of the product advertised. An advertiser
who knorvingly includes some false statement in an ad, when this false item i: nlalcrial
to the understanding of the product, and who does so with the intention to deceivc
sorteone, u,ould be lying about the product. As such a lie requires that the person,
or adirerti.er, present some sort of statemeirt to the viewer. if, horvever, an adverttser
omits saying or presenting something about a product and thus misie ads the customer,
the advertiser has not lied. In such a case, the customer has been deceived.
9.6.2 Puffery and the Desire for Deception

A lot of advertising does not make claims that could strictly be evaluated as true or
'best burger in the world'-
false. Instearl, overstated statements are used, for example,
In acldition, advertising also utilizes association anC implicit connections betrveen
products anil various needs or desires people have (for acceptance, approral, securitv
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296 Business Ethics
;.-:1
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etc.). These forms of puffery are viewed differently than the statements advertisements - t' I
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make about prices, durability, contents, etc. I

I
Are these forms of puffery deceptive? Some say they are not but are rather .t
embellishments and are recognizedas such. According to Levitt (1970), people desire
to have puffery. On Levitt's view, customers want the puffery, the symbolism and the
visual and auditory embellishments that ads carry to make their lives a littie less dull"
Since advertisements that engage in puffery do not rnake straightforward cognitive
ciaims, therefore, they cannot be directly evaluated as true or false. Hence, they cannot
be directly deceptive. Still, their exaggerations and associations are intended to attach
an emotional or symbolic glow to a product. In general, these emotional associations
are effective in moving people to purchase the advertised products or otherwise they
would not be used in the first place.
9.6.3 Offensive Advertisements t
Advertisements may be criticized not only for questions of truth, deception or

dishonestl', but also for their offensiveness. This rnay occur in a number of ways. Some
are offensive because of what people do in the ads, or the situations they portray.
Ads can aiso be offensive by portraying people in various stereotypical and
clemeaning roles. This is said to occur when women are portrayed in a manner that
emphasizes their sexuaiity6.r, de-emphasizes their intelligence or leadership qr.ialities
Similarly, certain groups of people (for" example, the handicapped) may be portrayed
rn dismissive and stereotypical rvays. Ads can also be offensive through the language
they use, lvhich might be particulariy obscene, cirauvinislic or <liscrirnitiatory
9.6.4 M anipu lation

Advertising must be evaluated not only for its truthfuiness and offensiveness, but
also for the impact it may have on people's view of themselves and therr behar iour.
Advertisements are not only informational, but also motivational and perspectir.al.
They seek to move people. In addition, they offer representations of the lvorld. it is not
surprising then that adr.ertising is often said to raise issues of rnanipulation.
In order to manipulate people, advertising may appeal, among other thit-tgs, tcr
the desires, needs, emotions and wishes customers have regardrng, for example, their
physical appearance or safety, accepta;rce by others, sexual interests r)r patl tottsnt.
'I'hus, advertisements that relate to one's acceptance by others may feature bacl breath
(rnouthrvash), bodily smells (deodorant) or dandruff (speciai sharnpoos).Ihev may
aiso relate to the protection of one's children or loved ones (spccraltyres fbr ole's car,
life insurance policies, fire insurairce policies, etc.).
In the above examples, objections have been raised--that compan ies are not sr rnplv
seeking to persuade or influence people, but are engaeed in a form of manipr,rlation that
is ethicaliy inappropriate. The question is what would constitute manipulation then?
Someone is manipuiated when some other person (or organiz.ation) non-coercively i
creates or rearranges a set of conditions so that he or she can motivate a person to tccl,'
believe or act in certain ways that they wouid not otherwrse have f'e1t, believed or acted <
in. The objective is to fulfil an aim of the person exercising thrs influence. Even thing i
rvili depend upon the means used to appeai to those targeted, who is targetecl and the
narrowness or breadth of the appeal. In general, when markete r-s lreat people as objects '-1
t
to be rnanoeuvred or pursued in certain directions for their orvn ends, then lirere
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manipulation and also reason for companies to avoid these forms of marketing.
Marketing Ethics and Consurnertsnr )ol
Case for review 9.3 illustrates how a negative connotation attached to a culture
can be used as a marketing and advertising tool to seli a product. In your opinion, is
this ethical? Will you consider this as a form of manipulation?
l,
Capitalizing on Kiasu
ln Singapore a'Kiasu'is a boorish grab-all-you-can person, or one who is afraid ro lose out. Every
narionaliry has irs own Kiasu rypes, but Singaporeans have coined a word and mascor for it.
McDonald's in Singapore has even pui its stamp of approval on the concept wirh the lntroduc-cion
of a chicken sandwicir ,.virh exrra letruce, extra sauce, exrra-long buns and 47 sesame seeds, aprly
"A year ago we
called rhe Kiasu Burger. Fanny Lai, McDonald's marketing manager in Singapore sard,
identified Mr Kiasu as a popular iocal cartoon character and began conceptualizing our marketing
plans wirh irs crearors "
ln Singapore, when McDonald's ralks, people listen. As rhe repubiic's brggesr advertiser,
McDonald's spends over Szi rnillion annually on advertising and promotions The Krasu carnpargn
cosr rhe charn nearly 5433,U0U, and rhe burgers practically flew our the door. MlDcrrrald's expected
ro
sell l5 mrllion Kiasu burgers narionwide during ihe-10-week protnorion, bur alreadl' sold 600,tlit0 in
Srngaporeans
rhe first rhree weeks. ln one of rhe marketrng gimmicks when the burger was latrrrched,
.135
showed up ar 5:30 a m. could buy the burger for one Singapore cent As many as were sold
',vho
rn half an hour, wirh Kiasu Singaporeans queuing up as if it was rhe last sale on earth.
McDonald's promorion of rhe Kiasu Burger is part of a worldwide ir-end 1'or internarional
adverrisers ro localize rheir marketing efforrs. "singapore is a global city, an open market, so Kiasu-ism
is one of the few thrngs uniquely Singaporean rhar sets Singapore apari l'rom the rest of SoLrtheast
Asia," says Jamie Pfafl crearive director at Leo Burnett Pte. Lrd., whic[, handles McDonalcl's account
in rhe U.S. anci three Asian counrries. "There is a lot of homegrown prrde among some Chinese
Singaporeanstharoneof rheirrermsisgetringacceptancefromaglobalorganizatronlikeMcDonald's"
(Adapted from'SOCIETY: Singapore's Kiasu syndrome', Asia lnc, Seprember 199j)
9.7 ETHICAL ISSUES IN RETAILING
Retailing relates to the sale of products and services to the ultimate customer for
personal, non-business use. It is generally conducted in various departmental stores
and retail shops but may also be done door to door as well as through the mail and
the Internet. Retailers come in all sizes, from giant hypermarkets such as'lesco to
neighbourhood retail stores. There are different marketing strategies used by drfferent
retail outlets, for exampie department stores, discount houses, spccialty storgs, factory
outlets, supermarkets, convenience stores and warehouses.
*
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298 Business Ethics

,'.+,rt
:y
,.xr
'* Y:l
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The common -l There is a wide variety of ethical issues concerning retailing. 'Ihe following are '7:; I
;ff
ethical issues in some of the common issues. i:i-=
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retailing are gifts
..n I
and entertainment, {{,1
honesty in sales, 9.7.1 Gifts and Entertainment

privacy in rerailing
and retail sales
Retailers acquire the products they sell to individuai customers by purchasing them il
pressures. from other producers through various sales representatives and suppliers. In the quest
to procure their products, what is the role of grfts and entertainment in this process?
Suppose that a sales representative, after a discussion of whether the retail chain will
carry a particular product line, casually offers some tickets to a concert or to a movie.
I
Does this raise any ethical questions? Some argue that the answer depends on the
intent of the gift-giver. It is wrong if the person intends to ir-rfluence onc's decision,
but not wrong if the person is only offering the gift as a nice gesture. The problem
ll,ith this argument is that it is difficult and perhaps impossible to asc ertar n a person's i
intent in such cases. I
i
TLe fact is that gifts and entertainment received inay influence the person who
is making the decision on whether the retail chain will carry the line proposed. :
I
Acceptance of such gifts maymake the recipients f'eel obliged to those who have
given the gifts. After all, this is one of the traditional aspec-ts of grft gi.,,rng--t}rose
receiving gifts do feei a certain obligation to respond in kincl" \\rherr the receiver
of the gift makes an agreement that he or she rorould not otheru,ise have made,
it appears Lhal Lhe persun has been urrduly irrfllrelrced, if not bribcd rvhcn they
accept the gift. Hence, gifts may raisc questions of"conflicts of interest between :
both parties. I
Honesty in Sales
I
9.7.2
\\rhat is the standard of honesty retail saiespeople irusl nlcet nrth regard to
the products or services they are selling [o cuslomers? The:ialr:spersorr's
responsibility is not to tell iiteraily everythins about lhe product, gooclr or
service. Most buyers would experience an informatior.r o',,erload, lvhich is
r-rnheipful. Those in the legal profession sometimes use this techniqr.re to bury
the truth, ratherthan reveal it^ If honesty involves portra,vrng situations the way
they are, teliing someone everything might obscure impcirtar-rt truths about the
product or service in a mass of details. In short, some pieces of infolrnation are
more significant than others.
The generai moral consideration or principle here rs 1lrat honestv rerlulres
providing accurate information, in response both to questions asked ancl to relevant
questions not asked, in situations in which the legitimate cxpcctirlions of tl-re custt.rmer
require that those questions be accurately answered. To detc'rnline exactly hou, nruclr
t
information needs to be provided is not always clear cut. Consumers ntllsl rn genei al I
rely on their assessments of rvhat a reasonable perscn would \.rant to knorv (Ho11e1,,
1986). Certainly any information that wo,-rld materiall,v affuct the customer's decision
i
shouid be disclosed. I
In relation to honesty in sales, in 201 1 there n as an uproar in N4alavsia on the tvay

a boutique hotel 'discrrminated' certain groups of people" Is the orvner of tl-re hotel
!
merely being 'honest' in their sales tactics? Wheri do you thinlr. is honesty ,rpprcciated
and when rvill it cross the line? Read case for rer,/rew 9 4 to finrJ otit.
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Marketing Ethics and Consumerism
299
fi$
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Reggae Mansion Out of Tune

Malaysians has
relects selected nationalities including
A hosrel for inrernarional backpackers which states that'Reggae
Reggae Mansion chain of hoscels'web:ite
caused uproar among Malaysians. The do not accept bookings by
backpackers unfortunately' they
Mansion is a hosrel ior lnternational narionalities would be
narionals'' Reservations made by these
Malaysian, lndian and Middle Easrern The new
adding rhar rhe hostel was nor wheelchair-ac-cessible
deemed null and vold, the hostel said, also rloes nor
in Tun H s Lee and ceorge Towir' Penang'
bourique backpackers hosiel franchise Jalan wrote abour the hosrel's polrcy
years old. A human rights blogger
accepr guesrs who are above 60 and Facebook
frusrrations agulnst the hosrel on Ti"r'irrer
prompring angry Netizens to vent their
TheStarnewspapermadeacalltoReggaeMansioninPenangandwasansweredbyareceptionisr, the hostel and
thar the website \\as- not operated by
who was apologeric abouLrie policy, ,rying branch'
The receptionist in rhe Kuala Lum;:ur
thar bookings by Malaysiarrs were still accepred ro give reasons 1'or such a
however, mainrained thar rhe
practice was being enforced but refused
ol the Kuala
the notice was removed from the websiLe
policy. However, afrer the hype of oubllcity,
Lumpur branch
(Atlapte,lfrom,Rcggae,4.lensiont)t'trofTtne,,byRegtnaLee'Theftaronline,4Novembet?C11)
q.7.3 PrivacY in Retailing

t[rt:
come to know certain things aboLlt
wl]eir a cusLomer buys a prorluct, retailers ,."d {r1 pa}I
r-'tt.stomer' For ex3mp1e, tl-rey ktlor,r.
rvhat proclucts r,vere brought, the means
rvere bought',Depending on the
locatiorr
ior rhose pro<lr:cts uJ'ruh"r" and when ih"y or in publie '
*,here the purchase u,as macle, r,virether
privately (online, by mail order)
sex' race'
a retailer might also have access
to othei information, including a person's
if the purchase is t'ra<1e
statlis, etc.In addltion'
religiot-r, clothingpreferences, marital customer'
,-,5ilg a credit.ora or.t]"que, a retailer
will acquire other information on a
for exampie, the person,s credit card number,

ht*. phone 'unlber, horne adciess arrd
bank. . 1- ^.-^r^61,1
'l-hese retailers need to make considerable eftbrts to ensure that priYate
customcrs
databases and the lnternet' the dangers
infornarion .emains private. \{ith computer
have increased greatly' Stories of databases
of the loss of confidential information
being 'hacked' into and of computers
u'ith confidential information on them being
online commerce may involve prii'ate
sold, lost or stolen are increasingly frequent-
one s credit card number' inc.me
inlorntatio' of considerable significance regarding-
of identity theft or loss of information
and othcr private information. The possiblity encrypteci
htrs become ver,v real. Companies
must make special efforts' such as utilizing
passwords, etc., to ensllre that private
information, trrirrlnfof "mploy.er, firei'al1s,
remaiirs private'
infortnation r'r'ith wh]ch they have been entrusted
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300 Business Ethics
9.7.4 Retail Sales Pressures

Retailing also raises issues of freedom. Retailers can bring various pressures ancl
forces 1
to bear upon customers, which may constrain or direct their eleciiions and behaviou.
in ways such that their freedom has been negativeiy affbcted. Often, they involve
subtle
measures, for example, appealing to emotions (fear, self-regard), comments
made kr
affect-the perceptions of customers, store environment.s created to encourage
buying
and efforts to alter customer risk assessments.
Warning that a certain product may be soid out il'the customer does not
buy
it now is only one of several methods retailers use to put pressure on customers
to
buy. Salespeople have also used guilt as a psychological weapon when a saiesperson
encourages a grieving son or daughter to buy an expensive coffin by saying, ,,surely
you want to buy the very best coffin for your fatherl" Again, by appealing to the
notion
of friendship, a salesperson might try to get someone to buy somethlng to strengthen
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the bonds that friendship suggests. Another scenario would be when saiesp"eople
I
gather a number of customers together so that they can try to use peer pressure
or I
embarrassment to get a person to buy certain thrngs (e.g. time sharing, cosmetics, *1
health products). ;
The use of pressures upon customers that are particularly vulnerable raises
special ethical probiems. Those who have suffered death in the farnily or hirve _-]
a
family member who is very sick or who are themseh,es underaee or perhaps aged J
(and uncertain of themselves) are not people who are'easy targeti'.

Tire ubor.. g.Jup
of customers require special consideration. Salespersons shoul,:l be careful not to take
advantage o1'these vulnerabiiities to sell their products or scn,ices.
9.8 ETHICAL ISSUES IN THE USE OF

DIRECT MARKETING
Direct marketing is a form of advertising that allorvs businesses and non-profit

organizations to communicate straight to the customer, lvith advertising techniques
such as rnobile messaging, e-mail, interactive consurner websites, onlinJciisplay
ads,
flyers, catalogue distribution, promotional letters and outcjoor aclr,ertising
Characteristics that distinguish direct marke ting frorn other forms of marketing:
r Marketing messages are addressed directll, to custotners. I)irect marketing
relies on being abie to address the members of a target market. Addressability
comes in a variety of forms including e-mail addresses, mobile phone
numbers, web browser cookies, fax numbers and postal addresses. 7-
r Direct marketing seeks fo drive a specific'call to action'. For: example, an
advertisement may ask the prospect to call a free phone number or click on a
link to a website.
I Direct marketing emphasizes trackable, measurable responses from customers, -
;*b., *f",.*;l regardiess of medium.

deception and fraud |.
Direct marketers and their customers uslrally enjoy mutually rervarding
and invasion of
privacy are rhe main
relationships. Occasionally, however, a darker sitle emerges. Concerns inclucle
e xcesses
issues in the erhics of that irril ate consumers, instances of un{hirness, cases oi outr ight rJeception
anri fraud
direct markering. and invasion of privacy.
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Marketing Ethrcs and Consumerism 301
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9.8.1 Irritation
Manypeople find the increasing number of hard-sell and direct marketing solicitations
to be a nuisance. They dislike direct response TV commereials that are too loud, too
long and too insistent. Especially bothersome are dinner-time or late-night phone
cails, poorly trained callers and computerized.calls placed by an auto-dial recorded
message player.
9.8.2 U nfa irn ess

Some direct marketers take advantage of impulsive or less sophisticated buyers" TV
shopping shows and infomerciais may be the worst offenders. They feature smooth
talking hosts, elaborately staged demoirstrations, claims of drastic price reductions
'whiie they last' time limitations and unexcelled ease of purchase to capture buyers
who have iow sales resistance.
9.8.3 Deception and Fraud

Some direct marketers design mailers and write advertorials intended to mislead
br-ryers. They may exaggerate product size, performance claims or the retail price.
Some non-profit organizations pretend to be conducting research surveys when they
are actualli, asking leading c}-restions to screen or persuade consumers. By the time the
buyers reahze that they have been cheaLed artd alerl tlte aulltorities, tlte culprits are
usually somervhere else plotting nelv schemes.
9.8.4 lnvasion of Frivacy

Invasion of privacy is perhaps the toughest public poiicy issue confronting the direct
rnarketing industry. lt seems that almost every 'ime consumers order products by mail
or telepl-rone, enter a contest, appl1, fcrr a credit card, ortake a magazine subscription,
their names, addresses and purchasing behaviour are entered into some compan)"s
database. Consumers often benefit from such database marketing when they receive
more offers that are closely matched to their interests. However, direct marketers
sometimes find it difficult to distinguisir the fine line betrveen their desrres to reach
carefully targeted audiences and consumers' right to privacy. Many critics worry {[21
direct rnarketers ntay knou., too much about consumers' personal details and that
they may use this knorvleclge to take unfair advantage of consumers. In this instance,
is it right for credit card companies to compile and seli lists of customers -*'ho have
recently applied for credit cards as they are considered prime direct markeiing targets
because of their spending behaviour? Is it alright to sell the names and addresses of
driver's licence holders, along with hcight, weight and gender information allowing
apparei retaiiers to target ta11 or overweight potential customers with special clothing
offers? Some might think that the actions taken are legitimate as it does not break any
ialv and aiso it is considered to be "smart' marketing as it targeted a seiected grorrp of
customers thus eliminating the run around time to search for the right customers.
Others might perceive that giving vital personal information to companies is a serious
violation ofpersonal privacy and space.
We will cnd this section on the seller side of marketing exchange by looking at the
case for review 9.5 on the confession of an ex-marketer. In your opinion, is the company
soleiy responsrble for the 'deception' or should the responsibility be shouldered by the
c,)nsumers themselves as well? Do yor-r agree that if the consumers are ntri 'greedy'
they will not be victims?
302 Business Ethics
Confession of an Ex-marketer
.
Sean Tan rhoughr he had been recruited by a direct sales con.,irany bur it turned our rhat their
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versiorr of 'sales'was chearing vicrims for a scratch-and-win company. He was 23years old then and
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could noi find a lob after he graduated. His friend who was involved in the scraich-and-wrn scam
asked Sean to jotn him insiead of lazing at home. He was given a hands-on tr-aining on cheattng as
soon as he joined rhe company and only realized rhar it was a scam during rhe training session. fhe I
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company brainwashed the recruits every day saying that rhis was the fastesr way to make money.
Newbies were rhen paired wrth a senior who showed them rhe rricks of rhe rrade. They would
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approach people on rhe prerext of conducting a survey and rhey are given a coupon after complering
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ir. There is a mix of coupons, you eirher win a prize or lea,ue home empty handed rf you get ihe 'rhank
you'coupon. Unbeknown ro the victims, the market,ers know which coupons conrained a prrze and
which did not. The marketer usually promised poienrial victims a chance to ro,,in a car or RM'10,000
bur the prizes are acruaily electrical appliances like rnicrowave ovens and they need to pay a deposit
before the prize is revealed.
the company makes a profir as rhe producrs glven our as prizes are bought at a lorv price from
China. Aside from rheir monrhly income, employees ger a commission for every'sale' rhal they make.
Cne of rhe ractics ro morivare their employees is to praise the one who raked in rhe highesl sales for
rhe week rn fronr of orlreremployees at rheirweekly rneetrng Those who got the leasL sales or none
were made fun of. Sean ended up being laughed at most of tl-re tinre as he drd nol have Il'](t hreart to
cheat people.
The company also encouraged employees to work their way up the iadcler and evenlually ser
up their own company After working for a while, t,hey can recruit nett,blr-,od and be prornoted
ro supervisor When an employee becomes a supervisor, he/she will not have ro do the hard work
rhernselves bur wili still get a cur of the profits. They will be prornored to ber,ome a manager when
they lrave ernough supervisors working under rhem. The manager can then set up their o\^/rr con-lpa r\'
but rhe condirion is that they srill need to purchase products from the parent company" "l he parent
company will give managers a BMW 3 series," said Sean.
(Adapted from'Former scrarch-and-win employee tells how it's done', The Srar, 14 lanuary 2011)
9.9 CONSUMER ETHICS AND

CUSTOMER RESPONSI BILITY
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Previr.rus discussions in this chapter have focused on ho',^: companies ot marketers

should relate to their customers. This is the standard approacl, of most markcting ethics
discussions. Some har.e suggested that this vieu,, is ,-1ue to the tmphasis in marketing
on the marketing concept (Polonsky et al.,20Cr). A more acc-urate view instc;:,d rvor,rld
be that marketing ethics can best be understood as a two-way reiaiion;ihip. As tve
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Marketing Ethics and Consumerisn, 303
have seen earlier in Section 9.2, for a marketingexchange to take place, there is the
interaction between marketers and consumers. This is a more holistic vierv and
approach. The ethical aspects from the consumers' side are often neglected in most
discussions on marketing ethics. In this section, we will look at the aspect of customer
responsibilities in their relationship with marketers.
Customers have various rights against companies. These include a right to
relevant information regarding the product or service a customer is considering
buying and rights with regard to product safety, non-deception in advertising, etc"
These rights imply obiigations on the side of the marketers. Hotvever, customers also
have responsibilities towards businesses and correspondingly companies have their
rights as well.
Among the more obvious responsibilities customers have regarding companies mrr,.,c rh.
are-acquiring the products and services in a legal and ethicai manner; paying bills more obvious
on time; informing about their intended purchases; using the products they purchase responsibilities
customers have
in a manner that respects the safety limitations producers identify; and not purchasing
regarding companies
goods they know have been produce , irr an illegal or unethical manner, |ust as not all
are acquiring the
marketing responsibilities can be incorporated under the law, the same can be said products and services
about customers' responsibilities. in a legal and ethical
manner; paying bills
on rime; informing
9.9.1 Customers and the Law abour their inrended
purtirases; usitrg
Shoplifiing is a serious offence against the law and yet many companies lose a great
the producis they
deal of products to shoplifters eyery year. When customers take things off the shelves
purchase in a manner
and put them in their pockets or handbags, or rvhen they put on a dress or a shirt rhar respecrs che
under their ou,n ciothing and lvaik out from the store rvithottt paying fbr thenr, ther' safety limitations
are stealing these prodricts. Hotel guests have taken tor'r,els, phone b,ooks, trlankr:ts, producers idenrify;
light bLrlbs, etc. A more subtle forn-r of this occurs when some custotners cl'range and nor purchasing
price tags on products in a store and try to buy the item they lvant under the cheaper goods they know
price tag. For example, the shirt costing RM75 is now RM55 or the CD being sold for have been produced
RMi4.99 is row RM9.99. in an illegal or
There are several etl-ricai issues here. These acts are sintpll, wrollg. Thc ethical unerhical manner.
issue that can arise is whether a person is ever justified in engaging in illegal actions rf
they t-eel that they are being exploited or mistreated themselves. Though shoplifting is
a form of theft, some customers feel ' justified' or 'entitled' to do so since they also feel
that they are being 'rippeci olf' by the retailers. This is seen as simply the chance to get
even. lndeed there is a great deal of anger and distrust that rnany people feei ar;airtst
businesses. They feel tl'rat large businesses are exploiting them. The1,belier,e that thcl'
arc not listened to or cared about. After all, some sales personnel are indifferertt to
u'hal a custorner tvants; many times the attenlpt to reach a business by telephone and
to get service scerrrs almost impossible (and when it is possible stili requires a lengthl'
period of responding to computers telling one to press this or that nttmber on the
telephone).
These feelings of anger appear to justify theft, from significant items down to
petty ones from retail stores. Clearly these feelings and emotions do not justifl' "p6fi
retaliatory actions. A person may feel aggrieved. Nonetheless, even if wronged by a
store, it does not justify the theft of that store's products as the solution. Further, some
people may take out their feeiings of injustice on stores or businesses that did nothing
wrong to them. These customers are responding to other more general wroni's from
bus,r-iesses that they perceive themselr,es to have suffered.
304 Business Ethics
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At other times, consumers may perceive that businesses have a lot of money. Sei,
retailers will not notice if an item is missing from their stores. This rnight be true
especially when we are talkinq about very small items. For example, sotne customers E
load up on ketchup, chilli, sugar or creamer packets at fast food restaurants" It is

possible that in some locations, this occurred to such an extent that these restaurants
have to put these packets behind the counter, rather than leave them out for customers
to help themselves. Again, such actions are not iiistified, although consumers use this
rationalization anyway.
'Ihere is another broader rationalization that customers sometimes use regarding
business and justification for their actions. Therr rationale is that marketing is a form
of war or a ruthlessly competitive game. To some custonters, they betieve strongly
these comparisons and greatly admire those who respond liken,ise. To take advantage
of a business's weaknesses is only doing what that business does to customers, and so
fully justified.
The following case for review 9.6 discusses some of the problems faced by
Malaysian retailers in trying to curb certain shopping habits among consumers. In
your opinion, do yeu think what the shoppers did are r,r,'rong? Are there any other ways
for retailers to minimize this besides instailing CCl'f\rs?
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Bad Shopping Habits: A Norm Among Malaysians?
Bad shopprng habits and dishonesty are causrng reiailers millions of ringgrt in monthly loses Shoppers
opening up packaged p;oducrs but nor buying it, pokrng and prodding frurts and vegetables tcr
determine freshness, addrng irems after they have been weighed and frxed with price rags a:,ri
swapping price tags or barcodes are.lust some r:f rhe bad shopprng habits. Some shopDers hare
even been found tryrng on underwear, despire clear signs prohibiting them from dorng so due to
hygiene reasons. But ir is fresh produce that are more prone to abuse by irresponsible people. Mydin
Mohamed Holdings Bhd. managing director Datuk Ameer Alr Mydrn said such habris stem from the
lack of trust between consumers and rerailers. According to him, A,\alaysians seem ro have ihe cult.ure
of going to markers and inspecting the goods r,losely to check lor freshness but hypermarkers and
supermarkets sei hrgher srandards on rlreir goods" He sard tha'. consumers mus[ learn to trust th..
labelling instead of opening up packages or poking fruirs. In the case trf Alytlrn s cha n of ,,r,holesale
s[ores, the disposal rate of fresh produce resulting from these acts is berween i96 and 2% oidarly sales
.1%
it is less rhan for non-perishable irems.
A direcror of a retail chain said bad consumer behaviour was bccomrng more common. Wh,'n
chey close their stores, they found items on wrong shelves and rubs ol ice'cream and packed meat
left in the open. They had no choice but to throw these items away. On average, rhe lc.rsses ar hrs
companyi stores amounted to between 0.3% and A.5a/o of daily sales, or about RMlg million a yeai
and rhis cost is nor passed on to consumers because in doing so they nright lose rheir comperrrrve
edge:,Malaysian Retailer-Chains Association (MRCA) president Dat.uk Nelson Kwok said rnrhrle most
,,, thgppels were.(gcent.consumers, rhe few black sheep were enough for rerailers to incur sLibsranrral
.., , losses. He said rhai previousiy, consumers were more reasonable but now rhey rhrnk they have rhe
right to open and inspect goods.
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Marketing Ethics and Consumerism 3C5
KK Croup founder Daruk Dr Chai Kee Kan mentioned an incidenr in which

a cusromer swappecl
the RM5 price tag on a bottle of chicken essence wrrh a RM30 box of six borrles. lJe
said some
suppliers accepred the damaged goods and were wrlling ro exchange rhem for new
ories bur retailers
had ro bear rhe losses for rhose who do nor. To minimize losses, his company,
which operates -104
supermarkets natjonwide, placed more valuable items nearer to the cashiers and
also insralled more
CCTVs. Each of rhe srores has berween 10 and 15 CCTVs.
(Adapredt'tom'Bar1 ShoppingHabitsteaveaBigHoleinReratltr<'Poclers,bytileenNg
7hc 5tat, -,Jluly)at))
9.9.2 Soft Theft

Not all cases of illegality are as straightforward, at least to those involved. One area in
which this is true and in which new technologies such as the Internet had a profound
effect is the downloading of music and software on the Internet. For many rvho
do
this, they u'ill perceive rvhat thcy are doing is not wrong, technically. They might say
that they'are simpiy shzrring files with other pcople. Hoi,ever, this may roi .rr'.tly
b.
the case here. One's music files can be sharedrvlth tens of thousands of otherpeople
and not jus' u'ith your best lliend. They can then be used by all those people at
the
same tinte.
The argument of the intellectual property rights irolders (the music companies,
etc-) is that people don'nloacling music u,ithout paying for it are steaiing. 'I'heir
prinlar-v response st]ems to be tryine to scare customers enough so that .ult,,-..,
rvill not contitlue doing this and thereatter go rnto the stores ior shop online ,,vith
legitimate music sotrrces) to buy the music thev r.r,ant. In summary, compalies
seek
to force thosc dorvnloading music ancl other copyrighted materials back into some
format that respects t1're traclition of property rights.
9.9.3 Soliciting lnformation

Some customers hat'e the idea of going to iocai stores, often rather
small ones. rvith
the irltention crf solicitittg informirtioi from the owner or salespersons regarcli,e
a particular product. example, canteras, computers, smartpht,nes, etcl After
.For
havrng acquired sr-rch kno_wlcdge, they woul<i then turn to the Internet
to buy thc
product at a lorver price. 'fhis rt'ould mean that the trme the shop
owner gave that
custonter r'vas rt'holJy lost as it does not translate into a purchase. In
this instance. t6e
customer acquired inforraation from the shop in a costless manner (which
is free to
the customer, but not tlie shop) and ther-r uses that knowledge to reduce
the purchase
price when thev buy fiorn the lnternet. This shopping beiaviour is
perfecily 1egal,
but morally suspect. Consumers have taken the reiailJr's time, drawn on his
o. h",
expertise, and given rise to false expectations or hopes. However,
customers tend to
ign<-rre these costs to the retaiiers. When something
go., *.ong with the product that
consumers purchase from the Internet, to r,r,horn will the;, turnlo?
Will they now turn
to the small retailers? However, the question would be will the small retaiiers
still be
in business by then? The point here emphasizes the importance of seeing
both buyers
and sellers as living r,n,ithin a'interdependent web of relations.
Please read the following case for revierv 9.7. Do you think what
these consumers
are dcing is wrong? Or is it within their consumer 'rights' to do
what they did? If the
306 Business Ethics
argument here is that they simply want the best for themselves and their families, is
the argument justified?
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KC Lam is a self-confessed 'poker' of fruits and vegetables. The 50-year-old housewife justifies her
habir as a good way of helping her pick out fresh produce. Unperturbed by rhe marks she leaves
behind on the produce, she said rhar what she did was within her rights as a consumer. When she t
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does her shopping at a local hypermarker, she squeezes rhe apples and oranges and snapi off the tips
of ladies fingers as parr of her freshness test. According to Lam, she will not do it if the produce looks
really fresh, bur somerimes rhe fruits and vegetables did not seem like it She added thar if the okras'
tips cannor be snapped easily, she will nor buy them as this is one of the rips she learned from her late
mother. She shrugged off suggesiions'that her acrions could dissuade other customers from buying
rhe goods, saying, "l am acrually doing the others a favour". Anorher housewife, identified as Ramlah, I
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said she would peel rhe heads off rhe prawns before buying them, "The heads are the heaiiest part
No one in my family eats them. "By peeling off the heads, I get more value for money," she added.
"Besides, rhere's nothing wrong wirh doing it. l've seen others do it too." Another shopper, Cheng,
said she would peel off rhe firsr three layers of a cabbage before buying rt as they are usually bruised
and dirty because many people have handled rhem"
(Adapred from'Bad Shopping Habits Leave a Big Hole in Retailers' Pockers', by Eileen Ng, The 5rar, 23 Jttly 2012.)
9.9.4 ExploitingCompanies'ReturnPolicies
Retailers, usually the large hypermarkets, har.e a variet-y of return policies r'r,tth regard
to customers and the products the1. purchase. Sorne oi- these may be expioited b,v
custoillers to their own advantage. For example, some (.llstonlers InaY tet urn products
rvhich the1. thsrrr.lves broke, but which they saf i,r,erc clcfcc tive . Otirer r uslcrmers 1]1ay
use the products they bought over a rveekend or sirort pe riocl oi Iimi: and then tr-v
to get their money back. The return rate of nervl1, I,urchascd large scre .:ll teicr,isiclt'ls
shortly after football tournaments such as the rvorJcl cup or !,rLr',rpt'art (t1P lrrrrr'.r\cs
sharpiy. Customers may lie about the reasons rvlrt,the), are returnit-ig the pr,rdr,rct.
They may claim that it is unsatisfactory in some n,av, rvlten rn fact thev n anted lo
purchase it for a single use.
Some argue that if stores have return policies that perrnit this type of'behaviour,
then nhat customers did are notwrong. Of cour.,e, it is not legally wrong. However,.
the rctailers that instituted such policies obviously clid no1 intend to participate
iir a 'iending program' for no money at all. It is obvrous that custttittel s are taking
advantage of the retailers'policies which are not so discerning as to catch those rvhtr
rvish to'borror,v'ratherthan'buy'the produo It is generallv understood th:rt rf onc
buys a product, unless it is defective in some manner, it becomes 1}re propertv of the
customer.
However, suppose a customer decides that he or she no longer likes or wants the
product because of what it is or how it operates. Then it is up to the store to decide
rvhether that is a sufficient reason to allow a customer to return it. If, hou,ever, a
cllstomer no ionger likes or n ants the product because they only wanted it for a singie
occasion, and nor,r, seek to return it, they are being deceptive themselves. 'fhey are
treating the retailers as a irleans to their own bnds. In short, they are mistreating the
retailers.
In the past, large departmental stores have liberal policies for returnrng products.
However, customers who have engaged in the actions highlighted above have takelr
unfair and dishonest advantage of these return policies. In doing so, they have
nranipulated those policies. Many of these stores have nou, begun to tighten their
product policies. Unfortunately, those people who have a genuine reason to returtt a
product might be negativeiy affected as a result.
9.9.5 Sourcing of P.-oducts

What responsibilities do consumers ]rave with regard to the sources of the prroducts
they buy and use? \\'ould it be an issue if the products are produced by workers.uvho
are badly exploited in otl'rer countries? What if the coffee and teas are from explorted
farmers, or clothing is frorn horribie sr,veatshops? Shouid this knou,ledge make an,v
differen;e to a custoi-ner?
'fhe first issue here is the extent to which a customer has knowledge abor-rt the
soLlrce of the products he or she buys. In addition, given rapid globallz-ation evcr.r sucir
rnunclane items such as T-shirts may u,ell be produced in more than one coLlntr\,. Surelr''
this is true rvith morc complex products such as cars, computers, etc. Perhaps sonre
of the sources involved in the production of the product are legitimate and crcdible,
yet others are not. in tl-ris situation, hor,r,w'ould then one decide? If one refuses to buv
a product becar.ise sonre part of it comes from an unethical solirce, even though other
parts of its sotrrcir-rg are ethical-is it being unfair to the innocent source?
Labelling lau,s r,r,iil n-rake it possible to know iir general r,r,here a product is made.
Stili, it is djfiicr-l1t to knorv the details of where other products come front, such as
food, cars, furniture, etc. Nonetheless, consumers can find out a great deal about the
sources of the products they intend to briy. Products that are made with cheap labour
are prodr-rcls that sar-e the crLlstomers money, but this of course is at the expense oi
poorlv paid irnd erploited u,orkers.
A strongcr response to the ethical issue is the consumei: boycott. I'his can bc clone
in a varicty of rva,vs. A customer can just stop buying the products of a ccmpany.
This is a form of silent boycott. Customers may also publicly stop buying ilrose:
products through lvriting letters to the producer or to the ne\rrspaper. More aggressivc
consunlers may also join interest groups protesting or lobbying against ur-rethical
practices. This might be done by conducting demonstrations outside a store, for
example. Of course, the iast reaction is a rather extreme measure for most customers.
It is therefore a debatable matter whether it would be a customer's obligation to put a
rtop to t}-re purchase or simply just accept the fact of the matter.
The strongest obiigation requires customers not purchasing or using products that
are produced through ur-rethical or e\ren iiiegal activities. To purchase the products tfrat
are sourced through unethical means might constitute a form of support lo those u,ho
are involved in those activities. In buying a product that was illegally or unethically
produced, one is ;,raking oneself a member of a supply chain that permits the illegalit,v
5UU Busrness tthrcs
to exist. Some might argue that the responses from such proactive responsibilities
from consumers are fairly limited because they in reality cannot individually do much
to affect the situation.
In conclusion, customers have a. host of responsibilities when it comes to their ,.ti
interactions with companies" These responsibilities highlight the fact that all of us tt{t
can understand the marketer-customer relationship and marketing ethics only if we
consider both sides of this relationship. If markel ing ethics is to be a reality, both sides
of this relationship must acknowledge their own duties and responsibilities. Only this il*t
:i
will fully capture the integrated marketing concept.
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9.10 THE COMPANY'S ETHICAL ".i

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REVIEW
l;*;;;;;;;al
conrinually satisfving
Companies need to evaluate whether they are truly practising ethical rnarketrng
Business success and continually satisfying the custorner ancl other stakeholders are
rhe cusiomer and intimately tied to the adoption and implementation of high standards of business
other stakeholders and marketing conduct. Most companies try to abide by a code of serving customer's
are inrimarely tied interests and not only their own. Cleariy, the company's bottorn line canrlot be the
ro the adoption and sole measure of corporate performance. Society at large must reject those practices
implemenration which are i1legal, antisocial or anticornpetitive. Companies rnust adopt and propagate
of high srandards
a rvritten code of ethics, build a company tradition of ethical behaviour, and l-rolcl their
of business and
employees iully responsrble for obsen,ing the i:thical anc'1 iegal guidelines. Finaliy,
marketing conducr.
individual marketers must practice a social conscience in therr specific dealings n'ith
customers and various stakeholders"
The learning outcomes for this chapter is summarized as follorvs:
1. Explain the concept of marketing.

The essence of marketing is frequently explained in terms o1' the four P's--product, pricing,
promotion and placement. Marketing involves all aspects of creatrng a product or service and
bringing it to market where an exchange can take place. The concept o1'an exchange betrteen
a seller and a buyer is central to the 'market' and is the core idea behind marketing. Whether
exchange actually takes place depends upon whether the two parties can agree on the terms of
exchange that will leave them both better off (or at least not rvorse off) than before the exchange.
,,
Describe the theories of marketing ethics.
The theories of marketing ethics can be divided into two main comporleni.s, namely the Hunt-
Vitell General Theory of Marketing Ethics and Consumer Ethics Theory. Hunt and Viteli's
ethical judgement is the process of considering several alternatives and choosing the most ethical
alternative. Consumer ethics refcrs to the moral values and beli:fs that individuals or groups ohserve
rvhen they buy, consume and dispose of products and services ancl consists of five dimensions. -1i
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i Marketing Ethics and Consumerism 309
3. Identify and explain ethical issues in product development.

There are three ethical issues in product development:
Value durability-vahe durabiiity of a product refers to the likelihood that a product will continue
to maintain its value over time. This may not occur for a variety of reasons. Many argue that
companies have a responsibility to produce products which value will not decline in any way'
Safeiy-a company's responsibility is to produce the products which people wiil buy and it is the
customer's responsibility to determine whether, and to what extent, such a product may cause therrt
harm. Companies are not to conceal features of a product that may be harmful, but it is up to the
customer to acquire relevant information regarding the product and to act accordingly"
Environmental impact-the impact of the products that companies choose to produce on the
environment can be quite significant. Corporations need to think of ways in which they can not
only reduce the negative impacts of their products on the environment but produce products that
have a benevolent ellect.
4. Identify and explain ethi.al issues in packaging and labelling.

The following are the three ethical issues when it comes to packaging:
Communication of contents-any companies will seek to place a product in a package that presents
it in its best light, tvhile making the item look appealing and desirable to the custorners. As such,
packaging can reveai (and also hide) what it encloses. An ethical issue arises rvhen this effort
u,ro.rnt, to a form of deception, in that it hides undesirabie aspects of the product fbr rvhich the
customer wouid othenvise reject it.
Safety-it is the responsibility of companies to ensure the safety of the products they sell through
packaging. It requires that the product the customer receives is the one the se11er intende d thetn to
receive.
Environntental impact-though packaging serves many purposes, its instrun-ient;rl llaturi: is
apparent once a customer has used or consumcd the product and thereafter the packaging is tht-on'n
anay. Ethlcail1,, it rvould seem that a mrnimai amount of packaging sirould be used to acctlirplisl-r
the purpose. Often, companies f-ail to consider rvhether there are simpler, more effeclive or less
wasteful rvays of providing a product to the customer.
There are trvo central cthical issues rvith regard to labelling:
Infornrution-customers have a right to know what they are buying and companies need to provicle
accurate information through labeliing.
Deception-rvhen companies use certain terms, omit certain detaiis or make it dilficult to frncl the
reievant information on a label, customers may end up believing rvhat is false.
5. I)escribe ethical issues in pricing.

Among the ethical issues regarding prices are:
Custorrer knonledge of the price-in general, it does not seem reasonable that custotners have a
right to know how prices have been determined. On the other hand, ctistonrers hilve a right to
]insr^r u,hat tire true and total financial cost to them of a prospective purcltase iv 11l be.
'lhis must be
presented in a way that discloses, rather than disguises the full price to the e ustomer.
Deception-too often, companies try to deceive cusLomers such that their Patrorls may find it
difficuit to know r,vhat the full price of a product is, or understand the significance of a particular
price. Customers are deceived regarding the price of the product. The efforts cornpanies make to
'I'he1' can do
disguise or hide the true price to the customer of a particuiar product are unethical.
this siinply by not teiiing the customer what the total price is until after an agreement is reached'
Special situations-the pricing of a product might be altered in any number of 'special situations',
for example during a natural disaster.In this kind of circumstances, theic are pcople who uray be
desperate for certain products and their safety and health may be a'. risk If compantes can charse
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any amount that customers are willing to pay at that time, the companies are taking advantage of , ;ffi.1
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the buyers' desperation and weakened position. To do this is to exploit them as customers. ffi
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6. Describe ethical issues in advertising.

Ethical issues in advertising involve the following:
;*
Truth in advertising-advertisements that make factuai claims about a product may make them
with regard to their cost, availability, quality, construction, uses, etc. Issues of truth piay an '&
extremely important role here" An advertisement tells the truth if what it (or some part of it) states :*
or portrays, captures or reflects, in some substantive or materially relevant manner, the actual .:,
characteristics of the product advertised. ,

1
Puffery and the desire for deception-alot of advertising does not make claims that could strictly be
evaluated as true or false. Instead, they consist of overstated statements.
Offensive adyertisements-ads can be offensive by portraying people in various stereotypical and
demeaning roles. This is said to occur when women are portrayed in a manner that emphasizes {
their sexuality but C '-emphasizes their intelligence or leadership qualities.
Manipulation-in order to manipulate people, advertising may appeal, arnong other things, to
the desires, needs, emotrons and wishes customers have regardiug, for exampie, their physical
appearance or safety, acceptance by others, sexual interests or patriotism.
7. Explain ethical issues in retailing.

Thcre are four ethical issues pertaining fo reiailing:
Gifts and entertainment-retallers acquire the products they sell to inclividual customers by
purchasing them from other producers through various saies representatives and suppfiers. Gifts
and entertainment received may influence the person who is rnaking the decision on wlretl-rer the
retail chain wiil carry the line proposed. Acceptance of such gifts may make the recipienfs feel
obiiged to those r,vho have given the gifis.
Honesty in ssles-the salesperson's responsibility is not to tell literally everythrng about the product,
goods or service. Most buyers r,vould experience an information overload, rr,hich is unhelpful.
Those in tl-re iegal profession sometimes use this technique to bury the trr,rth, rather than reveal it.
Privacy in retailing-when a customer buys a product, retailers come [o knorv certarn things about
'Lhe customer. These retailers need to make considerable efforts to ensure that private customer
information remains private. With computer databases and the Internet, the dangers of the loss of
confidential inlbrm ation have increased greatly.
Retail sales pressures-retailers can bring various pressures and forces to bear upon customers
r'r,hich rlay 66rltltain or direct their decisions and behaviour in rvays such that their freedom has
been negatively affected. Often, they involve subtle measures such as appcal to emotions (fear.
self-regard), coilrments made to affect the perceptions of customers, store environments created to
encollrage br,rying and efforts to alter customer risk assessments.
B. Identify and explain ethical issues in the use of direct marketing.

llthical concerns in direct marketing involve:
lrritation-many people find the increasing number of hard-seli arid direct marketing solicitations
to be a nuisance.
Unfairness-some direct marketers take advantage of impulsive or less sophisticated bu\.ers.
Deception and fraud-some direct marketers design mailers and u,rite advertorials intended to
mislead buyers. They may exaggerate product size, performance ciaims or the retail prrce
lnvasion of privacy-direct marketers sometimes find it djfficult to distinguish the tine iine
Marketing Ethrcs and Consumertsm 311
i
between their desires to reach carefully targeted audiences and consumers' rights to privacy'
Many
critics worry that direct marketers may know too much about consumers' personal details and that
they may use this knowledge to take unfair advantage of consumers.
9. Describe what consumer ethics and cUstomer responsibility are.

Among the more obvious responsibilities customers have regarding companies are-acquiring
the prJducts and services in a legal and ethical manner; paying bills on time; informing about
theii intended purchases; using the products they purchase in a manner that respects the safety
limitations prodo..r, identify; and not purchasing goods they know have been produced in an
illegal or unethical manner. ]ust as not alimarketing responsibilities can be incorporated under the
law, the sarne can be said about customers'responsibilities.
10. Explain the company ethical review.

CJmpanies needlo evaluate whether they are truly practising ethical marketing. Business success
and continually satisfying the customer and other stakeholde's are intimately tied to the adoption
and implementation of high standards of business and marketing conduct. Most companies try
to
abide by a code of serving customer's interests and not only their own.
o{ a
Actively benefiting from illegal activities Behaviour ir"r which the consumers actir:civ take advantage
situation at the expense of th" seller. For example, a customer gives misleaciing price il'rtbrmatiotl to
the
cashier when the price tag has been peeled off
Actively benefiting from questionable behaviour Actions in which consunrers are artively involl'gfl
i11
fhst
unetl-iical bpt not r-recessarily illegal practices. For example, a customer keeps quiet whcll a u'aitress a1 the
iood restaurant serves hirn first instead of the other custotner lining up in front of hrttr
Consumer ethics fhe moral principles and standards that guide the behavior-rr of indn'iciuais or groups
as
they obtain, use and dispose ofgoods and services.
act oi
No harm,rnofoul lJehaviourthat is not seen as harmful to others. An exai.,rple of this slluation is the
spending an hour trying on different shoes and not purchasing any"
passively benefiting at the expense of others A situation where consumers passiveiv bcrrefit due to the seller's
nistake. Ar-r example of this situation is when a customer gets too much charrge anci tloes not inform the
cashier.
puffery in advertising Advertising relying on exaggerations with littie or no reiiahl.' prr,of to support its
\rague .lrirrr. In mosi cases, puffery may be toierated so long as it does not amount to misrepresentation.
Recyclingldoing good Consumers desire to recycle products and 'do the right thing'. An example
of thrs
sltuationls norl-,u=rchasing products from companies that consumers believe are not [reatrng t]reir ernployees
fairil:
3ll Busrness Lth,cs
Return policies The rules retailers establish to manage the process by which eustomers return or
unwanted or defective products that they have purchased previously.
Social marketing The systematic application of marketing to achieve specifie behavioural goals fbr a social
good. For example, this may include asking people not to smoke in public areas, asking them to use seat belts,
protect the environment through recycling, etc.
Value durability T'he likelihood that a product will continue to mainiain its value over time"
ii!i*
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,
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1. Discuss some criticism aimed at the improper use of marketing among companies. ,Ia
2. In your opinion whai should companies do to minimize environmental impact in product I

development?
3. What are some ethical concerns that may arise in product packaging'/
4. Explain offensive advertisements and give several examples to illustrate your pont.
5. What should companies do to address the issue of the exploitation ol retail store return policies by
customers?
The Case of Extra Change

Lisa is a full-rime mother taking care of three active children. On one particularly busy afrernoon, Lisa decides
thar she does not have time to cook for herself and her children, orsit down to ear in a restaurant. Wirh her
rhree children in the car, she decides ro use rhe drive-through line at her neighbourhood fast food restaurant.
Since it is a Friday, the resrauranr is very busy. There is a long queue at the drive through. Due to rhe long
wait, her children start to feel restless and begin to throw tantrums. Lisa finds ir difficult to concentrate with
all the commotion as she rries io keep her children quiet. When her turn comes, she quickly orders what she
wanred and her order amounts to RMl6. Lisa gives the cashier a RM20 nore. Due ro rhe resraurant being so
busy, the cashier mistakes Lisa's RM20 note for a RM50 note. lnstead of returning RM4 ro Lisa, the cashier
misrakenly hands her RM34. Alrhough Lisa realizes that the cashier has made a misrake. she is in a hurry, so
she drives away.
Questions:
.l What would you have done in Lisa's case?
2 Dc you consider Lisa's acrion ro be appropriatei Discuss.
l
Asia Inc (September 1993). Singapore's Kiasu Syndron.e. <http://nwvr.saliltripathi.com/articlesAsialnc/

Septg3Asialnc.html>. Accessed on 5 September 2012-
Daniel, M. (B September 2007) . Shopperi Woes. The Star. <http://wwwthestar.com.my/story/?file=o/o2f20A7

o/n2f9o/o2f|o/o2flifefocus%2fl}733}l2&sec=lifefocus>. Accessed on 14May 2012"
(5'h Ed')"
Hodgetts, R.M. & Luthans, F. (2004). lnternational Management: Culture Strategy and Behavior
New York: McGraw Hill.
Holley, D. (1986). A morai evaluation of sales practices. Business and Professional Ethics Journal,5: 3-21.
(spring):
Hunt, S.D. & Viteli, S.J. (1986). A generaI theory of marketing ethics. Journal of Macromarketing,6
s-16.
Hunt, S.D. & Vitell,S.J. (1993). The general theory of marketing ethics: A retrospective and revision. In
Smith, N.C. & Quelch, J.A., eds., Ethics in Marketing.Illinois: Irwin. pp"775-784.
Kotler, p., Ang S.H., Leong, S.M. & Tan, C.T. (1999). Marketing Managemertt: An Asian Perspective {Z'd Ed.)'
Singapore: Prentice-Hall.
Lee, Regina (4 November 2011). Reggae Mansion out of tune. The Star. <http://rvrvrv.thestar.cot-u.m,vistor,v/?fi
1e=o/o2fi0\lo/o2fllo/oZf4o/o2fnationo/o2f9826583&sec=nation>. Accessed on 4 May 2012.
Levitt, T. (1970). The morality of advertising. Hary arrl Business Review, 4B(4):84-92
McDonougli, W. & Braungart, M. (2002). Cradle to Cradle. Nen' iork: North Poinl Press.
Muncy I.A. & Vitell, S.J. (1992), Consumer ethics: An investigation of the ethical belief.s of the final consLlnle r.
I o ur n al of B u s in e s s lle s e a r ch, 24 (4) : 297 -3ll
"
Murphy, & Laczniak, G. (19S1). Marketing ethics: A revier,r'rvith implications for managers, educators and
P.
researchers . Review of Marketing. pp.251-26o-
Ng, Eileen (23 |uly 2012). Bad Shopping Habits Leave a Big Hole in Retailers' Pockets. The Star. < http://wr'r'rt''
th"estar.com.mylNews/Nalionl2Ol2lATl23lBad-shopping-habits-leave-a-big hole in-retailers pockets/
Accessed on B August20L2.
Pololskl', Iv1.)., Brito, P.Q., Pinto, ]. & Higgs-Kleyn, N. (200i). Consuuer ethrcs in the European lJnion: A
comparison of Northem and Southern views. Journal of Business Ethics,31 (May 1l): 1l7 130.
Ritzer, G. (2000). T'he lvlcl)onaldizatiort of Society. California: Pine Forge Press.
Srvaidan, 2., Rawnas, l,t.Y.A. & Ai,Khatib, I.A QA04). Consumcr ethics: Moral ideologies ancl ethical beliefs
of a micro-culture i n the \JS. lnternational Bu sine ss Review, 13: 7 49 -761.
.ll-re
The Star (14 lairuarv 2Al1). Fornter Scratch and Win Emplovees Tells how its Dotre Star. <http:l/u'wrv.
thestar.ct-,m.my/story/?ftle=o/o2F20l1o/o2F7%2FL4o/o2Fcentralo/o}F7767519>. Accessed on 8 Augusl2012.
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!i
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lournal of Business Ethics, 62(3):267-275.
CHAPTER
Ethics and the

rr'
Hnvrronment
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LEARNING OUTCOMES
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x ldentify the three main sources of threats to the current
environment-global warming, pollution and resource depletion. 7&
r Recognize other emerging environmental threats facing

humankind in the globalized world of today"
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r Conceptualize and classify sustainabrlity 3n6 differentiate it from " ":
sr.rstainable development.
;l
I Discuss the sources of renewabie ;nd non-renewable resources i
T Assess rr:hether sustainable devel, rprfre rlt rs arr c,xymoron.

I Explain the free market arguments on sustainability and I
preservation of the environment.
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10.0 INTRODUCTION
1n Chapter 9, ,vou have been enlightened on the importance of ethics in the condlict oJ-
marketing. Whiie n e recognize that marketing is an essential function of any business,
it l'ras to be conducted ethical11', especially in view of it being a major function i.e. to
reach the consumers and to attract them to pr.rrchase products and services in orcler
to make proiits. As a business transaction is seen to be a mutual contract betu.,een
the br-rver and ti-re se]ler, it is pertinent to see that it is conducted in a fairranner,
fulfilling not only the seller's profit making objectives but meeting the expectations,
needs ancl interests of tl-re buyer since payment has duly been made by tlre bu1,e1 10 ths
se11er in good faith i.e. to enjoy the product/service. Consumers' sovereigntl,, rights f-or
freeclom and rvell l)einc must be equallir respected by the sellers, mr:ch as thc buycrs
respect and trust the qualit,v of the products and services produced by the sellers. \\e
shail leave rnarketing ethics to look at the state of the environment that u,e 1rr,.: in rert.
Tiris chapter rvill outirne the importance of ethics in managing the enr.ironmeritt.
It is cerlainli, reiated to Chapter 6 rvhich has discussed corporate social responsihrlrtl,.
Hou,eyer, Chapter l0 will focus on the need for a total commitrnent to prcserr.e,rird
sustain th, environment that we live in as a matter of ethics. Humans are drrectiy
dependant on nature for survir.al. lv{uch as businesses are reaping the benelrts of
exploiting natural resources to maximize profits, they have to be equally respo,tsible
lo presen e the environment for sustainability of the future generations.
This chapter u,il1 initially introduce readers to the emerging enviror.lncntal
:hreats faced by hunians in the 21't Century. It then dwelis on the conceptualization
of sustainability and sr-rstainable development. lrlext, it assesses rvhether sr,rstainable
development is an oxymoron considering the need to exploit natural rcs()urces lor
econornic growth in addition to supporting the call for globalization and free trade
Ly the World Trade Organization (WTO). It discusses the free market arguments
against sustainabilrty issues, causing detrimental effects on the environtnent, rviuch
316 Business Eihir:s
further justifies the need for internalization of ecological/environmental ethics by

humankind. This chapter also looks at ecological/environmental ethics from the
Islamic dimension.
ti
11,0"1 I DUSTRIALIZATION, MODERN ISM

N
{,
AND SUSTAINABILITY IN THE :
WAKE OF THE 21ST CENTURY
Industrialization and modernism have provided us rvrth material well-being and

prosperity. It has promoted mass production, resulting in economies of scale,
empl,tymgnt opportunities for the global iabour force and overall economic
growth" Technoiogical advancements especially in information and communication
technology and research and development have become pertinent for today's business
activities. Mutual exchanges of goods and sen ices thror-rgh international trade and
globalization have also been facilitated by efficient transportation systems and supply
chains. Consumers are abie to enjoy a wider variet,v of goods and services at the lowest
cost due to healthy/fair competition, resuiting in efficient allocation of resources from
economic perspectives.
However, these seemingly favourable scenarios have also caused environmentai
threats and hazards to humankind. Toda,v, our life is thrcatened by all forms of
pollution, be it land, water, air, sound, etc. \\re are aiso striving to reduce giobal
warming apart from addressing the depletion of naturai resources. Figure 10.1
summarizes the environmental trends and challenges that prevail as humans step
into the 21" Centur)., based on research conducted b1, the \\torldWatcir Institute and
documented in its 2000 report (Velasquez, 2006).
WORLDWATCH INSTITUTE 2OOO REPORT
Several well-established environmental trends are

setting the tone of the future of civilization as the
21st Century began. They include:
. Population growth
. Rising temperature
. Falling water tables
. Shrinking cropland per person
. Collapsing fisheries
. Shrinking forests
. Loss of plant and animal specie:
Figure 10.1 : The environmental trends and challenges oi the 21 s I C.entury
l,et us outline each of the challenges and disciLss their latest developments to date:
10.1.1 Population Growth

The world population has been grorving at an unusually rapid pacc, as illustrated in
Figure 10.2. There has been more growth in popula[ion in tlre last 50 years than the
Ethics and the Envrronment 317
previous 2 million years that humans have existed (Population Media Center, 2009)"
During the last half-century, the world's population has more than doubled.
In 1950, the world population was 2"5 billion. Between i960 and 2010, it rose
from 3 billion to 6.8 biilion. In 2000, it rose to 6.1 billion; an increase of 3.6 biilion, i.e.
approximately a150o/o increase over a 50 year periodl In 2008, the world population
was 6.7 billion; 1.2 billion people live in regions classified as more developed by the
United Nations; 5.5 billion people reside in less developed regions. According to Carl
Haub, Population Reference Bureau (PRB) senior demographer and co-author of year
20OB Data Sheet, "We will likely see the 7 billion mark passed within four years."
However, on 30 October 2011, the world population hit the 7 billion mark, eailier than
anticipated. Even though birth rates have fallen, the world's population continues to
grow by 82 million people per year.
By 2050, global population is projected to rise to 9.3 billion. Between now and
mid-century, these diverging growth patterns will boost the population iiving in the
less developed countries from 82 percent to 86 percent. (Popuiation Reference Bureau,
2008a). Currently, the rate of pop,ulation increase is 1.2o/o per year, which means the
planet's human population is on a traiectory to double again in 58 years (Popul21i.,
Media Center, 2009). Refer to Figure 10.2 below
Population (billions)
10
o
1970 1990 2010 2030
Figure 10.2: World Population, 1950-2050
'l'he abovementioned statistics glaringly shou, the dilen-rma facing mar,liind. l'hc
,,vorld's population is increasing but the earth's natural system does not. For cxample,
the amount of fresh rvater produced by the hydrological cycle still remains the same.
Some resources are renewable but some are not. In view of this, there is a strong
likeiihood that there will be shortage of natural resources for human consumption
rvith the world's high population growth. Next, we shall discuss the second challenge -
rising temperature and/or giobal warming.
rc1.2 Rising Temperature and/or Global Warming

Global warming refers to rising weather temperatures of nations across the globc
despite climatic differences. Global warming is a great concern today d''re to
.rsing atmospheric concentrations of carbon dioxide" Evidence of unprecedented
environrnental changes at the giobal and regional leveis are increasingly apparent due
318 Business Ethics
Clobal warrring -1 to human activities in an increasingly globalized, industrialized and intereonneeted

refers to world (Veiasquez, 2012)" Climatic change is underway and an averaJe temperature
rising weather increase of 0.74"C over the past century has been recorded. In the I969-98 period, the
temperarures of average global temperature was 13.99'C. By 1996-98, it increased to 14.43"C" If carbon
narions across the dioxide concentrations doubie pre-industrial levels during this century, as projected, r
globe despite clrmarrc- I
global temperature is likely to rise by at least loC. Meanwhile, sea level is projected
differences Clobal
to rise from minimum of 17 cm to as much as 1 m by 2100. Consequently, this will
v/armi-lg s a greJt
concern roday due
alter every eco-system on earth. We have often "een media coverage and National r
1
ro rrsrrg atrospherr, Geographic articies and television programmes on coral reefs, fishes and other sea *
concertr:t ions of habitats affected by the rising sea surface tempe'ratures apart from hearing news on
carbon droxide the melting of the ice caps and glaciers at the Artic, Antartica, the Quinghai-'Iibetan
!
Plateau, etc. If global warming and rising temperatures persrst, the habitats across the
globe may not be able to survive. Figure 10.3 shows some of"tl're evidences that th:
global cli rnate is changing.
(-)
OOA o) Si,iJ,fl"'
ra nfar r,
j!,2.:
oa
O o,,rernperatures OXq"iV*'0))#??,Y#'
Glaciers and
ice sheets
Figure 10.3: Multiple lines of evidence showrng that the clrmate is charrging
Global warming has been recognized as today's most pressrng problem by the
United Nations (UN) and the World Bank. Governrnents, companies and societies
are urged to reduce dependence on fbssil fuels and pursue low cartron economy
or green gror,vth. The Kyoto Protocoi is an inLernationerl agreement linked to the
United Nations Framework Conventron on Climate Change, rvhich commits its
parties by setting internationally binding emission reductior"r targets. Recognizing
that developed countries are principally responsible for the cLrrrent high levels of
greenhouse gas (GHG) emissions in the atmosphere as a result ol more than t50
years of industrial actir.,ity, the Protocol places a heavier burderi on developed natrons
under the principle of 'common but differentiated respoirsibrlities'. (LInited Nations
Framework Convention on Ciimate Change, n.d.). For more information, you may do
a iiterature search on this subject.
Although the Kyoto Protocol is targeted at reducing greenhouse gas emissions rn
the developed nations, developing nations are also in.,,olvecl" l"4alaysia is no exception"
It has outlined its strategies to reduce carbon emiss'ions as the nation embarks on
its industrialization and economic growth p.,licres. Horvever, much as Malaysra is
-j
I
Ethrcs anri the Environrnent 319
committed to reduce carbon emissions to comply with the Kyoto Protocol and United
Nations Framework on Climate Change, global warrning is glaringly feit today by the
community. Although the nation's average temperature is 30'C (86'F), due to glohral
warming, current daily temperatures have even reached as high as 40'C!
What are the impacts of global warming and rising temperatures? For us in
Malaysia, global rvarming might not be seen as a serious problem that needs attention"
However, for some nations, an increase in several degrees of world temperattr re might
spell disaster for them. The following is a case for review that looks at the impact
of global rvarming on Kiribati, a smali island in the Pacific. There is a real danger
that the colrntrv might cease to exist torvards the end of the 21" Century. When this
happens, an entire culture and civilization might be wiped out.
Kiribati to be Relocated Over Rising Sea Level Threat
ln whar could be rhe world's firsr climate-induced migrarion of modern rimes, Anote_Tong, the Krribatr
presidenr, said he was in ralks with Fiji's military gclvernment ro hrrry rrp ro 5,000 acres of freehold
land on which his countrymen could be housed. Some of Kiribari's 32 pancake-flar coral atolls, which
srraddle rhe equator over i,350,000 square miles of ocean, rs already disappearing beneath the waves.
-1i3,000
Mosr of irs people are crammed on ro Tarawa, the adminisrrative centre, a chain of islets
which curve in a horseshoe shape around a lagoon.
,"This is.ihe last resorr, rhere's no way out of rhis one. Our people wili have to move as the rides
have reached our homes and villages," Mr Tong said"
The plan would be to send a trickle of skilled workers first, so they could merge more easily wrth
rhe Fijian population and make a positive conrribution to that country's economy
"We don't.want 100,000 people from Kiribari coming to Fiji in one go. They need to ftnd
employmenr, not as refugees bur as immigrant people with skills to offer, people who have a place
in the community, people who will nor be seen as second-class cirizens. What we need is the
international community to come up with an urgent funding package to deal with that ambirion,
and the needs of countries like Kiribari," he rold the state-run Fiji One television channel.
The land Kiribaii wants to buy is understood to be on Vanua Levu, Fili's second largest island Mr
Tong's proposal is rhe latesr in an increasingly desperate search for solutions. ln 2011, he suggested
rhe possibiiiry' of consrrucring man-made islands Iike oil rgs for peopie to live on. His government
has launched an Education for Migration programme, aimed at upskrlling its population ro make
them more atrractive as migrants. Kiribati youngsters srudy for degrees at rhe University of rhe South
Pacific, which is based in the Fijian capiralof Suva and joinily owned by 12 Pacific island countries.
Dr. Alumita Durulato, a lecturer in international affairs at rhe university, said: "They are already
preparing quite well. They have educated their youth ro be able to survive in the new lands that they
want ro go to. They are going to leave behind their culture, their way of life and lifestyle, which is a
little bit dift r.nt from ours in Fiji."
Tarawa lies 1,400 miles from Suva and some i-Kiribari, as the islanders are known, hold concerns
about whether their culture would survive after the popularion moves, especially if those who leave
firsr are mainly the young. A member of the Commonwealth, Kiribati was known as the Cilbert
:at
;w
{.qEilr-
?g
324 Business Ethics
ai,rt.
islands untrl rndependence from Britain in 1979. The islands were first narned afrer T.homas Cilberi,
a British naval caprain whr: navigated the arci-rrpelago in 1788, Krribati being rhe local pronunc!arton
of 'Cilbert' The total land area is 313 square miles and none of the coral atolls rise more than a few
feer above sea level.
(Adapted from'Kiribati to be relocated over rising sea level rhrear', by p",tl Chapman, fhe Telegraph, T March
2012)
When discussing the matter of global u,arming, many articles and authors of
textbooks argue that this phenomena is dangerous and serious actions need to be
taken to address this probiem. However, as with any other issue, there are two sides
of the coin" The following case for review demonstrates that giobal warming could
actualiy be good. For the small town in Norway, global warming has been credited
with bringing the once isolated communit), closer to trade^
Melting lce Pulls Norway Closer to Asia
The town of Kirkenes in northernmosr Noruvay used ro be funher away from Asra rhan vrrtually any
orher European porr, bur it suddenly seems a lor closer The reasorr global warmrng Melring rre
has opened up the Norrhern Sea Route along Russia's Arcrrc coasrline, changing inrernarional trade
patterns in profounci ways, even if so far it looks more like a sleepy counry road rhan a busy, four-lane
highway. ln a change of potentially revolutionary signrficance, rhe rravel time between the Japanese
port of Yokohama and Hamburg in Cermany has been cui by 40 per cenr, whiie fuel expendrture is
down by 20 per cenr
"For rhe first rime in history, we are wirnessing a nr\î o.eJn opening up rn rl-re hrgh norrh whrch
will have a malor impacr on borh rrade and provision ol energy," said Srur a HenriIsen, rhe presrdent
of the Norwegian Shipowners' Associarion.
ln 2a12, when the ice reached its lowest exlen[ on record, l4 rrrllion square krlometres (1.3
million square miles),46 ships used rhe new roui-e, compared r^rirh only io,rr in 2010, according ro
Rosatomflot, a Russian operator of icebreakers. However, ihe traflic is srrll neglrgrils 6srrrpared wiri,
rradirional routes. Ships transit the Panama Canal T5,000 rrnres a year, while passing rhrough the Suez
i9,000 times. Bur the future looks promising. The volume of goods transported along rhe Norrhern
Sea Route is likely to grow strongly in rhe coming years, from 126 mililon ionnes lasr year ro 50
million tonnes tn2020, according to the Norwegian Shrpowners'A.,sociarion. Kirkenes, whose 3,400
' inhabitanrs live in nearly uninreirupted darkness during rhe winter monrhs, is sr-rddenly prepanng
' fiantically fot the expecred boom.
The Tschudi Shrpping Croup plans to open a logistics hub measuring the equivalent of 2AO
football fields in a flord nearby that rs held rce-free all year by the warm Culf Srrearn The porr's
locacion is extrernely srrategic. lc is nine days'travel from boch rhe Pacific and rhe Medirerranean,
and close to major oil and gas deposits in the Arctic as well as mines in northern Sweden and Finland.
Twenty-six of the ships rhat traversed the Arcric Ocean berween Eurerpe and Asra iasr year were
carrying hydrocarbons, while six were rransporting iron ore or coal. The new ror-rte also opens up
an interesting marker for lrquefied natural gas (LNC) exrracred in rhe Barents Sea, especially afrer
North America, the customer that local companies inirially had in mind, has rurned away following
a decision ro use its own shale gas. On the other hand, Asra's apperire for gas has increased afrer rhe
Fukushima nuclear disaster in Japan in 2011, and prices there are srgnificantly higher rhan in Europe.
Adding to the lucrarive nature of the rrade, each shrp rransporring LNC by rhe nor-rhern roure can do
it close to S7 nrillion cheaper ihan vessels going through the Suez. Traditional goods traffic, however,
is not realisric in rhese laritudes, according to Tschudi Shrpping
"The big trading rouies in dry bulk shipping are located roo far South for rhe Norrhern Sea Roure
i ' tp become relevant," said Henrik Falck, the company's project manager for Easrern Europe "And we
can forget about containers," he added, noiing that owners preferred tradrtional roures wrrh stops at
denseiy populared cities along the way.
ln a fragiie ecosystem thals rhe source of immense lvorry among envrronmentaiisrs, Russia plays
a cenrral role in assisting navigation with icebreakers lr has also decrded ro esrablrsh 10 bases along
its coast to redress the current ablect lack of infrastructure. China also wants ro be parr of the game.
After the first transit of its icebreaker Snow Dragon in 2017, the world's second-largesr economy now
plans to send irs first commercial shipmenr along rhe norrhern roure in sumrner 20l3 Berween 5 and
15 per cent of Chinese international rrade could take this nerar road by 2020, lhe clrrecror of rhe Polar
Research lnsriture of China, Yang Huigeng, was quoied as sayrng in rhe media
(Adapted from'Meking ice pulls Norwav :loser to Asia', by Pierre-tlenry Desha,ves, f l.e Datly 5rar, 2.3 june 2011)
Based on cases for revielv l0.l and 10.2, what is your oprnion on global narming? It
st:en-Is contrasting scenario where on one hand there is a threat that an entire
that there is a
community might be displaced and civilization affected and yet at the other extreme, it
n-iight bring mucl-r trade and prosperity to a smail community in Ncrrvay. Discuss how
these vastly different scenarios affect your perception torvards global rvarming.
10.1.3 Falling Water Tables, Shrinking Cropland and

Leveling off of Fish Catch
Next to globai warming is the problem of insufficient water supply to feed the gr^wing
population adequately over the next few decades. In fact, Kuala Lumpur, the capital
city of Malaysia, is already facing this problem and water supply has become a pressing
issue to be addressed by the government for the city dwellers' well-being. Svarikat
Bekalan Air Selangor (SYABAS) is currently managing a limited supply of rvater for
the consumprion of the Selangor residents in general and Kl, residents, in particular,
due to the shortage of water suppiy and limited catchment areas, aggravated l.-,, the
ievelling of hilis for housing projects, industrialization and urbanization.
;-u?
.ffi
dii&
322 Br-rsiness Ethics

:r
-,
a
In addition to the falling water table problem, there is aiso worldwide shrinkage in
cropland per person. Since the mid-trventieth century, grain land area per person has
fallen by half, from 0.24hectares to 0.12 hectares (Velasquez, 2012)" This is because ,{
a substantiai amount of cropland has been either converted to industrial land or
residentiai land. There will therefore be a shortage of cropland for cuitivation if the
present scenario cicntinues.
On top of this, there is also the problem of levelling ofl'of the oceanic fish catch.
From 1950-97, ocean fish catch expanded tronr l9 miilion tons [o more than 90
million tons due to the availability of more efficient trawlers and modern fishing
techniques for commercial purposes arising irom the high demand of international
customers. Fish has become an export cominodity rather than for domestic
consumption. Because of over-fishing, most marine biologists beiieve that oceans
cannot sustain an annual catch of 95 million tons of fish by humans since there is
no time for the fishes to grow and breed to recover the fish stocks that have been
depleted (Velasquez, 2006).
'fhesc three parallel trends seem to suggest that it u,ill be difficult to keep the
growth rn world demand for food over the next half century, implying that humans
wiii be f'acing an acute food shortage in the near future if they are not conscious of the
implications of their own activities and actions.
10.1.4 Shrinking Forests and Loss of Animal Species

The treasLrres of the forests are no doubt bountifr,rl gifts of nature. But they are
also overwhelmed by hurnan clemands. Nations exploit the forests ancl expand the
tirnber and {irrniture industry to fulfil the neecls of prospective dornestic and foreign
consunlers. The pharmaceutical ancl cosmetics indr,rstries also utiiize animal/plant
based natural resources fbr cornmercializirtron tl-rrough innovative research and
development initiatives.
Over the past half century, tl-Le u,orld's forested areas have shrunk substartiall),
u,ith the loss occurring in developing cor,rntries, in particular, due to ir-rdustrialization
and privatization poiicies to generate the nations' cconomic grou,th. Ttie habitats
and piants are also depleting due to their inabilitl, to r.,.u,re as a result of excessive
exploitation of natural forests due to human activities such as the timber industry,
housing and construction industry, manu{actLrrir-rg ancl other inclustrial developments.
It is projected that the forested area per perion norldwide nill shrink from 0.-56
hectares todav to 0.38 hectares in 2050. 'l'his u.ill er.cntualit, resuit in the extinction of
plant and animai species if noi nronilorecl effectir,eiv.
These are some of the challenges facing hurlankind at the beginning of the
millennium, not to mention natural disasters such as tsunanris, hurricanes, landsl ides,
earthquakes, soil erosion, etc. lvhich irave affected the environment. \\rhile natural
calamities are beyond human control, aren'l hunians expected to effectively manage
the environment as leaders on Mother Earth? l.et us pose more cluestions to spur
discussions" Aren't humans responsible to conserve the environment fbr survival or
are the,v only here to maximize or fulfil their desires and enjo1, the gifts of nature witlr"
no limitations? Or at'e humans obligated to consume resollrces within sustarnable
limits as a matter of ethics? What rs sLrstainabrlit)'ancl sustainable developmsnt in the
first place?
Ethics and the Envii-onment 323
*rc.2 THE CONCEPTS OF fil;,-;iiltty-^'

firsr considered
SUSTAINABILITY AND
'
a pr.e-eminenrly
ecological concept
SUSTAI NABLE DEVELOPM ENT prescribing rules
and prlnciples for
rhe usage of natural
Sustainability was certainiy first considered a pre-eminently ecologicai concept resources,in.such a -
prescribing rules and principles for the usage of natural resolrrces in such a way way which allows
. furure generarions
rvhich allows future generation to survive on this planet (Pearce and Turner, 1990).
ro survive on ihis
However, to capture a broad understanding of the concepts of business, poiitics
planet. Howevei in
and wider parts of society, sustainability in the current scenario is redefined as the order ro caprure a
long-term maintenance of systems according to environmental economic and social broad understanding
considerations (Crane and Matten, 2010). Sustainability may be further classified as oi the concepts of
environmental sustainability, economic sustainability and social sustainability. Below business, polirics and
are some detail exampies of each type for our further understanding: wider parts of sociery,
sustainability in che
t Environmental sustainability-For example, environmental reporting, eco- current scenario is
design, environmental management systems, executivc commitment lo r:edefined as rhe long-
environmental issues term maintenance
t Economic strstoinability-For example, strategic planning, qualitl, and of sysrems according
knou4edge management, supply-chain management, corporate qovernance to environmental,
ilrecha n isnrs eronomic and sorial
t Social sustainability -For example employmenl policies, nlanagement considerations
der.elopment, stakeholder dialogue, affirmative action ancl human rights
policies, anti-corruption policies f5.-*',rn.
development (5D),
Sustainable developmcnt (SD), on the other hand, is a pattern of resource use that on tlre other hand, is
aims to meet human needs r,r,hile preserving the environment, so that these needs a palrern of resource
can be nlet not only in the present, but also fbr future generations. The concepts of
' r-rse thar aims to
meet human needs

sustainability and sustainable development are certainiyconsistent with Islarric Ethics
while preserving the
t','hich emphasize the role and responsibiiity of humans in ensuring the progrcssior oI environment, so ihat
the earth. Wc noted in Chapter I that man is duty bound to keep tire physical rvorld rhese needs can be
ia a balanced state. mer noi only in rhe
presenr, but also for
future generations.
i 0.3 RENEWABLE AND NON-

RENEWABLE RESOURCES
I lrder to achieve sustainable development, we need to look at rthere thc sources
ol enersy come from. Basically, there are two types of resources; non renewal,le and
tctretable resources. The decisions on the types of resources to invest in r,vill not only
1:rve long term effects on the enr.ironment but also on whether future generatroits will
I , able to reap these benefits.
Non-renelvable resources are used worldwide to create electricity, heat homes,
lotver vehicies and manufacture goods. Resources are considered non-renewable if
324 Business Ethics
their quantities are limited or if they cannot be replaced as fast as they are used up.
Some non-renewable resources have been formed over miliions of years ago and will
eventuaill, be depleted altogether. The following Table 10.1 describes the sources of
some non-renewable resources currently utilized.
Table 10.1
Sources and Petroleunr Oil, or perroleum, comes from the liquefied, fossrlized remains of
descriptions of plants and animals rhat lived hundreds of millions of years ago; once
non-renewable oil sources are depleted, rhey cannot be replaced. Oil is an ener:gy
rESOU TCCS source that mosr countries around rhe world depend upon. lt is used
to create fuels, such as gasoline, diesel and jer fuel. lt
rs also used in the
manufacruring of plastics and indusrrial chemicals. The environmenta!

impacrs of mining oil include rhreats ro waterways, plants and wildlife
due ro oil spills and increased infrastructure in natural areas. The
impacts of oil combusrion include air pollution, smog and Increased
greenhouse gas emissions
Coal Coal is rhe mosr plenriful non-renewable resoufge in the world. Co-al
is made when plant marerial has been compressed in bogs for millions
of years. The extraction of ccal lrom surface and sub-surface mines

creates numerous problems for humans and the envrronmenr" Sub-
surface mines are dangerous for mrners as runnels can collapse anci
built-up gas can explode. They also create subsidence, meanrng that
rhe ground {evel lovrers when rhe coal is removed Surface mrning,
or strip-mining, causs erosion and water pollution and decreases
biodiversrty by reducing planr and animal habirats Additionally, rhe
combusrion of coal contributes to air pollurron and globai climate
change and creat-es a roxic, ash as a byproduct..
Natural gas Natural gas is rhe result of decomposing planrs and antmals that were
rrapped beneath rock mrllrons ol years ago Thrs gas rs drilled from
rhe ground or exti-acteri using ciynamiie and iherr processec and
piped through rhousands oi mrles of pipelines for cooking, heatrng
homes and fueling vehicles. Though natural gas is c.onsidered to be a
relatively 'clean' fossil fuel, rhe environmenral impacrs of extracting it
and insralling pipelrnes include severe disruotion of rvrldiife habitar and
groundwater con[aminaIion
Nuclear energv Although nuclear energy is often prornoted as a viable airernatrve to

coal and oil, it is not a renewable energy source. Nuclear power requrre\
uranium, a radioactive metalllc element that musr be mined from the
earth and is nor quickly replenished. Nuclear energy does not create
air pollurion through combusrion irke fossil fuels. lt does, however,
produce radioactrve waste, whrch mrr:t be disposeci of and whrch can
cause problems for humairs arrd ecosystems for thousands of years.
Additionally, accidents and leaks from nuclear power piancs can have
carastrophic effects on rhe eriiire planet.
Source:'What are examples of non-renewable resources?' by National Ceographic.
Rrner,vable resources are an important aspect of sLrstainability. According lo

Th. **, fr.q*rtlyl
used renewable the National Geographic website, the most frequentll, used rene\{able r,,:sources are
te50urces are biomass, water, geotherrnal, wind and solar. Unlike fossil tirels, we can regenerate
biomass, water, or replenish these resources. With the rising c,)st and decreasing availabilit)'o{ non
geothermal, wind and renewable fossil fuels, renewable resourcrs are receiving iricrc'asing attention Table
solar.
10.2 provides sources and descriptions of renewable resources.
Ethrcs and the Envrronment 325
Table 10.2
Sources ancj
Biomass Biomass resources include trees, food crops, algae, agriculrural and forestry
descr-iptions
byproducrs, and even Merhane fumes from landfills. Trese biomass resources provide
of renewable
fuels, power production and products typically made from non-renewable fossil
resou rces
fuels. Such 'bio' products include plastics, insulation, adhesives and fabric. Energy
producrion from biomass is imporrant because it can help reduce dependence
on oil. ln addirion, it has rhe po[ential to reduce greenhouse gas emissiors. The
agricukural and forestry industries also benefit from the demand for biomas:.
Ceothermal Ceothermal energy comes from harnessing heat from rhe earth. A large uriliry
company, for example, can directly use a geothermal reservoir ro drive generators
and produce elecrriciry for rheir municipaliry. ln contrasr, residential heat pumps
use rhe shallow gror rlrl temperature of the earrh to heai and cool a home on a
smaller scale. The shaliow ground temperature remains between 50 and 50 degrees
Fahrenheit. Orher applicarions put geothermal hear to use in commercial buiidings,
roads, agriculture and industrial facrories.
;wlha,"ii:.::' i Wind just moving aircreated'as rhe sun heats the earrh's surface. As long as the
is
;.,'ri::!i.*rr.: :,,] sun is shining, the wind rematns an infrnire, renewable resource. Wind power is clean
energy because wind rurbines do not produce any emissions. The classic Durch
windmill harnessed rhe wrnd's energy hundreds of years ago. Modern wrnd rurbines
wirh three blades dot the iandscape roday, rurning wind inrc eleciricrry.
Solar The sun has produced energy in the form of heat and light since the earth formed.
5olar energy syslems do not produce emissions and are often not harmlul to rhe
environment Thermal solar energy can heat water ot buildings" Photovoltaic
devices, or soiar cells, directly convert solar energy into electricity. lndividual solar
cells grouped into panels range fror,, small applications thar charge calcularor and
warch batieries, ro large systems that power residential dwellings PV power planrs
and concentrar.ing solar power planrs are the largest solar applications, coveritrg
acre5.
Source:'Definition and examples of renewable resources'by National Ceographic
14.4 THE HISTORY BEI.{IND

SUSTAINABILITY AND
SUSTAI NABLE DEVELOPM ENT- ll.*,h.lr8ot
AN OXYMORON? human sustainability
has implied the
integration of
economic, social
Sustainability, as an issue, was first highlighted by the Brundtland Comnission, and environmenral
convened by the United Nations in 1983. It rvas to address the growing conce rn about spheres to'meet
'the accelerating deterioration of the human environment and natural resources and rhe needs of rhe
present without
the consequences of that deterioration for economic and social development'. Since
compromising the
the 1980s, human sustainability has implied the integration of econonric, sociai and
ability of fuiure
environmental spheres to 'meet the needs of the present without compromising the
generations to meet
abllity of future gerlerations to meet their own needs'. their own needs'.
:6
ffi
326 Business Ethics
I
t
I
While sustainability and sustainable development were recogniz.ed by the United

Whil" *t,rrrhkt_1
and sustainable Nations in the 1980s as major issues of concern, nations continued to promote i
',
development were economrc growth for society's well-being and prosperity. Industrializ.ation seemed to
recognized by ihe be the agenda of most governments. Natural resources were exploited in abundance
Unired Nacions in to reap maximum benefits within the rules of the game. Following this" the Worjd
rhe 1980s as major
Trade Organization (WTO) called for nations to globalize and promote free trade by
issues of concern,
Ioosening trade barriers and withdrawing prote, tionist policies.
narions conrinued ro
promoie economic In view of these developments, to most people, the term 'sustainable
growth for sociery's development' may seem to be an oxymoron-bringing together two apparently
well-being and contradictory concepts (Desjardins, 2009). To say that 'sustainable deveiopment'
prosperiry. (SD) is an oxymoron suggests that there cannot be sustainable development when
humans ilre supposed to use the natural resources fbr survival. The irnplementation
of globalization, which supports the free market system, in the mid-1990s
lurther challenged'sustainable development'. T'he establishment of multinational
corporations, joint ventures and strategic ailiances mushroomed in deveJoping
natr<.rrrs lo further tap the unexploited natural resources ivith government support
to sustain economic growth seems to support this notion (i.e. SD is an oxymorr:n).
'fraditionally, business organizatrons have alrvays considered the enr,ironment to
be a free, neariy iimitless good (Shaw, 2011). At this juncture, it is tirnely to relate
globalization with the free market arguments on preservation of the environment
and their impacts on sustainable der.elopment.
10.5 FREE MARKET ARGUMENTS

ON SUSTAINABILITY AND
PRESERVATION OF THE
ENVIRON M ENT
Advocators of the free market will not share tire views of many environmentalists
Th. fr.. **k* I
mrndset on resources with regard to moraliy relevant topics such as the intriirsic vahre of animals and
is rhat rhey are other natural objects, commitmeut to rusporisible qoals for reducing pollution and
'infinire'and a means u.aste, conserving resources and preserr.ing natural areas and biological diversity
to an end. (Desjardins,2009). This is due to their belief that resources are'infinite'ancl should
not be vierved as material objects but as a means to an end. Simply put, economically,
the resources are to be efficiently Lrtiiized to support tire production of gooLls and
services for the benefit of humans.
On preservation of environrnentally sensitivc ireas, thev argue that'preservation'
will be a 'waste' since it wouid represent resorlrces that are 'unemployed' and the,v
yield less in human satisfaction compared rvhen they are processed to produce goods
and services. Natural objects have no vaiue in their own right and have value only
to the degree that humans place value upon them (Desjardins, 2009). On a strict
free market vien, preserving biological diversltl-rs an appropriate policy goal only if
doing so satisfies more consumer preferences rhan the alternatrve of preserving the rrr.
However, if peopie are lvilling to pay to preser ve species, then doing so rs a legitimate
business goai"
{.sa. t
rr ru.o FREE MARKET ARGUMENTS
AND THEIR IMPACT ON THE
ENVIRONMENT
While tl-re above free market arguments may remain as valid justifications 01 many
advocates of the free market system, humans are faced with problems such as
environmental pollution, groundwater contamination and depietion, soil erosion, etc.
These are forms of market failure i.e. negative externalities creating inconvenience to
society, threatening the quality of iife of humans and non-humans.
'Ihe latest scientific evidence continues to show that humanity is living
unsustainabiy and returning human use of natural resources to within sustainable
Iimits will certainly require a major collective effort. In fact, the tlnited Nations 2005
World Summit Outcome Document further supports these views and regards the
'interdependent and mutually reinf,treingpillars'of sustainable development as ecotrottlic
deveiopment, social development, and environmental protection (see Figure 10.4).
Figure 10.4: The inter-dependent and mutually reinforcing pillars o{ sustainable fs*,*"b1.--
J:velopment developmenr should
not focus solely
on environmental
Therelbre, in today's challenging and competitive global scenario, sustitinable
issues but it has to
developmerrt shouid not focus soiely on environmental issues but it has to be lrtrked to the
be linked
to ihe con.,mitment tolvards the socio-economic development of a nation. 'fl-re kel' commitment towards
players in the macro-economy, i.e. the households, businesses, and foreign sectors, rhe socio-economic
have to come forward and work together to address this issue on a collective basis. development of
a nation. The key
The government, as regulator, and the business sector, as tire driving force behind
players in rhe
a nation's economic growth, have to be totally committed towards sustainablc macro-economy,
development. Firms must be socially responsible. They have to consider the impact i e the households,
of their organization's activities on society. They must be conimitted to maximize businesses, and
their positive impact and minimize their negative impact. While firms, es;reciallv foreign secrors, have
corporations, fulfil their economic roles of inaximizing profits within tire niles oi the to come forward and
work togerher to
flame, they must aiso take into consideration ethics and corporate citizenslrip in tlie
address this issue on
conduct ofbusiness.
a collective basis.
328 Business Ethics
To conclude, development and business strategies have to be well-balanced with

social aspirations for quality of life and preservation of the environment frrr the well-
being of humankind, be it for the present generation or for the future generatrons to
come" Certainly, this calls for an appreciation and internalization fnr environmental
or ecoiogical ethics.
10.7 SUSTAI NABLE CONSU M PTION
Consumption is the main reason that drives most economies today. The massjve
growth in consumption, especially in the lattcr part of the twentieth century, has
placed tremendous pressure on the natural environment. Tl-rere is this problematrc
notion that consumption can continue to increase because there is no limit to our
natural resources and furthermore the by-product and wastes created by consumption
could be disposed of indefinitely.
E;,h. uN I Whilst currerlt ievels of consumption may indeed be unsustainable, the question
now regards of how [o move towards a more sustainab]e forn"r of consumption is a vexed one, but
rhe promotion also a vital one . Even the UN nor,r, regards the promotion of sustainable consumption
oi susLainable as a basic element of consumer protection. So, what would constitute a sustainable
consumption as a level of consumption? One reasonable definition which is used by the European
basic elemenr of
Environment Agency (EEA) and a nufirber ol"other organlzations corrles fiom the
consumer protecrion.
I994 Osio Syrnposium:
Su.stainabk: corrsumption is: 'the z;.sc ofgr,,or1-s L.Lnd thttt re spond to basic
services
needs and bring a better tlualily o_l liJe , n,hile rurttntainrng tltt: use oJ"trotural
resources, tot;ic materio.ls ttnd emissiot'rs of'u,osle ancl pollutants otter the lfe
cycLe, so as not to jeopardize lhe needs o-f
-future gileratlons.'
This indicates that not only the ecological impact of'goods or services that society
Sur,*"bh I
consumption consulnes has to be taken into account. It is eqria111, iniportant to consider such aspects
includes various as human rights, equity and political dimensions in the production and consumption
aspects of process" Moreover, since there are various stakelroldcrs involved in the consumption
environmental, socral process, it has to be vierved from all possible leve Is- individual, household, community,
equiry and moral
business and government (Robins & Roberts, I 9Lr8). Sustainabte consumption inclucles
concerns, meaning
various aspects of'environmental, social equitv and moral concerns, meaning it rs
it is not only about
buying ecological not only about buying ecological goods and protecting the environment. One also
goods and prorecring has to think about personal health and iifestyie such as inappropriate eating habits,
rhe environment. consumption of damaging and addictive substances, stre.ssful iifestyle, etc. These are
Ohe also has to think just a few examples of hon,our health can be negatively affected in the long term. Also,
about personal health
increasing importance of material values is of a gi eat concern for sustainability. It is
and lifestyle such as
inappropriare eating
very often assumed that the quality of iife is determined by the material values one
habits, consumption possesses, such as a house, a car, expensive clothing, etc" In addition, one's financiai
of damaging and situation is to a certain extent influenced by spcnciing or saving decisions made now.
addicrive substances, Thus, consumption patterns affect heaith, lifestyie, financial and social environment,
stressful lifesryle, erc- as well as the giobal environlnent and the natural resources available. Sustainable
consumption is the oniy way to ensure a proper balance of ali these issues in the long
term.
Hou,ever, it would be a mistake to assume that people can or will rea"dily give up
current levels of consumption, given that it is widely regarded as enjoyable, liberating
and expressive activities in modern society (Borgmann, 2000). Indeed, tire whole
notion of ensuring that the satisfaction of needs does not compromise the satisfaction
of future generations' needs is extremely problematic if the 'needs' satisfied by
contemporary consumption are those of sustaining our image, our identity and even
our social reiationships and culture (Schaefer and Crane,2005).
10.8 BARRIERS TOWARDS

SUSTAI NABLE CONSU M PTION
To achieve sustainable CoflSlrli,otion is often challenging. In this section we will

discuss some barriers that might impede sustainable consumption, as illustrated in
Figure 10.5. .
//'-Lack ol)', \
, informaticn
\./ 7
X,/
/\
Habits and
routines
\/
\ _-z
Figure 10.5: Barriers towards sustainable consumption
Willingness to act
Some people state that they simpiy do not want to change their behaviour or do not
have time to do rt. Thus, people are just too lazy or do not care about the environment.
Older people might feel that they have done their share for society and norv they rvar-it
to enjoy the rest of their lives without any inconvenience that sustainable der.ek:rpment
might incur (Holdsworth, 2003). Another argument is that they cannot consulre anY
1ess, e.g. water (Auzane and Elere, 20A7)"
330 Business Ethics
Lack of awareness and information

Often, daily activities are carried out on a lorv level of consciousness. A lot of the
environmentally significant behavioural patterns are a matter of habit and daily
routine, thus they are not even considered. Many consumers are also simply not aware
of what they could do to consume sustainabiy or the impact their actions have on the
environment. Some also do not know what facilities are available (Holdsrvorth, 2003)"
Habits and routines

Habits are very strong barriers to changing one's behaviour. In the research by
Agyeman and Kollmuss (2002) it was found to be the biggest obstacle to sustainable
consumption. General routine often prevents consumers from implementing
changes in their consumption patterns. Their habits and routines are closely relateri
to their priorities, thus, friends and financial resources are often valued higher than
sustainable consumption.
Convenience
A major t.,arrier for consumers is the inconvenience of undertaking sustainable
consumption actions. This is the most commonly mentioned reason of those not
rvilling to change their behaviour to a more sustainable one. The concept of convenience
is subjectir.e but not absolute, and sometimes consumers base their opinions about
the inconvenience of sustainable consumption on assumption and without any real
experience or actual inforrnation (Auzane and Elere, 2007).
Lack of access to facilities

Lack of access to facilities is a major obstacle for not undertaking sustainable behaviour.
For example, in the countryside, public transport is o{'ten infrequent and thr,rs cannot
provide an alternaiive to driving a car. People are not very likely to undertake such
actir.ities as rec,vcling if there are no facilities provided fbr this pllrpose (Holdsworth,
2003).
Cost
High cost is one more excuse for not changing one's behaviour. Silnilar to convenience,
it is a subjective concept and sustainable products ar.: often assumed to be too expensive
r,r'ith the best example being organic food. Another related problem rvith cost is that it
also hides other barriers such as inconr.eniencc and habit. For exanrple, many people
see driving a car as something essential and therefore calculate the cost of using priblic.
transport as an extra expense rather than an alternative (Holdsrvorth, 2003).
Psychological effects
People commonly see environmentai problems as too distinct from their daily lives
aird do not see a necessity to change their behaviour. They have a perception that
giobal problems do not affect them and the consequences rvill only be seen in the long
term. A similar idea is also perceived about the po.itive effects of changed behaviour,
suggesting that they will only be seen in several years (Burnineham and Thrush, 2001).
Perceived consumer effectiveness

This factor has been found to strongly correlatc with the undertaking of sustainable
behaviour. In many studies, it has been proven that people who feel thaLt they can make
tthics and the Fnvirorrment 331
a difference are more likely to be environmentally active and consume sustainable

products (Auzane and E1ere, 2007).
Relative sustainability
People are frequently confused as to how they should behave when the types of
behaviour are interrelated. For example, is it sustainable behaviour to recycle if they
have to use a car to go to the facilities? Also, whether they should buy conventionally
grown food or organic food that has originated from another continent? (Holdsrvorth,
2003).
10.9 STEPS TOWARDS SUSTAI NABLE

CONSUMPTION
There is much that business, government and consumers can do to seek more
sustainable modes of consumption. The following sections shott,some potential steps
that could be taken to move towards this direction, as iiiustrated in Figure 10.6.
Figure 10.6: Working towards sustainable consumpt on
Producing environmentally responsible products

Perhaps the ntost obvious way for firms to respond to the challenge of su,stainable
consumption is to develop and market products that impact less harmfuily on the
environment. This has been an area of activity for some 25 years or so and has led
to the development of a vast array of products inciuding rec,vcied and unbieached
paper, 'green' detergents, low-ene"gy iight bulbs, non-toxic toys and energy-efficient
appliances. Ilven the car market has begun to see genuine inno';ations towards
-['esia
more environmentally responsibie products. For example, companies such as
produced eiectric cars for the mass market and Toyota produced green cars such as
tlre Tolrota Prius.
M
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332 Business Ethics
Product recapture :..

Current business systems of production tend to operate on a linear model where
:,.(
materials are used to make products which are then consumed and disposed 01"
Usually, that is the last we see of the products. Holvever, rnoving towards a circular
use of resources-ensuring that so called'waste' is recaptured and brought back into
productive use-not only minimizes waste but means that less 'virgin' material is
needed at source (Fuller, 1999). Reconstructing products in this way-by recycling,
refurbishing or re-manufacturing-can also help to bring prices down, because the
cost of materiai inputs is often lorver (Pearce, 2009), The challenge for companies is
to design for recycling, reuse and repair and to establish channels that facilitate the
flow of product recapture. One example of product recapturing is in Singapore where
the government initiated the conversion of wastewater into drinkable water, known
as 'new water'.
Service replacement for products

There rs no reason for the consumer to own the product in the first piace. After all,
what u'e are often seeking when we buy products is their perfbrmance-the ability to
wash clothes, for example-not necessarily the ownership of the physical product itseif,
a n ashing machine. By replacing the sale of the product with an agreement to provide
an ongoing service, firms can substantially reduce the amount of material goods being
produced, as well as mairaging certain emissions and energy inputs more effectively
(Rothenberg,2007). What rve have seen in recent years arc c.ompanies experimenting
with fbrms of product leasing, lr,,here the companl'maintains or,vnership, but conducts
servicing, repiacement of norn parts, upgrading of obsolete elelrents and ultirnately
replacement ancl redistribution. Tl-re 'servicirlg' approach has been most common in
industrial contexts. For example, Xerox t,vpically rerrts and leases most of its commercial
photocopiers, largely because crlstomers are larger and easier to service.
Product sharing
Another similar rvay of reducing consumption is ibr products to be shared by groups of
consumers, tl-rereby getting n-Iore use out of tl're same resources. This wav of increasing
eco-efficiency has been fairly successful in certain parts of Europe, such as Germany
and the Netherlands, with products such as cars, washing machines and certain
tools being found to be particulariy sr-ritabie for sharing (Schrader, i999). Although
inconvenience is a major disadvantage, studies suggest that consumers welcome
the savings in storage space, money ancl the h:rssle of repairs and maintenance, not
to mention benefiting the enr.ironment. For example, in many countries across
E,urope and North America, there is a citywide initiative to redr:ce pollution through
encouraging cit1, folks to use bio.cles in a bicycle sharing system.
Reducing demand
Ihe challenge of sustainabilit). can only be reahzed if society accepts that people
buy fewer things. However, this notion might not be popular with businesses.
ha.,,e to
Some consumers or even governnrents might nol be agreeable to this concept. Wiiere
excessive consurnption can e\ren mar consumer enjoyment ar-rd threaten businesses,
such as in the tourism industry, demand reduction can he particularly pertinent.
Demand reduction can also come from consumers thernselves. In this instance'
consumers choose to participate in 'volun:ary simpiicity' or 'downshifting' by
consuming iess. A studyby Sharv and Newhoinr (2001) on voluntary simplifiers shows
that some degree of reflectinn or restraint is required once consumers take the ethical
stance to reduce consumption. Some countries have been taking the steps to reduce
carbon footprints and environmental destruction. This can be seen especially in the
tourism industry. ln case for review 10.3, it can be seen that a countrylike Bhutan has
been deliberate in controlling the number of tourists going into the country. llhutan
is putting a cap on the number of tourists through its sustainable tourism initiative.
I
t.
I
Bhutan's Policy on Tourism
'Low volume, high valuel rhis is rhe motro thai enables Bhuran to mainrain irs unique culrure and
protect its environment despite modernization.
The Kingdom of Bhuran opened iis doors to tourism only in 1974 under a regulared program.
ln 199",], the Royal Covernmenr of Bhuran privarized the iourism industry to encourage increased
private sector paruicrpation. Today, rhe number of tourisrs visiring the country conrinues to increase
each year as Bhuran becomes better known globally
' The Royal Covernment of Bhuran has always been aware rhat an unrestncted flow ol tourists
can have adverse impacts on Bhutan's Lrnique culture and traditions and rts prrsrine environment.
Bhuran rherefore adopred a policy of 'Low Volume and Hrgh Value'tourism on rhe principle of
sustainabiliry, meaning thar rourism musr be envrronnrentally and ecologically friendly, socially and
cukurally acceprable, and economically viable Hence, toursts must arrange rravel throLrgh a licensed
Bhutanese rravel agency and cannor iravel independently
Having resrricted rhe flow of rourism righr from the beginning, Bhutan is now a livrng museum,
rich in culrure, rradirion, religion, history, and has successfully preserved its environmenr in its pristine
-lhough
form. chere is no quora or limir on rhe number of tourisrs aliowed ro visit Bhutan, the
volume of tourisrs visrring to Bhuran is regulared to a manageable level by the consrraints of tourism
infrastrucrure and the high tourist tariff ser by rhe Royal Covernment ol Bhutan.
(Adapted from 'Bhucan's policy on Tourism', Bhutanyourway.corn)
10.1,0 GREEN JOBS
The other side benefits of encouraging sustainable consumption and ensuring

environmentally safe products coming to the market is that it rvil1 spin off the creation
of more green jobs. One aspect of green jobs is that they are in industries producing
environmentally friendly products (such as hybrid cars or solar panels) and services
(such as recycling or car sharing). Another aspect of this morzernent torirards green
jobs is that the job itself, the workpiace, the way iabour is organized, be come more
environmentaily sustainable (Forstater, 2006; Gnuschke, 2008). 1'here arc a number
of approaches companies have taken to achieve the goai of a greener workplace.
r*
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334 Business Ethics

:
t
Incentivizing carpooling, introducing the paperless office, substituting business travel

'f,
with videoconferencing, increasing recycling, moving into lorv energy use office space .r.
tr
are just some examples of the tvpes of initiatives organizations have explored to green
the workplace. Another widely advocated solution is home based teleworking. There
are ecological advantages for this. Rather than commuting to work and adding to
road congestion and air pollution, teleworkers are likeiy to use far fewer resources by
staying at home and communicating remotely.
Case for review 10.4 takes a look at the Philippines and how the country is moving
fbrward to embrace and unearth the potential of green jobs. In your opinion, do you
think that Malaysia needs to move in this direction as well?
Philippines: Unlocking the Potentialfor Green Jobs
Renewabir: energy is r-ror- JLlsr a means of complying with environmental siandards; it is also the key
ro unlock economic growtlr A massive uptake of renewables addresses climate change by reducrng
greenhouse gas emissions, while also increasing energy securty and generarinB more jobs..-'green'
jobs.
Accordrng ro rhe Worldwarch lnstirure, "Renewables tend to be a rnore iabour-intensive energy
source rhan rhe srill-dominanr fossil fuels, whrch rely heavily on expensrve preces of produciion
equiprneni,. i-'ierrce, a Iransitiorr rowards renewable energy also brings job garns "
In rhe case of rhe Philippines, one of Asia's fastest growing economies at the moment, Creenpeace
believes rhar rhe country can [urrher srimulate its prosperiry by reaping the berrefrrs from renewables,
in which 'green can bring 3old'.
"Once we invest in renewable enrgy, it would help the econonry .by brrngrng new lobs anC
harnessing what we have in rhe country," said Anna Abad, Creenpeace Soirrheast Asia Clirnate
Campaigner.
At present, she nored that renewable energy investments in the Philippines remain siim. ln a
published study assessing the potenrial of green jobs in the Philrpprnes, Creenpeace noted rhat
many countries across the world are already expanding their rerrewabie energy sector and have
generared many lobs that way. ln Europe, a Deutsche Bank reporr found rhai nearly 550,000 green
jobs have been created, wirh Cermany accouniing for over half .rf rhe region's toral ln the Unrted
States, the National Resources Defense Council estimated 75,000 Americarrs are employecj in rts
wind industry, while the Solar Foundation estimated that 100,237 peopie are working for the solar
industry as of 20-11. China has an estimated one nrilJioir green lobs wirh 600,000 employees in rhe
solar industry alone Other Asian countnes, such as lndia, Banglairesh and Tharland, are seeirrg
rapid renewable energy development and a corresponding rise in green lobs. Lookrng at what other
nations have been doing, the Creenpeace repori, believes that the Philrppine:, can walk the same
pathway
"Clobally, there are already so many exisring green jobs, 2 to3.5 million green lobs. lt's not a smail
number and ir's rapidly increasing. ln the Philippines, we are also hoprng to become parr of rhat global
trend, where we increase the numberof green jobs, increase reinvestment for the country," said Ms.
Abad.
??(
Ethrcs and the Environment JJJ
According ro her, a 10-megawarr solar power piant in rhe country can employ 1,000 people for
six rlonths during irs consrruction, while-100 permanent full-rrme posirions will be created for irs
operalion and mainienance. A 33-MW wind farm can also generate about a thousand lobs durrng
consrrucrrop and 2T direcr;obs during its operarion As for an 8-MW hydropower planr, about 1,000
Frlrpinos will be employed over a period of three years and once the facili'y gets done,30 Frlipinos will
have permanenr posirions.
Creenpeace said there are currenily seven proposed biomass prpjecrs in rhe counrry, whrch
would mean 78,000 consrrucrion jobs and 3,400 to 4,000 jobs once the prolecrs are operational.
Addirionally, 2000 people will be rapped rn rhe supply chain including the farmers producing the
agriculrural wasres rhar will be used ar rhe planrs. Currently, geothermal power is the mosl mature
renewable energy secror in rhe Philrppines, which comes in second behind the l.lnired Sraies in the
global rankings The georhermal indusrry is also a prerty brg employer. To pur things in perspecrive,
one georherrral company in rhe counrry has hired abour2,582 employees for a 1,189-MW plant-
Ceorherrnal power developed between rhe late 60s and early 70s when oil was peakrng very
\î as
high, said Ms Abad lr wa: a brg leap for rhe government ro invesr in geothermal ener-gy back rhen,
burirhadabigpayoff.CeothermaipowernowsavesiheCountryoverSTbiilionfrorncoalrmports
and srgnrficanrly brings down rhe cosr of elecrrrcrry
"lmagine whar ir can do ro our electriciry prces when all of the renewable energy investments
come in and become mature technologies," she stressed
Creenpeace stressed in rheir report thar renelvable energy can bring lobs, as well as cost
savings and earnings ro rhe Phrlippines. ln order to harvesr: rhese advantages, Ms. Abad poinred out
rhar rhe missing link is nor policies bur rhe government's commirmenr. There is a iack of acrion and
inrplenrenrarion of rhese policies. When the renewable energy law was passed lrr December 2008,
she said rr was hailed as rhe mosr comprehensive and most lorward-looklng lar.v for renewable
energy, rhat ir was even praised and looked up ro b;i neighbouring counrries in sourheasr Asia.
Under rhis lar,v, rhe Philippines seeks to raise irs renen,able energy consurnptron by three rime: ro
r5,000 MW.
''Ulforiunarely, whar is perfect on paper is nor the same as it is in practice," nored A'1s Abad
Since irs passage, ir has nor really raken off due to many delays and the fact that rhe
qovernment
is srill pushing for- coal wirh ihe Department of Energy looking to build 23 coal-fired power plants
across rhe counrry. When these coal-frred power planrs are approved and go into rhe pipeline, it is
feared that rhey will edge our any potential renewable energy investnent:s. Ms Abad urged rhat
the governmenr should revoke approval of these coal plant construclion plans, as well as phase out
existing coal faciiiries and replace them wirh more sustainable prole,-t5 lrke burldrng soiar and wind
faciliries Meanwhile, Ms. Abad said Filipinos, especially the youth, are slowly becoming aware of green
job rn which they could enjoy a berter and healrhier
lobs and rhar rhey wanr ro be employed in a green
working environment than workers in coal planrs. However, there are no avatiable oppcrtuniiies and
rhe governmenr has ro provide rhese opporruniries for the people.
"lr's really rhe commirment and the government has to walk the walk, and not just say rhat we
qure that they get enforced
have good policies. They really have to commit to these...and musr make
(Adapted fron'Phitippines: Llnlocking rhe Porcnrial ot' Creen Jobs. by Catherine Dominguez, EcoSeed, 14
f ebruary 20 t 7)
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336 Business Ethics
,;,&
10.1 1 CHALLENGES OF DIFFERENT

LABOUR AND ENVIRONMENIAL
STANDARDS ACROSS THE GLOBE
Diff"erent enl,ironmental and health and safety standards in suppliers' countries can
provide a loophole through which firms can potentiaily secure lower cost supplies
by bypassing the stringent standards in their country of origin. For example, ths
recycling of 'end-of-life' electronic waste has increasingly been outsourced to
developing countries in Asia and Atiica. Despite international larvs banning the export
of hazardous waste to developing countries, the combination of spiralling amounts
of waste, lax regulation and a thriving and lucrative informal economy in countries
such as China, India, Ghana and Nigeria has led to a growing prohlem of unregulated
reprocessing, where the release of lead, mercury and other dangerous chemicals
poses serious threats to human and environmentai health. With millions of tonnes
of electronic waste being illegally shipped by companies in the developed rvorld to
unscrupuious processors in developing countries, the problem of 'digital cemeteries'
of e-waste has become a major ethicai issue for manuf-acturers and recyclers alike. Case
for revier,v 10.5 illustrates how such occurrence over the scrapping and recycling of
ships in india, Pakistan and Bangladesh can have a potentialiy explosive relationship
among countries. The argument is not as clear cut or as black and white as would have
thought. It needs to be looked upon and weighted in from the perspective of'providing
job opportunities to thousands and at the same trme the concern about health hazards
and envrronrnenlal d i:aslels.
EU and South Asia Scrap Over Recycling Ships
A European effort to bar the use of potenrially hazardous ship recyclers rn lndia, Pakisran and
Bangladesh has i-un aground, sralled by an ourcry from rhe Solrh Asian counrnes. The proposed
legrslatron would bar ships flying European Union flags 1'rom'beaching'old shrps onro shore, where
they are dismantled by hand at informal shipyards The low-cosL, ship-scrapping rndusrry of lndra,
Pakistan and Bangladesh is a mulribrllion-dollar business employing aboui a million workers, and rhe
three countnes accounr for more rhan 70% of rhe global ship-recycling rndusrry.
The European Parliament has approved measures rhar wouid ban beaching and frne EU ship
owners for vtoiarions. Advocacy groups have criticized beaching for it: poor safery and environmental
7 record, preferring that shrp breaking, as the Sroader vessel-recycling indusrry is known, be conducred
in dry dock r:r at piers so rhat warers aren'r exposed ro roxic spills.
Amid pressure from South Asia, the European C-ouncil has cpposed rhe ban on beaching.
, App,loval by the council, whicfr includes the heads of El-l member srares, is necessary ro rarify the
-'lellslaiion.
European Parliament iawmakers and the council are scheduled ro hold ralks l,1onday,
having conclucred a oreliminary round of ralks lasr monrh.
Ship breaking: A breakdown

Low-cost South Asia dominates giobal ship recycling
Annual volumes of reycled tonnage
12
mW [PAK6'^ I 1,,.HtN4r:l ffi re
-10
6
4
2
0 ]ffi
2003 '10 2003 ,nn1
(Source: IHS Fairplay)
Asian scrap yards generated S5.3 biilion from beaching in 2012, according ro shipping-
indusrry data provider Lioyd's List. Iuropearr ship owners sent a record 355 vessels to South
Asia's beaches lasr year. Turkey and China also recycle ships but rhey don't pay as well for scrap
and rheir capacity is Iimited. Yards rn Turkey and China buy ships for scrapping at S300 to 5340
a ton of sreel, depending on the grade, compared r'virh Sql0 rn South Asia Ships usually are sold
ro middlemen who then sell the vessels to ship breakers who can seli the scrap steel South
Asian ship breakers rypically will recycle nor only the sreel, bur the contenrs of a ship, such as its
furnirure and dinnerware, as well.
The NCC Shrpbreaking Platform, a coalirion ol i8 errvironmental, labour and human-righrs non-
governmental organizations, has led rne campaign agarnst beaching
"When shrp breaking takes place directly on the beaches, full conrainment of the pollutants
is impossrbie," says platform Executive Director Patrizia Heidegger Thr World Bank esrrmares that
79,000 rons of asbesros and 250,000 tons of orher carcinogenic chemicals will be dumped on
Bangladesh's beaches alone over the next 20 years,
Ms. Heidegger says her group recorded 40 deaths in India, Bangladesh and Pakistan in 2012,
compiling reports from trade unions and local media. "No adequare eme:gency respunse rs available.
How can an ambulance reach a vessel stuck in mud?" she says.
Ship-owners, recyclers and ihe three South Asian governments say a ban on beaching would be
counterproductive, undermining existing internatronal efforts ro improve the indusrry's performance
and exacting a huge cost to the economies of lndia, Bangladesh and Pakistan.
"The Et-i is asking for something r,hat will cripple the economy ol South Asia," says Shafr
Chaudhari, who ran one of Bangladesh's first beaching operaiions and nor,ry operates a small marriime
cargo operatron, Comfort Shipping Line. "lt is a way for keeping our economies permanently poor."
Yasmin Sultana, depucy secretary of policy at Bangladesh's Ministrv of lndustries says jobs
could be at stake" "l can't stop the business suddeniy...There are 300,000 people dependent on the
industry," she says
An EU ban could threaten a global proposal, rhe 2009 Hong Kong Corrvention, meant to regulare
rhe scrapping industry by establishing standards [hat are safe for workers and environmentally
sound. That agreemenr awairi rarificarion by natronal parliamenrs, which is expecteC to take about
six years.
w
a4
338 Business Etirics

i?
"lf sense does nor prevail in Europe, we will lose all motivation ro adopt the Hong Kong
l,
I
,
Convenrion," says Nikos Mrkelis, a non-executrve director of CIobal Marketing Systems, a middleman
in rhe shrp-breaking indusrry. Mr. Mikells, a former executive of rhe Unired Nations'lnternational i
Maririme Organization who helped draft the conveonon, says owners would circumvenr rhe ELI ban :
by changing rhe flags on rheir aging vessels. European-flagged sirips account for around 15% of the
global merchant fleet.
In the shoreline scrap yards of wesrern lndia, workers who moved 1,000 miles from home say the
work is dangerous bur rhey accepr rhe hazardous condirions because of rhe wages and sready lobs
Condirions are gerring safer, rhey say. Shipyard operators say they have made improvernents, such as
oursourcing the handling ol'hazardous waste, undergoing periodic audits by regularors and getring
medical check-ups for workers Bur rhe operators complain thar it is never enough for Furopean
reguiarors.
"The safery measures are very good. We have introduced a number of precaut.ionary steps
befr:re ships are allcwed ro beach," says J K. Sinha, a rnember of lndia's National Disasrer Management
Aurhority.'Accrdenr-s may occur once in a while, but there is no scope of disasters," he sard
(Adapred from 'ElJ anci sourh Asta scrap over recycling shtp', by Cosras Parts and Btnart A,4ukher1i, Wall Srreet
lournal,
-16
Jurte 207 j)
10.12 ENVIRONMENTAL ETHICS
"fhe
field o.'f environmentcrl ethics cancerns human beings' ethical reLotionshil.,
v,ith the nattLral environment. While numeroLLs philosophers have written
on this toltic througltout history, environmurtal ethics only developed into a
specific philosophical discipline in the 1970s. This entergenc h/as no doubt due
to the increa-<irtg aworeness in the 1960s o-{ the effects thttt technologl,, industry,
economic e-ypansion and population growth u,ere havirtg on the ent,ironrnent.
The de.t,elopntent o_f such awareness was aided by the publication of two
important boctks at tkis time. Rachel Carson's Silent Spring, Jirst publtshcd in
1962, alerted readers to how tl^,e widespread use of chemicalpesticide s v,asposing
a serious tltreat to public health and leading to the de struction of wildlife. i)f
similar significance was Paul Ehrlich's 1968 book, The Population Bomb, which
warned of the devastating effects the spiralling human population has on the
planet's resources. Of course, pollution and the depletion o.f natural resources
have not been the only environmental concertis since that time: dwindlingplant
ond rtnimtrl biodiversity, the loss of wilderness, the degradatian of ecosystems,
and clirnate change are all part of a raft af 'green' issue c that have tmplanted
themselves into both public consciousness and public policy over subsequent
years. 'l'lrt 1tb oJ ent,ironmental ethics is to cttrtline our rnoral obligations in
Ethics ancl the Environment 339
the face of such concerns. [n a nutshell, the two t'undamental questions that
environmental ethics must address are: ttthat duties do humans have with
respect to the enyironment, and why?'
(Alasdair Cochrane, r-r.d.)
Environmental or ecological ethics is therefore part of environmental philosophy tEnvkonmenral or

which considers extending the traditional boundaries of ethics from includirrg soieiy
humans to encompassing the non-human world or gifts of nature, complementing is therefore par,r
human lives. It also relates to how humans use the natural environment as'a matter of environmenral ' "
philosophy which
of ethics. There are manlr ethical decisions that human beings make with respect
considers extending
to the environment. For example, should we continue to cut down forests and level
the rraditional
hilis for the sake of hun'ran consumption? Is it right for humans to knowingly cause boundaries of ethics
the extinction of a plant or animal species for the convenience of humanity? How do from including
we adjust from our present materialistic lifestyles to sirnpler lifestyles to reduce our humans solely
present consumption in order to -rotect the environment as t'ell as preserve resources ro including the
non-human world
for the r.r,ell-being of our future generations?
or gifrs of nature,
\A/e note in several earlier chaptcrs that business organizations are set up to
complementing
n"rake profits. Hower.er, rve cannot ruie out the fact that businesses inust also have hunran lives
a commitment and social responsibility to protect the ern'u,irorrment and enhance
society's irterests (Khalidah et al.,2012). |Jorvadays, society has other concerns and
interests such as quality o1 iite as well as preservalion of the environment. Therefore,
a business decision-maker, in the process of serving his or her o,,vn interests, is
morally obligated to take actions to fulfil these socjal needs rvhile frlfilling economic
obiectives.
After ali, business organrzations, not to mention other public/social institLrtions,
are part of the 'spacesl'rip earth'" Business firms, in particular, depend on the natural
environment for their energy, material resources and rvaste disposal and that the
environment in turn is affected by commercial and non.comntcrcial activities of
firnt s.
Due to the fact that human activities are holisticall,v part of the larger ecological fA,*."l"c"rk,h,-;
system, many n,riters and philosophers insist that lve should recognize our moral duty rhus an erhic which
to protect the nelfare olhumans and non-humans/living creatures; not just based claims the welfare of
on the idea that the envrronment should be protected for the benefit of the iruman at least some non-
kind. An ecoiogical ethic is thus an ethic r.vhich ciainrs the u,ellhre of at ieast some humans is intrinsically
valirable, and because
non humans is intrinsicall,v vah-rabie, and because of its intrinsic va[ue, hurnrns have
of irs rntrinsrc value,
a dutv to respect and preserve them. Human survival is rvholly dependent on non- humans have a
hutnans; the food that r,r,e take, the oxygen that we breathe every second, the ciothes dury ro respecr and
that we wear, the houses that lve live in, etc. Therefore, failure to respect and appreciate preserve rhem.
the gifts of nature may affect our quality of life and rvell-being.
Case for revierr, 10.6 looks at the yearly occurrence of haze coming from Inclonesra,
which atfects its neighbouring countries such as Malaysia, Srngapore and Thariand.
The article stated that palm oil companies were behind the indiscriminate burning
and iand clearing that causes the haze. Holvever, are they soleiy to be biamed' Y/hat
about the role of governments, enforcement agencies or even consllmers themselves?
In your opinion, what responsibilities should each stakeirolder in the ecosystem play
to address this issue?
*
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340 Brrsiness Ethics
Palm Oil Companies Behind Haze
Fires on lndonesia's Sumatra, which have cloaked Singapore anC Malaysia in record-breakrng haze,
are raging on palm oil plantations owned by lndonesran, Malaysian and Singaporean companres,
environmental activist group Creenpeace International said.
"NASA hotspot data in Sumatra over the past"10 days (iune 11-21) has revealed hundreds of
fire hotspots in palm oil concessions rhat are owned by lndonesian, Malaysian and Srngaporean
companies," the group said in a statement received by AFP.
Singapore's PSI index hit the critical400level on Friday, making ir potenrially life-threarening ro
che rll and elderly, a government moniLoring sire sard
"Fires across Sumarra are wreaking havoc for millionr of people in rhe regiorr and descroying ihe
climate. Palm oil f)!'()ducers musr immediately deploy fire crews to exringuish rhese fires But reaiiy
cleaning up their acl srarts with adopting a zero deforesration policy," said Busrar Mairar, head of
Creenpeace lndonesia's loresr campaign,
The lndonesian environment minisrer Balthasar Kambuaya said rhat a team has invesrigated eight
companies suspecred to be behind rhe fires and promised to reveal rhe conrpanies'names afrer rhe
probe. A senior presidential aide Kunioro Mangkusubroto said that the fires happened in concessron
areas belonging ro Asia Pulp & Paper (APP)and Asia Pacific Resources lnrernaiional (APRit)
"lr is very clear rhar rhe fires are in APP and APFlir c.oncessions We need to settle rhis matter"
-18lune
he told reporters whiie showing the distriburion of fires from 1 to in concessicn areas rn Riau
APP, the world's thirrl'largest paper producer said in a srarement rhar'ground verrficarion'
dereccedonlysevenpoinrsrhatareactuallyforesrfire,affecringaround200hectaresof land Theyare
under and hreing controlled by approximately a thousand fire-frghting crews. "Our team's prelrminary
invesrigation found that five of ;he fires were set by rhe cornmunity to clear land for crops and two
cases are still under investrgation," APP added
lndonesia stepped up its fire-fighting efforrs by deploying aircraft to artificially create rarr ai .i
to water bomb rhe blaze. The haze crisis has caused a dramatrc escalation in tensions between tiny
Singapore and irs vasr neighbour; with the city-state repeatedly demanding that Jakarta steps up rts
efforrs ro pur out the fires.
(Adapred from'Palm Oil Companies Behind Haze', by Channel NewsAsia, 22 June 207 j)
As rightly viewed by Holmes Rolston III (2003), a great deal of work in

environmental ethrcs can be done from within the'social contract'. To quote:
'Huruans need to be l'Lealthy. It is hard to har,e a healthy culture in a stck
e,nvironment. More tharu tJtat, humons destre t quality enyironrnent, enjoytng
the amenities of nature-v,ildlife and wild flowers, scenic yiews, places oJ
soLttutle- cts well as the commodities-timbcr, tvater, soil, natural resources.
Supportrng environmental health and a qualit',' environntent can certatn\' be
cowtte d .ts duties withirr a social contract.'
(Holmes Rolston 111, 2003)

iVfuch as we support the above rational views on environmental/ecologicai

ethics, most religions place emphasis on the believers to protect the environment
and respect the glfts of nature. ior erumple, from an Islanic dimension, as aleader
(khalifah or vicegerent) of the universe, humans have a duty to recognize and preserve
the ecological systems within which we live to sustainable limits. Over-exploiting
resources is seen to be unethical as it promotes greed and extravagance. Let us further
discuss ecological/ environmental ethics from the Islamic dimcnsion.
10.13 ENVIRONMENTAL ETHICS-AN

ISLAMIC DIMENSION
Quoting from Shomali (2008):

'In lslam, the environment is sacred and has an intrinsic value. Even if there is
no threat or shortage, we must sttll look after natural resottrce.s, protect animals
and plants, and mora generalll, irnprot,e and dt:velolt the a.nvironment. As the
-ri vicege-ent of God, y,e hat,e to channei t!'te tnert.1, oJ' God to everything tvithin
our reoch"'
Below are some of the relevant Quranic \rerses frotn Surah Al Hijr to support
ecological ethics and sustainable clevelopment from an Islarnic perspective.
'And the F,artJt We hat,e spread oul, and hctve ploced tlteretn -f irm mountains,
arLd caused to grou' therein all kinds of things in dLtc ltrrtstortion.'
'And y,e hat,e prot,ided thcrcin ftte ans of lit,Lng and

-for those n'ltom you prot'ide
not (ntoting (living) creatures, cattle , beasl,r and other nnintals).'
'And there is not o tlting, but with Lls are the stores thereo.f. And lMe senrl tt
down except in a known tnectsurc.'
(Surah Al Hijr, Verse 19'21)
'And we send the winds jt:rtilizing (to f ill heavilv tLre ciouds with water) tlrcn
cause the water (rctin) to descend -front the sky, and lt/c gi lr: 1'ttu to drink, ru'Ld it
is not..,ou who are the o:,tners of ils stores (i .e . to gi.',c tt,ote r to whorut you like or
to tvithold it J-rom whom vou like).'
'And certainly \t"e! We it is who give life, and cause deatlt, and We are the
Inherit.tr.'
(Surah Al Hijr , Verse 22-23)
These verses remind the believers that there are linits to the utilization of
natural resources and humans are reminded that the gifts of nature are not solely
ours to be freely exploited. Even God bestows them in modest portions; therefore,
.we must also utilize naturai resources in suitable portions to sustain them for our
rvell-being.
One of the greatest threats to human society and the environment is extravagance,
r,.'hich originates from greed and negiigence (Shomali, 2008). Certainly, wasteful
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342 Business Ethics

,
1
corlsumption is an act of extravagance. This character relates to self-control in

fulfilling human desires and is much controlled by religious teachings. While
Muslims are taught to have Iimits in their consumption patterns, they are also
taught to benefit from natural resources in a responsible way. A believer should
be moderate in all aspects of life, including his use of natural resources. The Holy
Prophet said:
"The best aJfairs is the medium one.'
(N ahj al-F asahah, No. 148 l)
Indeed the whole world is based on order and harrnony (mizaan). Quoting from
Surah Ar Rahman:
'That yctu should not transgress in the balance. And keep up the balanc.e witlt
justice, and;t'all not short in the balance."
(Al-Quran, 55:7-9)
Refer to the glossary for further explanations on mizaan.

For the purpose of discussion, let us elaborate further on the value of water, earth,
plants and anirnals to humankind from the Islamic perspective.
10.13.1 Water
In isiamic culture, water is very highly regarded" Water is introduced as the origin and
source of life. Quoting a verse:
'And t'e have matJe o.f water everything living.'
(Al-Quran, 21:30)
Next,
'lnfl rre serLd down from the to gr"ow there witi,
sky blessed water , then tve causc
gcrrderLs ancl grain for harvests, and the tall palm trees v,hich have spadices
layer upon layer.'
(Al Quran 50:9-10)
Water is also a basic essential resource for Muslims to take ablution before
performing prayers. Therefore, due to its intrinric value, water must be kept pure and
clean for huinan consumption.
1A.13.2 Earth
In Islamic scriptures, the earth is introduced as an origin for the creation of human
beings:
'From it (ectrtli, We created you and into it \[e shall send 1'ou back and.irom it
We w'ill raise you a secand time.'
(Al-Quran, 20:55)
Prophet Muhammad SAW once said:
'God created tlte ettrtlt and laid it ou.t for hit'nanity.'
(See also AI-Quran, 55:i0)

fthics arrd the Environment 343
l
He (i.e. God) also made the earth manageable and tractable. Refer Verse 67:15 which
say s:
'It is He who has matle the earth manageable for you'..'

God has also made for humans a means for their liveiihoods on earth. Refer Al-Quran,
ZJ0 which says:
'Gocl has given you (mankind) the power on earth and appointed thereitt a
livelihoodior ylu.'
Next,
'And we have spread out the earth and we have placed mountains in it,
and we haye caused to grow therein every kind of beautiful thing. This is
an en'rightenment and a reminder for every servant who turns frequently to
Allah"'
(Al-Qttran, 50:7-B)
These verses clearly implicate the importance and value of the earth to humans'
; Thus, as a shor,r, of gratitude, human beings should sensibly utilize the gifts of nature
. and construct upon it u'ith prudence.
10.13.3 Plants
islam recognizes the value of piants and encourages farming as a nob]e economic
activrty of human beings. Planting trees and protecting them are also duly encouraged
to ihe extent that planting a tree is considered an act of worship (Shomali, 2008). The
Hoiy Prophet once said:
'Llnless you are compelle d, do not cut down a tree.'
(Wasaa'il al-Shi'a, Volume 11)
ln addition, there are many hadithsthat recommend Muslims to plant and do {arming.
For cxample, the ProPilet said:
'\,\rhoet,er plants a tree and then a human or a creature of God eats its fruit, it
will be considered as an act of charity for him.'
(Nai Al-Fasahah, Volume 2)
In anothei: instance, imam Sadiq once said:

'Farnt r.tnd plant! Ily God, there is no rnore occupation n'Lore lawful and pleasont
than this.'
(Al Kaafi, Volume 5)
?0.13"4 Animals
lilamic teachings aiso acknowiedge that animals have numerous rights, foi which
human beings are held responsible. A fundamental right for animals is the right to life
in addition to food and nater, a home and medicine (Shomali, 2006). Animals must
rlso be loved and respected. According to a u,ell known hadith,the Holy Prophet SAW
once said:
w
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"_ffi{
344 Business Ethics
'"',&
A woman will be put in the hell because she imprisoned a cat until the catdied.'
(Najh al-Fasahah, No. 1559) j}
I'he Prophet also said: r

,
'Whoever kills a sparrow without any reasan will be questioned by God on the
day of ludgement.' i
(Najh al-Fasahah, No.2224 & No. 2610)

In addition, Imam Ali said:
'Whoever curss an anirral, he himself will be cursed by God.'
(Wasaa'il al-Shi'a, Volume 8) I
All these statements seem to support the notion that human beings cannot be
cruel to animals. Referring to Imam Bukhari's collection of hadiths and narrated
by Abu Huraira r.a., when people asked, "O Allah's Messengerl Is there a reward
for us in serving (the) animals?" He replied, "Yes, there is a reward for serving any
animate."(3:551 - Original Bukhari (O.8.) and Summarized Sahih Al Bukhari by Dr.
Nluhammad Muhsin Khan, 1996).
We have seen the value of rvater, earth, plants and animals to humankind from the
lslamic perspective. Recognizing that nature has its intrinsic value, Islamic teachings
in fact recognize humans as trustees on Mother Earth. Humans have been given the
rcsponsibility of stcwardship and trust by God to carc for the earth and serve as a
channel for the blessings of God to all Ilis creations. Humans must therefore fulfil the
requirements of His trust as a vicegerent.
'\,Ve oflered lhe trLtst t.rttto lhe hesvens and the t'ortlt trnLl the hills btLt they
shrank lrom bearing il and were aj'raid of it. .A.nrl rnrLn ttssunte cl it.'
(Al-Quran, 33:72)
'lo conclude this section, nature is therefore a dir,ine trust and man is the trustee.
Future generations also har.e a right to enjoy the bcrunty of the earth so the present
generation must not do mischief and deprive their rights to continue benefiting from
it! This Quranic yerse is a clear reminder to the believers:
'Do not do mischief oit the earth, after it has becn set in order, but call on Him
with fear and longing (in your hearts): J'or the Mercy oi God is (always) near to
those u,ho do goad.'
(Al-Quran, 7:50)
Next, quoting from Imam Bukhari, the Prophet SAW once said:
'Whoever does good equal to the u,eight of an atorn (or o small ant) shall see t
(its reward)" And whoever does evil, equal to the weight of an atom shall see it
(its recompense) (on the Day of Resurrection).'
(j:559 - Original Bukhari (O.8.) and Su.mmarized Sahih Al Bukhari by i
Dr. Muinmmad Muhsin Khan, 1996) i
Thrs quote is practically relevant and applicable to all acts of humankind, not to
mentionouractivitiesinmanagingtheenvironnrentl
Tb consolidate your learning, the learning outcomes are summarized below:
l. Identify the three main sources of threats to the current environment-global warming,
pollution and resource depletion.
There are three major sources of threats facing human civiiization toCay:
. Global warming-an increase in weather temperatures due to rising atmospheric concentrations
of carbon dioxide.
. Pollution-the undesirable and unintended contamination of the environment by the
rnanufacture or use of commodities, There are various types of pollution such as air, water, land,
sound and light.
. Resource depletion-the human consumption of finite or scarce resources. It is ciosely linked
to the way humans consume the gifts of nature, which has its limits, to satisfy the unlimited
human desires.
2. Recognize other emerging environmental threats facing humankind in the globalizedworld of

i today.
,- While humans are faced with three major sources of threats in today's global world, other emerging
t threats include population increase, falling water tables, shrinking cropland per person, collapsing
r: fi.heries, shrinking forests and loss cf plant and animal species.
3. Conceptualize and classify sustainability and differentiate it from sustainable development.

Sustainability was first considered an ecological concept prescribing rules and principles for the
usage of natural resources in such a rvay rvhich allows future generations to survive on this planet
(Pearce and Turner, 1990). Ho$,ever, to capture a broad understanding of the concepts of business,
!' politics and r+,ider parts of societ1,, sr-rstair-iabilit,v in the current scenario is redefined as the iong-
term maintenance of systems according to environmentai, economic and social considerations
(Crane and Matten, 2010). Sustainability rnay be further classified as environmental sustaiirability,
economic sustainability and social sustainability.
Sustarnable development (SD) is a pattern of resource use that aims to neet hunran needs ir4rile
preserving the enviror"rment, so that these needs can be met not only in the present, but also for
future generations. The concepts of sustainability and sustainable development are certainly
consistent with islamic ethics which emphasize the roie and responsibilitl.of humans in ensuring
the progression of tl-re earth since man is duty bour-rd to keep the physicel world in a balanced state.
4. Discuss the sources of renewable and non-renewable resources.

Ncrn-renewable resources are used worldwide to create electricity, heat homes, pol&'er vehicles and
manufacture goods. Resources are considered non-renervable if their quantities are limited or
if they cannot be replaced as fast as they are used up. Sorne non-reneu,'able resources have been
formed over millions of years and wili eventually be depleted aitogether.
Renewable resoltrces are an important aspect of sustainability. According to National Geograpiric,
the most frequentiy used renewable resources are biomass, water, geothennal, wind and solar. Unlike
fossil fuels, we can regenerate or replenish these resources. With the rising cost and decreasing
availabiiity of non-renewable tossil fuels, renewabie resources are receiving increasing attention.
5. Assess whether sustainable development is an oxymoron.

Whilc sustainable development has been promoted by the United Nations in the 1980s as a major
issue of concern, nations continued to promote economic growth for society's well-being and
prosperitl.. Industriaiization seemed to be the agenda of most governments. Natural resources were
exploited in abunclance to reap maximum benefits within the rules of the game. Following this,
xIU:
.,
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346 Business Ethics

:
the World Trade Organization (WTO) called for nations to globalize and promote free trade by
loosening trade barriers and r,vithdrawing protectionist policies. l
In view of these developments, to rnost people, the term 'sustainable development' may seem to be an l
oxymoron, i.e. bringing together of two apparently contradictory concepts (Desjardins, 2009).1b say
that'sustainable development' (SD) is. an oxymoron suggests that there are not or cannot be sustainable
development when humans are supposed to use the natural resources for survival. The implementation
ofglobalization, which supports the free market system, in the mid-1990s further challenged'sustainable
development'. Perhaps, it rnaybe true to view this concept as an oxymoron,looking from the reaiity and
pace of economic development, which has somewhat compromised social and moral considerations.
6. Explain the free market arguments on sustainability and preservation of the environment.
. They believe resources are 'infinite' and shouid not be viewed as material objects but as any
means to an end.
. 'Preservation'will be a'waste' since it would represent resources that are 'empioyed so as to yield
less than they might yield in human satisfaction'. Natural objects have no value in their own
right and have value onl,v to the degree that humans place value upon them.
. Preserving biological diversity is an appropriate policy goal only if doing so satisfies more
consumer preferences than the alternative. If peopie are willing to pay to preserve species, then
doing so is a legitimate business goal. Otherwise, it is not cost effective to preserve resources.
7. Compare and contrast the arguments of capitalists and environmentalists on exploitation and
utilization of resources"
. Although free markets lead to over-exploitation of resources, advocators of the free market will
not share the r.iews of environmentalists on such topics as the intrinsic value of animals and other
natural objects, commitment to responsible goals for reducing pollution and x,aste, conserr.ing
resources and preserr,,ing natural areas and biological diversity^ They believe resources are
'infinite' and should not be r.ier^,,ed as nraterial objects but as any means to our end.
. On preservation of environrnentaliy sensitive areas, they argue that'preserr.ation'r.lill be a
'waste' since it would represent resources that are'employed so as to yield iess than they might
yreid in hurnan satisfaction'. Natural objects have no value in their own right and have vah,,:
only to the degree that humans place vaiue upon them.
. On a strict free market vierv, preserving biological diversity is an appropriate policy goal only if
doing so satisfies more consumer preferences than the alternative. If people are r.villing to pay to
preserve species, then doing so is a iegitimate business goal.
8. llxplain the concept and importance of sustainable consurnption.

The massive grorvth in consumption, especiaily in the latter pa't of the tnentieth centurl', has
placed tremendous pressure on the natural environment. There is this problematic notion tirat
consumption can continue to increase because there is no limit tri our natural resources ancl
furthermore the by-products and h,astes created by consumption could be disposed of indefinrtelt'.
Whilst current levels of consumption may indeed be unsustainable, the question of how to movc
towards a more sustainable form of consumption is a vexed one, but also a vitai one.
9. Discuss barriers towards sustainable consumption.

To achieve sustainable consumption is often chalienging. There are nine possible barriers that
might impede sustainabie consumption-rvillingness to act, lack of awareness and information,
habits and routines, cor,venience, lack of access to facilities, cost, psl.chological effects, perceived
cr;ilsurrrer effectiveness and relative sustainability.
10. Explore some steps that could be taken ton,ards sustainable consumption.
Many steps may be taken by businesses, governments and consumers for more sustainable modes oi
t
l::'
consumption. Potentially, there are five initiatives that could be taken-producing environmentally
responsible products, product recapture, service replacement for products, product sharing and
reducing demand.
I1" Explain the concept of green jobs.

Green jobs entail a situation when companies produce environmentally friendly products (such as
hybrid cars or solar panels) and services (such as recycling or car sharing) to encourage sustainable
consumption and to ensure that environmentally safe products are available in the market. Another
aspect of green jobs is how the labour market is organized to be more environmentally sustainable
through various green initiatives at the workpiace.
12. Discuss the challenges of different labour and environmental standards across the globe.
Mary developed countries bypass the laxlaws in emerging economies to send'end-of-life'electronic
waste. This situation can lead to serious environmental catastrophes. T'here seems to be a growing
problem of unregulated reprocessing of environmental and electronic waste where the release of
lead, mercury and other d^ngerous chemicals poses serious threats to human and environmental
healttr rn these countries.
r3. Conceptualize and rationalize the importance of ecologicallenvironmental ethics.

Environmental ethics concerns human beings'ethical relationship with the natural environment.
Environmental ethics onl1. developed irrto a specific philosophical discipline in the 1970s. l'his
eniergence was no doubt due to the increasing awareness in the 1960s of the effects that technologl',
industry, economic expansion arrd population growth were having on the enr.ironment. Pollution
and the depletion of naturai resources have certainly not been the only environmental concerns
since that time-drvindling plant and animai biodiversity, the loss of wiiderness, the degradatiorr
of ecosysterns, and climate change are ail part of a raft of 'green' issues that have irnplar-rted
themselves into both public consciousness and pubiic policy over subsequent vears. Enl'ironmental
ethics rs to outline our moral obligations in the face of such concerns. Tko fundamental questions
that environmental ethics must adclress are: rvhat duties do humans have u,ith respect to the
environment, and i,l'hy?
Environmental or ecological etirics is therefore part of environmental l',hilosophy n hich considers
extending the traditional boundaries of ethics from including humans solely to inciuding the non-
human world or gifts of nature, compiementing human lives. It also relates to how humans use ti-re
natural environrnent as a matter of ethics"
14" Recognize from an Islamic perspective the obligations that one has to conserve and consume
resources within sustainable limits.
'ln lslarn, lhe envirortment is sacretl and has an intrinsic value. Lvcn if there is no tlreat or
shorlage, we rnttst still look t$ter natttrctl resottrces, protect animals ontl plonts, and morc
generalll, improve and develop lht environrnent. As tlte vicegerent of God, we havt to chonnel the
rilrc)' of God to ercrything withiu our rt:ach-'
(Shomali,200B)
Nature is therefore a divine trust and man is the trustee as a Khalifah on earth. It has to be managed
within sustainable limits since extragavance is prohibited and moderation is promoted in Islamic
teachings.
This following Quranic verse is a clear reminder to the believers:
'I)o not do mischief on the earth, aJ'ter it has been set in order, but call on Hint with fectr and
longing (in your hearts): for the h'ie.rc,v oJ God is (alway) near to th.ose u'ho ,1o goad.'
(Al-Quran,7:56)
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348 Business Ethics
Next, quoting from Imam Bukhari, the Prophet SAW once said:
'Whoever does good equal to the weigfit of an atom (or a small ant) shall see it (its reward)" And
whoever does evil, eclual to the weight of an atom shall see it (its recompense) (on the Day of
Resu rrectton).'
(3:559 - Original Bukhari (O"8.) and Summarized Sahih Al Bukhari by Dr. Muhammad
Muhsin Khan, 1996)"
This quote is practically relevant and applicable to all acts of humankind, not to mention our
activities in managing the environment!
Believer A supporter or an advocate" In Islam, a believer is a Muslim with iman. He is someone who
consciously believes the 6 principles of iman and practises the five principles of Islam" lrnan is an Islamic
term for 'faith' i.e. pior-rs adherence ivhich is a highly regarded religious ideal in the A/ Quran.
Conservation The saving or ratirrning of natural resources for future use. The process of conserr.,ation also
relates to preservation and protection ofresources.
Consumer sovereignty "1'he recognitron that consumers are 'kings' in the economy. 'l hey hal,e the libert,v and
right to decide wirether lo bu,v or not to buy a product.
Ecological system An interrelated ar-rd interdependent set of organisms and environments.
Environment 'Ihe surrounding in rvhich an entity finds itself.
Environmental ethics E,nr.ironrnental ethics concerns human beings' etirical relationship rvith tl-re natural
environnrent" A philosophy rvhich considers extending the traditional boundaries of ethics i'roin oniy
humans to includir-rg the non-human world or gifts of nature, complementing human lives.
Environmental sustainability fo maintain and preserve nature during and after lhe use of its resources"
Gifts of nature Another term for nalurai resources.
Greenhouse gases Carbon dioxide, nitrous oxide, methane and chlorofluorocarbons--gases that absorb arrd
hold heat from the slrn. prevelrting it from escaping back into space, much like a greerihouse absorhs and
hoids the sun's heat.
Green jobs ,[obs in businesses thal produce goods or provide services that benefit the environment or conserve
naturai resources. It might also include jobs in which workers' duties invoive making their establishment's
prcrduction processes more envirorrmentaily friendly or use fewer natural resources.
Clobalwarming 'I'he tncrease irt temperatures around the globe due to rising leveis of greenhouse gases"
Hadiths A report of the sayings or actions of Prophet Muhamrrrad SAW or his companions, together rvith
the tradition of its chain of transmission. Related to hadiths are also sunnrths-the collective bodv of the
Prophet's traditions.
Haze Atmospheric moisture, clust, srnoke and vapour that diminishes visibility.
I
i
lntrinsic value It is the ethical or philosophical value that an object or resource has 'in itself' or 'for its own
sake', as an intrinsic property. An object with intrinsic value may be regarded as an end or having inherent
value by itself or belonging to a thing by its very nature. 'fhe value that humans place on gifts of nature
depends on his or her level of appreciation of the resource. For example, the intrinsic value of the scenic views
at beaches and mountains in their natural states which may bring happiness and satisfaction to nature lovers.
This value may not be quantifiable because it depends on individual feelings and happiness.
Khatifah A concept by early Muslim scholars which focuses on the status and quality (free will) of humankind
vis-a-vis other creatures in the universe-leadership, responsibility and accountability.
Market failure It is defined as a situation in which market equilibrium iesults in too few or too many
resources being usecl in the production of a good or service. A situation where resources cannot be efficiently
allocated due to the breakdown of the price mechanism caused by factors such as lack of competition giving
rise to monopoly power, unequal distribution of income, externalities such as poilution, etc. Market failure
creates problems for society due to the breakdown in the norrnal functioning of the forces of demand and
supply (i.e. pricing mechanism). This inefficiency may justify government intervention.
Multi stakeholders Those who har.e an interest in an idea or state of affairs.

Mizaan It literally means 'balance'. Islamic philosophy relates 'al-mizaan' with the balance of the universe
itself through that Divine Wisdom which preser\res everything in its place. Quoting from A/ Quran Chapter
55 (Surah Al- Rahrnan), Verses 3-i0:
'He ,realed mttrt, And He tought ltint speech. 'fhe stm nnd the moon.follow courss accttrding to nfixed
reckoning" Ancl tl;t: plonts anr) the trecs clo tLilctre. And the Heaven he has raisecl high, And l'le has set
up the Balarrce . '[''ttr.tt t,r:u s]rculd nol tronsgress ilr the bttlnnct. And keep up the balance with iustice ,
and j'all not short in tlre bolance. Anr.l lle hcts ltlattd the earth -for the living creatures'
(Al Quran, 55: .i 10)
Refer to The Holy Quran Text and T\'anslation by Restu Foundation (2008).
Non-renewable resources Any natural resolrrce from the earth that exists in limited suppiy and cannot be
replaced if it is used up; also, any natural resource that cannot be replenished by natural means at the same
rates that it is consumed.
Organic waste Largel,v untreated human lvastes, se\\rage and industrial wastes from processing various food
products, from the pulp and paper industry and from animal feedlots.
Oxymoron An oxynroron is a term used to explain bringing together of tivo apparentl-v coiltradictory or
conflicting concepts. For example, business people often perceive that there is no ethics in business or ethics
contradicts with brisir-ress profit maximization principies. Therefore, ethic.c in business is an oxr-nroron.
Pollution The undesirable and unintended contamination of the environment b1- manufacturels. or by'
people in general during the utilization o{'commodities.
Quality of life The general well-being of society in terms of political freedom, a clean natural environment,
rducation, health care, safety, free time and everything else that leads to one's happiness and satisfaction.
Renewable resources Any natural resource that can be repienished naturaliy with the passage of time.
Resource depletion The consumption of finite or scarce resources.
Sustainability An ecological concept prescr:ibing rules and principles for the usage of natural resources in
such a way which aliow the future generation to survive on this planet. It may also be broadly definecl as long-
term maintenance of systems accorcling to environmental, economic and sociai consideraiions.
Sustainable development A pattern of resource use that aims to meet human needs rvhile preserving the
environment i.e. these needs can be met not only in the present, but also for future generations.
.?.
350 Business Ethics
1. Discuss the three main sources of threats to huraan civilization in the global era.
2. Sustainable development is an oxymoron" Do you agree with this contention?
3. Discuss the sources of renewable and non-renewable resources.
4. Assume ihat you are the CEO of a corporation" Discuss the strategies that you will develop to
support sustainable development.
5. Define sustainable consumption and explain some possible barriers that might impede its
implementation.
6. Do a literature search on environmental hazards in Malaysia. Discuss why these problems exist.
7. l)efine ecological/environmental ethics and justify its importance in today's global business
scenario"
JS Carpets: Moving Forward for a Sustainable Business

Carpet nranufacturrng lvould nor normally be caregorized as an environmentally praiseworthy industry. Many
.arpet fibres are derived from petroleum, a non-renewable resource, and synthesrzed lvilh fibreglass and PVC,
rwo knourn carcinogens. The carpers ar" then dyed, and the waste produced from thrs process conidur5
toxrns and heavy merals Carper irranufacturing factories are heavy industrial producers of carbon dioxide
emissions lJsed carpers, especially nylon-based producrs, are not recycled and theretorr: end up in landfills
This carpet wasle is often toxic and non-brodegradable.
lS Corporation is based in Kuantan, Pahang lt produces carpets from man-made fibres derived from
perroleum. Current procluction is to meet the demands from the average and low income Malaysian
households. Reflecting on the environmental record of the carpetrng indirsrry and having a moral concern
to be'environmenrally frrendly', En. Jalis Said, Chief Execurive Officer and ow'ner of lS Corporarion, calied for'
a rneetrng wirh hrs Board of Directors (BCD) to develop new sIrategies to reengineer hrs carpet business Tc
his surprise, the board menrbers made conflicting, yet rarional comments drd not resolve his issue ol
'^rhich
concern when the i'neeting ended.
Below are some of rhe comments documented by the Company Secretary in the last minures of meeting:
.1"
Why should we be concerned abour the environment? After all, resources are gifts of nature and should be
exploited to give added value for humans to gain the satisfaction and a competitive edge in rhe challenging
business world of today.
The technology applied for the production of our carpets is cost-effective and innovative. The chemical
conversion process to transform perroleum by-producrs to carpet fibres has managed to keep our profits
consistently high since our operation began. We have, therefore, managed to sustain our business while
fulfilling the needs cf our :onsumers.
3. We shorrld be concerned wrrh the environmenr. The carpets produced by JS Corporarion should be
environmenrally friendly" Therefore, we should develop new strategies ro reengineer our business.
_a
Ethlcs and the Environment 351 ,'i
:,1
After rhe meering, En. Jalis became more confused and felt guilry for not being able io convince his
t-,oarcl members ro supporr his moral concern. What shouid he do? ls he nor responsible for sustainrng a good
environment for rhe furure generations?
Questions:
1. ln your judgemenr, is ir erhical for JS Corporarion to marker its carpers to rhe Malaysian community?
Provrde your reasons.
2. Assess rhe rhree (3) commenrs made by the board members of JS Corporation. In your opinion, why did
they come up wrth these conflicring comments?
3. Assume you are En. Jalis. Explain rhe sreps you would take ro clear the erhical diiemma thar he is
experiencing
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Agyernan J. and Kollmuss A. (2002). Mind the Gap: Why do peopie act environmentalll'and rvhat are the
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rgr,r,r,r,.iatvija2030.lv/upioad/sustainabie consumption- in*latvia.doc>. Accessed on 25 ]une 2013'
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bhutanyounr,'av"com/tourist-infb/tourism-policy-overview.i-itml>. Accessed orl 23 |une 2013.
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Boatright, ,.R. (2009). Etlics attd the Conduct of Business (6'h Ed.). New |ersey: Pearson lnternationai Edition.
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of disadvantaged communities. Report for the ]oseph Rowntree Foundation. York: York Publishing Services-
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eth/>. Accessed on 6 |une 20L3.
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developmenr? <https:/lwww.e-education.psu.edu/geog030/node/198 >. Accessed on 13 August 2014.
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Crane, A and Matten, D (2010). Business Ethics (:'d Ed.). New York: Oxford University Press.
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\\rrt:t,:'i! ai-Shi'a, Volume B, p.i56.

,4
:r
t
;
i
CHAPTER *x
r
Islamic Ethics
:
11
&
s
'fr
;
LEARNING OUTCOMES
At the end of this chapter. you should be able to:

r Define ethics from the lslamic perspective.
m Explain the source and origin of the lslamic ethical system.
u Describe the concept of lslamic worldview.
E Explain the five axioms of lslamic etl ical philosophy and their
importance to a Muslim's life.
a Explain the lslamic perspective of the relationship between firms
and their stakeholders.
x Explain some prohibited matters rn business transactiorrs.
lslamrc tthrcs J))
11.0 INTRODUCTION
In islam, the rules and principles laid down in Shari'ah law guide ethics. The guidance
is holistic because it covers ail aspects of life such as faith in Allah, social behaviour,
polrtics and commercial practices. The Shari'ah law is derived from the divine book of
Al-Quran and the traditions or way of life of the Prophet Muhammad [peace bu upon
him (pbuh)], known as the Sunnah. One is said to be ethical if he follows the Shari'ah
in ail his dealings. Behaving ethically in the midst of various temptations in life is an
important precondition for Muslims to prove their worth to Allah. Hence, a Muslim
should aim to live a iife of worship that seeks to attain Allah's blessing (al-barakah)
and to promote justice, harmony and nelfare (al-'adl wal-ihsan) of society- In Islam,
there is no separation betrveen ethics and religion because the maqasid al-Shari'alr
(the ideals and objectives of the Shari'ah) is to have a good life (al-hayyat-at-tayyibah)
and to promote the weli-being of society (falah).
In upholding the principle ot m:rqasid al-Shari'ah,Islamic ethics create a sense
x
of responsibility and accountability in the minds of its believers. Hence, ethics from
-i the Islamic perspective is also known as the ethics of action in which Muslims must
not onlv beiieve in the teachings of the Qura n and Sunnahbfi must demonstrate this
belief through action. For erample, it is not enough to have good intentions only.
It must be accompanied by good deeds that are in line with the Shari'ah. Further,
Muslims must both refrain from behaving unethically and strive to stop any unethical
practices that they observe.
ln the context ofbusiness, Islam acknowledges the pivotal role oftrade and business
in developing and sustainins human civilization throughout the ages. However, in
lslanr, the purpose of business activities is not only meant to satisfy material needs
and wants but more im1',o1131r11r'to fulfil religious obiigations (Al-Shaibani,1997) and
to meet sociai needs (Abdul Rahman and Goddard, 1998). Hence, business and ethics
are noI separatc entitics.
This chapter covers the lopic of Islarnic ethics. First, we will look at the deflnrtion
of ethics from the Islamic perspective by examining two important concepts-akhlaq
and ctdab. Second, we u,i1l explore the sources and origin of Islamic ethics namel,v
lhe Quran and Sunnah. Third, rve rvili discuss the concept of Islamic worldview,
nhich is central to the Islamic ethical system. Next, we will delve into five axioms
of islamic ethical philosophy. Then, u.e will examine the stakeholder relationship
from the Islamic perspective, fbcr"rsing on shareholders, consumers, suppliers and the
natural enr,,ironn-ient. This chapter concludes by discussing some prohibited br-Lsiness
transactions in lslam and the rationale fbr such prohibition.
11:1 DEFINITION OF ETHICS FROM

THE ISLAMIC PERSPECTIVE
We can refer to trvo interrelated Arabic terms in defining Islamic ethrcs-akhlaq or

khulurl (the plural o{ akhlaq) and adab. Akhlaq has iwo meanings. First, aklrlaq is the
foundation that establishes the standards of right or wrong of humar condu,-t. It sets
out whar humans ought to do in this world (Haneef, 1997).It is the essence of islamic
.,*
sx
t
356 Business Ethics .,

i
i
:
teachings and the mission of the Prophet Muhammad pbuh to guide human beings I
I
to live the best way that is in accordance with the will of Allah. Hence, it is no wonder I
t
tlrat Islam places great emphasis on akhlaq. I
The Prophet Muhamamd pbuh, as narrated by Anas, said in a hadith: I
'The most complete of believers in faith (imon) are those who are best in
tharactcr (akhlaq).'
T*" Arrh. *rrnr I This hadith is the manifestation of the fact that Islam is a religion of cleanliness,
thar besr represent rvhich refers to not only the physical self (body), but also the inner self-- that is the
lslamic ethics are purity of the soul. In Islam, one is said to be successful in life when he does good or the
akhlaqand adab. right thing and avoids wrongdoing. Hence, Akhlaq represents the Islamic faith. One is
Muslims who have said to have faith in Islam ifhe has good akhlaq. Ifhe does not have good akhlaq then
good akhlaq and he does not have faith in Islam.
observe adab when
Second, akhlaqrefers to Isiamic disposition or the practice of virtue and morality.
dealing with Allah
Disposition or character is the faculty {malakah) of the soul (nal.s)" It is the origin of
and other human
al1 hu rran behaviour and activities that become a natural way of conduct or lifestyle.
beings are said ro
have fairh rn lslam.
One develops malakah as he progresses in his life through repeated behaviour or
habit that the soui becomes accustomed to it. If one develops honourable faculties,
he wili have a decent character and behave ethicaily. For example, a person of noble
disposition embraces upright virtues such as truthfulness, generositl,, benevolence,
selflessness, humility, trustworthiness, tolerance, generosity, equity, integrity, mutual
consideration, cooperation, kindness and compassion. On the other hand, if one
develops evil faculties, he will prodirce evii or immoral behaviour such as 1ying,
stealing, cheating, dishonesty, corruption, involvement in prohibited actir,ities such as
garnbling and prostitution and interest-bas ed (riba) transactions, etc.
Ahlr"rgfi;/.,ttl We need to note that one's disposition can be natural (fitrah) rvtrereb,v \,\re can see
can be natural, we that some people are simply worked up over trivial matters such as waiting in a line
can change it because u,irilst others are easily depressed over problems in their 1ives. However, this naturai
Allah gives us bqi disposition can be changed because we have the por,ver to make a choice in order to
(inrelligence) and free o\rercome it. This can be done through continuous practise and effort as rvell as a
wrll ro make a choice
strong wi1l to change. After ail, Allah created humans r,vitl-r the inteliigence and abiiity
berween good akhlaq
to choose between good and evil and between noble character and abhorred conduct.
or the opposite.
Ihey need to refer to the divine commandments in the QtLran and Sunnalz to acquire
Muslims should
the knorvledge that can guide them to make the right choices or choose the right path.
always be guided
by ihe Quran and Next, iet us explore the meaningof adab, whi.h refers to the manners, etiquette
Sunnah in developing or behavicrur of an individual. The Quran and Sunnah (hadith or the recorded sayings
rhetr akhlaq. and actions of the Prophet Muirammad pbuh) rrescribe the akhlacl and adab of a
Miislim. Allah says:
'When a (courteous) greeting is offered to
1,ou, meet it v,ith a greeting still rntre
cottrteous, ar (dt least) of equLtl courtesy. Allah lake: careful accoru'Lt of all
thirtgs.'
(Surah An Ntsu, 4: 86)
The Prophet Muhammad pbuh stated:
'M),Lord has taught me good manflers and He nannered me v,ell.'
He alsu said:
'T'he nearest of you to me on the Day of ludgemeri will be the one wha is best
tn , haractct'.'
Examples of adab include gocd manners, righteousness, courtesy, respect,liclp{u1,

dccency, decorum and appropriateness. j
i
---,\
I
I
I
\
lslamic Ethics 357
Muslims must observe their adqb with Allah by respecting Him, His attributes,
His signs, His Symbol s(the Quran,themasajid or Mosque,the Kaabah and everything
connected to Him). In observin g adab with parents, one has to be kind, compassionate,
lespectful and obedient to them unless they order you to do something that Allah
forbids. The Quran stated:
'Worship me (Atlah) and join not any partners with me; antl be kind to your lMrd*-
parents. Whether one or botlt oJ'them attain old age in your life, say not to th.m
^*
,observe adabwirh
a word of contempt, nor repel them, but address them in terms of honour. And Allah, His attribures,
out of kindness,lower to them the v,ing of humility and say, "My Lord! Bestow His signs and
symbols.
on them Your mercy even as they cherished me in childhood.'
(Surah Al-Isra', 17: 23-24)
Based cn the meanings of akhlaq and adab, we can define Islamic ethics as a set Ilrh"*.rhi.t *.
of universal standards of right or wrong that prescribe the acceptable or unacceptable derived from the
human conduct as highlighted in tbe Quran and shown by the exemplary life of Quran and Sunnah
the Prophet Muhammad pbuh. T'rese universal standards are absolute in nature or rhat prescribed
standards of
known as ethical absoiutes. Muslims are required to observe these absolute standards
acceptable and
in everything they do and in whatever position they are-whether employer or nacceptable
u
employee, entrepreneur or customer, leader or follower in all circumstances.
behaviour for all
Further, in defining Isiamtc ethics it is important to note that Islam is a aspects of human life.
comprehcrsil,g 11,3y of life ethics that govern ali aspects of a Muslim's life including
comnlerctal transactions" Isiam is a religion that does not separate religious matters fu.ilk. *..-il*
from rvorldiy pursuits. So, Isiamic ethics is not a component but the Yery core of Islam. lslam does nor
""*"
l'he tern-r'lsiarnic ethics' rel'ers to all virtuous deeds (al'amal assalih) that allMuslin-rs separaie religious
shouid embrace ir-r their personirl life or prolessional life- According to the Qttran, from worldly
r,irtuous deeds are consistent it,ith the natlire of human beings. In Islam, humans pursuits. Everything
naturally have good character. Thel' 31g not evil. The Prophet N4uhamnrad pbuh that Muslims do in
asserts that righteousness is a part of human nature whilst vice is not. Unsurprisingiy, life that is in line with
humans will not feel calm rvhen they behave in a manner that is inconsistent rvith the reachings of lslarl
is considered ibadaah
human nature.
(acts of worship
Next, in is1am, ethics and religion are inseparable. The Quran likens human nature
toward Allah).
fo religion. So, religion and ethics are part of human nature. If an individual behaves
ethically, it is actually a ret-lection of l-ris or her religious faith and r.ice versa. In other
r,vords, a pit-rus person einbraces all virtuous deeds in his iife. Muslims believe that one
vay of showing devotion to tl-reir religion is through obsen,ing moral conduct. islam
teaches its followers that ethics is not just a personal affair. Instead it also governs an
individual's relatioirshrp with tl're community and other creatures of Allah, inciuding
nature. Allai-r created human beings to be vicegerents (Khali"fah) in this rvorld. We
shall deir.e into this principle in a later section when we explore the concept of Islarnic
n orldview.
Further, Islamic ethics has trvo dimensions-ethics tonards Ailah and ethics fT*" d*""""r*f
towards others. Islam means peace, subrnission and acceptance. Allah is the Creator lslamic ethics are
and the rcal Orvner of the universe and everything therein antl of mankind too. ,\llah erhics toward Allah
ithe most exalted) is the source of ail goodness, truth and beauty. Fience, Muslims and ethics roward
must believe in Allah and rvorship Him, which is the utmost irnportant pillar of others. Humans are
ultimarely responsible
lslamic faith. Man's ultimate responsibility is to Aliah and must aim to achievc His
to Allah and to orher
pleasure and blessings.
human beings. The
Given this background about the reiationship between Allah and mankind, latter responsibility
Muslims must live their lives in accordance with the values that Allah and His is derived from the
Messenger, the Prophet Muhammad pbuh, have prescribed. Ethics torvaids others spirit of ukhuwwah
reiers io the treatrnent of others (e"g" colleagues, friends, siblings, stakeholders, etc.) (brotherhood).
either in social interactions or business deaiings. Muslims must deal with others in an
358 Business Ethics
ethical manner and strive to maintain good relationships so as to achieve harmony

and balance in Iife.
In the next section, we shall learn about the sources and origin of Islamic
ethics. We need to note that Islamic ethics is not an additional doctrine or branch of
knowledge in Islam. It is an important part of Islamic teachings, which all Muslims
must closely adhere to.
11.2 SOURCES AND ORIGIN OF

ISLAMIC ETHICS
r*;;;:;;;;al There are two primary sources of Islamic ethics-the Quran and Sunnah, which
lslamic ethics are the prorrrue complete guidance for Muslims to live their lives. In this section, we shall
Quran and Sunnah. examine the meanings of the Quran and Sunnah and their reiationships with Islamic
ethics. In living their lives, Muslims must rely on the teachings of Islam as exemplified
in the Quran and Sunnah. Whenever they are in doubt or dispute, they inust refer to
these tr,r,o sollrces for guidance. The Quran and Sunnah are timeless. They are valid in
any situatior) at any time or era. The teachings are universal.
11.2.1 The H oly Ouran

The Quran is a divine book of revelation that comprises the r,erbatin and unalterable
r,r,ords of Allah revealed to the Prophet Muhammad pbuh over a period of 22 years
and dictated word-for-word by Archangel Gabriel. The Quran represents the will of
A1lal-r that must be carried out. It does not only lay the foundation fcrr the beiiefs and
religious practices of Muslims but also provides ethical guidelines and standards for
Muslims.
bh-;;'ily-I The Quran is the primary point of reference in evaluating ethical behaviour. It
a religion but also prescribes the permissible and forbidden in the lives of Muslims. The teachings of
a way of life. As Islam comprise ruies and guidelines for governing one's 1ife, commercial ancl economic
such, borh rhe tra.nsactions as well as social interactions. The teachings of Isiam are usually referred
Quran and Sunnah to as Shari'ah or the sacred law of Islam. The objective of Shari'alr for the good oi
give a complere
hurlankincl is universai in its scope anci application. It is meanl to protect man fion"r
guide for Muslims
evil and to benefit him in ail aspects of hfe.
ro adminisrer all
Next, we shall look at some examples of ethical standards prescribed in the
aspecrs of rheir life-
personal, professional, Quran. First, iet us be clear that the Quran provides a code of ethics for a1l Musiims"
business, political and
Adherence to the code of ethics is part of Islamie faith whilst the acts of krndness,
social affairs" generosity or charity, righteousness, forgiveness, justice, equit,v, truth, piety and
patience are considered goodness and acts of worship to Aliah. Goodness or good
behaviour contributes to the formation of good character of a lv1us1im. Aliah describes
that people who attain success as those:
'...invitrng to all that is good, enjoining whnt is right and forbidding what is
wrorlg...'
(Surah Al-im ran, 3: 1 04')
"[hose who spend (t'reetl, vhcther in prosp,rity, or in atlyersity; who yg5S7r:irt

onger, and pardon (all) humans; - for Allah loves those y,ho do good.'
(surcth Al A'ruJ, 7:56)
'l,i',
lslamic Ethics 359 i.ti
!j!,!
The Quran strictly prohibits unethical conduct to the extent that abetting the
acts of wrongdoing is the same as committing the act itself. Thus, Muslims must not
oniy refrain from unethieal conduct, but also distance themselves from them and
help to prevent them. The Quran clearly specified unethical conduct such as fasad
(corruption), cheating and betrayal oftrust. These acts lead to harm and injustice to
other"s. The following yerses describe the requirements to refrain from committing
sucli unethical acls.
"Do not mischieJ on tltc carrh, t{rer it harh becn set in order, but call on Hirn
with fear and longing (in your hearts): for the Mercy of Allah is (always) near
to those who do good.'
(Surah Al-A'raf, 7: 56)
'lf any person is so false, He shall, on the Day of ludgement, restore uthat he is
misappropriated; then shall every soul receives its due, - whatever it earned,and
none shall be dealt with uniustly.'
(Surah Al-lmran, 3: 161)
Islant supports business activities but they must be done within some bourrdaries
as prescribed in the Quran, which states:
" bttt .Allah has permitted trade and has forbidden interest.'
'..
(Surah Al-Baqaralt, 2: 275)
f he follou,ing verses emphasize the need to observe honesty in business deaiings.

Tirc second verse highlights the warning given to those who violate this injunction.
_full n.rea_sure v,hen yau tneasl.tre and weigh with an even

".."git,e (honest)
balunce,'I'hat is good antl the better at the end.'
(Surah Al-lsraa, 17: i5)
'i,tiot: rcr those. that dcal tn fi'dud wlrc when they have receive by measttre
tl'tose
.t'r-om hunans exat.t .f'ull neasur-c, bul tu/ten they have to give by measure or
weight to humans gilc /e-s-s than rlue. Do they not think that they will bc csiled
Io ai,count?'
(Suroh Al'Mutaffifin, 8j: 1-4)
The Quran enjoiits N4uslims to l-nake business decisions based on their faith in
Islam. Businesspeople rnust only engage rnhalal (lawful/legitimate) transaclions and
a-,otd haranr (illegitimate/prohibited) ones. Th.e Quran and Sunnah clearll' specifl,
the prohibitions in business actrvities. Lawful business activities are also morai and
'l'he iliegitimate ones, on the otirer hand, are also
the,v bring benefits to thc people.
immoral and they bring harnt tci t1-ie people. For example,lhe Quran prohibits the
productior and seliing of n'ines or other intoxicants as well as any activity that is
related to gambling and prostitution.
The rnotir.ation for Muslims to adhere to the Islamic code of ethics in business
deaiings lies in the lbilowing rvords of Allah:
'[n whalever business you may be, rtnd whatever portion you may be recit'n{
.from the Quran ond whatet'er deed you (mankind) may be doing-)\'e ttre
witness rttereof ruhen you are deepll, engrossed therein...'
ttu'ou Yunus' 10: 61)
,Dear
not unjttstLy, and 1,ou sha, not be creart trith ,njustrr'
(Surah Al Baqarah, 2: 279)
rlt
*
360 Business Ethics
This first \rerse indicates that Allah bears witness to all transactions of mankind.
The second verse states that all transactions including those related to business and
economic activities must be based on justice. There is no compromise or exception
to these requirements because all conduct or behaviour will certainly be judged. Any
unlawful conduct will not escape the wrath of Allah.
11.2.2 The Sunnah

fh. Srrrf* I 'IhesecondsourceofIslamicethics istheSunnah. Theknonledge of theSunnafucomes
derived from the from hadiths or reports about the recorded sayings, personal teachings, character,
reports of recorded deeds, actions and practices of the Prophet Muhammad pbuh in personal and public
sayings, personal life that exemplify the teachings of Islam. In the Quran, Allah described the Prophet
reachings, practices, Muhammad pbuh as a Prophet of good ethics and considered al insan alkamil (the
behaviour, character ideal man) who had a superior standard of character. Allah stated;
and deeds of the
Propher Muhammad 'Andmost certainly you are on sublime worality (rroh*t tto(!:;:h"Ii!6iy;1;r,
pbuh rhat exemplify
rhe reachings of
,
lslam
However, this notion of an ideai man should not be mistaken as divine or
someone to be worshipped. Rather, he is the model par excellence for all Muslims as to
hou, they should conduct themselves. Muslirrs only rvorship the one and onlv Allah.
;hh d"t-b.r,h" I
Prophei Mr-rhammad
I'he Prophet Muhammad pbuh was a Messenger of Aliah. He is the final Prophet
pbulr as a persorl rvho dictatedthe Quran, the eternai and unalterable u,ords of Allah to his followers.
'The hadiths
of an impeccable were initially passed dort,n verbally to those who knen, the Prophet
clraracter and a role Muhammad pbuh personally and were close to him during his life. In the eighteen
model for Muslims century, Islamic scholars codified the hadiths in written fornr and authenticated them.
to emulaie. However, Henceforth, Muslims refer to the authenticated hadiths only to guide tl'rern
he is nor to be The Prophet Muhammad pbuh is the ultimate role model fbr N4uslims in terms
rvorshipped in the of hou, they should conduct themselves. Al-Bukhari narrated in a hadith that the
same manner that Prophet Muhammad pbuh once said:
they worship Allah.
'l was not sent except to perfect the qualities o_f tood charttL'ter (akhloq).'
Tlrere are numerous hadiths that explicitly reinforcecl the virtues of ethical
conduct. A few of them are outlined below.
'lf you guarantee me six things on your part I shall guaranteeparadise.1,011
Speak the truth when you talk, keep a promise wlten you make it, when you are
trusted with somethingfulfil your trust, ayr-,id sexuttl immorality, lctu,er your
your hand from inlustice.'
eyes and restrain
(Abu Huraihah)
'Truthfulness leads to righteousness and righteoustie-s-' /cads to pdratlise. A
man continued to tell the truth until he becomes o trutlr.ful persoil Falsehooti
leads to evil-doing and it leads to the (Hell) fire, and a nlail may contintLe to teli
lies till he is written before Allah, a liar.'
(Abu Huraihah)
'The most beloved to me (The Prophet Muhammad) arrongst you is the one
who has best character and manners.'
(,\l Bukhcri)
'Kindness is not to be it
found in anything but titot tt ttdcJs to its beauty and is
not withdrawn from anythingbut it inakes it de.fective.'
(Muslim)
lslamic Ethics 361 . {"ii
'. l:ii:
'Among the Muslims the wtost perfect with regard to his faith is the one whose
,haroitu is excellent and the best amongyou are those who treat their wives well.'
('al-Tharmidhi)
'The best seryants of Atlah are thrtse y,ho, when they are seen, cause Allah to be
remembered. The worst seryants of Allah are those who go about slandering,
who separate friends and seek to distress thd upright.'
('al-Thannidhi)
'There is nothing heavier (in wetght) on the scale (on the Day of ludgement)
than good characler.'
(Abu Dawud)
In summary, Muslims must rely on the principies of ethics and morality embedded
in the Quran and Sunnah to guide them in their daily lives and any business or
economic endeavours" islamic. ethics prescribe what one should do or abstain from
doing" These prescriptions and injunctions are valid at ali times and places. It is
imprirtant to note that there is nci ,ey.regation between ethics and law in Islam' In the
next section, we will examine the concept of Islamic worldview, which is central to the
lslamic ethicai system" 'fo begin .,r.,ith, let us look at the definitions of world view and
Islamic rvorldview.
11.3 ISLAMIC WORLDVIEW AND

ETH ICAL SYSTEM
According to Chapra (1992), woridvieu. is a'set of iniplicit and explicit assumptions fA *",1d""*.""t-"
abc,trt the-origin oithe universe and the naturc of human life'. This concept relates to of a collecrion of
how man pcrieives and explains the realrty or the truth regarding the existence of the one's beliefs, ideas or
values abour Cod,
universe ancl their role in it. A u,orldyiew consists of a collection of one's beliefs, ideas
rhe world and the
or vaiues abont God, the world and the reiationship with God and the world. This
relarionship with Cod
rvorldvieu, influences not only the n ay one thinks and behaves but also the norms and
and the world.
r.alues that govern his or her iif'e.
Our lvorlclview can be intluenced by our religion, science, the things that we read,
people that rve associate with and the society that we belong to. Hence, it is highly
ilkeiy that the norldview can be different from person to person. For example, those
r,vho believe in a secular worldview separate religious affairs fronr worldl;' affairs
rvhilst Muslirns who believe in the Islainic worldview iake a dual perspective that is fhh-. *",1d** hrt
concerned with the universe (world) and the Hereafter and the Day of Judgemenl dual perspectives-
'fhe Islamic perception of the world is founded on the fact that Islam is not onl1'a concerns for borh
religion but also a way of iif-e, an ail-ernbracing social, political and legal systen"r that the worldly pursuirs
-ui., it a unique worid view (Izetbegovic, 1984), that distinguishes itself from other and the life Hereafter
rvcrrld views (Ahmad, i976). The duai perspective of this worid is derived the Qttran. and the Day of
One's world view may aiso change over the course of his or her life. However, a Muslim Judgemeni. ln lslam,
life in this world is
must hoid on to the Islamic world view steadfastly across all times in order tt' attain
temporary, in which
successin life and the Hereafter.
the whole universe
Mawdutii (1988) outltned the Quran's view of reality as follows: will come to an end
r Allah is the one and only Creator and Sovereign of the entire universe. He is one day. Humans
living, eternal and self subsisting. Man must accept the reality that He exists. should aim for rhe
T'he rnost basic aspect of Ailah is His Oneness or Unity (tawheed)' eternal life after
death.
362 Busir^ress Ethics
r A llah created man as the best creation and gave him cognitive and reflective
abilities as well as intelligence ('ac1l) and heart (,qalb) to distinguish between
good and evil. He gave man the freedom of choice and desire, to be exercised
solely based on Allah's will i.e. Islamic framework. He appointed man as His
vicegerent on earth.
r Man must not consider himself independent from Aliah-he must believe
that Allah is the absolute Lord, Sovereign and the unshared Divine authority.
Hence, he must worship and obey Allah, who is the cause and end of
everything.
r The life of this world is temporary in which the whole universe will come to
an end one day. Humans should aim for the everlasting life after death. The
world is a place to test their faith in Allah and the trust He placed on them.
r Man is accountable to Allah for which He wili judge him based on his actions
in life. If man obeys Allah and follows the right path as prescribed in ttre
Quran and hadiths, the reward is a place in Paradise, where he will enjoy
eternal bliss and happiness.
r Disobedience will result in corruption and disorder in the world for which
man will be punished with eternal grief and suffering in Heil in tl-re lfereafter.
Allah is most forgiving. Thus, if man commits sinful acts or r,r,rongdoing, he
must seek fbrgiveness and repent to Him directly.
r Allah has chosen a few humans as Prophets (peace be upon them) to show
humans the right path to live in the world. The first Prophet was Adam pbuh
and the last one was Prophet Muhammad pbuh.
r Some of these Prophets received Allah's commandments in the fbrm of
scriptures (e.g. Torahs, Psalms and the Evangel) whilst others received them rn
the form c,,{"scrolls (e.g. Abraham and Moses (pbuh)). Ali of tl.renr carried the
same rnessage-that is to lvorship only Allah and to obey his commandments
revealed through the Prophets. Allah had sent Prophets to virrious parts of
the world before the Prophet Muhammad pbuh.
'I'he Prophet Muhammad pbuh was the only one that
Allah com manclecl to lc.rr1 the
entire humanity" He was the last of ail Prophets. He received Aliah's commandments
through revelation in the last scripture known as the Quran,wl-rich shall last until the
Day of |udgement. The Quran contains the most comprehensive guide for all aspects
of hurnan life"
Figure 11.1 : lslamic worldview

lslamic Ethics 363
].
How does the Isiamic worldview relate to the Islamic ethical system? The Islamic ltthr* *rildr** -
worldview sets the foundation for four r..ital principles in the Islamic ethical system- sets rhe [oundarion
tawheed, taclwa, Khalifah, and 'abd (servant) of Allah. Tawheed or monotheism or for four vital
unity of Ciod is the key concept that infuses allaspects of life in Islam.In fact, the first principles in the
and foremost requirement to embrace an islamic faith is to believe in the Oneness of lslamrc ethical
Allah (Surah Al-Ikhlas,2: l-4) and His perpetual presence in one's life. There are six system-ruwheed,
raqwa, Khalifah, and
pillars of Islamic faith. Allah is the source of all laws, values, and norms of all Mrrslims.
2bd (servanr) of
He is not only one but unique and incomparable to any of His creatures. This concept
Allah.
requires a total submission to Allah as indicted in Surah Adh-Dhariyat (51: 56):
"AnrJ I have not createri Jinns and humankind except to worship (serve) me."
This element is said to be the cornerstone of Islam.

In Chapter 1, we have briefly touched on the principle of taqwa. Now, let us
examine the principle of taqwa. Beekun and Badawi (1999) defined taclwa as 'ail-
encompassing, inner consciousness of one's duty towards Allah (the most exalted) and
the awareness of one's accountability toward Hrm'. Taqwa is a quality of human beings
that is related to the state of the hean, which manifests in the behaviour that complies
rvith tlre will of Aliah. According to thc hadith narrated by Al-Bukhari and Muslim:
'There is it piece in tlrc human body; if it is in good condition, the whole body
ryill bt: well and if it is t.orrupted the y,hole body will be corrupted as well, this
pie ce ,' the heart.'
Indii,iduals who practice taqwa are called muttaqeen (pious individuals). They
are l\rary of Allah and understand their role in this world is to manage and der..elop the
u.orld in accordance r,r,ith the Shari'ah.
Pious individuals have a state of the heart that is always conscious of Alla1-r's
presence, hoping for His acceptance, fearing His punishment, and hesitating to
commit any rvrongdoing that might bring His wrath (Ghazaii-hanbali, 1995). They
are aiways in the state of a constant remembrance of Allah. Further, they will strive to
protect themselves from fbrbidden activities by refraining from committing such acts
because tirey 1v;]1be made accountable fbr their actions on the Day of Judgmcnt. 'fhe
end result of ttqwa is thc conduct that is in line with the will of Aliah and His reward
for having such qualitl..
Pious individuals har.e unwavering faith in the Oneness of Allah and the finality F^re p,ilart tsh--
of the prophet-hood of Muhammad pbuh as indicated in the declaration of shtihadah "f
reciting shahadah,
(Islamic prolession of faith). They also diligently perform their ibadat (rituals) such performing obligatory
as obligator| daii1, pra)/ers, fasting in the month of Ramadhan, Haij (pilglimage to daily prayers, fasting
Makkah) and paying zaftar (lslamic tax). These are known as the five piilars of Islarn. during Ramadhan,
Further, pioris indir,iduals alr'r,ays seek Allah's forgiveness and repent from doing sinfui performing Hajj ro
acts. T'hey rvill not be persistent in disobeying Allah. Further, they also fulfil their Makkah and paying
zakat.
responsibil,'.ies to themselves, to other human beings and to nature at large (Mohsen,
2007; Kamil,2012), lr.,hich is consistent with their role as vicegerents in this world.
bnfAllah,
.It,is :
S:last ,
Norv,let us move on to tire principle o{ Khalifuh (vicegerency) or leader, which has

an important implicatior-r to the Islamic ethical system. Aliah created humans as His
b:st creations of alI cre ations so that they can be His Khal{oh to carry out FIis divine
rvill in this world. ile accorded humans the highest degree of free will and intellect but
lslamic Ethrcs 365
quality of life and prosper in this world. According to Saeed et al. (2001),there are four
categories of responsibilities expected of a Khalifah, as iisted below
t Responsibility to Allah-to have unwavering faith in the Unity of Allah
and His divine commandments as well as to vigorously perform the role of
Khalifoh and trustee of this world for the benefit of mankind.
t Responsibility to himself-to make ourselves good by making the right choices
based on the Shari'ah and the intelligence accorded by Allah.
t Responsibility to society-to help others do good and strive to maintain peace
and harmony.
t Responsibility to the environment (physical world)-to make the earth an
inhabitable place and to use natural resources for the benefit of mankind
without causing damage to the environment.
Finally, let us explore the principie of servants of Allah. Humans are servants of
Allah" They do not have any independent authority or absolute rights or total freedom
to choose their way of life. Humans have to follow the will of Allah because they live
to serve Aliah. They must obey His rules in all their dealings. In fact, life is one of
worship (ibadaah) as stated in Surah Al-An'am (6: 162):
'Said (O Muhammad pbuh): Verily, my prayers, my devotion, nty lfe and my
death are ,for Allah, the l.ord of the *-orlds.'
Accoiding to Nasr (1990), a Khalfah who do not consider himself as an'abd of
Al1ah is the most dangerous creature on earth. Humans are requested to reflect on
the existence of nature (includingplants and animals) as evidence of the existence of
Allah, to be used in accordance rvith His will as opposed to their whims and fancies.
'fhese t\'vo concepts cletrrly depict thc relationship between humans and A11ah and
betrveen humans and nature.
In the next section, r,ne shali exanrine the axioms of Islamic ethicai philosophy
namely unity', ecluilibriurn, free will, responsibilrty and benevolence. These axiorns are
derived from the Quran and Sunnah. Thev are consistent with the Islamic rvorldvien,
tl-rat is basecl on the principles of tawhecd, taclwa, Khalifah and'abdof Allah.
11.4 AXIOMS OF ISLAMIC ETHICAL

PH ILOSOPHY
Naovi (l981), in his scholarly u,orl< of islirrlic economic theory, presented four ethical
axiorns that serve as the philosophical foundations of Isiamic ethical and econontic
systems. He explained that the axiom of unit1. is derived from the belief in one God.
Equilibrium refers to a sense of balance in various aspects of human life to achieve
social ideals and justice" Free will relates to individual freedom of choice. Responsibiiity
is the dutv of inCividuals to obey the will of Allah, duty to oneself and the soc,ety at ffi;;"f br,,.
iarge. The fifih axiom is bener.olence, which simply means an act of kindness to others ethical philosophy
(Beekun, 1997).lt is an important characteristic of a pious individual. represent the core
Axioms of isianic ethical philosophy represent the core values accepted as being values accepted as
true to guide the day-to-dar. conduct of a Muslim. They are derived fr<;m tlre Quran being rrue to guide
rhe day-to-day
at,d" Su4nah. A holistic lslamic ethical framework comprises the Islamic worldview
conducr of a Muslim.
366 Business Ethics
The lslamic erhical I from which we derive the principles of tawheed, taqwa, Khalifuh and 'abd of Allah
system is based and the five axioms. Table 11.1 describes the five axioms of Islarnic ethical philosophy-.
on the Quran and
Sunnah from which
Axiom' '
the principles of
rawheed, aqwa, Uniry (tawheed) The foundation of lslamic faith and erhical system. lr reflects man's submisstve
Khalifah and'abd of relition to Allah. Everything on earrh and rhe universe belong ro Allah. All other
Allah and the five principles and axioms originate from r.aivheed. The faith in AIlah is a strong morai
axioms are derived. filrer for Muslims because they will be held accounrable for their actions T'hey
should be wary of Allah's divine jusrice only and avoid drsobeying His will and rules
Muslims should not allow others to coeIce rhem inro commirring forbidden acrs.
The enrire political and socioeconomic system is based on this axiom. Allah created
resources (bounties) for mankind to utilize them equrtably in accordance wirh the
Table 11.1
maqasyid al-Shariah.
Axio,ns o1 lslamrc
ethicai p',hrlosophy
'al.r
,.t
,, ll.
Free rvill (ikhriyar) This axiom relares ro an individual freedom to live their lif e as Khalifah and servants
of Allah and their make own choice between good and evil. However, this freedom
musr be exercised with inrellecr and wrrhin the bounds of rhe 5hari'ah. ln lslam,
there is no such thing as absolute freedom because it comes wirh responsibi{iry as
reflected in the principle of Khalifah. One musr not act selfishly at the expense of
others as rr wrll disrupr the sense of equilibrrum in the society
Responsibiliry This axiom ties in with the expectarions of unity, equilibrium and free will. ln lslam,
(fard) unlimited freedom is absurd because ir implies no responsibiliry or accouniabiliry.
Consistent wirh the axiom of tawheed, humans are responsible for their actions for
which they will be called to account (hisab) on rhe Day of Judgement. The ulrimate
reward is an eternal scay in heaven Allah's punrshmenr is severe when one could
end up in heilfor their rransgressions in life. However, Allah is mosr forgiving, so one
musi always seek His forgiveness and repent.
Benevolence Refers to acts of kindness, which can be defined as behaviours that bring benefits
(ihsaan) to other individuals One should do ir volunrarily and vrithoui expecting any return
except to atrain the pleasure of Allah.
In the next section, we will explore the application of the principles and axioms
of the Islamic ethical system in business. We shall examine the requirements and
injunctions of the Islamic ethicai system with regard to the treatment of various
business stakeholders such as sharehoiders, employees, consurners, suppliers and the
enYironment.
11 .5 ISLAM AND STAKEHOLDER

RELATIONSH IPS
Islam does not only permit business activities but also encourages its lollowers to
engage in business because it provides susten?nce (rizq).'I'he Prophet Muhammad
pbuh, as narrated by'a1-Ghazaii, said:
'Encouraged upon yau is bttsiness,
for in it is nine tenths of income (rizt1).'
, ':,:i
lslamic Ethics 367 ii
. r f, 1 -,- *^r *1-'-L a full-time merclhant and he married Itrluil-*.*ogut irt

In fact, the Prophet Muhammad pbuh was
successfui businesswoman. Furth.,,
I,lu* considers all forms of productive. rvork followers ro embark
act of worship to Allah. However,

the primary on entrePreneurial
Lcluding venturing into a business an acriviries but the
to earning a profit only" A business. venture
rrust of a business ,.nro." is not limited objecrive of a
enhancemenfthat is to conduct the business
rust promote social j"r;i;. and spiritual business must be in
the legality of business
holeheartedly for the sake of Allah. The Quran'acknowledges line with the maqasid
busines'"fot-t' transactions and
nd provides various guideiines on permissible al-5hari'ah and
wirhin the bounds of
rnduct.
We can equate social objectives, in the
Islamic Context, to promoting the welfare 5nan an.
principle of Khalifah' Business
f stakeholders" This requirement arises from the Il'il;",**, of
are hurnan beings who are the stewards
wners, directors and managers of a .o*pu,]y
,r representatives on earth io administer the
world and to use the resources created broader PurPose
that they are al.so responsible for other a business that is
nd owned by Allah. So, iir.y must realize of free being profitable. lt

environment' In addition' the axiom
ruman beings, the society and the natural that also promotes social
constraints on individuais' freedom so
vill is also applicable here. A1lah imposes who justice bY taking
social behaviour- Business owners
hey will not engage in u.bltrury sgif-.entred the objective care the welfare of
commit themselves to achieve
rre wary of Allah Vrii*ri *ttlvoluntarily stakeholders in rhe
f mainiaining stakeholders' welfare' spirit of iustice and

is a part.o.f human nature (fitrah).
lslam ,..ogni,., that the 1or.e for wealth brotherhood.
Ilence,itshou}dnotbecurbed.However,humansshouldnotmakewealthasthe as opposed to
'1.1-rey inust give prioritf to the duty of so-cial welfare
:b1ect of rvorship.
pc-rsonal interesrs. Th;l ;;i;;i, ii.'tti.uito tt " concept of the stakeholder approach
concePt of iorporate social responsibiliLy'
to corporate *unug"-",'rt and the modern
.Ihe principles and values that lve have learned
in the earlier sections are
Islamic in Islam
business ethics takes a special place
applicable to business activities. Hence, Muslims
becar-rse it pror.icles guidance for
socioecouomic and commercial activities'
is dependent upon how they choose
realize that therr ultimate destinf in the Hereafter
to live (Naqvi' 2003)"
Businessventuresmrrstbeestabiishedandmanagedinaccordancewiththe axioms
and servants olAllah as well as the
principles of t,r*'t rrii,, taqwa, KhaliJah AIl participants i. a
of equiiibriurn,'f *. *ifl, respt.sibility and benevolence' tuily
'nit,v, empioyees, Customers,and suppliers.mrrst
business venturC such as the or,vner,
More importantly,Islam forbids Muslims
adhere to the Islamic c0rcept of business.
of iliegal goods and services such as
from engaging in tfr. f .rai.rion a,d selling
and resorts, riba-based banking
gambli.g, prostitution, entertai,ment, r-,oiets
and financiut i,-rrtii,rt-r.,r, dr.rg, and alcohol.
in this section, we shall explore
from the Islamic ethics
rhe relationship between a fir,i and its key stakeholders
perspectiYe r Ll- welfare of .^.iarrr This expectati
,,f society' exnectatiorr Ilrtm g*., g..r,
Business o\^rners are exPected to care
for the^ -.-^rr^-^
(brotherhood) and social justice' A firm's emphasis on rhe
is based, o, the ,p;;- oi'ukhu*rah and Syed spirit of brotherhood
society' According.to Al-Habshi
stakehoiders .rre inevitably memb"t' of so as to maintain
justice because it makes
Agil (1994), the co,rcept o'f brotherhood strengihens.sociai promote. the w"elfare of balance and harmonY
Musiims ,.uporrribi. to .u.h other. The
resionsibility to rn societY- Firms must
stakeholders arises from the concept

of accountability, which originates from the pursue and uPhold
'fhis principle as we recall requires a total commitment to the will this sPirrr bY ensuring
principle of unity.
not only to Allah but also to sc'ciety that theY care for
of Allah. Hence, business owners are accountable
the welfare of the
and the environment the
care lbr the environment arises from
The responsibility of business owners to
stakeholders.
. beneficiaries of Allah's bounties (,aturai
principle of Kltalifahi;;.;;;;un, o."-tt
resources) and they are free to use
thein to sustain their lives' However' humans
created for them so as to avoid disruption
rnu-.t not abuse thc resources that Allah
i
Business Ethics
As humans are I to the balance and harmony in the universe. If business owners create problems such
responsible to the as pollution and deforestation, they are accountable fbr rectifying the problems
and
natural environment, removing the harm.
business owners According to Beekun and Badawi (2005), the Islamic ethical system that
must prevent their promotes the welfare of stakeholders is based on several concepts-jLlstice, trust anci
business activiries
benevolence. It is important to note that all business participanti are, required
from damaging to
observe these concepts in their business dealings. However, in this section, we will
and desrroying-the
direct our attention to the responsibilities of business owners and in the case of listed
environmenr.
companies, the board of directors, to embrace such concepts in their dealings with
various stakeholders.
First, in the concept of justice, Muslims must treat others justly as indicated in
the Quran:
'Be just! For justice is nearest to piety.'
(Surah Al-Maidah, 5: B)
and
'o you who believe! stand out
firmly for justice, as witnesses to Allah, eyen as
against yourselves, or your parents or your kin, and n,hether it is ogainst rich or
poor, for Allah can protect both.'
(Strrah An-Nisa, 4: 135)
Business owners are required to treat their stakeirolders jr-rstly. For example,
thcy nced to ensule fair [teal.tttent of employees in terms of recrurtment, nages and
working conditions. Similarly, customers sirould be treated fairi,v in terms of ciiarging
fair prices and ensuring a continuous supply of goods as opposed to hoardrng th;.
Second, business owners are required to be trustl,orthv in their clealings with
stakeholders. In Islam, fuifilling trust is a religious obligation n ithout *,hi.h ,
Muslim's faith is incomplete. Business owners rnust keep their part of the bargain in
any business contracts. Tlte Quran asserts that fulfilment of trr-rst i, paramoun-t,
'... render backyour trust to those to wham thet,are due; oncl
v,hert ye jufige
between man anci man, that ye.iudge with justicc."'
(Surah An-l'lisa, 4: 58)
The Prophet Muhammad pbuh once said, as narrated by ibn N,{ajah from .uqbah
ibn Amir:
'Not permissible to a Muslim to sell a defective
asset to his brotlrer ext.ept lte
informs it to the brother.'
This hadith cieariy indicates that one must be trustworthl, in executing his
trade. Breach oftrust is considered an act ofbetrayal. f'he \Vestern concept oftrist
is
fiduciary obligation in which directors of a company have fiduciary obli[ation to act
in the best interests of shareholders.
Third, business owners must strive to engage in ihsaan (benevolent) acts in their
relationship with stakeholders. They must undertake activities that bring benefit to
society (i.e. stakeholders) without any requirement or obligation to do so and without
expecting any benefit for thernselves. This concept is similar to the phiianthropic
aspect of corporate social responsibiiitl Companies are encouraged io ,to charity
work so as to promote societal well-being. The Prophet Muharr.nrad pbuh once said,
as narrated by SahihMuslim:
'-'. and the person who is mercifuland. kind hearted towctrds ltis relatives anci
to ercry pious Muslirn, and who does not stretch ottt his Lroncl in spite of having
a large family to support.'
l
lslamic Ethics 369 .j
Al-Qurtubi (1966) as cited in Beekun and Badawi (2005) explains

that the
be fair whilst the act of
follorving Quranicverse makes it mandatory for Muslims to
benevolence is over and above the mandatory'
'Lo! Atlah enjoins justice andkindness''
(Surah Yunus, 10: 165)
and their
Next, we shall examine the relationship between business owners
various stakeholders. We will explore the treatment of stakeholders
of a firm lrom
employees, customers'
the Islamic ethics perspective. we shall focus on shareholders,
suppliers, competitors and the natural environment'
_.-._.,-..-,-;*-,.-.-- ..
11.6 RELATIONSHIP WITH

STAKEHOL DERS FROM THE
PERSPECTIVE OF ISLAMIC
ETHICAL SYSTEM
thc board of directors
In the context of a modern corpolation (i.e. iisled companics),
Hence, in this
,"p."r.r-,t, shareholders in the.o,rpury. dealings with stakeholclc'-s'
of directors'to describe
discussron, \\re are going to refer to the'.o*puny'or'board
Further'
,Ll-it.'
relationship belr,veen business owners and their various stakeholders'
shareholders or business o\{ners are also taken as one of the
primary stakeholder
l'rorlps of a cotttpalty.
l-rave equal ciaims
Accorcling to -Beekun ancl Badawi (2005), s-akeholders do not
groups
i1 a comparlyiro* the lslarlic perspective. The more important stakeholder 'fhe
and suppliers'
are o!\.r-Iers/sharehoiders and ernplwees, followed by custorners
iast group of st:keholtlcrs includes ail other external parties' They
further assert that
Islair coirsiders stakeholders' ciaims as moral ciaims because companies must
not
pllrsue profit at the expense of the well-being of their stakeholders.
and decisions affect
Stakehoiderc u.. r..y important b..u.rrJ.o*panies' activities
or corporate
their r.r,el1-being. N,{ore importantly, Mus}im business olvners, directors
primarily to A1lah atld
rnanasers ,r-,l,riuirvuy, b.u, ir-r mind that they are resPonsible
against
tilen to society at large" So, business activities and decislons must be pursued
this backgrouncl.
11.6.1 Relationship with shareholders

j..low, let us look at the relationship betlveen a company and its sharehoiders. Owners
invest in a cornpany by contributing capital to commence the business' in Isiam'
called a company' they
a)thougl-r shareholders operate thelr biisinlss through an entity
to Allah and stakehdders'
cannot"be excused from shouldering their responsibility
Flence, shareholclers must not cielegate the entire obligation
to the board of directors
that the board of
anrl ilanagetJ t0 run the business. For example, theymust ensure
cirectors do not venture into illegitimate (haratir) business activities
or engage in
prohrbited practices such as giving-a bribe to cbtain a business contract' Sha reholders
must rectify the
ai.: equaliy accountable as tte board of directors to Allah. So they
370 Business Ethics
1
i
;
wrongdoing and monitor the board of directors so that they conduct the business ,
witliin the bounds of Islam. :
Shareholders expect that the board of directors allocate the company's resources
for beneficial and profitable ventures. According to Saeed et al. (2001), in Islam, the
goal of a company is to seek value maximization for both sharehoiders and other
stakeholders as opposed to profit maximization for shareholders only. The pi.rrsuit of
this goal must be in line with the Shari'ah. For example, islam prohibits riba (interest)
in business transactions as indicated in Surah Ai-Baqarah , verse 27 5:
'...Altah has permitted trade and has
forbidclen riba.'
MrrL'rr rh.*h"H;rl Riba means addition or increase or the premium that a borrower must pay to
cannot absolve the lender in addition to the principal amount as a condition lor granting the ioan"
themselves for So, riba carries the same meaning as interest in the conventional banking system
responsibility ro Conventional banks charge a pre-determined rate of interest on the borrowed amount.
ensure that business Money must be put into productive use first before one can earn a rate of return on
activities of a-firm it. We shall dwell into this topic in greater detail in the final section of this chapter.
that rhey invest in are
Shareholders contribute funds to run a business but they are only entitled to the
in line with Shari'ah.
retttrn from this investment once the capital (money) is used to buy physicai assets for
productive purposes. In other rvords, in Islam, the money capital cannot be considered
Ar J-*, I as a factor of production; hence, it cannot earn a pre-deterrnined rate of return
"**rr "f
shareholders expect
(interest). Shareholders must not expand their business through lending on interest
to ger fair rerurn and
(i.e. participating in and expanding a conventional banking business is unlawful).
be treared fairly in
terms of sharing of In Islam, a person (e.g. a shareholder) has to earn rvhat he seeks to obtain. Hence,
information. shareholders cannot expect to receive return frorn their investment w,ithout taking
any risk and at the same time let the other stakeholders bear all the risks (I3eekun and
Badan i, 2005).
Further, shareholders also want the board to protect their inr.estrnent fiom possible
losses and be given complete, accr-rrate and timely reports abor-rt the financial ireaith
of the company. AL-Quran asserts the requirement for proper record keeping and
the need for transparency and disclosure of business dealings jn Surah AI,Baqarah,
verses 282-283. These verses highlight the requrrement to have clear and written
contracts for all business transactions. It is unlawfui for board of drrectors to faisify
financial records and withhold value relevance information from the knowledge of
shareholders. They are accountable to report the financial perfrirmance and business
activities of the compdny to the shareholders. This i-equirement is consistent rvith the
principle of responsibility and the concepts of trust and justice.
11.6.2 Relationship with employees

Tl* brr. f;;*,gf In this section, we wili focus on the relationship betiteen a compan)r ancl its
employees ar a employees. Common workplace or human resourcc issues related to recruitnrent
workplace is based antl selection, job promotion, remuneration, working conditions, privacy and
on the principle of performance appraisal. The main principle that govcrns ail these activities is justice
fairness. or fairness. Companies must treat their employees fairly. Ernpioyees are human
bcings that deserve respect and recognition. Further, Muslims in the position of
leaderslrip must not treat Shari'ah requirements irreler..ant in the treatment of their
ernpioyees. They must also uphold and promote the spirit of brotherhood in this
relationship. Recruitment and selection of potential candidates for eniployment
must be based on competency. Islam prohibits any form of discrimination inclutling
gender discrimination. Competent and qualifieri women candidates mrrst be equatly
considered as their maie courrterparts.
lslamic Ethics 371
Likewise, companies must not appiy any form of discrimination or favouritism in

giving job promotions to their employees. Promotions should be based on merit, level
of responsibility and the extent of contribution of the employee to the company. The
Prophet Muhammad pbuh said:
'Whoever delegates a position to someone whereas he sees someone else as more
competent (for the position), verily he has cheated Allah and His Apostle and
all llte Muslims
Employers must pay fair wages to their employees. Islam abhors any act of
exploitation at any level, shape and under any situations. Underpayment of wages
and refusal to pay overtime pay are common forms of exploitation at the workplace.
The wage level must be equitable and reasonable, otherwise employees wiil feel
demotivated (George and ]ones, 2005). The Prophet Muhammad pbuh, as narrated
by A1-Bukhari, said:
'There are three persons of whorn I am an opponent on the Day of Judgement:
A man who gave a word in t,..y rtame then he deceived, a man who sold a free
person and devoured his price and a man ytho hired a worker where he received
(the worl) in [ulL ft'ont hitn in full and did not give him his wage.'
in another hadith. tire Prophet is also reported to have said:

'Tlre 'ttrgts oJ tltc labourars ntust be pcid to him beJore the sweat dries upon
his bodl'.'
This hadith shorvs that employers must pay wages promptly. Any form of empioyee
exploitation such as the en-rployment practices in the sweatshops and chiid labour are
unlarvful.
Next, employers must respect the beliefs of their employees. Muslim employers, in ll,dq"rr *. -
particuiar, must not consider Isiam as unimportant at the workplace. This belief goes rrear rheir employees
against the principle of Unity of Al1ah. Instead, they must be considerate, for exampie, with respect and
by a)lowing N4ushm employees time-off to perform their obligatory prayers durirrg rhey must fulfil their
working i-tours. In addition, employees must not be coerced into doing something responsibiliry ro care
that is againsi Islarn such as taking off their hijab (vell) or requiring them to wear an for their welfare,
outiit that is prohibited by Islam and participating in forbidden business activities. which is consisrent
This practrce is inconsistent wit}r the principle of Unity of Ailah. Employees must be with the spirit of
brotherhood and
respected as human beings, so ernployers must not sexually harass them or permit
tawheed.
any form of sexual harassmeilt at the workpiace. As Islam is very particular about
mainloirrtng fairress and balance (equilibrium), employers must also equallv respect
the beliefs of non-Muslim employees.
Islamic ethics promotes the welfare of empioyees at the workplace. Employcrs
must t'tot treat employees rrerely as the means to achieve profitability without showrrrg
care and concern for their welfare. It is the responsibility of employers to provide a
safe and healthy workplace. Employers are accountable if employees injure themselves
whilst performing their duty without being negligent or careless. They must take
measures to prevent such injury or accident. In addition, Isiam encourages employers
to act benevoiently towards the employees by helping them to cope when they have
family issues. For example, duai income families are very common nowadays. There
are many working mothers out there who are juggling between taking care of their
children and performing their work duties. Employers can provide support to female
employees by introducing flexible work arrangements or provide child care facilities
at the u.orkplace.
372 Business Ethics
Further, employers must ensure safe working conditions. Employees must not be
subjected to a workplace that will cause them to be ill or suffer from health problems.
Islam prohibits unsafe and unhealthy working conditions in the infamous sweatshops,
fbr example. The concept of trustee (al*amanah) highlights the need for employers
[o ensure the safety of their employees at the workplace. Islam also recognizes the
individual's right to. privacy. Employers must not disclose personal information (e.g.
medical records, disabilities, etc.) about the employees without their consent. In
a similar vein, if employees commit wrongdoing, employers cannot publicize and
shame them in front of other employees. In other words, employers must not air the
employee's 'dirty laundry' for others to see. Likewise, employers have the freedom to
take action against employees who commit wrongdoing. Horvever, any discipliriary
action against an employee must be done discretely and in an equitable and fair
manner.
Performance appraisal is one of the most contentious issues at the workplace. It
is common for employers to give employees performance targets or key performance
indicators (KPIs) to be achieved over a specified period of time. lslarn promotes
excellence, which is reflected in the concept of bener.olence. The Quran emphasizes
that reward must commensurate with effort (Surah Al-Imraan, 3: 136; Az-Zalzala,
99: 7).In fact, Allah will also evaluate the performance of His subjects on the Day
of ]udgement (Surah Al-Kahf, lB: 30). The process of performance appraisal at a
workplace can be controversial if it is not done transparetrtly and f'airly.
Employees might feel victimized if performance appraisal is unfair because job
promotion and pay raise are often based on the outcome of tl-re perfbrmance appraisal.
In the context of Islamic ethics, employers must ensure fairness in the process of setting
lhe performance targets and evaluating the performance of crnplclyees. For example,
employees must be given measurable and achievablc perftrrmance targets and they
must be informed of the targets in advance. Then, the performance assessment must
be done in an unbiased manner where other factors such as gender, ethnicrty or age
should not be included in the assessment. In short, employess should oniy be evaluated
on the extent to which they have achieved the perforrnance targets.
11.6.3 Relationship with customers

Customers are important stakehoiders to a company. They contribute to the profits
directly. Companies must treat tl-rem fairly and honestl).. Tradlng activities must be
transparent too. Islamic ethics addresses common issues tl'rat are close11. related to the
rights of customers-products, full disclosure oi p,roducts, pricing, and deceptive and
rnisleading rnarketing/advertising.
g.,rfi;rr-.,*_l First, companies must sell products that are secn (in existence), or,r'ned by them
a weaker bargarning and in good working condition. Islam prohibits the sale of unseen items because it
power than sellers puts the buyer at an unfair disadvantage. The buyer must be able to see and inspecl the
so lslam requires the item before the transaction occurs. Further, companies cannot trade when they are
latrer to observe fair uncertainties regarding the existence and ownership uf a product. They must have and
play in trading. own the products before selling them. For example, selling food produce such as fruits
and vegetables that have not been gror,r,n yet is not permitted. The follou,inghadiths
clarify those prohibitions.
'Allah's Messenger (pbuh) forbade the so.le of fruits until thrl' are ripe and in a
gooC condition,'
(Muslim)
lslamic Ethics 373
'Whoeyer buys cereals shall not sell them until he has obtained possession.'
(Muslim)
'Bargain not about that which is not with you.'
(Muslim)
In addrtion, the sale of items that one cannot possess is also forbidden because it fB,r*.rt
has an element of uncertainty (al-gharar). For example, one cannot sell fish in a river/ "r**ri*
must be free from
ocean before he catches them. The rationaie for this prohibition is one party is at a gharar ele.ment, ,'
disadvantage. We shall delve into this topic in the final section of this chapter. Islam transparent and free
also pays great attention to the quality of products sold to customers. A few verses of from any forms of
the Quran highlight the requirement to give correct weight and measure. deception.
'And give with an eyen balance.

Jull measure when you measure, and weigh
That is the best (wa1t) and best in result.'
(Surah Al-lsra, 17: j5)
And observe the weight with equity and do not make the balancc cieficient.'
(Surah Ar-Rahman, 55: 9)
'...give just tneasure and weight, not withhold from the people the things that
are their due.'
(Surah Hud, 11: B5)
Islarri also forbids the sale of defective products to customers. This prohibitron
is based on the requirement to be honest in business dealings. Businessmen must be
forthright and reveal any defects before selling a product so that a customer will not
[,e cheated and he can make an informed buying decision. ]n a similar vein, as stealing
rs iorbidden in Islam, one cannot knowingly buy and sell stolen goods. If one fails to
adhere to this injunction, he is seen to be encouraging criminal activitl.. The Prophe t
Vlr"iharnmad pbuh, as reported by Al-Bayhaq, said:
'He who buys stolen proPerty, with tLLe knoy,ledge that it vvas stolen, shares in
lhe sin and shame of slealing.'
Second, Islam does not belier.e in the principle of cayeat emptor wbere the buycr is
responsible to ascertain the quality and suitability of goods before buying it as statcd
in a hadith narrated by Al-Hakim and A1-Bayhaq:
'[t is not permissible to sell an item without making everything altout it clt'ar,
nor is il perrnissible .for anyone who knows about its de-fect to refrain front
mentiorrirrg it"'
Thishadith requires a sellerto make full disclosure about a product that he intends Ild.,. pr""."
to sell, which prromotes transparency in business transactions. This requirement is tarr the inreresrs of
because the sellers know more about the products (features, quality and defects, if any) cusaomers in rerms
than the customers. Lack of disclosure of product features and ingredients put the of full disclosure of
cLrstomers at an unfair disadvantage. information about a
In terms of pricing, Islam forbids the activity of hoardin g {ihtikar) of supplies in producr, supply and
order to manipulate the price. The Prophet Muhammad pbuh, as narrated by Muslim, price manipulation.
:,aid:
'Hc who !raards is u sinnr'r.'
Islam forbids this practice because it is a form of market i.ntervention that goes
;rgainst a free market system, which leads to urrfair prices. Prices must be d:termined
fairly through market suppiy and demand forces. Price fixing is then prohibited.
374 Business Ethics
Hoarding and price manipulation only benefit one party at the expense of society,
especially the poor and those who cannot afford to pay more. For example, the general
public needs essential items such as food produce, cooking oil, clothes, houses, etc..
So, sellers must charge a fair price so as not to burden society and disrupt the social
equilibrium. Hoarding activities normally occur during the period leading to major
festivals like Hari Raya, Christmas, Deepavali and Chinese New Year. Businessmen
create an artificial shortage of food supplies by hr;arding the stock in order to drive the
prices up and earn the maximum profit.
The only exception for a price control mechanism is nhen it meets the needs of
the society and it provides protection against greed. Price manipulation shall not be
equated with the natural increase in price due to the changes in the forces of supply
and demand. Prices may increase when there is a shortage of supply due to natural
disasters such as drought, flood and monsoon season. Artificial price increase is
fcrrbidden.
Finally, Islam aiso forbids any act of deception in business, for exampie, misleading
(kh,:tabah) marketing. Islam forbids sellers from making exaggerated claims about
their products or services. Deceptive advertising, for example, influences customers
to buy a product that does not have the attributes as advertised. As Islam emphasizes
the free will of an individual to make a choice, deceptive or misleading advertising is
forbidden because it contains coercive elements. Customers'purchase decisions should
be free from all elements of coercion. We have explored this unethical activity in the
earlier chapter of ethics in marketing. The Prophet Muhammad pbuh had condemned
tl"rose who sold a product based on false oath.
11.6.4 Relationship with suppliers

Srpph.r*r. r I Next, let us explore the relatronship between a company and its stippliers" A
business to nrake manufacturer buTs raw materials and unfinished products from a supplier. Likervise,
profit. They depend retailers such as Tesco, Giant, AEON, Parkson, Harvey Norman and Courts Mammoth
on firms ro pay buy finished products from many suppliers beforc selling them to consumers. Suppliers
promptly to be are also running their own businesses, which hai.e to be profitable. 'I'hey expect therr
abie to achieve rhis customers (i.e. manufacturers and retailers) to pay them prornptiy so that they have
objective, amongsi
iunds to pay for overheads, payrolls, utilitics and other expenses.
others. So firms must
Clear terms and conditions, pricing, payment terms, delivery arrangements for
nor delay paymenr to
tire supply of goods and raw materials must be agreed upon by both parties so as
rheir suppliers.
to avoid any disputes. In Islam, Surah Al-Baoarah (2:282) places great emphasis on
business transactions to be governed by a clear written contract (record-keeping) so
as to avoid future disputes regarding payn-rent and quality of goods, etc. Further, as iu
any other business contracts, lslarn requires the fulfilrnent of all contracts including
the ones involving suppliers and buyers (see Surah Ai-Mu'minun, 23: B). As buyers
(companies) expect suppliers to keep tireir part of the bargain, suppliers also cxpect
the buyers to honour the contracts, particularly, regardiirg pa,vments.
The other requirements or prohibitions as applied to sellers such as charging fair
price, hcrarding, price manipulation and engaging in uncertain (gharar) transactions
etc. are also to be observed in this relationship. IsL m also forbids a monopoly business,
which could lead to higher prices. A company can work in cohort with a supplier to
only supply merchandise to the compan)r, which then becomes the sole r.en<ior of the
merchandise (usuaily essential items). Other companies (traders) do not have such a
prir.ilege. 'Ihe company can set exorbitant pric,:s arbrtrarily and control the supplies in
the market. Islam sees such business practices as unjust business practice and a clear
case of exploitation; therefore. they are prohibited.
lslamic Ethics 375
11.6.5 Relationship with the natural environment

As explained in the earlier sections of this chapter, nature belongs to Allah because
it signifies His presence. He created the world in a perfect balance so that humans
can sustain their lives by utilizing the natural resources. In Islam, the environment
includes all things found in the grounds of the earth and in the atmosphere such as the
land, rvater, air, plants, animals, ocean, oil, natural gas, gold and other minerals, etc.
Humans are free to consume the natural resources to sustain their lives. Aliah regards
humans as the guardians or stewards of the environment.
Humans are responsible for protecting and conservlng the environment, not only
because it is created by Aliah, but also because the environment is the only resource
of life. In Islam, environmentai protection is a religious or sacred duty. Aliah has not
created everything in this universe in vain as indicated inthe Quran, Surah Sad, verse
27:
'We have not created the heaven ctnd the earth and all that lies betweert them
in vain.'
Allah appreciates the efforts to protect the environment and rewards those who frl* prt*,ph
carry out tiris endeavour, as indicated by the Prophet Muhammad pbuh: of awheedand
Khalifahgovern the
'\\:hoet,cr plartts a tree and diligentll, looks after it, until it matures and be ars
relarionship berween
.iruit, 's rew,rde tl.' a firm and rhe natural
environment.
and
'IJ'a l)4uslim plorfis a tree or sows a field and nten and beasts and birds eat front
it, all o.f it is charitl, orL his part.'
(Akbar, 1992: p.27')
The pronrii-rence of protecting the environment can also be traced back to the
Islarnic cir.'ilization during the rule of the First Caliph, Abu Bakar when he ordered
his troops:
'Do not cut dov,rt d tree, do not abuse a river, do not harm animals anrl be
alu,a),s kmtl and hL.Lmane to God's creation, even to your enemies.'
(Akbor, 1992: p.27)
The Quran states that r,vasting in any form including lvasting the natural re tources
is forbidden.
'And do trctt waste (God's bounties): verily, He does not love the tvastefuii
(Surah Al-An'arn, 6: 111')
Degradation of the natural environment due to human activities has long been a
grave conc^rn of most modern societies. Businesses are said to be the key contributor
to this phenomenon. We provide a lengthy discussion of this issue in Chapter 10
of this hook. Islamic rvorldview places great emphasis on the relationship between
humans and the natural environment from which we derive the principle o{ tawheed.
I'he right to use natural resources belongs to not only human beings but also all the
creatures of Allah. Humans will be punished if they do not protect nature. Hence,
Islam emphasises on enr.ironmental protection for the benefit of the current and
future gener;iions.
Compranies tlrat poilute and cause damage to the environment are expected
to clean it up or remove the cause of the damage. The use of toxic and ,razardous
rraterials in business that iriay cause pollution and endanger humans and othe r species
are clearly against the vicegerent role of a Khalifaft; thus, prohibited. Aliah created
376 Business Ethics
all things in this universe in perfect balance and measurement. Ilresponsible and
harmful business activities disrupt the balance and the perpetrators will he punished
on the Day of ]udgement.
11.7 PROHIBITED EARNINGS AND

BUSINESS TRANSACTIONS
b[r" u;tr6t ] Muslims cannot engage in business activities that contravene the Shari'ah" 'The
ii'adrng rn lraram Quran has ciearly spelt out specific prohibitions against certain types of business
rerns, thai lras transactions. In this chapter, we are focusing on prohibitions against trading in haram
riba, gharar and (illegitimate) items, riba {interest), gharar (speculation) and masyir (gambling).
masyirelemenrs Haran- rtems include carrion (dead meat), pork, sculpture and alcohoiic drinks. Rlba
Ccndemrraron is an excessive profit or unlawful gain. Gharar is a transaction involr.ing uncertainty
againsi. riha (as srareci ?nd/or speculation'
rr rhr e.rran) i,
trPiicit, srrorg atrd
\"/ rhoui compromise
11.7.1 Dealing in haram (illegitimate) items
r,."ipt, islam prohibits trading of haram (illegitimate) goods as outlined by the Shari'ah.
"ir,r**l
gcor:s inclrrrre There are many haram goods but in this chapter, we wiil only focus on intoxicants,
r' ,irr ca;ris, por[, slvine and other prohibited foods/crops in generai, as rvell as ido]s, crosses, statues,
L.l.,acio, rrr,rnuana ald the like. As such, our discussion on this topic is not exhaustive. 'fhe rationale for
rri rer cr'rl): ro this prohibition is such trading promotes the hararn goods and encourages people
prodL'rce rlrLrgs' rclo 5'
to <1o what is horam. The Prophet Muhan-rmad pbuh, ai narratecl by Al-Bukhari and
. rosses sralre-c ancl
Musiim. said:
I ili
'Surely, Allah and His Messenger have prohibited the sale oJ wine, the t'l.csh oi
dead animals, swine snd idols.'
He further said (as reported by Ahmad and Abu Daoud):

'When Allah prohibits a thing, He prohibits (giting and receiying) the oJ
ltrtce
it as well.'
Firsi, let us discuss the prohibitioi-r againsl khomr (intoxicants). Islarlr permits
trading and consumption of food produce ai-rd its ciclivatives. However, Islam forbids
tl-re sale and consumption of fermented grarns anC fruits, in particular, grapes, dates,
barley or any other substance, as long as it is fermented. hi a similar vein, Isiam
prohibits anything which intoxicates, affects the functioning of the brain, or harms
the body. Alcoholic drinks do not only cause intoxication but also cause harnrful
effects on one's mind and health, as weli as professional and social affairs. In fact,
Isiam prohibits anything that can cause harm to individuals. As such, drugs such
as marijuana, heroin, cocaine, opium, etc. are included in the prohibited category of
intoxicants. The Prophet Muhammad pbuh, as narr ated by Ibn Majah, said:
'Do nut harm yourself or others.'
The Quran also states:

'Do not be cast into ruin by your own hands . .'
(Surah Al-Baqarah, i:19 5)
islamic Ethics 377
Adciiction to alcoholic drinks makes an individual neglect his responsibilities and

obhgations to the family, employer, colleagues and society. Alcoholic drinks also cause
harm to one's health, ranging from mental disorders, to liver problems and other ailments.
Surah Al-Maidah, verses 90-91, clearly state the decisive prohibition of the intoxicants:
'o you who believe, intoxicants (all types of alcoholic drinks) and ganes of
chance, ungodly slrines, and al-azlam (arr'owsfor seekingluck or decision) are
an abomittation of Satan's handiwork. So avoid (strictly all) that (abominati'm)
in order that you may be successful. Satan wants only to excite enmity and
hatred between you u,ith intoxicants (alcoholic drinks) and gambling, .and
Irinrier you from the remembrance of Allah and from as-salat (the prayer). So,
will you not then abstain?'
The prohibition covers all intoxicants including wine, beer, spirit or hard liquor
and othei similar drinks that are made from honey, barley and corn by the process of
ferrnentation. The prohibition remains regardless of the amount of the intoxicants taken
by an individual. For example, wine is haram regardless of whether orle takes a sip or
drinks a whole bottle of it. Islam also prohibits producing and trading in the intoxicants,
irciudrng selling them to non-Muslims. In fact, it is haram for a Musiim to serr,'e srlch
drinks to others and to work in an establishment that produces and sells the intoxicants.
Tl-re follou,in ghadithsby al-Tirmidhi, Ibn Majah and Muslim describe such prohibition.
'Tr.ttt. , Allsh has cursed khamr and has cursed the one who produces it, the one
t'or whont it is protluced, the one who drinks it, the one who serves it,
the one
v,lto carries it, the one J'or whom it is carried, the one who sells it, the one wlto
whom it is bought.'
e rrrrts
.t'i'om tlLe sale o-l'it, the one wlto bnys it, and the one for
(al-f irmidhi and lbtt Nlajalt)
'7t.ttly, Allah has prohibited khamr. Therefore, whoever hears.t'i'om this t'erse
(Surdh Al Maidah, 90-91) and possesses soTne of this substance should neither
ilrtnk it nor sell it.'
(Muslim)
Second, Islam prohibits Musiims from selling, eating and er.en touchrng pork. Pigs
,,re naturally filthy animals and carry a deadly parasite (trichina), which may cause
harm to a person. The prollibitlon against pork is explicit in the Quran as indicated in
t hr: f.rilorving verses.
'Say (O Mthamn.Lad), t do not find within thot w,hich was reyealed to me
i,.rriytLtingl forbitltlen to r.tne wl'ro would eat it r.tnless it be a drnd uti"'tnl or
!tlood sltille d out or the flesh of swine (pork) - for indeed, it is an aborninatittn'
or it bc [that slaughtered in] disobedience, dedicated to other than Allah. But
.,Lroet,e r is forced [by necessity], neither desiring [it] nor transgressing [its limitj,
'l't:rt h.t)eed, your Lorcl is Forgiving and Merciful.'
(Surah Al-An'am, 6: 1'15)
'L:orbiddcn to you (!or

food) are: dead meat, blood, the flesh of swine, and th,.it
on which had not been invoked the name of other than Allah.'
(Surzh Al-Moidah, 5: 3)
'lle has only forbidden to you decd animals, blood, the JTesh of swine, and
t c.rt vhich has been dedicated to other than Allah. But whoever is forced [by
,.r:r-essityl, neither desiring [it] nor transgre55ing [tts ltmit], there is no sitl t.tpoit
' n. [ndeed, Allah is Forgiving and Merciful."'
(Surah Al-Baqarah, 2: 17j)
378 Business Ethics
'He has only

forbidden you dead meat, and blood, and the flesh of swrne, and
any (food) over which the name of other than Allah has been invaked. But iJ
one is forced by necessity, without wilful disobedierLce, nor transgressing due
limits,- then Allah is Oft-Forgiving, Most Merciful.'
(Surah Al-Nahl, 16: 115)
The first verse above states that pork is an abomination. This term refers to
something that is regarded as abhorrent in Islam and hurnan nature. Surah Al-Araf,
verse 152 further explains this term:
'He allows them as lawfut AtTayyibaat (i.e. atl goocl and law;ful as regards
things, deeds, beliefs, persons and food), and prohibits them as unlawful
AlKhabaa'ith (i.e. all evil and unlawful as regards things, deeds, beliefs,
Persons and food).'
Pork is harmful to human health. The pig is a filthy animal and lives in a filthy
condil.on. It carries various germs and tapeworms that are harmful to the human
body. So to preserve life and health, Islam prohibits consumption of pork or any pork
based products. In this verse, exemption is given to those who do not have any other
food to consume (e.g. during strict emergencics such as war, natural disasters, etc")
other than pork only so as to prevent starvation.
Earlier in this section, ',r,e mentioned that intoxicants that are made f rom fruits
or grains such as grapes, barlel', wheat or corn are haram in Islarn. However, the
Muslims can consume those fruits a,ld grains u,hen they are in the unf'ermenteel
state. Likewise, they can also cultivate and trade those crops. Islam prohibits
planting and trading of certain crops such as hashish (marijuana) and the like for
u,hich they cause harm to our health. The prohibition against trading of hararn
crops is all encompassing in rvhich a Mr-rslim cannot clairn that it is not harant ta
sell cigarettes/tobecco to a non-Muslim, for example. Likervise, a Muslim cannot
sell grapes ot grains to other parties knowing that they r,r,t1l r-rse them to make u,ine
or intoxicating drinks.
Smoking of marijuana, just like taking drugs, is also harom in Islam (see eariier
paragraph). Similarly, cultivating and trading of tobacco is haram in Isiam on the
basis that smoking of tobacco is haram. The Nationai Fatr,r,a Council of Malaysia
asserts that smokingis haram based the follorving reasons:
r Cigarettes contain poisonous substances (nrcotine and other chemrcal
substances) that can be hazardous to our health.
r The smoking of cigarettes leads to varior-rs serious illnesses such as cancer,
heart and respiratory probierns, among others, n l"iich cause a lot of deaths.
r A famous Islamic scholar, Imam Al-Shafie has issued an edict to prohibit
smoking. He said:
'l-f
people are taking,rn.t fuo,l, ,lrinks, sntokirrg rtr srri-fiing sontething thnt
trtloxicates, then it is clccrrly haram. Thrs includes those that contain
poisonous substances thut couid cause deatlt- Ailah forbids whatever type
oJ-killing or murder including taking -<ontething that could cause your
de allt i.e. such an act is akin to committing riticide, yhtch is harc.tnt.'
r Islamic scholars agreed that smoking is a wastef,rl behaviour, which is

despicable in Islam. The consensus is based on tlrc following verses and
hcidith:
lslamic Ethics 379
'And spend of your substance in the cause of Allah, and make not your own
hands contribute lo (your) destruction; but do good;for Allah loveth those
who do good''
(surah Ar-Baqarah, 2: 195)
'He (Allah) comntands them what is jus.t andforbids them what is evil; IIe
allows them as lawful what is good (and pure) and prohibits them from
wlrat is bad @nd intpurc).'
(Surah At-A'raf, 7: 157)
'l-et there be no harnting or reciprocating harm.'

(Ibn Majolt)
As smoking is prohibited, the selling of cigarettes, as well as the planting and

trading of tobacco are also haram. We need to take note, however, that unlike the
prol-ribition of pigs and intoxicants, the Quran does not explicitly prohibit smoking
and cigarettes. Islamic scholars claimed that tobacco was unknown du"ing the birth of
Islam until people started to use ri for producing cigarettes (National Fatwa Council,
i995). Then, Islamic scholars got together and deliberated on this issue and came to
a consenslts that the smoking of cigarettes, and planting and trading of tobacco are
prohibited in Islain based on the above verses and hadith. They also sought expert
opinions from medical and health professionals regarding the danger and hazardous
effects of . rgarettes betbre arriving at such a decision.
Latel,v, it is a trend for people to smoke shisha, which is easily available in cafes
and restaurants. In 2013, the National Fatwa Councii, after much deliberation and
consicleration of the views of health and medical experts, concluded that the smoking
of shisha is also ltaram in Isiam for the sanle reasons as prohibiting the smoking of
cigarettes.
Finally, Islam prohibits the manufacturing of objects of worship or objects that
are likened to Al1ah's creations (e.g. animal", humans, etc.). Likewise, tracling in
such objects (idols, statutes and sculptures) is also prohibited. In ahadith narrated b-v
Aishah:
'.\llal'r's Apostle (pbtLh) re-tttrned
from a journey when I had placed a curtttirr
of rnine having pictures ot,er (the door o-f) one of my rooms. When He sav' it,
he tore it and said, "'fhe people u,ho tvill receive the severest punishment on
the I)ct1, oi RestLrrcction v,ill Lte those trho try to make the things that lilicn of
ALlah's creations. So v'e turned the curtain inta one or two cushions."'
I'rirdirrg of such items tends to promote the haram and encourage hLtram behaviour.
Finai11,, Muslims cannot eat animals that die of natural causes without being
slaughtered or hunted b), *un. Likewise, trading in such animals is also forbirldcn.
Muslims mrrst properly slaughter animais (that are allou,ed to be eaten) first. Surah
Al-Maidah, verse 3 states:
'Forbdden to you (ior food) are: dead meat, blood, the flesh of swine, and t'nat
on which had been invoked the narne of other than Allah.'
f'he last part of this verse states the requirement to slaughter animals and by inzoking
the name of Ailah before consuming them.
The Shari'ah exempts marine animals (those that live in water anC cannot survive
outside it) such as fish, whales, shrimps, calamari and other sea creatures from the
category of dead animals as indicated tn a had.ith narrated by Ahmad:
380 Business Ethics
'When the Prophet Muhammad pbuh was asked abctut the sea, he replied, tts
water is pure and its dead are halal.'
The Quran states that:

..And it is He Who has subjected the sea to you in order that yt:u may eat Jresh
'.
meat from it ...:

(Surah Al-Maidah, 5: 99)
11.7.2 Prohibition of riba (interest)

R,b,
",f.,r -
r.- -l Riba ltterally means an increase, excess, growth, increment or expansion. The
lncrease, excess, Shari'ah classifies riba into two broad categories-riba rn ioan contracts and riba tn
giowLrr, r..rer,enr exchange contracts. In the first category, riba is associated with loan interest. Islamrc
or expansron Riba terminoiogy refers to interest as exorbitant profit that increases the principal amount
occurs rn ioan and without putting any effort or simply, effortless profit. Riba ts an unjustified increment
exchange.ontracrs in borrowing or lending money. It is paid in kind or money in excess of the ioan
rhar are nc:t Sharlah (principal) amount. Lending on interest does not transfer ownership of good (money)
ccrirplrarL to the buy"t. The buyer (borrower) returns the money plus an additionai amount for
a specified time frame (loan tenure). In the second category, ribars an unjustified or
.*."., profit earned by a seller in a sale or barter transactioit when goods of equal
weighttut unequal value are exchanged. Similarly, riba could also take place rvhen a
seller se11s an asset at a price that substantiaily exceeds its market vaiue, or bclow it"
The Prophet Muhammad pbuh, as narrated b,v Ubaclah bin San-rit, said:
'Goltlfor gold, silt,erfor siber, wheatJ'or t'rtr burlcv, dctte s lor dales,
^;l'teat,1111v1(1t
stLlt for salt, like fot' like, equal Jor e qtLal trnd hnnd to hurttl, if the commodities
di-ifer, then you tnay sell as you wish provitled tliat the excltattge is hand to
hand.'
T'he above hadith specifies two rules to avoid rilta tn a barter or trading transaction of
tlvo similar commodities:
1. The transaction must be based on a spot transaction. If the delivery of at ieast
one commodity is delayed, itis riba (deferment of time excl-range)'
2. The amount of each commodity exchanged must be eqr-rai (same counter
values). For example, if two traders lvant to exchange salt for salt, the amount
or weight of salt must be equal i.e. 100 kg oi salt rvith 100 kg of salt"
'fhe interest on loan violates these two rlrles. l.oan involves an exchange of
money (commodity) but the exchange (payment) is def-erred sometime in the future.
This exchange violates the first rule. Next, the amourtt exchanged (future payment)
is in excess of the principal amount, which violates the second rule. It does not
matter whether the excess payment (interest) is either irr-rposed by the iender or
promised by the borror,r,er. One may argue thal riba represents an opportunity cost
to the lender, nhich they could earn by investing the same amount of money in
other profitable ventures. Holvever, the concept of opportunity cost in this context
refers to a 'chance' to earn profit, without certainty. We cannot be sure that the
lender rvill get to earn the exact rate of return (opportunity cost) if he were to invesf
his money elsewhere. Hence, earning a profit froin a trade is not the same as an
opportunity to earn a profit.
The main verse that prohibits riba is Surah Al Baqarah (2:275), which states:
lslamic Ethics 381
"l"hase. whodevour riba will not stand except as stands one whom the Satan by
h"is touch has driven to madness. That is because they say, "trade is like riba,"
but Allah has permitted trade and has forbidden riba.'
Then, how does interest on money capital (riba) differ from the exchange of trade?
Trade generates ribh (profit), which is an amount of money added to the cost of goods
or services. Ribh is permissible in Islam. The seller only makes his profit once, during
the sale. In contrast, the lender makes profit by charging interest continuousl;r until
the loan is fully repaid. Further, the lender also charges interest on the unpaid interest,
which is known as compounding interest. According to Islam, this practice is unjust
and exploitative in nature.
In business terminology, this addition (ribh) to the cost of goods is knorvn as 'mark
up'. I'he seller charges a mark-up price to cover his expenses and to compensate his
effort and ior taking risks to bring the goods or services to the market. Hence. profit
is earned as opposed to interest on a loan, in which the lender gets his interest witliout
putting in any effort or putting the money into productive use. We can see here that
riba and ribh are different because each is earned in different ways. In addition, wealth
can be generated from trading activities. Money, however, is not considered to be real
wealth. It is mereiy a mcdium of exchange that facilitates the florv of trade, a standard
of vaiue, a unit of accounting and a store of value. Ribatransactions deviate from these
ir-rnctions olmoney.
f lre fcrlowing verses of the Quran expressly prohibit riba. We need to note the
prohibition is unequivocal and the condemnation of the riba-based transaction is very
\lrr)nB and rt ittrout compromise.
'Alloh deprives riba of all blessingbut blesse s charity; He loves not the ungrcttcful
sinne r.'
(Surah Al-Baqarah, 2: 276)
'O, beliryers! Fear Allah ancl give up w,l'Lat is still due to you
.from riba if you rrre
true belieyers.'
(Surah Al-Baqaralt, ).: 278)
'lf you do not do so, then take notice of war
.from Allah and His Messenger. But
ii 7,ou rcltent, you can have your princtpal. Neither should yott commit injustice
nor shoulcl you be subjected. to it.'
(Surah Al-Baqarah, ): 279)
'Oh, y1ry vvho believe! Devour not riba doubled and multipLied; but
fear ALldr
thut you ma,y prosper. Fear the Fire which has been prepared for those n,ho
reiect.fcrith and obey Allah and the Prophet so that you tTto), get n'Lercy.'
(Surah Al-lmraan, 3: 130)
Isiam encourages business people to create and grow their weaith through trade
as opposed ta riba-based lending and transactions. Loan on interest aliolvs the
lender to increase his or her weaith n ithout any effolt. This action implies a lender
is appropriating a borrower's property without giving him anything in excll.ange.
in Is1am, a nlan's property is sacred for which it is meant for satisfying his needs.
Charging intercst on a loan and requiring the borrower to pay a highcr amount than
what he owes is akin to taking his property from him without giving him sc;mething
in exchange. This type of transaction is unfair because one party receives greater value
It
)82 Business Ethrcs i
I
than the counterparty (borrower). The lender receives higher benefits at the expense
of the borrower, which can be seen as taking advantage of the latter.
Riba ts also prohibited d,re to the negative effects it brings to society. It
encourages people to be lazy instead of working to earn money to sustain their
life. One can earn extra money by charging interest without working for it. Islam
encourages people to put their money into productive use by participating in trade.
The prohibition against riba applies to both the one who imposes it and the one
who pays it. Islam encourages Muslims to engage in musyarakah (pattnership) and
al-bay'(sale) of commodities. Islam forbids debt contracts but encoul'aJes sale and
partnership contracts.
Riba-basedlending promotes inequaiities of access to funding and subsequently
income and weaith. Banks will only lend to big businesses with establish financial
means to ensure safe return. New and small businesses without the financial strength
are usually assigned lower priority and face difficulties in gaining access to financing
from banks. Further, the unfair riba-based transactions in the long term propagate
a divi-:d society between debtors and creditors. In the end, the rich wiil be richer
and the poor will be poorer. This situation is against the ernphasis of Islam to create
balanced economic development by wealth sharing as opposed to making a ferv
wealthy creditors wealthier at the expense of the rnajority'
11.7.3 Prohibition of gharar (speculation, risk,

uncertainty)
,.1.;;;,",;. ----l The third prohibition is business transactions that have the element c:{ gharar
ro elcn.re.i-s ui (speculation). Gharar implies unnecessary risk, uncertainty, an-ibiguity and hazard.
uncerf arnr,,, In business terminoiog,v, gharar refers to a sale in i,r,hicit the sel1er either does not have
spec,-rlar ire the goods in hand or the goods do not exist. Gharar can also be used to describe any
unnecessarv rsk, transaction that has an unknown outcome or consequences at the point of contracting.
arnbis'-r,t)' ancl In short, any transaction that has a risk that could cause either ihe bu1,er or selier to
lrazarcl rr a bLrs ness
lose his properties is deemed to have tbe gharar element. Future trading is permissible
rransaLron ifitdoesnothavetheelement ctf gharar,wherethequantityandqualityof goodsare
ascertainable or predictable. The reason for prohibittng gharar transactions is such
transactions could easily lead to disputes and contention between the seliers and
btryers. Such disputes is against the spirit of ukhuv,walr (brotherhood).
'Ihe following
are some examples of gharar transactions:
r Trading of items or articlcs that tl-re sellcr is unable to deliver to the buyer.
r Selling goods without adequate and accurate description-non-disclosure
of product ingredients, cluantities, weight or materials they are rnade of or
simply, without product 1abe1s.
r Selling goods that have an incorrect or false descriptton-deceptivc marke'.rng
or advertising.
r Selling def-ective goods rvithout the buyer's I,nowledge of the defect.
r Selling goods u,ithout pennitting the buyer to inspect them for def'ects or
suitability.
r Selling fruits or food produce before they ripen or gro\\r heaithiiy.
r Selling goods or assets that one does not own-short seiling.
In addition, Islam forbids most derir.ative corrtracts such as forlr.ards, futures and
options as rvell as short selling. Such contracts z:re inr,alid because of the uncertaintv
involved in the future delivery of the underlying asset.
islamic Ethics 383
Unlike fnr riba, the Quran does not directly or explicitly prohibit gharar
transactions" However, the Quran clearly prohibits any type of business transaction
that brings injustice to any contracting parties, especially the buyer who usually has a
weaker economic and bargaining power. surah Al-Nisa'verse 29, states:
'o you v,ho believe! Eat not your Property among yourselves unjustly b1'
you, by mutual consent''
faliehoori and deception, excePt it be a tradi amongst
Islamic scholars agree that unjust practice in this verse inciudes all types cf illegal
and defective eiements in commercial contracts. Gharar is a part of this prohibition
because it is akin to taking the property of others without a valid reason. So; ciearly
the rationale for prohib lting gharar is to reduce speculation and to ensure fairness in
trading.
Various hadithsclarify the prohibition of gharar inwhich the Prophet Muhammad
pbuh cleariy forbids its existence in trading. Abu Huraira reported that Ailah s
-N4.rr.ng.,
(pbuh) forbade a transaction determined by throwing stones, and the type
H.hich invoives some uncertainty. Similarly, Jabir b. Abdullah is reported to have said
that Al1ah's N4essenger (pbuh) prohib'ifed the sale of a heap of dates the weight of
whiclr is unknonn. In this hadith, une can easily determine the tt'eight of dates but
failed to do so. Yet in another hadith,the Prophet Muhammad pbuh said,
"sellingfruit
before it has begun to ripen is an uncertain transaction (gharar)'"
11.7.4 Prohibition of masyir (gambling)

Gharar and masyir are inter-related. Gharar transactions invoive masyir too. Masyir f M*yltr"f"r*.^
is a game of pure chance u,here one party gains at the expense of other parties. In this game of pure chance
ga* o, bet, the u,inner takes all ,*fii1st the losers iose all their bets. Further, Islam to obtain wealth and
prohibits accun-iuiating weaith by chance regardless of rvhether it is at the expense of advance in life.
others or not. Islam prohibrts masyirbecause it encourages society to depend on luck or

chance to get ahead in iife. Instead, Islam through the Quran and Sunnah, encoLrrage
hurnans to create a stable society that thrives on the values of hard work, innovation,
productivity, quality and brotherhood. Further, Islam wants its follorvers to attairr
ir.."r, and create wealth through education, productive work and entrepreneurship
as opposed to engaging in speculative behaviours.
The follorvirlg verses and hadiths highlight the prohibition of gambling.
"Thet, asked the Prophet Muhanmad pbuh about khamr (intoxicants) artd
games oJ chance (gambling). He said in both of them there is great horrn
although there is sonrc advantage as well in them for men, but their harrn is
much greater than their advantages.'
(Surah Al-Baclarah, 2: 219)
'O yot, x'ho believe, intoxicants (all types af alcoholic drink) and game ol
chor;ce, ungodly shrines, and al-azlam (arrows for seekingluck or decision) are
an ubontination of Satan's handiwork. So avoid (strictly ali) that (abominatio')
in order that you may be successful. Satan wants oriy to excite enmity and
hcttred bety,een yau with irioxicants (alcoholic drink) and gambling, and
hinder you from the remembrance of Allah and from as-salat (the prayer). So,
will you ttot then sbstahi'
(Surah Al- Maidah, 5: 9 A -9 1)
iB4 Business Ethics
A familiar example of masyir is the lottery in which gaming companies distribute

coupons and provide incentives depending on uncertain and sp"coluti,re events. The
Merriam-Webster dictionary defines lottery as 'a system used to decide who will get
or be given something by choosing names or numbers by chance'. In addition, casino
gambling or any other form of gaming activities have clear elements <>t gharar and
ma syir ; thus, prohibited.
Likewise, conventional insurance policies have a maysir element in it. The insured
usually pays a small amount of premium hoping to gain a much larger compensation
in the future if the event insured occurs. On the other hand, if the event insured does
not take place, the insured loses the premium paid. As for the insurer, if the insured
event occurs, it may end up having to spend a large sum of money to pay compensation,
which is very much larger than the premium amount paid by the insured. The insurer
may suffer from losses in such a case.
The iearning outcomes for this chapter are summarized as follows:
l. Define ethics from the Islamic perspective.

Islamic ethics is a set of universal standards of right and wrong that prescribe acceptabie and
unacceptable human conduct as highlighted in the Quran and shon'n bl,tire exempiary life of the
Prophet Muhammad pbuh. This definition is derived from two Arabic terrns, namely akhlucl and
adab. Akhlaq sets out what humans o.rght to do in this world that is to iive their lives in accordance
rvith the will of Allah. Akhlaq also refers to the Islamic disposition or character of an individual
that he or she develops as he or she progresses in life through repeatccl bchaviour or habits that the
scrul becomes accustomed to it. Adab refers to the manner, etiquette or behaviour of an individual.
Examples of adab include good manners, righteousness, courtesy, respect, irelpfulness, decency,
decorum and appropriateness.
2. Explain the source and origin of the Islamic ethical system.

Two primary sources of Islamic ethics are the Quran and Sunnah.'l'he ()uran is a divine book of
revelation that comprises the verbatim and unalterable rvords of Allah reveaied to the Prophet
Muhammad pbuh through Archangel Gabriel. The Quran represents the will of Aliah that lays the
foundation for Isiamic beliefs and religious practices as weil as the kel,source of ethical standards
for Muslims .The Quran prescribes the permissible and forbidden in the lives of Muslims, including
economic transactions and social interactions.
The second source of Islamic ethics is the Sunnah. The knonledge of Sunnah comes from
hadiths or reports about the recorded sayings, personal teachings, chaiacter,,Jeerls, actions and
practices of the Prophet Muhammad pbuh in personal and public life that exemplify the teachings
of Islam. The Prophet Muhammad pbuh is al insan al kamil (the idcal man) who had a superior
standard of character as indicated in Surah Al-Qalam (68: 4).
lslamic Ethics 385
a
J" Describe the concept of Islamic world view.
T'he Islamic perception of the world is based on the fact that Islam is not only a religion but also a
way of life" The religion of Islam embraces all aspects of life such as personal, social, political and
legal matters. The comprehensive teachings of islam make it a unique world vien' in which it takes
a duul perspective of this world-that is one should be concerned for both his life in the world and
the Hereafter.
Muslims believe that Allah exists and He is the one and only Creatot and Sovereign of the entire
universe. He is living, eternal and self-subsisting. Allah created everything in the universe and one
.must serve and worship Allah only. He appointed man as His vicegerent on earth. As a vicegerent
of Allah, an individual has responsibilities to Allah, himsell society and the environment. He or
she will be held accountable for the way he/she lives his/her life in this world.
Muslims believe that their life in this world is temporary and they will face the Day of |udgement
where Allah will judge them based on their actions in life. If they obey Allah and follow the right
path as prescribed in the Quran andhadiths, the reward is a place in Paradise, where they will enjoy
eternal bliss and happiness. Hence, Muslims should aim for evcrlasting life after death.
Ailah has chosen a few liumans as Prophets (peace be upon them) to show iiumans the right
path to live their life in the world. The first Prophet was Adam pbuh and the last one was Prophet
Muhammad pbuh. He received Allah's commandments through revelation in the last scripture
known as the Quran, which shall last until the Day of |udgement. 'lhe Quran contains the most
comprehensive guide for all aspects of human_life.
4. Explain the five axioms of Islamic ethical philosophy and their importance to a Muslim's lif'e.
The five axioms are unity, equiiibrium, free will, responsrbility and bener.'olence. Unity is the
lounelation of Islamic faith. It refers to the belief in the Oneness of Allah as tl-ie sole Creator and
Soveretgn of the entire universe. Aliah creates and o\^rns everything in the universe. Humans
should t. *ury of Allah's divine justice and avoid disobeying Hrs r'r.'i11 and ntles. A Muslim's life
should be dedicated first and foremost to serve and worship Allah.
Fiquiiibrium refers to a sense of balance in various aspects of human life to acl-rieve social ideals
and .;ustice. Allah created everything in equilibrium for humans to enjoy and preserve. Any acts
that ciisrupt the equilibrium are condemned because they disrupt the balance and harmony in the
rvorld"
Free will relates to individual freedom of choice, which is to be exercised u'ith intellect and
r,r.ithin the bounds of the Shari'ah.Islam does not promote absolute freedom because it implies no
responsibility and encourages selfish behaviour. Freedom rvithout responsibilitY can also create
chaos in society, which disrupts equilibrium in society and the r.r'orld.
Responsibility refers to the duty of individuals to obey the will of Allah, duty to oneself, the
society at large and the natural environment befitting one's role as a vicegerent of Allah in this
rvorld. The fifth axiom is benevolence, which simply means kindness to others, an important
characteristic of a pious individual.
'l'he five axioms are important in a Muslim's life because they represcnt the core values accepted
as being true to guide his or her day-to-day conduct.
5. Explain the Islamic perspective of the relationship between firms and their stakeholders.
Whilst Islam encourages its followers to venture into business, it does not promote a narrow objective
of earning a oniy profit. Other than ensuring business activities and tiansactions are within the
bounds of the Shari'ah, a business owner must aiso promote social justrce. Hence, in Islam, firms
have a broader objective of promoting the welfare of stakehoiders. Common key stakeholders of a
firm are shareholders, employees, customers, strppliers and the natural environment.
iB6 Business Ethics
Business activities and decisions must be driven by the belief that humans are primarily
responsible to Allah and then to society at iarge as well as the natural environment. In islam,
stakeholders are very important because companies' activities and decisions affect their well-being.
More importantly, Muslim business owners, directors or corporate managers must always bear in
mind that they are responsible primarily to Allah and then to society at large. So, Islam considers
stakeholders' claims as moral claims because companies must not pursue profit at the expense uf
the well-being of their stakeholders.
The requirement for business owners (or firms) to pursue social objectives stems from their
role as Khalifuh in this world. Human beings are the stewards. or representatives on earth to
administer the world and to use the resources created and owned by Allah. In addition, Allah
imposes constraints on individuals'freedom so that they rvill not engage in arbitrary self-centred
social behaviour at the expense ofothers such as stakeholders.
Business owners are expected to care for the welfare of society in the spirit of ukhuwwah
(brotherhood) and social justice. The responsibility of business owners to care for the environment
arises from the princinle of Khalifuhwhere humans are the beneficiaries of Allah's bounty (natural
resources) and they are free to use them to sustain their lives. Horvever, humans must not abuse the
resources that Allah created for them so as to avoid disruption to the balance and harmony in the
universe.
6. Explain some prohibited matters in business transactions.

Islam prohibits quite a number of business transactions, but in this book, we discuss the foliowing
prohibitions only.
Islam prohibits dealing in haram goods such as intoxicants, pork, some types of crops, idols,
crosses, statues, etc. The prohibition against these goods or items is expiicit as indicated in the
Quran. The general reason for the prohibitions against intoxicants and pork lie in the fact that they
bring harm to one's life. As for the prohibition against other items, the rationale is they are likened
to Allah's creations or they are used for worshiping other than Aliah only"
Next, Islam also strongly forbids riba, gharar and masyir in business transactions. Rlba is
associated with loan interest and exchange trading. it is prohibited because the payment is deferred
in the future and the interest amount is in excess of the principal amount. The lender receivcs
greater vaiue than the borrorver at the expense of the borrolver. Further, this excess amount is
unjustified because the lender increases his weaith rvithout putting any effort. Islam believes in
productive effort to create and grow wealth. Money has to be employed in productir.e activities
such as trading before one can generate wealth from it. In barter ti'ading, any exchange rnust be of
equal amount or value (same counter values). If the value or amount of a commodity exchanged rs
less or more than the other commodity, then riba occurs.
Gharar transactions have uncertainty, ambiguity or risk elements in them. Islam prohibits
such transactions because they are contentious, speculative and unfair. Exarlples of gharar include
seliing goods or assets (stock) that one does not o!r,n, also knolvn as short selling, and selling
defective goods without the buy61'5 knowledge of the defect. Finally, islanr prohibits transactions
that have the masyir element in them. Masyir is a game of pure chance where one can stand to
gain based on pure luck either at the expense of others or not. Oire should not depend on luck to
advance and accumulate wealth in iife. Instead, one should put in effort and inrtiative to undertake
productive work to generate wealth.
lslamic Ethics 387
'abd Servants of Allah in rvhich human beings do not have any independent authority or absolute rights and
total freedom to choose their way of life.
Akhtag The fbundation that establishes the standards of right or wrong "f human conduct and Islamtc
disposition or character that is honourable and consistent with Islamic values of trustworthiness, honesty,
toierance, generosity, benevolence, humility, kindness, compassion, etc.
Adab Refers to the manner, etiquette or behaviour of an individual such as good manners, righteousness,
courtesy, respect, helpfulness, decency, decorum and appropriateness.
Axioms of lslamic ethical philosophy The core values accepted as being true to guide the day-to-day conduct
of a Muslim that are derived from the Quran and Sunnah.
Benevolence An act of kindness to others.
Equilibrium A sense of balance in various aspects of a human's Iife to achieve social ideais and justice.
Free will An individual's freedom of choice that must be exercised u,ithin the bor.rnds of the Shari'ah.
Gharar Elements of unnecessary risk, uncertaintl,, ambiguity or hazard that exist in business transactions,
r,r,hicl-r is forbidden in Islam.
Halal Lawful nr legitimate transactions as specified in the Quran and Sunnoh.
Haram Illegitimate or prohibited transactior s as specified in the Quran and Sunnah.
lslamic worldview 'Ihe perception of the rvorld and the reality or the truth frorn the Islamic perspectir.e th;,it
one sirould be concerned rvith for both his iife in the world and the Hereafter.
Khalifah The role of human beings to carry out Aliah's divine wiil in this wor1d. Allah entrusted the natllre,
universe ar-rd other creations to man for his use to facilitate and improve his life in the u,orld.
Malakah The origin of allhuman behaviour and activities that become a natural rvay of conduct or lifbstyle.
One develop s malaka'h as he progresses in his life through repeated behar.iour or habit that tl-re soul becomes
accustomed to it.
Maqasid al-Shari'ah The ideals and objectives of the Shari'alr for human beings to liar.e a goocl lile and to
promote tt,e rvell-being of society.
Masyir A game of pure chance or luck, which is prohibited in Islam.
Musyarakah A partnership or joint venture for a specific business, wherebv the clistribution of profits wiil
be apportioned according to an agreed ratio. In the event of losses, both parties will share the losses on the
hasis olthe rquity participation.
I
I
t
88 B.rsiness Ethics
I
I
-i
Responsibility The duty of an individual to obey the will of Allah, as well as the duty to oneself and society
at large.
Riba It means an increase, excess, growth, increment or expansion in lending and trading of comrno<lities,
which is forbidden in Islam.
Ribh Profit earneri fionr trading of goods and services.
Shahadah The Muslim profession of faith ('there is no god but Allah, and Muhammad is the messenger of
Aliah'), one of the Five Pillars of Islam.
The Quran A divine book of revelation that comprises the verbatim and unalterable words of Allah that
represent the will of Allah, which lay the foundation for beliefs and religious practices of N4uslims as well as
provide ethical guidelines for Muslims.
The Sunnah Knowledge that originates from hadiths or reports about the sayings, personal teachings,
character, deeds, actions and practices of the Prophet Muhammad pbuh in personal and pubirc life that
exemplify the teachings of Islam.
The Shari'ah The sacred law of Islarn that governs an individual Muslim's life, economic transactions and
social interactions.
Tawheed The Isiamic belief of Unity or Oneness of Allah and His perpetual presence in one's life
Tagwa The state of the heart that is always conscious of Allah's presence, hoping for Hrs acceptancc, tearrng
His punishrnent, and hesitating to commit any wrongcloing that rnight bring His u,rath.
Unity The first axiom of Islamic ethicai philosophy which is derived from the belief in Allah.
Worldview Relates to how man perceives and explains the reality or the truth regarding thc existcn<-e of the
unir.erse and their role in it"
1. What is the difference betr,veen islamic ethics and conventional ethics,
) Ir, what way do the Quran and Sunnah shape the Islamic ethical system?
3. Explain the five axioms of Islamic ethical philosophy. How does each axiom relate to a Muslim's
li fe?
I
4. Surnmarize the key characteristics of the Islamic ethical system. ln .,our summaty, make sure you
discuss the Islamic world view.
5. Explain the relationship between a firm and its stakeholders based on the Islamrc ethical system.
I
*-
i
!
i
I
lslamic Ethir:s 389
XYZ's A,xiom: Profit at AIlCost

Afiq was a junior chemical engineer in XYZ.Fertilizer Company Berhad. XYZ had a manufactur-ing plant
locared adjacenr ro Sungai Renggam in Cerik, Perak. Afiq was attending a mcnthly operational meeting when
rhe chief operaring officer mentioned rhat XYZ was doing extremely well financially and had bright prospects
due ro rhe escalarirrg demand for fertilizer worldwide. During the meering, Ken, the plant direcror, starred
ralking about rhe need ro expand the exisring manufacturing olant to accommodare the growing business.
At rhar rime, Mart, who was Afiq's immediare superior, highlighred thar the planr needed a proper waste
rrearmenr faciliry. He suggesred rhar rhis facility could be included in the expansion plan. AAatt mentioned
rhat since the opening of the plant ren years ago,XYZ had been releasing its waste materials rnto Sungai
Renggam. XYZ had also been secrerly releasing ammonia and fluoride gases into the armosphere in rhe
middle of rhe nighr, which caused air pollurion. Matt felt rhat the investmenr for the waste lreatment faciliry
could not be delayed or avîded any further.
Nobody took notice ol rhrs pracrice of discharging waste marerials into the environment due to lack of
inoniroring and enforcement by rhe local aurhoritles as well as the aparhy, ol rhe local community. Ironically,
XYZ wirhour farl had always stated in irs annual report that the prorectiot'r of rhe natural envlronmenr was its
iop priority. lt was merely lip service, The chief operating officer quickly inrerlected and highlrghted thar XYZ
,volild rncur addirional expenditure ro build such a faolrty, nrhich wouid reduce its profirability. He clarmed
rirar as rheir ci:rreni practices did not give XYZ any problems, so they need not be'lrxed' He was clearly
noi in favour oi Marr's proposal. He furrher argued rhar it vras rl-re government's resDOnsrbtlrty ro overcome
po i ,. On PIob rm<
Afiq was shocked ro know abour such an irresponsible atti:ude rowards ihe cnvtronmenr. He v'ras
frusrrareci and upser abour the short-sighted views of the clriei'operarir-ig offrcer, vtliich rvoulc be harm[ul for
XYZ's business in rhe long run. He did not pay af tention ro the rest of rhe discussion. lhe Cha rman nl'XYZ
lvcruld be coming for a shorr visir next monih and Afiq planned Lo approach hirn to hrghlrghi hrs concern.
Berng a young person who believed in dorng the rrghr thing, Afrq was dctetmineci to rrsk hrs 1ob and report
rhe uvrongdoing ro rhe local authorityif XYZ failed ro take action io stop polluting thc envrronment
Questions
1. Describe the erhical issue in this case.
2. ldentify the possible stakeholders in this case and briefly explain rherr sra<es.
3 Analyse the ethical issue highlighred in the case from rhe lslamic persPc.rrve
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390 Business Etirics
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Akbar, K.F. (1992). Environmental crisis and religion: The Islamic vtew. Islamic Thought and Scientific
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J.
traditions and the practice af business (pp.295-323). Virginia: Philosophy Documentation Center.
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mengen ai_merokok_0.pdf>" Ac cessed on 2 April 2A14.
Beekun, R. (1997). Islamic Business Ethics. Herndor: The Internationallnstitute of Islamic Thought.
Beekun, R. and Badawi, J.A. (1999). Leadership: anlslamic perspectiye. Maryland: Amana Publications.
Beekun, R.1 and Badarvi, ,. (2005). Baiancing ethical responsibility among multipie organizational
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sl,arak>. Accessed on 02 April 2014.
(ieorge, J.N4 and ]ones, G.R. (2005). tJnderstanding and managing organizational behavioar. New |ersey:
Pearson-Prentice Hail.
Ghazali-hanbali, L (1995). T'aqwa: The provision of believers. UK: Alhoda.
Haneef, M.A.M. (1997).Isiam, the Isiamrc Worldview and Islamic Economics. tl(llvl Tournal of' Economics
und M anagement, 5(l): 39 - 65.
Izetbeqovic, A.A. (1984). lslttm between East and West (3'd Ed). Indiana: American Trust Publicarion.
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Islamic IJniversity Malaysia, Kuala Lumpur, Malaysia.
Mawdudi, S.A.A. (i988). ln Zafar Ishaq Ansarl, eds. Towards Understanding the Qur'an: Voi"l Leicester, UK:
The Isiamic Foundation.
Merriam-Webster (n.d.). Lottery [Def]. Merriam-Webster Online. <l,ttp:liwww.merriam-webster.com/

dictionary/lottery>. Accessed on 31 March 2014.
lslamic Ethics 391
Mohsen, N.R.M. (2007)" Leadership from the Qur'an, operationalization of concepts and empiricul analysis:
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Universiti Sains Malaysia, Kuala Lumpur, Malaysia.
Naqvi, S.N.H. (1981). Ethics and economics: an Islamic synthesis. Leicester: The Islamic Foundation.
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\..i
CHAPTER
4q Ethics in the Globa1

I Z Environment
--9.:*e'
LEARNING OUTCOMES
At the end of this chapter, you should be abie to:

r Discuss the ethical conduct of multinational corporatrons.
a Analyse the different ethical theories in the context of
internationa I business.
r Describe ethics in an rnternational cross-cultural context.
e Explain the framework for ethical decision-making.
r Discuss the current ethical issues impacting the global
environment.
1t:2.,0 INTRODUCTION
I)ue to globalization and the liberalization of various policies around the world,
This
there needs to be an adjustment in how businesses address their strategies.
in
has been brought about because of the change in demographics, uncertainties
the market, u irrsh for diversity and increase in competition- Globalization is
a
complex phenomenon and requires ingenuity, assimiiation and interdependence

with
of varioui economic activities. There are now more cross-border operations
actions such as investment, marketing, technology transfer and production' The
market has become more global in nature and this resulted in less distinguishable
changes impacted not only
;";;r and services from tieir country of origin.theGlobal
social environment' The various
ih. .orpo.ute and business community but also
o..rrr"rr."s of globalization may cause deterioration of the physical environment
of
and pose manyithical issues such as exposure of toxic substances, exploitation
and other social problerns'
workers and consumers, discrimination, urban decay
i'his chapter rvill address some of the ethical issues associated with internatronal
business mentioned earlier.
.5.
12.1 ETHICS IN INTERNATIONAL

BUSI N ESS
lVhere'er multinationai corporations do business around tire t'or1d, Iranagers

must nor only avoid breaking the larr, they should folloiv high ethical standards-
Cor11panies encounter ethical chailenges in a range of lnternational activities.
One
is globa1 sourcing, the procurentent of products or services frorn supplier.s located
,rf,Ioad. ln a t1,piJal scenario, the focal firm buys parts and components from-foreign
companies u1d -arrfoctures such goods or the firm may establish its or'vn factories
abroad. Global sourcing raises public debate about protecting the environment and
Lilsuring human rights. For example, some companies operate sweatshops, factories irl
$,hich elployees may work iong hours for very low wages, often in harsh conditions.
5neatshops may also employ.l-rild lubo.rr, which is illegal in rnost of i1r'- u'orld.
ln
,rflrer cases, firms operate factories that pollute the air, water or iatLd.
Sonle firms in deceptive inarketing practices in advertising and selling
"ngug" their products. Others offer defective or harmful products
io induce people to f"y
.r packaging itrrt can lead to disastrous outcomes for public health and safety or tor
the natural environment. The easy accessibility of the Internet has ied shady online
marketers to harm unsuspecting consumers. For example, in developing econofilies,
the majority of online dr,rg tiot.. operate illegaily. The drugs offered by, such
outlets are often fake and may harm users. Although the pharmaceutical industry
;nd governments pursue such firms, they are often elusive and beyond the reach of
iruthorities.
Illicit use of intellectual property represents 1.g1 another ethical violation,
especially common in international business- lnteliectual property refers to ideas
or
Y4 Business tthrcs
-Ad;'rces
il --l works created by individuals or firms and includes a variety of proprietary, intangible
assets, discoveries and inventions, artistic, musical and literary works and words,
telecom mun ications
have intensified
phrases, symbols and designs. intellectual property may be stolen or copied illegally.
such ethical In Russia, for example, software and movies produced by such firms as Microsoft
issues as Drivacy and Disney often fall prey to counterfeiting. The assets are reproduced without
protection, lraud, and compensating those who originally created them. Widely recognized global brands
patent, copyright, such as Rolex, Louis Vuitton and Tommy Hilfiger often fall victim to counterfeiting,
and rrademark eroding firms'competitive advantage and branC equity.
infringemenr. They Trademarks, copyrights and patents are examples of intellectual property rights,
have also nrade it the legal claim through which proprietary assets are protected from unauthorized
easier to carry out
use by other parties. Trademarks are distinctive signs and indicators that firms use
queslionable financial
to identify their products and services. Copyrights grant protection to the creators of
activiries, notably
art, music, books, software, movies and TV programmes. Patents confer the exclusive
money laundering,
which rnvolves
right to manufacture, use and sell products or processes" Intellectual property rights
rransferrrng illegally are not guaranteed in most of the world. Laws enacted in one country are enforceable
received money or only in that country and confer no protectton abroad.
usrng ir in financial For some companies, being ethical goes beyond doing rvhat is right" It also means
lransac[ions in order being ethical in sourcing for the components that made up the product. In case for
ro conceal rhe source review 12.1, Fairphone is the world's first ethica[ly sourced smartphone. The company
or ownership or ro has a policy to ensure that their components and materiais are on1,v procured from
tacrlrrare an illegal ethical sources.
ac irvir';.
Fairphone: The World's First Ethical Smartphone
The inventor behind the device publicrzed as the rnrorld's frrsr erhically sourced smariphone was a
DutchmannamedBasvanAbel Thephonewasunveiledrn20]3wirhthousandsof pre-orders,which
is not bad considering rhat the phone is nor an Apple or Samsung. rJowever, rhe prolect remarns a
huge gamble The idea behrnd ihe smartphone called'Fairphone'is rhar ir avoids sourcrng marerials
from conflict zones that use factories thar pracrise poor labou, r,ranagement Ar rhe cosr of 325
euros (RM'1,391.92), the handset received more rhan 15,000 bookings prior to irs launch Despire rhe
seemingly rosy start to Fairphone, van Abel said thar erhical business was no[ easy, Allhough rhe
phone looks lrke Apple's iPhone and Samsung's Calaxy, the designers say rlrgpp are many differences.
Van Abel initially srarted off by looking for erhrcal ways ro obtain colran, rvhich is a rnrnerai exrrac[ed
inrhe Democratic Republic of Congo and is vital for mobile phone producrion. Through rhrs search,
- . he also found that cobalt was also used exrensively ro make mobile pl-,.lnes and thus broadened his
r.at;*ii{ on building a smarrphone exemplifying social and eco-friendly values all along the assembly
rphone is also designed to be less power-hungry and more easily recyclable rhan currenr
'First Erhical Smarrphone Takes a Big Risk', The Srar, 20 Seotember 201j)
12.2 fHE EtHIcAL corvDuCr or

M U LTI NATI ONAL CORPORATI O NS
Multinational corporations (MNCs) are public companies that oPelate on a- global

scale without significant ties to ary nation or region. MNCs replesent the highest
level of international business commitment and are characterized by a global strategy
of focusing on opportunities throughout the world. Examples of mulfinational
corporatiois include Petronas, Nike, Sony, Apple and Nestle. Some of these firms have
gro*, so large that they generate higher revenues than the gross domestic product
produced in a
iCnp) of a country. fne COp is the ium of all the goods and services
country Curing a calendar Year.
Due to their size and financiai power, MNCs have been the subject of much
ethical criticism, and their impact on the countries in which they do business has
been hotly debated. Labour un:''ns in many Western countries argue that it
is unfair
for MNCs to transfer jobs overseas, where wage rates are iower' Other critics have
charged that multinationals use labour-saving strategies that increase unempioyment
in th"e countiies u,here they manufacture. MNCs have also been accused of increasing
the gap between rich and poor nations and of misusing and misallocating scarce
,..rou.."r. Their size and financiai influence enable MNCs to control money supplies,
employment, and e',.en the economir well-heing of less-developed countries' Critics
believe that the size and po\\,er of MNCs create ethical issues involving the
expioitation
whether MNCs shouid be able
of both natural and human resources. One question is
to pay a low price for the right to remove minerals, timber, oil, and other natural
resources and then seli products made from those resources for a much higher
price'
In many instances, only a small fraction of the ulrimate sale price of such resources
comes back to benefit the country of origin. This compiaint led many oil producing
countries to form the Organization of Petroleum Exporting Countries (OPEC) rn the
1960s to gain control over the revenues from oil produced in those lands'
Critics also accuse MNCs of exploiting the labour markets of host ;ountries'
Although some MNCs have been accused of paying rnadequate wages, the ethical
issue oI fair wages is a compiicated one. Sometimes MNCs pay higher wages than
locai employers can afford to match; then local businesses complain that the most
productive and skilled workers go to nork for multinationais. Measures liave been
iaken to curtail such practices. For example, many MNCs are trying to help orga.nize
labour unions and establish minimum wage larvs. In addition, host gover;r'leirts have
levied import taxes that increase the price that N{NCs charge for their products and
reduce their profits. Import taxes are meant to favour local industry as sources of
supnly for an^MNC manufacturing in the host country. If such a tax raises the MNC's
coiis,'it rright lead the MNC to charge higher prices or accept lower profits, btit sut:it
effects are iot the fundamental goal of the iarv. Host governments have also imposed
export taxes on MNCs to force them to share more of their profits'
The activities of MNCs may also raise issues of unfair competition. Dr-re to their
diversified nature, MNCs can borrow money from local capital resources in such
volume that little is left for locai firms. MNCs have also been accused of failing to
caffy an appropriate share of the cost of social development. They frequently apply
advanced, fiign-proauctivity technologies that locai companies cannot afford or
'Ihe MNCs thus beconie more
cannot implement because they lack qualified workers.
productive and can afford to pay higher wages to workers. Due to thei: teehnologV,
il,tXCr require ierver employees than the local firms to produce the same product. Given
1n /
JYO LJusrness Lthrcs
their economies of scale, MNCs can also negotiate lorver tax rates" By manipulating
transfer payments among their affiliates, they may pay little tax anywhere. All these
special advantages explain why some claim that MNCs compete unfairly. For example,
many heavy-equipment companies in advanced economies try to sell construction
equipment to foreign companies that build major roads, dams and utility complexes.
These companies argue that the equipment will make it possible to complete these
projects sooner, thus benefiting the country. Some less-developed countries counter
that such equipment purchases actually removc hard currency from their economies
and increase unemployment. Certain nations, such as India, therefbre beiieve that it is
better in the long run to hire labourers to do construction work than to buy a piece of
heavy equipment. The country keeps its hard currency in its economy and creates new
jobs,leading to an improvement of the quality of iife, which it prioritizes over having
a project completed sooner.
Although it is unethical or iilegal acts by MNCs that makes internationai news,
some MNCs also make it a point to be responsible global citizens with good ethical
values Eor example, Texas Instruments (fI) has adopted a three-level global approach
to ethical integrity, as outlined in Figure 12.1.
o Are there business pracrices or requiremenr ar rhe local ievel

which impact how we interacr wirh co-workers in other
parrs of the world?
Figure 12.1 : Texas lnstruments'three-level glc,bal approach to ethical rntegrity
1'exas Instruments generally follows strict rules re garding the giving and receiving
of gifts. Hor,vever, rr,hat may be considered an extra\ragant gift in rhe USA may be
regarcled ciifferently according to the iocal customs of other Lolrntries across the g1ohe.
Texas Instruinents used to define gift iimits using U.S. dollars, but now it
lust specilles
that gift giving should not be used in a way that places undue pressure to win business
or implies a quid pro quo.
Although MNCs are not inherently unethical, theri- size and power ofien seem
threatening to less-developed countries. The ethicai problems that MNCs face arise
from th: opposing viewpoints inherent in multicultural situations" Differences
in cultural perspectives may be as important as differences in economic interests.
Because of their size and power, MNCs must therefbre take extra care to make ethical
decisions that not only achieve their own objec,ives but also benefit the countries
where they manufacture or market their products.
Ethics in the Global Environment 3q7
12.3 ETHiCAL THTONIES IN THE

CONTEXT OF I NTERNATIONAL
BUSI N ESS
While reviewing the current literature on international business ethics'

several
i*f ortunt ,.hooi, of thought emerged. We shall look at several different approaches
in the foliowing section.
12.3.1 Cultural Relativism

'When in Rome, do as the Rontans do''
'Ihis was the maxim for the relativist school of thought' originated from the ancient
argues that
Greek philosophy of the Skeptics and Sophists,- cultural relativism
businesses stlo.la adhere to the ethical standirds of the
country u'here they are d.li18
business and they should accept that different cultures
hold different ethical beliefs'
culture are better than
Therefore no one should claimihat the ethical stanciards of one
also believes that concepts
those of another culture. Furthermore, cuitural relativism
from the attitudes of a given
such as ;ustice, injustice, right and wrong, originated
values applied to Yarlous
culture and hence trsin.ss"I.an rationaliie diflerent ethical
e ountries and changes ovcr time'
in
In this .ur", r"L"r, an organization accepts reiativism as the nlorai standarcl
for deciding moral
their international conduct, ihere lvill be no common structure
between cotnpatlies in
clifferences or for reaching settlements on ethical matters
various cuitures. Despite tie flexible natule of this theorl', it rnight
create a rather
point
awkward and problematic situation rvhere there is no common
reference
between consumers rn the home and foreign market'
12.3.2 Moral lmPerialist

tl-rat arguesthat
The other eKtreme of ethical theory is the moral irnperialist Yjewpoint
people should apply their own cuitural ethical principles when functroning an1'rvhere
r'r'ottld at home" whrch
around the world. Their aclage is 'lvhen in Rotne, do as yclu
must ol-ey therules
means that although multinat'ionals operating in another countr,v
justifiable
and regulations oihe host countrl', tley *uit ulto apply moral statrdards
atlcl moral
to their home countries'iaws and principles. Between ethical relativism
are vvhat
imperialism, some suggested that what organizatiols tho.uld focus on instead
They belreve thc
url.].. at e best for the";usinesses and cultures in which they operate'
ethical decision-making process involves both the dogmatic and innovative otrtlooks'
as the response
l'he main premise of thi-s perspective ls two-fo1d. Firstiy, ethics progress
for
:o the fundamental desire to survive, especially in situations rvhere
cor-npetition
limited resources is strong. Secondll', societies seek to negotiate such competitive
The results
cnvironments by altering ihei. cultural morals, although subconsciously.
rationale, in the
would be the adaptive re"action tirat unfolds as an ethic. Based on this
case of global businesses, an international set of agreed standards
wouid perhaps be
behind the Caux
the soluiion on whose ethics one should use. Such u'as the principles
bccn transiated
Round Table (CRT) for business that was iaunched in 1994 and had
to collaborate to create
into many langLiages. Global business leaders came toSether
i9B Business Ethics
a global code of ethics intended to provide structural order in the dynamic world
markets. The CRT principles were about business accountability, including openness
to stakehoiders as well as shareholders, efforts to create fairness and a global business
community adhering to laws.
12.3.3 Normative Ethical Standards

Normative ethical standards, also known as universalism, provide procedures that go
beyond domestic boundaries and cultural differences" The principle follows the saying
'when in Rome or anywhere else, do as we and the Romans agree to do'. Normative
guidelines address common issues from the global perspective r,vith concerns such as
basic human rights and freedom, environmental protection, employrnent practices
and policies, political payments and invoivement and consumer protection" The
United Nations, OECD, Transparency International and the Caux Round Tabie are
examples of global establishments that had proposed many broad based global codes
of co-- Cuct. This is seen as a move forward as business becomes more global and
complex, the need for the formation of internationai moral solutions beeomes more
urgent. The advantages of having a global code of ethics are; firstly, it decreases the
potential for serious future problems and can diminish operating uncertainties and
r,vith the common code of ethics globall,v, and secondly, it u,ould now be possible for
aii international firrns to function u.ithin the sarne principles that rvould eventually
produce a 'level playing field' in u.,hich many businesses prefer to play. Despite the
many benefits of global ethical codes and the many compelling reasons for their
adoption, it is not i,r,ithout limitations. Since globai rules are likeli, to develop from a
bargaining process, they are unlikel,v to rnirror standards and practices consistent for
all cultures.
12.3.4 Dialogic ldealism

Apel (1988, 1990) and Habermas (1983, 1991) from lr''here th e theory of dialogic icle aiism
originated from stated that it was impossibie to find or create tangible ethical doctrines
that are universally binding. As an example, the many ethical codes developed by the
West may not incorporate the principles of ethical conduct from other regions of the
world. Values such as human rights, the principle of democratic legitimacy, or the
concept of public accor.rntability are also too general to be codified into something
workable across different cultures. Furtherrnore, many organizations may 1.1sv,, global
ethics as a set of 'finalized'codes or as a'sealof approval'tl-rat represents a final copv
of the ethical principles rather than as a starting point with the view to iniproving tle
codes as time goes by, There is a need to keep global codes current as conditions may
change and organizations might hiele behind obsolete codcs of conduct. T'he revision
of the codes r'vould be important and should be done periodically in the best interest
of many global business enl ities.
12.3.5 Rights Theories

The notion that human beings have fundamental rights and privileges that go beyond
national borders and cuitures is the basis of rights theories. These rights are seen as
the minimum level of morally acceptabie conduct. It can also be consirued that these
fundamental rights also take precedence over a '-oilective good. Ethical philosophers
reason that basic human rights form the foundation for the morai direction that
Ethics in the Global Environrnent 399
business organizations should navigate by when making choices that have ethical
ramifications. Specifically, they should not follorv activities that violate these rights.
In the context oiinternational business, the United Nations' Universai Declaration of
Human Rights has been ratified by almost every country on earth and it lays down
fundamental principles that should always be observed regardless of the culture in
which one is doing business. An example of the application of the United Nations'
Universal Declaration of Human Rights in the scope of employment couid be found
in Article 23 of the declaration that specifies on rights to 'just and favouraLrle work
conditions', 'equal pay for equal work' and remuneration that ensures an 'existence
worthy of human dignity'. These indicate that it is unethicai to engage child labour or
pay less than minimum acceptable wages, even if that happens to be the usual practice
i.r'.o*. countries. These are fundamentai human rights, which surPass national
boundaries.
12.3.6 Justice Theories

The theories of justice emphasized on the realization of a just delivery of economic
goods and services rvhere a just distribution is one that is considered fair and unbiased.
1h... are ser.eral tl"ieories of justice and we u,ill concentrate on the theory attributed to
John Rau,1s who argued that ali economic goods and services should be disseminated
equally.:xcept nhen an unequal distribution notrld rvork to everyone's benefit.
Aicording to Rawis, there are trvo central doctrines of justice. The first principle
states thai each individual is permitted the maximum basic liber"ty compatibie with
a similar liberty for others, such as poiitical iiberty (e.g. the right to vote), freedorr-r
of speech and association, right of conscience and freedom of thought, the freedom
andright to own property, and frecdon"r from subjective detentron and seizure. Tl"re
,..ond principle is that once equal basic freedom is guaranteed, disparity in basic
social goods-such as income and wealth distrrbution ancl prospects is to be allowed
only if such inequalities benefit everyoile. Rarvis accepted that inequalities can be just
ifthe system that creates inequalities is to the advantagc ofeveryone.
How then can this theory be applied in the context of internationaL business
ethics? Businesses should evaluate if the policies they implement in foreign countries is
considered just under Rawl's principle. For example, would it be just to pay rvorkers irt
the host countries iess than in the home country? The application of the theory would
suggest that the inequality is just as long as it is beneficrtrl to the least advantaged
members of the giobal society. However, a scenario where the foreign emploYees were
paid lower lvages and were also required to work long 1-rours in an environtrent i.vhere
they were exposed to toxic materials, would be clearly unjr,rst in Rawls' context and
thus unethical. Therelbre, Rawls' tlieory is a conceptual instrr.rment tirat contribr.rtes to
the ethical direction that international companies can usc to help them steer thrtrugir
chaiiengirg ethical quandaries.
12.4 ETHICS IN CROSS.CULTURAL AND

I NTERNATIO NAL CONTEXTS
A useful way to characterize ethical behaviour in cross-cultural and international

contexts is in terms of how an organization treats its en-rpioyees, how empioyees
00 Business Ethics
treat the organization, and how both the organization and its employees treat other
economic agents.
12.4.1 How an Organization Treats lts Employees

One important area of cross-cultural and internationai ethics is the treatinent of
employees by the organization. At one extreme. rn organization can strive to hire
the best people, to provide ample opportunity for skill and career development, to
provide appropriate compensation and benefits and to generaliy respect the personal
rights and dignity of each employee. At the othdr extreme, a firm can hire using
prejudicial or preferential criteria, can intentionally limit development oppo11un11i.r,
can provide the minimum compensation allorvable and can treat employees cailously
and with little regard to personal dignity.
In practise, the areas most susceptible to ethical variation include hiring and firing
practices, wages and working conditions and employee privacy and respect. In some
countr,es both ethical and iegal guidelines suggest that hiring and firing decisions
should be based soiely on an individual's ability to perform the job. However, in other
countries, it is perfectly legitimate to give preferential treatinent to individuals based
on gender, ethnicitl,, age or other non-work-related factors.
Wages and rvorking conditions, while regulated in some countries, are also areas
for potential controversy. A manager paying an employee less than he deserves, simply
because the manager knows the employee cannot afford to quit or risk losing his job
by complaining, might be considered unethical. Similarly, in somc countrles, people
would agree that an organization is obligated to protect the privac.,, of its employees"
A manager spreading rumours that an employee has AIDS or rs having an affair rvith
a co-rvorker is generally seen as an unethical breach of privacy, Likewise, the manner
in nhich an organization responds to and addresses issues associated r,r.ith sexlLal
harassment also in-,'olves employee privacy and related rights.
Managers in international organizations face a number of clear chailenges
r'r,ith regard to these matters. The firm must deal rvith country specrfic etirical
issues regarcling its treatment of empioyees, but must also be prepared to contend
with international comparisons as well. Consider the myriad ethical dilemmas
posed by the practice of outsourcing production to overseas locations. From
one perspective, it can be argued that firms are ethicalll, bound to move jobs
u,herever they can be performed for the least cost" On the other hand, some critics
would argue that this practice is unethical, for it devalues the rvorkers numerous
contributions to the firm and ignores the hardships imposed on displaced workers.
In some countries, such as iapan, aggressive outsourcing that resulted in dornestic
layoffs that violated the firm's implicit agreement t1r provide lifetime employment.
The ethicai rssues facing the firrr's managers do not end once the production js
moved overseas.
12.4.2 How Employees Treat the Organization

Numerous ethical issues also relate to how employees treat the organization" The
centrai ethical issues in this relationship include conflicts of interest, secrecy and
confidentiality and honesty. A conflict of interest occurs rvher a decision ootentrally
benefits the individual to the possible detriment of the organization" Ethrcal
perceptions of the importance of conflicts of interest vary fiont culture to crrlture.
Consider the simple example of a supplier offering a gift to a company employee.
Some companies believe that such a gift can create a conflict o{'interest. They fear that
the employee will begin to favour the suppiier that offers the best gifts, rather than the
supplier whose product is the best for the firm. To guard against such dangers, many
companies have policies that forbid their buyers from accepting gifts from suppliers. In
some countries, exchanges of gifts between a company's employees and its customers
or suppliers is perfectly acceptable. In ]apan, for instance, such exchanges are
.o**o, (and expected) during the ochugen and oseibo gift giving periods. Ochugen,
u,hich occurs in iuly, was originally developed to pay homage to the spirits of one's
ancestors, although it has evolved to reflect one's best wishes for summer. Oseibo gifts,
which are offered in December, represent a token of gratitude for favours and loyalty
shown throughout the year. |apanese department stores helpfuily stock their shelves
with appropriate goods at every price level during ochugen and oseibo. Well defined
.rlt,.r.ai norms gor..., the level and appropriateness of the gifts to be exchanged
by businesspersons, which depend upon the nature of the business relationship, its
length and the amount of business transacted. Note, however, that determining an
appropriate gift by the amount of business transacted is exactly the kind of behaviour
thit aiouses suspicion of conflic* of interest in many North American and European
countries.
China offers a similar sct of challenges to firms wishing to control conflicts
of interests. Much business in China is conducted through guanxi, which is based
on reciprocal exchanges of favours. Because of the importance of guanxi, North
American and European firms operating in China often face a difficult task of
adapting to the norms of Chinese business culture rvhile continuing to honour
.o*pur-ry policv regarding cor.iflicts of interest. Typically, one finds that in high-
context, collectivist and por,r,er respecting cultures, gift exchanges are a more
important part of the rvay business is done than in lorr,-context, individualistic and
po\ver tolerant cultures.
Divulging cornpan)r secrets is vieu,ed as unethical in some countries, but not
in cithers. Empiovees u,ho work for br.rsinesses in highly competitive industries-
electronics, softu,are and fashion apparel, for exampie, might be tempted to sell
informatir,rn about cornpany plans to competitors. Furthermore, Chinese 1aw offered
littie prorection rvhen employees left a company and started a rival firm rLsing the
fcrrner's technology.
A third area of concern is honesty in general. Relatively corrlmon problems in
this area include such things as using a business telephone to make personal long
distar-rce calls, stealing supplies and padding expense accounts. In some business
cultures, such actions are viened as r-rnethical; in others, ernployees may deyelop a
sense of entitlement and believe that 'if I am working here, then it's thc company's
responsibility to take care of nty needs'. The potentiai for conflict is clear whetr
lndividuals from such divergent ethical perspectives work together.
12.4.3 How Employees and the Organization Treat

Other Economic Agents
The third major perspective for viera,ing ethics invoives the relationship between the
frrm and its employees with other economic agents. The prirnary agents of interest
include customers, competitors, stockholders, suppliers, dealers and iabour unions.
The behaviour betrveen the organization and these agents may be subject to ethical
ambiguity, including in the areas of advertising and promotions, financiai disclosures,
ordering and purchasing, shipping and solicitations, bargaining and negctiation and
other business relationships.
0? Business Ethics
For example, businesses in the giobal pharmaceutical industry have been at the
receiving end of growing criticisrl because of the rapid escalation of the prices they
charge for their newest and most powerful drugs. These firms argue that they need
to invest heavily in research and development programmes to develop new drugs
and higher prices are needed to cover these costs. Yet, given the extent ofthe public
health crises that plague some areas of the world, such as t{IV/AIDS in sub,saharan
Africa, some activists argue that the pharmaceutical manufacturers should lower
their prices and/or relax their patent protection so that patients in poorer countries
can afford to purchase the drugs needed to treat suctr diseases. Another growing
concern in recent years involves financial reporting by businesses. Because of the
complexities inherent in the financial reporting of large multinational corporations,
some of them have been very aggressive in presenting their ftnanciai positions in
a very positive light. Moreover, in a few cases, some managers har.e substantially
overstated their earnings projections andlor hidden flnancial problems so as to
entice more investment.
Differences in business practices in various countries create additional ethical
complextties for firms and their employees. In some countries, small bribes and side
payments are a normal and customary part of doing business; foreign companies
often follow the local custom regardless of what is considered an ethical practice at
home. In China, forinstance, iocai journalists expect their cab fare to be paid if they
are to cover a business-sponsored news conference. In Inclonesia, the norntal time
span for a foreigner to get a driver's license is over a year. but it can be 'expedrted'
for an extra RM300. In Romania, building inspectors loutinely expect a 'tip' for a
favourable revierv.
12.5 AN ETHICAL DILEMMA

Most flrms attempt to satisfy ethical standards lvherever the.v do business. However,
deciding what is right and wrong is not ahvays clear. Irthical problems arise when
requirements are ambiguous, inconsistent or based on ntultiple legal or cultural
norirs. Even u,hen a countr). has a sound legal system, or even when the firnt has a
strong code of ethics, managers regularly face the challenge of- determining lvhat is
appropriate behaviour.
An ethical dilemma is a predicament rvith which deterrnining the most appropriate
course of action is confounded by a set of solutioi'rs that are equaliy justifiable and
often equally irnperfect. Possible actions may be ntutuallr' ,.,:rclnsive-- the choice of one
automatically negates the other(s).
Imagine you are a manager r.rsitinS a factory olvned by an alliliate rn Cambodia,
only to discor.er the use of child labour in the factor;.. You are toid that n ithout the
childrer-i's inr--ome, their families might go hungry. If the chiidren are dismissed from
the plant, they rvill likeiy turn to other income sources, including prostitution or street
crime. \\rhat should you do? Do you make a fuss about the immorality of child labour,
or do you iook the other way? This example is typicai of the typc of ethical diienrnas
that employees frequently encor,rnter in internatjonal business. Managers embedded
in host countries maybe most exposcd becarrse they are caLrght beiween home countr\r
ethical norms and those encountered in the forei",n country.
Ethics in the Giobal Environment 403
12.6 A FRAMEWORK FOR ETHICAL

DECISION-MAKING
Scholars suggest that managers follow a syStematic approach in resolving ethical

dilemmas. With practice, it can become second nature. The following is a iour-step
framework for arriving at ethical decisions, as iilustrated in Figure 12.2'
Figure 12.2: Four-step framework for arriving at ethical decisions
Step 1: Recognize an ethical problem

The first step is to acknon4edge the presence of arr ethical probiein. Ask questions
such as: Is there soirething \vrong? Is an ethical dilemma present? Is there a siluation
that might harnt personnei, customers, the community or the nation? In internatronal
business, recognizing the issue can be tricky because subtleties of the situation may
be outside your knowledge or experience. Often, it is best to rely on your instincts -if
sonre action feels rvrong, it probably is.
Step 2: Get the facts
Determine the nature and dirnensions of the situation. Have all the rele\rant persons
and groups been consulted? Urhat inciividuals or groups have a stake in tLe outcome?
llou,, much lveight should be given to the interests of each? Do some parties have a
greater stake because tirey are disadvantaged or have a special need?
Step 3: Er aluate alternative courses ofaction

trlentify potential collrses of action and evaluate each. Initially, consistent with the
nyramrd of ethical behaviour, review any proposed action to ensure it is legal. If it
violates host or home country laws or international treaties, it should be rejected. Next,
review any proposed action to ensure it is acceptable according to company policy, the
firm's code of conduct, and/or its code of ethics.If discrepancies are found, the actions
shouid be rejected. Finally, evaluate each proposed action to asscss its consistency
with accepted ethical standards, using the approaches described earlier:
t Lltilitsrian-which action results in the most good and least harr r?
t Rights-which action respects the rights of everyone involved?

t Fairness--which action treats people most fairly?
+41 Business Ethics
t Common good-which action contributes most to the overall quaiity of life of

the people affected?
t Virtue-which action embodies the character strengths you value?
The goai is to arrive at the best decision or most appropriate course of action.
It may be useful to.enlist the aid of local colieagues familiar with the situation, to
provide insights and help generate options. Assess the consequences of each action
from the perspective of all parties who will be afllcted by it. Any decision should be
tested by asking-would you feel comfortable explarning it to your mother, a colieague
you respect or a valued mentor? If you had to defend the decision on television, would
you be comfortable doing so?
Step 4: Implement and evaluate your decision
lmplement your decision. Then, evaluate it to see how effective it rvas. How did it turn
out? If you had to do it again, would you do anything differently?
TLc steps in this framework will heip managers arrive at appropriate solutions to
ethical dilemmas. To briefly illustrate,let us revisit the example of you as a manager
visiting a company factory in Cambodia, where you discover child labour. Without
the children's incorne, their families may go hungry, or the children may turn to illicit
activities, such as street crime. Having recognized the problem, the manager may
obtain more facts b,v consulting colleagues both at the plant and headquarters. The
manager may, also .seek information on the status of the employed children. as rvell as
iocal lar,r, and customs on child labour. 'Ihe manager then evaluates possible solutions,
ensuring they are legai and consistent with company poiic,v. Finally the manager
chooses thc best one and acts on it.
12.7 CURRENT ETHICAL ISSUES IN

I NTERNATIONAL BUSI N ESS
IVIany of the ethical issues in international business are rooted in the fact that political
systems, 1arv, economic development and culture vary significantly from natiott
to nation. What ls considered norrnal practice irt one natlon may be considered
unethical in another. As managers in a multinaiional f irrn r'r,ork for an instltutron
that transcends national borders and cultures, they need to be particularly sensrtive to
these differences. Now, 1et's turn our attention to sonre comrron global ethical issues
that arise r,vhen companies transact business internatii'rnally. 'fhese inciude price
discrimiriation, harmful products, employment practices, environmental polltition
and corruption issues. This list of issues is certainl,v not exhaustive but provides a
sample of the complexity of ethical decision-making rn the global arena.
12.7.1 Price Discrimination

A major ethical issue in internationai business is horq product< sold in other countries
are priced. When a firm charges different prices to clifferent groups of customers,
it may be accused of price discrimination. Dif{erential pricing rs legal if it does not
substantialiy reduce ccmpetition or if it can be justified on the basi:r of costs, for
example, the costs of taxes and import fees associated with bringing products rnto
Ethics rn the Global Environment 405
another country. However, price discrimination may become an ethical issue or even lP'L..4G,-"il;,
be illegal, as shown in Figure 12.3. creates an ethical '
issue and may be

illegal when the
The practice violares practice violates rhe
either country's laws laws oF rhe counrries
rnwhich it occurs,
when the marker
cannot be segmented
The marker cannot be or ihe cost of ...
Price
divided irito segmenm segmenting exceeds
discrimination the extra revenue
maybecomeah gained from legal
ethical issue or price discriminarion,
The cosc of segmenting
even be or when price
rhe market exceeds the
illegalwhen... discrimination
extra revenue from legal
results in customer
discriminarion
d issat isfact ion.
The practice resuks in

exffeme customer
dissarisfacrion
Figure 12.3: Reasons that make price discrimination unethica{ or illegal
\\rhen a rnarket is artificiaiiy dir,ided into segments and each segment is subjecl
to different prices, inr:qualities ma,y emerge that cannot be explained by added costs.
Such pricing poiicies nrav be judged iilegal if courts rule that they substantially
decrease competition.
When companies nrarket their products outside their own couutries, the costs fwh.r,h. f-.s"
of transportation, taxes, tariffs, and other expenses catr raise tl-reir prices. I-Iowever, price of a product
lr.hen prices increase beyond the level needed to meet the costs of these addttional exceeds the full
expenses, an ethical issue einerges. Increasing prices in this r,l'ay is sometirnes referred costs of exporuing,
to as gouging. When the European Union converted to a single currency, tire euro, the ethical issue of
gouging arises.
many Europeans believed that individual shops as well as countries \{ere gouging
them. Gouging also refers tc charging exorbitant rates for a limited time t,-r expioit
situational shortages, for instance, lr,hen timber suppliers charge premium prices to
flood r.ictims seeking to rcbuiid.
Conr.ersely, in the context of international trade, dumping is variously defined as fDrrpl"g;u''-
seliing goods in a foreign market at belon, their costs of production or as selling goods when companies
in a foreign market at below their 'fair' market value. There is a difference between sell products in their
these trvo lefinitions-the fair market value of a good is normally judged to be greater home markets at high
than the costs of producing that good because the former includes a 'fair' profit prices whrle selling
margin. Dumping is vier,ved as a method by rvhich firms unload excess production rhe same products
in foreign markets
in foreign markets. Some dumoing may be the result of predatory behaviour, with
at low prices that
producers using substantial profits from their home markets to subsidize prices in a
do nor cover rhe full
foreign market with a view of driving iocal competitors out of that market. C;nce this
costs of exporlng.
has been achieved, the predatorT firm can raise prices and earn substantial profits.
Dumping is unethicai if it interferes with competition or hurts firms and workers
in other countries. Furthermore, if it substantially reduces competition, it is illegal
under nlany international larvs. Dumpiirg is difficult to prove, however, t,ut even the
suspicion of dumping can lead to the imposition of import quotas, whrch can hurt
innocent firms.
06 Business Ethics
An industry that believes it is competing against clumped products may appeai

to its government to restrict the irnports. However, deterrninrng a fbreign company's
cost or domestic price is difficult because of limited access to the foreign producers'
accounting statements, fluctuations in exchange rates and the passage of products
through layers of distribution before reaching the end consumer. The result is that
goyernments allegedly restrict imports arbitrarily through antidurnping provisions of
their trade legislation and are slow to dispose of the restrictions if pricing situations
change. Companies caught by antidumping restrictions often lose the export market
they laboured to build.
P,".dfilil;l Price differentials, gouging, and dumping create ethical issues because some
gouging, and groups of consumers have to pay more lhan a fair price for products. Pricing is
dumping creare certainiy a complicated issue in international marketing because of the additional
ethical r:sues because costs imposed by tariffs, taxes, customs fees, and paperwork, as well as the politicai
sorre groups of desire to protect home markets. Nonetheless, businesses should take care to price their
consumers have to products so that they recover legitimate expenses and earn a reasonable profit while
pay more rhan a fair
still co .rpeting fairly.
prrce for products.
Dumping does not only happen when products from developed countries flood
into a developing market. As can be seen in case for review 12.2, Mercecles, a German
automotive company, was accused of dumping their cars in the United States, which
happens to have a competitive automotive market. in this instance, both Gerrnany
and the United States are world leaders in car manufacturing, hut this does not stop
one from taking adr.antage ofthe other.
,::,?i.i-r:1.
Dumping Mercedes Cars in the US
Mercedes rs selling its entry-level CLA 250 sedan for RM98,570 in the United States. lr sells the san-re
car in Cermany for RM146,932.1n international trade, dumping is like predarory pricing. Dumping
occurs when manufacturers exporr a producr to anothcr counrry ai a prr.-e either below the price
charged in its home marker or below the costs of producrion. These factors are what determine'fair
value' Selling in the United States at less than fair value is illeg:l ,:nder lJ S an,l internarional lar,v
Mercedes Benz is now illegally dumping cars in the Uniied Stares at a huge djscounr from what ir is
selling the exact same models for rn Cermany. This constitutes an unfair trade pracrice Under rhe
World Trade Organization (WfO) agreement, dumprng is condemned if rt causes or Ihreatens ro
cause material injury to a domestic industry in the imporring country. ln the i.-inired Stares, domesrrc
firms and unions can file an anti-dumping petirion under the regulations esrablished by ihe Llnrted
Srares Department of Commerce. The Commerce Department derermines if rlre manufacrurer rs
, selling its products in the United Stares for'less than fair value'. The lnternational irade C.ommrssron
' (lTC) then determines whether this causes inlury to the domesric indusrry" f here is an ongoing war
between Mercedes, BMW and Audi, the rhree big Cerman luxury auromobrle brands. All rhree are
striving to be rhe leader in worldwicie sales. The key ro winning this global war is winning in rhe
biggesr marker of them all, the U.S. market.
(Adapred from 'ls Mercedes lllegally Dumping Cars in rhe lJnited Snte:l', by Joel D. Joseph , The Hill, 6 lanttary
2014)
Ethics in the Global Environment 4,01
12.7.2 Harmful Products

Governments in advanced industrialized nations have banned the sale of certain
products that are considered harmful. However, some comPanies in those nations
continue to sell such products in other countries lvhere they remain legai. For
example, many recent news stories have focused on the safety of genetically engineered
products, which have become very controversial in the United States and Europe.
Some investors have also fiied resolutions to prevent companies from rnarketing
genetically engineered products until long-term safety testing has shown that they are
iot harmiul tL humans, animals and the environment. Similar proposals'have also
been made for the labelling of genetically engineered ingredients. Many countries,
including lapan, Australia and New Zealand, and those in the European Union,
already require labelling of geneticaiiy engineered food products'
Another ethical issue involves the export of tobacco products to less-developed
countries. Cigarette sales in the United States, for example, are declining in the face
of stricter tobacco regulations, increasing evidence that smoking causes iliness and
medical problems, and a deciine rn ihe social acceptabiiity of smoking. However, as
U.S. saleJ decline, tobacco companres have increased their efforts to market cigarettes
and other tobacco products in other countries, particularly less developed ones. T'he
ethical issue becomes whether tobacco marketers should knowingly sell a product in
other countries that is considered 1-iarmfui in their home country. Many consumers in
underde'veloped countries vier.r,tobacco as beneficial, both ph1'sically and economicalil'.
They argue that the tobacco industry pror,ides jobs and stimulates economies and
that cigarette consumers enjoy smoliing. N4any also cite the iolr' longevity rates itl
these countries as a reason to cliscount tlre health hazards of tobacco. In the long run.
however, as industrialization raises the standard of Iir.,ing in less developed countries,
in turn increasing longevity rates, those countries ntay chatlge their views on tobacco.
As people live longer and t1-re health hazards of sn-roking begrn to cost both the people
and their governmetlts nlore in tin-re and mone,v, ethical pressllre in these countries
wiil increase.
At limes, products that are not harmlul in some countries become harrnful to
consumers in others because of illiterac1,, unsanitary conditions, or cultural values.
For exampie, products marketed by the Nestle Corporation in the 1970s included
infant formulas, which are used in the supplemental feeding of infants and have been
tested as safe rvhen used correctl,v. Wiren the compairy introduced its product rnto
African c6untries as an alternative to breastfeeding, locai ntothers quickly adopted
the product. As time passed, horn,ever, infant mortality rates rose dranlatically.
Investigators found that due to high illiteracy rates, rnanv rnothers were not arble to
follow the instructions for using the formula correctly. In addition, the water they
used to mix with the powdered fcrrmula was often unsafe, and poor mothers also
diluted tl.e forrnula to save money, which reduced the nutritional value of the feeding.
Nestl6 was criticized for its aggressive promotion of the infant formula. For example,
the cornpany had employed so-called milk nurses to tiiscourage mothers from
breastfeeding by portraying the practice as primitive and promoted Nest16's infant
formulas as a safer alternative.
Under heated pressure from international agencies and boycotts by consumer
groups, Nestl6 agreed to stcp prornotrng the infant formuia. It also revised its product
LU.[ing ald educationai materials to point out the dangers of using the formula
incorrectly and to assert that breastfeeding rvas actuaily preferabie. Eventually,
however, the company reverted to its previous practices, and the Wcrld Health
0B Business Ethics
Organization has maintained its boycott. Thus, even traditionally safe and adequately
tested products can create ethical issues when a marketer faiis to evaluate foreign
markets accurately or respond adequatelyto the health problems posed by its products
in certain markets.
In the twenty-first century, the concern is growing over safe drinking water,
genetically modified products, and tainted foodstuffs entering the fbod chain. For
example, McDonald's, long synonymous with fast food, is attempting to develop
healthier snacks even knowing that fat, salt, and sugar are inherently tastier than
broccoli, carrots, and tomatoes. The job of marketing healthier snacks with fewer
calories and cholesterol is a challenge that McDonhld's is n,iiiing to meet to improve
public health.
For years, multinationals have been wary of product safety and control in China,
which is notorious for its lax enforcement. In case for re.,,iew 12.3, Carrefour, a
French hypermarket giant, takes no chances in ensuring that the products sold in its
subsidiary in China meet the food safety standards.
Carrefour's China Food Safety Efforts
Clobal French rerailer, Carrefour, recenrly announced plans to reinforce efforts ro enhance its food
safery and qualiry control in China. Da Wei, vice-president of Carrefour China said that with the new
outlets planned in 30 new ciries across China in the next 3 years, it is crucial for tighrer quality conrrol
to be implemented to supporr rhe food safery testing system. ln the pipeline will be new A-grade
food testing laboratories rhat will make ir possible for Carrefour China ro provide their cusromers
with products that are not only safer, but also of better qualiry. At rhe presenr srage, rhe retailer has
already set up ihese tesl centres in Beijing, Shanghai. Chongqing and Lraonrng province, equipped with
the latest facilities to inspect food merchandises on 55 tesring areas, such as insecticide residue, food
flavourings and addirives and veterinary drugs. ln addirion to these, 43 mini-laborarories narionwide
had also been ser up to tesr food products from its235 stores in 73 ciries on 1i paramerers wirh
quick methods of resring. ln the event rhat conraminated products were found, Carrefour would
withdraw them immediately, informed their suppliers and reporr rhe case to rhe local government
departments concerned. ln order to safeguard food standards, Carrefour had collaborared wirh 534
farm associations in China, from which it could acquire fruir and vegetables direcrly. The pracrice nor
only increased farmers' income, but also provided consumers with higher qualiry food, berter safery
and lower prices. At presenc, 30 per cent of all fruits and vegetables were purchased direcrly from
these farms.
(Adapted from'Carrefour Boosrs Food Safety Efforrs in China', by Chen Qide, China Daily, 22 lanuary 2014)
12.7.3 Employment Practices

Employment practices vary across nations, and becar-rse of this, ethical issues
may arise. \{rhat happens when employment conditirins in the host nation is seerr
to be far less satisfactory compared to the muirinational's home country? V"hich
Ethics in the Global Environment 4A?
standards should be applied in this situation, those of the home country or tho.se
of the host country or maybe a compromise? In some instances, would it be
acceptable for a multinational to tolerate working conditions in their subsidiaries
where the work hours are very long, coupled with extremely low pay and dangerous
working conditions? Many would argue that multinationals shouid not overlook
these conditions and such behaviour should not be toierated. Several ways to
safeguard against ethical abuses would be for the multinationals to establish
minimum acceptable standards that safeguard the fundamentai rights and dignity
of employees,.checking foreign subsidiaries and subcontractors on a consistent basis
and taking corrective actions r,r,hen necessary.
Corporate concern for globai human rights have recently emerged as news stories
depicting the opportunistic use of child labour, payment of lon, wages, and abuses
in foreign factories, which helped reshape our attitudes about acceptable behaviour
for orgamzations. Cornpanies struggling u,ith human rights issues sometimes make
short-term decisions to boost profitability, but these decisions have negative long-
term implications. These issue. include concerns about the treatment of minorities
and women, as wellas the issucs cf child labour and employee rights. Multinational
rorporations face even grcatcr challenges in this area because of the nature of their
reiationships with manufacturers and subcontractors in other cultures. Many believe
that MNCs should vielv the larv as constituting the 'floor' of acceptable behaviour
and st:ive to improve rv,'rkers'qualit1- of life in every country. Understanding each
country's culture can irelp MNCs make va]ttable intprovements.
Various U.S. anrl European lau,s prohibit businesses from discriminating on the
basis of sex, race, religion or disabilities irr their hiring, firing and promotion decisiotts.
Horvever, the problerl of discrlnrination is still a reality in the world. 1n the United
I.iingdom, for example, E,ast Indjans have traditionally been relegated to the lor'r'est
paying, least desircd iobs. In (iermany, tlre governmetrt will not grant citizenship to
lurkish r,r,orkers u'ho havc bcen living tl-rere for decades or even to second-generation
Turkish Clerman residents. Australian aborigines have long been the victims oi soci;rl
anci economic discrimination. In manv Southeast Asian and Far Eastern coltntries,
cmpioyees fr-om particular ethnic backgrounds may not be promoted. In Russia,
jol-' advertisenlents frequently spccify the age and gender of prospective ernployees,
and female entrepreneurs face endless bureaucracy, problems obtaining credit, ancl a
tangled legal system.
Businesses around thc v,,orld benefit by acknowledging and attempting to curb
discrimination, inclr,rding a decrcasc in employee turnover; people rvho believe they-
are ]rired, prornoted, and treated according to their skills and abilities rathr'- than their
personal characteristics or beliefs are more likely to remain loyal. In turn, this can
reduce the costs of hiring and training neur employees because productivity n;rtura111'
improves r.vhen jobs are filled with the rnost qualified persons. Additionalil,, rvhen
companics hire a diverse locaii r,r,orkforce, they are more likely to enjoy the goodlvrll
and support of the communities surrounding their facilities. Finally, companies that
take steps to eliminate discrimination may receive favourabie attention from such
stakeholders as labour and rvomen's rights groups, enhancing the reputation of tire
firm overall as H,eii as its brands.
Malaysia is notoriously known to be heavily dependent on cheap foreign labour
r,vho often work in the food industry as illustrated in case for revierv 12.4. lvlost of
the foreign norkers are exploited, poorly paid and discriminated upon by both local
and international companies. The decision to ban these foreign rvorkers in certain
industries might have a far-reaching impact in years to come.
110 Bi-rsiness Ethics
Foreign Workers Banned in Malaysian Fast-Food lndustry
Durga Dasadursarumagar, a Nepalese worker, cleans rables at Carl's lunior ar Sunway Pyramid. As
a foreign worker in Malaysia, he works four hours longer than his Malaysian colleagues and for less
pay. He earns about RMB00 per monrh which is five rimes more rnoney rhan he could have earned
back home in Nepal. Hence, his willingness to do chis type of job in.Malaysia. However, once his visa
expires, his contracr will mosr likely not be renewed. This is because rhe Malaysian government had
taken the srep to ban fasr-food eateries from hiring more foreign workers. The move was seen as
part of rhe governmenr's efforrs ro reduce its dependence on cheap foreign labour Despire efforrs
in recenr years ro make ir more difficulr and expensive ro hire foreigners, rhe rruth was thar at leasr
one in six workers in Malaysia was a low-skilled immigrani. That led to much frusrratton among some
Malaysians over the number of foreigners working in the country. Foreign workers who were employed
in the fasr-food secror mainly carried out jobs such as cleaning, whiie Malaysians were ernployed ro
cook and manage rhe cash regisrer machines. There were currently rwo rnillion legal forergrr workers
in Malaysla and rhey were mainly from countries such as lndonesia, Nepal and Bangladesh. These
workers were keen to rake up lobs that Malaysians ignored such as running popL-rlar roadside food
sralls, constructing luxury condominiums, burlding roads and preparing planialion harvests for
exporr. Hundreds of rhousands more risk being jailed for working in the counrry rlegally
(Adapted from'Malaysian Fasr- Food Resratt rants Face Foreign Worl:er by Jennifer Pak, BBC Business News,
14 lanuary 2014)
12.7.4 Environmental Pollution

Cbbrily,c"*pil-l Whereas many iegal and ethicai violations har.e limrtecl impacts, in the case of
have begun working environmental issues, the effects of abuses can be fhr reachrng and long term. For
together to minimize exampie, public concern over global warming has increased pressure on cotnpanies
the negative to dramaticaily increase energy efficiency. Pressnre from environmentalists is also
effects of pollution encouraging companies to scrutinize suppliers of lr'ood ancl paper products to ensure
and support that the trees are not endangered species and these companies are harvesting products
environmenral using sustainable practices. Many multinationals are therelore working to create
responsibiliry.
standards for environmental responsibility" Other companies have modified or halted
Joinr agreements
the production and sale of products that have a negativc rmpat,t on the environment.
and international
Seeking to defend their air and rvater quality, some colu)tries are taking legal action
cooperatives have
successfully policed
against polluting firms. In other situations, outside organizations such as Greenpeace
and prosecuted issue warirings to countries that engage in environmental abuses. ln some countries,
offenders of however, groups have lobbied gor.erirments to increase the level of pollr"rtion that they
reasonable emission ailow. For instance, Australia generates about 1.5% of global greenhouse gas emissions
standards. aird is one of the world's largest polluters. In2012,.,\ustralia's inventory emissions per
capita r,vere about 24.4 tonnes carbon dioxide equivalent (CO,e) per person. Only a
few countries in the world rank higher-Bahrain, Bolivia, Brunei, Kuwait and Qatar.
Australia's per capita CO, emissions are nearly twice the OI1CD average and more
than four times the rvorld average (Carbonne'ltral.com.au, 2L)il). Manv pcllution
controi efforts have relatively short payback pcriods and have a loirg'terrn positive
effect on profitability. In contrast, violating environmental initiatives has both human
and financial costs, with the human cost being the health hazards associated with
pollution.
Ethical issues arise when environmental regulations in host nations are far inf"erior
to those in the home nation. Many developed nations have substantial regulations
governing the emission of pollutants, the dumping of toxic chemicals, the use of toxic
Laterials in the workplace, and so on. Developing nations often lack those regulaiions,
and according to critics, the result can be higher levels of poliution from the operations
of multinatiolals than would be aliowed at home. In the quest to lower production costs
and to gain a competitive advantage, many multinationals move their manufacturing
plants to a country where pollution control is lax. In so doing, these companies would
.ndarrg", the locai populations. The environments might be part of a public good that
no onJo*rs but anyoire can damage. For instance, no one really owns the atmosphere
or the ocean, but polluting both, no matter where the pollution started, harms ail.
Multinational corporations might harm these common public goods when they move
their production io locations where they are free to pollute the atmosphere or -{r*p
toxic waste into the rivcr or o.eans. Due to the different legal set-ups in different
countries, some of these actions may not be against the law' of some of the countries,
but the question is-would it be ethical? I{owever, many rvould agree that such actions
would seem to violate the basic societal notions of ethics and social responsibility.
12.7.5 Bribery and CorruPtion

Corruption has been a probien-r in almost every society in histcrl', and it continues
to be one today. There always have been and ailvavs will be corrupt government
officials. International businesses can gain and have garned economic advantages
by making payments to those officials. One form of corruptior-r is bribery. In man,v
cultures, g,,,,ing bnbes, also known as facilitation payments, is an acceptable business
practice. in Mexico, a bribe is cailed la moi lida, and South Africans call tt dash.ln
tf," Uldat. E,ast, India, and Pakistan,/aksheesh, a tip or gratuity given by a superior,
is rvidely used. The Germans call it schntiergeld, grease money, and the Italians call it
bustarella, a little enr.elope (Ferrell & Fraedrich,2A0g). Companies that do business
internationally should be aware that bribes are an ethical issue and that tire practice
is more prevalent in some countries than in others. Bribes and payoff requests are
frecuentiy associated with large construction projects, turnkey capital projects, and
Iarge commodity or equipment contracls.
Corruptioit rn the form of 'speed money'or settiements to govcrnment bureaucrats
is the norm in many countries. Many would argue that the payment u'oulti eventually
be beneficial to the local population rn terms of incotne and job generation and should
not be frowned upon. From this point of view, although it might be construed as a
little unethical, it might be the best option considering the greater good the outctrme
might be ror the generai popuiation. Corruption may prove to t,e necessary in certain
economies as the speeding up of business investment approvals would help pave
the way for greater welfare and discourage illegai activities such as black market
profiteering and smuggling as the argument goes.
On the other hand, other economists reasoned that corruption reducer business
returns on investment and this will cause the slorving down of econonric growth.
Unproducrive bureaucrats in corrupt nations may demand side payments for granting
permission for business operations and this rvould reduce multinationals' incentives
io invest and hamper grol{th in the countT'. Moreover, one study of the association
betryeen corruption ancl economic growth in 70 countries founci that corruption had
a significant negative impact on a country's growth rate (Ahmad et a\.,2012)-
112 Business Ethics
The conclusion is that this is a delicate and difficult situation and the demand for
speed money creates a genuine ethical dilemma. Corruption is evil, and may harrn
a country's economic development, but there are also cases rvhere side payments to
government officiais can remove the administrative obstacles to the creation of jobs.
Nevertheless, this viewpoint overlooks the fact that corruption inclines to corrupt both
the bribe giver and the bribe taker. Once an individual started giving in to bribery,
getting out of it may prove to be difficult if not impossible" 'l'his viewpoint reinforces
the ethical stand against engaging in corruption, regardless of how persuasive the
benefits might be.
Despite the open investment environment and cheap labour market in certain
ASEAN countries such as Cambodia, many investors are wary of corruption in the
country (refer to case for review 12.5). Corruption has an underlying effect that
would eventually increase the cost of doing business in a cciuntry. In the long run,
the countr,v's reputation might drive out serious investors, and they wiil look for
opportunities in another country that could provide a more conducive and 'clean'
business environment.
U5 lnvestors wary of Lorruptron rn tambodia
Cambodia seems to be an appealing business destination for many foreign investors but srill lags
behind most of irs ASEAN neighbours due ro the perceprions of endemic corruption. This was based
on a survey done in the 2013-14 ASEAN Business Outlook chat interviewed 475 senior US business
executives. Can:lbodia was placed Sth out of the'10 ASEAN countries, behind Laos and Brunei,
in terms of attractiveness. Often cited were concerns about unfavourable laws and regulaiions,
underdeveloped infrastrucrure and shortage of skilled labour. However, rhe main worries, especially
among US investors, revolve around their perception of corruption, with an overwhelming 81 per
cenr raising this concern. Preap Kol, executive director of Transparency lnrernarronal (Tl) in Cambodia
said thar rhe government needs to create new laws and regulations ro promore a level playing field
among all businesses. However, the Ministry of Commerce Secretary of Srare Mao Thora menrioned
ihar the government does have pians to address Cambodia's corruprion issue. He assured rhat the
country has an entire corruption law by the Anti-Corruprion Unir in existence and the Mrnrsrry of
Commerce had prepared a plan ro berter implement rhat law ro fight corruprion in business ro
encourage more foreign invesrors to invesr in Cambodia.
(Adapred from 'US lnvesrors Cite Corrupdon as Major tssuei by Simon Henderson, The Cambodia Daily, 22
Augusr 2013)
12.8 THE VALUE OF ETHICAL

BEHAVIOUR
Behaving ethically is important for several reasons. First, ethical behaviour is simply
the right thing to do. Second, it is often prescribed within ]aws and regulations.
F-thics rn the Global Environment 4'13
Violating laws and regulations has obvious legal consequences. Third, ethical
behaviour is demanded by customers, governments and the news media. Firms that
commit ethical blunders attract unwanted attention from opinion leaders. Finally"
ethical behaviour is good business, leading to an enhanced corporate image and seiling
prospects. The firm with a reputation for high ethical standards gains advantages in
hiring, motivating employees, partnering and dealing with fbreign governments.
Firms that behave unethically run the risk of facing criminal or civil prosecution,
hurting their own reputations, harming employee morale and recruitment efforts and
exposing themselves to blackmailers or other unscrupulous parties.
To consolidate your learning, the learning outcomes are summarized belo-w:
L Discuss the ethical conduct of multinational corporations.

Muitinational corporations operate on a global scale without significant ties to aitl' otre uation or
region. Due to their size and financiai power, MNCs can have a serious impact on the countries
where they do business, which may create ethical issues.
Z. Analyse the dift-erent ethical theories in the context of international business.

While revierying the current literature on internationai busincss ethics, several important
schoois of tirought emerged. in the context of international business, several ethical thetlries lvere
Ciscussed. J'l-rese inciude cultural relativism, moral irnperialism, normative ethical standards,
dialogic ideaiism, as weli as rights and justice theories.
3. f)escribe ethics in an international cross-cultural context.

Cuiturai differences often create ethical complications. Acceptable bchaviour in one culturt
mar be viei,r,ed as immoral in another. One important area of cross-cultural and international
ethics is the treatment of employees by the organization. In practice, the areas most susceptrble
to etl-rical variation inciude hiring and firing practices, wages and working conditions, as rvell
as employee privacl. and respect. Numerous ethical issues also relate to holv empioyees treat the
organization. The central ethical issues in this relationship include conflicts of interest, secrec)r
and confidentiality, as rvell as honesty. A third major perspective for vierving ethics involves the
relationship between the firm and its employees u,ith other economic agents. The primarv agents
of interest include customers, competitors, stockholders, suppliers, dealers and uniotts.
4. Fxplain the framework for ethical decision-making.

An ethical dilemma is a predicament with major conflicts among different interests. Determining
the best course of action is confounded by severai possible solutions thal may be equally justifiable.
Scholars have devised a four-step framework for making ethical decisions. Initially, the manager
should recognize the existence of an ethical problem. The next steps are to get the facts, evaltiate
alternative courses of action and then implement and evaluate the decision made.
5. Discuss the current ethical issues irnpacting the global erlironment.

The common global ethical issues that arise when companies transa.ct business internationally
inciude price discrimination, harmful products, employmeut pr:rctices, environmental pollutron
and cornrption issues.
+14 uusrness tlhrcs
Chitd labour Refers to the employment of children in any work that deprives children of their childhood,
interferes u.ith their ability to attend regular school, and that is mentally, physically, socially or morally
dangerous and hannful. This practice is. considered exploitative by many international organizations.
Legislation across the rvorld prohibit chiid labour.
Corruption The abuse of power to achieve iilegitimate personal gain-
Dumping In economics, 'dumping' is a kind of predatory pricing, especially in the context of internationai
trade. It occurs rvhen manufacturers export a product to another country at a prtce either beiow the price
charged in its home market, or in quantities that cannot be explained through normai market competition.
Food safety A scientific discipline describing the handling, preparation and storage of food in ways that
prevent food-borne illness. This includes a number of routines that shouid be followed to avoid potentially
i.r.r. health hazards. The traL-ks wittrin this line of thought are safety between industry and the markel and
then between the market and the consumer.
Clobalization 'fhe process by u,hich the economic and social systems of naf ions are conttectecl together so
that goocls, sen'ices, capital and knowledge move freely between nations"
Migrant worker The term migrant worker has different officiai meanings ancl connotations in different
parts of the nor1d. The United Nations'definitior-r is broad, including any people u'or-king outstde of their
hor-,-r" collntr),. The term can also be used to describe someone who migrates within a country, posslblv their
or,r'n, in order to pursue rvork such as seasonal work.
lllegal immigrant Refers to undocumented immigration or irregular imntigration; migratiott [o a country/

state in violation of the immigration lalvs of that country/state. Illegai inrrnigratiott raises many political,
econornic and social issues and has becon,e a source of major contro\.ersv iu cleveioped countries and the
more successful der.eloprng countries.
!ntellectual property ldeas or r'r.orks created byindividuais or firms, inciuding discoveries and tnventtotrs,
artistic, rnusical and literary rvorks and rvords, phrases, symbols and designs.
lntellectual property rights The legal claim through which the proprietar,v assets of firms and individuals
are protected from unauthorized r-rse by other parties.
Justice A corrcept of nroral rightness based on ethics, rationalitl,, law, natrrral 1arv, religitn, equity or fairness,
as well as the administration of the law, taking into account the inalienable and inborn rights of all hurnan
beings and citizens, the right oiall people and individuals to equal protection before the larv oitheir civil
rights, rtithout discrimination on the basis of race, gender, sexual orientatiott, gendel identitl', national
origir-r, -olour, ethnicity, religion, disability, age, or other characteristics, and is fr.rrther regarded as being
inclrrsive of sociai justice.
Multinational Corporations Multinational enterprise is a corporation that is registered in more than one
country or that has oper ations in more than one country. It is a iarge corporation which both produces and
sells goods or services in various countries. It can also be referred to as air international corporation. T'hey
pJay an iinportant role in globalization.
Sweatshop Sweatshop (or su,eat factor/ is a negatively connoted term fbr any rvorking etn'ironment
considercd to be unacceptably difficult or dangerous. Sweatshop wort-ers often work iong hours f'cr very
iow pay, regardless of iaws mandating overtime pay or a minimum i,r,age. Child labour larvs may be violated.
Srveatshops may have hazardous materials and situations. Empioyees may be subjer-t to ernployer abuse
lvithout an easy way, if any, to protect them.
i. What is intellectual property? What industries arc most affected by threats to intellectual property?
2. What is an ethical dilemma? Give an example of an ethical dilemma that multinationals encounter
abroad.
3. What are the current ethical issues that are prevalent in the context of international business today?
4. Describe the steps in the framework for ethical conduct.
5. What advantages do firms gain from behaving according to high ethical standards?
Donation or BriberY?
you have been appoinred as rhe new regional manager overseeing the operations of several subsrdiaIies in
Lar-,,r America. You are posted ro a country where drug rrafficking and lawlessness
are rampanI One day,
{.
a represenrarrve oia local 'big boss'approaches you and asks [or a'doriatiorr'tt, l"relp rhe'brg
boss'provide
housing for rhe poor. The represenrarrve rells you rhac in return foi the donation, the'brg boss'will make sure
we aware r'hat rhe'big
that you will have a productive sra,v in his country. No rhreats are ltrade, but you are I
connected
boss' heads a cr-rminal organizatron rhar is engaged in drug traffrcklng. The'blg boss' rs also a very
the'big boss'does rndeed help the poor in the
i and influenriai man in rhe counrry You also found our that
r run-down neighbourhood of the city where he was born
Questions:
1. What would you done in the above situation?
ha,,,e
2 Apply rhe four-srep erhical decision-making framework in rhe case Would your decisron be different from
the decision you would have made in Question 1?
3 Does ir make a difference rf yo.rr competitors have been paying the'donation'for years?
*r,:ir"
Ahmad, E., Ullah, M. A. & Arfeen, M. L (2012). Does Corruption Affect Economic Grorvth? Latin Americstt
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Apel, K. (1988). Transformation der Philosophie: Das Apriori der Argun'entationsgemeinsclra-ff. Stuttgart:
Suhrkarnp Verlag.
Apel, K. (1990). Diskurs und Verantwortung: Stuttgart: Suhrkamp Verlag.
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clirnate-change/australian-einissions.html>. Accessed on 29 August 2014.
+ lO Busrness tthrcs
Cavusgil, S. T., Knight, G. and Riesenberger, I. R. (20L2).International Business: The New Realities (2"'1 Ed.)"
New )ersey, USA: Pearson.
Chen Qide (22lanuary 2014). Carrefour Boosts Food Safety Efforts in China. China Daily, Europe. <.http:ll
europe.chinadaily.com.cn/business 12014-011z2/content_l7253853.htm>. Accessed on 4 Februa ry 2AA.
Czinkota, M. R., Ronkainen, I. K., Moffett; M. H., Ang, S. H., Shanker, D, Ahmad, A. and Lok, P. (2009).
Fundamentals of International Business (First Asia-Pacific Ed.). Australia: fohn Wiley & Sons.
Daniels, J. D., Radebaugh, L. H. and Sullivan, D. P. (2011). International Business: Environments and
Operations (13th Ed.). Harlow: Pearson Education Limited.
Ferrell, O. C. & Fraedrich, J. (2009). Business Ethics 2009 Update: Ethical Decision Making and Cases. Boston:
Cengage Learning.
Griffin, R. W. and Pusta1., M. W. (2007)" Internationql Business (5th Ed.). New Jersey: Pearson.
Habermas, J. (1983). Moralbewul3tsein und kommunikatives Handeln. Stuttgart: Suhrkamp Verlag"
Habermas, ]. (1991). Erlauterungen zur Diskursethik. Stuttgart: Suhrkamp Verlag.
Henderson, S. (22 August 2013). US Investors Cite Corruption as Major issue. l'he Cambodta Darly. <httyt:ll
www.:ambodiadaily.com/archives/us-investors-cite-corruption-as-major-issue-40 5201>. Accessed r)n 5
February 2014.
Hiil, C. W. L., Wee, C. H. and Udayasankar,K. (2072).International Business: An Asian Perspecfive. New
York: McGrar'r, Hrl1.
Joseph, I D. (6 fanuary 20i4). Is Mercedes Illegaily Dumping Cars in the Linited States? The Ilill. <http://
thehiil.com/blogs/congress-blog/economy-budgetl194470-is-mercedes-il1egailr.-dumping-cars in-the
,:nited-states>. hccessed on 5 Februarv 20i4.
Pak, l. (14 |anuar1,2014). Malaysian l:ast Food Restaurants F:ace Foreign Worker Ban.P,L\C. Business N,-,n,s"
<http:/iwvr,rv.bbc.com/ner'r,s/busin ess -257 25310>. Accessed on 4 February 20i4.
The Star (20 September 20i3). First Ethicai Smartphone Takes a Big Risk. Tech I'leu,s. <http://rvnr.v.
thestar.com.my/T'ech/Tech-News/201^3lA9l20lFirst-ethical-smartphone-takes-a-big-risk/> Accessed on 20
September 2013.
Barriers towards sustainable consumption, 329' 346
A
convenienc e,3?9, 330
Accountabiltty, I 42 - 3, 3 62 cost,329, 330
Adelphia, 142 habits and routines, 329, 330
Adverse selection problem, 135 lack ofaccess to facilities, 329, 330
Adware, 264 lack of awareness and information ' 329,330
Altrrmative action, 218, 224-8 perceived consumer effectiveness, 129, 330
principle of un iversa lizabiltty, 222 psychological effects, 329, 330
zak:tt,228 relative sustainability, 329,,13 1
Agerrcy prtrhlcnr, l.i5

lviliingness to act, 329
Bausci, & Lornb, 103 4, I l3
Agency theorl', 134, I 3-5 6
challenging sales targets, 104
AIG group, i5-5
overstated earnings, 103 4
Albukhary Founclation, 1 78
unethical sales tactics, 10'4
Al-Quran,2, B, 355
Believel 341.,342,348
AmBank group, 178
Benevolenc e (ihsaan), 366, .368, 387
American international grouP, 142
Benthamt Classical [-ltrlttarian theorl', 59, 61
Anglo American, I22
Berjaya Corporatrotr Ilerhad, 178
r\nnuai General Meeting (AGM), 149
Best practices, t29-3i
Aristotle'.s'Iheory oi' Justice, B4
Board ieadership structure, 143
corrective/conpensatory justice, B5
Board of directors (BOD), 122, 141, i4-l
distrilrtrti"e juslie c, 86
particular justrce, B4 5 , l4 3
role
rct rihtrt ive .itrsl icc, s6 Boards, 142, 14t, 146

universal justice, 84 5 committees, see committees
.,tristotle's Virtue Ethics 'lheory, 67-8,9l compensation practices, 146
independent, 144
Armed iorces Fund Board, 150
leadership structure. 143
,'. rthur Andersetr, 1 13, 155
Brand marketing, 280
Association of Banks, 128
Broad principles ofgood corporate governance, i33
Bribe, 2A2,2A5,248
m
\, Bribery,24B,4ll,4i5
I":nk Negara Malaysia, 151 Buddhisi ethics, ll-12
Financial Services Act (2013), i51 compassion, 18
ilarings Bank Plc., 148 Bursa Malaysia Listing Requirements (BMLR), 129
+18 lndex
Bursa Malaysia Securities, 151 abuse ofpower, 35

Listing Requirements (2001), 151 agency problem, 35,227
Bursa Malaysia, 126-8 breach oftrust, 35
Business sustainability, 22, 24 initiatives taken by MACC, 204*5
Business systems, 33, 332 legal framework in Malaysia, 204-6
situations that bring to,202-3
types of,204
C Conscience,6,7, 45
Conservation, 348
California Pubiic Employees' Retirement System
Consumer, 330,332
(CaIPERS), 1ae
Consumer Ethics Theory, 286-7
Career break schemes, 233
actively benefiting from deceptive but legai
Career planning, 233
practices,2BT
Carrollt four-part model, 169 actively benefiting fiorn illegal activities, 287,311
Carrollt Pyramid of Corpora*" Social no harm, no foul activities, 287
Responsibility, L76-8 passively benefiting from illegal activities, 287
Cayeat emptor,2BB,373 Consumer privacy, 214,'266 7
Central Bank. 128 Privacy Enhancing fechnologies (PET), 267
-see Bank Negara N{alaysia Consumer sovereignty, 21 4
Chair;rran. 122 Controllers, l2.l
CI'rief executive olhcer (CEO), 123,144 Controlling interest, i 25
dualit1,, 144 Copyright, )62, 27 0, 27 5
non dualrty, 144 Corporate, J23
Christian r'thrcs. l3 ou,nership arrd control, 123
Claim, 170 Corporate gclr.ernance, I 2 1
Classical eccinomics, 181 definition, I21

Code oi Ethics, 43, 50 implementation approacl-res, 1 30
con'rpliance,based, 2Z 43 Corporate managers, I 2,1
integritr,-ba sed, 27, 43 Corporate social responsibllity (CSR), 17-q
Commrttees, 145 concept and natilre, i7-5
audit, 146 debate, i80
nontination, 145 Corporate social responsirreness. I 84
remuneration, 146 four philosophies or rnodes of, iB6
(iornmunity,, 41,42 Corruption, 205 -206, 4ll 2
Comilunity leaders, 41, 42 Courage,1B,19
Companies Commission of Malaysia, 128, 151 CSR framework, 175
Comi,anies Act (1965), 151 iour dimensions of suslainablc practices, l7-5
Comparable worth, 219, 224 Keith Davis
see Keith Davi:'s Model oI Corporate Social
Company leaders and trustees, 41, 48
Responsibility
Competition,2B0
CSR Prime Minister'.s Ar,vard, 176
Competitive disadvantage, 1 82
Culture, 11i
Comply or explain, 130, 133
corporate, 11 1
Computer Associates International, I 05
eiements of a corporate cu ltr:re. 1 I I
Computer viruses, 263-4 ethical, 111
Concentrated ownersh ip, 125 Custoriers, 22,24
Conflict of interest, 35, 123, 124, 2A1 -6 Cynthia Cooper, t09
lndex 4"19
D Employee-employer relationship, I 95, 201

critical issues of, 195
Data accuracy,262 employee loyalty in, 201
Day of judgement, 361,362,366 Emplo1,eg misconduct, 1 12
Deception, 291, 293, 295, 301 Employee surveillance and privacy, 212,267
Decision-making, 36 Enrpioyees' rights, 238-9
three-levels of,36-7 Employment pracLrces, 408-9
Delegation of control, 123 Enron corporation, 120, 142
Denial of scrvice, 265 Environment, 31 4, 323 -8, 3 4l
DiGi Berirad,17B Environmentaliecological ethics, 339, 341
Direct marketing, 300-1, 310 Environmentai pollution, 4 1 0
Directors induction programme, I 47 E,nvironmental sustainability, 323
Directors' remuneration, 146, 153 Eqtiilibrium (' adl), 366
inflated, 153 Ethical culture, 40, 1 1 1- 1 3
Directors' training, i47 economic, legai and moral dimensions, 44
Contirruing Education Prograrnme (CEP), 147
opportunity costs, 33, 5l
lr{andatory Accreditation Programme risks in the conduct ofbusiness,33,5i
(MAP), i47
Ethical dilemma, 33 4, 45,284, 402
Discrin'. in a tit:n, 218 - 28, 232 Ethical leadership, 100, I 0 I
comparabie t{orth,219 influencer of corporate culture, 100
consumer welfare, 218
]effrey Skilling, i05
defining, 218 morai manager, 101-2
externalit1,, 222 moral person, 101.'2
gender, 219 right tone from thc top, 103
reverse discrirnination, 218, 224, 228 role-modelling, 101
stereotl,pin g, 219, 230 Sanjay Kumar, 105
uneqrral treatment, 2l 9
set an ethicai torre-at the-top by, 100
worliforce diversity, 2 1 8 two pillars of erhical leadership, 100
Dispersion of share owr-rership, 122 rvaik the talk, 102
J)omii-to'.s przza, 77 8
Ethical management, 38-9
Due process,242-3 ethical corporate ciimate, 38, 48
Dumping,405-406 organizational e1-fectir.eness, 24, 38
llthical responsibil i ty, 17 7
E Ethical theories in intcrnational business, J97
cultural reiatrvisrn, 397
llcological system, 339, 341 dialogic idealism, 39S
Econon-irc actors,4l justice theories, 399
Ir,conomic character of a business, 33-4 moral imperiaiist, 397
corporations,33, 42 normative ethicai standards. 398
partnerships, 33, 121 rights theories, 398
sole proprietors, 33, i2l Ethics, i-31
lrconomic responsibih ty, 17 6 analytical thought, 3, 25
Economic sustainabili ly, 323 application ofreason, 3, 25
Ildaran Otorlobil Nasional (EON), 127 awards, I11
Egoists, 120 beliefs, 3, 25
Employee dutrcb, 239 ethical theorie.s, 3, 25, 55-98
20 tndex
morality, 3,25 Framework for ethical decision making,403

no.-r, i,25 Fraud, 148, 301
rules and principles, 3,25,323 Free market arguments, 326*7
the study of moral standards, 3, 25 Free will (ikhtyar), 366
vaiues,3-8,25
Ethics from islamic perspectiv e,7l, 355 G
Adab,355-356
Akhlaq,355 Gender/sex discriminat ion, 219, 249
defining of,355,357 Genting Group, 126
dimensions of,357 Gifts and entertainment, 298, 310
Ethics of care,72-7 benefits, 202
Exploiting companies' returir policies, 306 conditions for assessing morality of receiving, 202
External audit, t+9 Gifts of nature, 339, 341
independent, 149 Global free market system, 33
External interference, 183 Global warming, 317 -21
External mechanisms, i4 1 Golden rule, i6*7
Gouging,405-6
Governance ,7, 121
F
Government orvnership, 126
Faber Group,727 Government-linked companres, i 26
Factors that influence ethicalvalues, 4 Green job, 333-5
critical reflections, 4 Greenbury report, 1-30
culture, 4 Greenhouse gases, 318. 348
experience, 4
Green jobs, 333-5
sociaiization, 4
upbringing,4
H
Faculty (malakah) of, 356
Soul (nals), 356 Hacking ancl crackin g, 263
Famill'groups, i25 crackers, 263
Family ownership, 125 hackers, 263
Federation of Public Listed Companies, 128 Hajj (prlgrimage to Makkah ), 3oz
Female labour force, 249 H alal (legitimate/iawftr [), 3 5 9
Fiduciary responsibility, 17 5 Haram (i11egitimate/prohibited), .') 59

Financial manipi-r1ation, 1 53 Harmfulproducts, 407
Financial Reporting Foundation, I 28 Haze,340
Flexi working arrangem ent, 233, 249 Hewlett-Packard, 149
Formal ethics programme, 106 High-ievei finance c(),rmittee, I 28

code ofethicai conduct, 106-07 HIH Insurance, 1 42, 155, 156
compliance manual, 106, i08 Hindu ethics, I4
core value statement, 106 Hoarding {ihtikar), 37 3
critical eiernents, 106 Honesty in sales, 29S
ethics audit, 106, 110 Hong Leong Group, i26
ethics award, 106, i11 HStsC Bank Malaysia, i0B
ethics officers and compliance officers, 106, 109
Human rights. s0
ethics training programme, 106, l0B
unconditionality, B0
whistieblowiirg policy and ethics helplines, 106, i09
universality, B0
lndex 421
Hunt-Vitell Generai Theory of Marketing K

Ethics,285
Kantian ethics,'221-2, 225
Hybrid, 130
inefficrency,222
Kant's Ethics of Duty Theory, 64
I universalizability, 67
Keith Daviss Model of Corporate Social
Independent director, | -544
Responsibility. 179
Information accessibility, 262
Kenmark Holdings Berhad, 157
Information asYmmetrY, 1 35
Khalifah, 2, 10, 341,349
Information technology (IT), 259, 266
Khazanah Nasional Berhad, 127
Insider tradirtg,203
Khutbatul Wada',238
definition of,203
definition of price sensitive information, 203 Kickback,202
three elements for,204 example of,202
lnsiders, 125 KPMG Malaysia, 184
Integrity, 2A-4,43 Kuala Lumpur-Kepong Berhad, 126
Interna1,147
audit, 147 L
cot)l rol, I4;
Irrtellectual propertr,, 199, 262, 2VA Labelling, 291
Large shareholder, I 27
Intelligence ('aql), 362
LegaI resporrsrhilitr. I --
internai mechanisms, 140
Legality,, 6
lnternalization of ethical r,alues, 7
Legitimacl', 172 3
Intoxicants (kharu'), 37 6, 377
Intrinsic t alue, 326,339,349 Lehman Brothers, ll3, 137, 142
Invasior of privact, 209, 301 Lion Gror"rp, 126

Iron lan, of responsibiltty, 17 6, 179 Location privac1,, 26E
Global Positioning System (GPS), 268
irritation, 300, 301
Locke's Natural Rights Theorl', 80
isianric ethics, 225, 358
axioms of, 365, 366
four vital principles of, 163-5 M
Rukun Negara, S
sources and origin of, 358 Malaysia Mining Corporation, 178
Islamic perspective s, 7 1, 214, 230 Malaysian Accottntirrg Stanclards Board, 128
lsiamic tax (zakat), 363 Malaysian Airlines Svstem (MAS), 120, 127
Malaysian Code on Corporate (]overnance
(2000), i2r, i28 34
J Maiaysian Tsunami Disaster Fund, 178
]ohnson and ]ohnson, 104, 183 Ma|ware,264
right tone from the top, 104 Management of ethics, 38-9
Tyienol incident, 104 Managers,4l
lustice,227,223 as company leaders/trustees, 41
|ustice and rights, 33,221 as commtrnity leaders, 42

as economic actors, 4l
)-2 Index
Manipulation,296 o
Maqasid al-Shari ah, 355
Occupational safety and health, 38,240
Market failure, 327, 349
Occupational Safety and Health Act 1994, 38" 240
Marketir-rg, 2 1 4, 280 - 3
Offensive advertisements, 296
Marketing ethics, 283 87
Organic waste, 349
theories, 283
McDonald's Malaysia, i 79
Organization,35 7
Ronald McDonald House, 179 Organizationai effectiveness, 24, 3B
Mechanisms, 141 Owner-manager firm, 122
MEMS Technology Berhad, 154 Oxymoron, 325-6,349

Merrili Ly,nch, 113
Mills Rule Utilitarian Theory, 15, 60 P
consequentiaiism, 60
Packaging, 289-91
hedonism,60
maxirnalism,60 Parmalat, 113
unirrersalism, 60 Partnership {mus v arakah), 382
Milton Friedman, 181 Patents,262,270
Minoritl' Shareholder lVatchdog Group Perusahaan Otomobil Nasronal (PIiOTOt\), i27
(N ISWG), 150 Perwaja Steei, 120
iv{inoritt' shareholder s, I27 PETRONAS, i07
Nfisconduct, 243 no gifts poiicv statement, 107
Nli.sleacling ( kh alab ah), Zl + PETRONAS Dagangan, 127

advertising/marketi ng, -374 PETRONAS Gas. 127
Mizoan,342,349 PETRONAS sharecl vah-rcs, 23

N4ontfort Girls Centre, 178 Philanthropic respor.rsibilrty, 1 77
Moral hazard, i35 Phishing,265
N'ioral/cthical obj ectivism, 57 Pilgrimage Boarcl, 150
Moral/ethical re1atir,,ism, 57 Pillars, 9,362 3
Moralr.alues, 18 2i etliical leadersirip, of, i01
Multinational corporations (MNC), 395 Islam, oi 9, 363
Multi staiieholders, 349 Islamic faith, oi, 362
Pious individuais Qnuttatleen). 363
Pollution, 324,:,19
N Por,r,er, 172-3
Prescriptive, non-prescriplir,e, I 30
t\asionCorn, 142
Price discriminatioit. 404 0:;-
National Equity Corporation (Permodalan Nasional
Principal-agent problern, I 35
Berhad),150
Principle, i70
Natural lfitralt),356
of corporate effect, i70
Natural/human rights, B0
of corporate gor.ernance, 1 31
Negative rights,2i2
of corporate rights, 170
Neu. Economic Policy (NEP), 126
of jusiice, 221,225
No gifts policy, iOB
Privacy,207-17
Non-renewable resourc es. 323-4 defining, 203
Normative, 173 Privacy in retaiiing, 299
lndex 423
Privacy laws in Malaysia, 216 Royai Dutch Shell, 155

Personal Data Protection Act 2010 (PDPA),212, Royai Malaysian Police Department, 151
217
Product safety, 103, 171
5
Profit (rlbft), 38i
Prohibited earnings and business transactions, 376 Sale (al-bay),382
Gharar (specuiation, risk, uncertainty), 382 Salomon Smith Barne/, l'37, 142
H aram (forbidden/prohibitediiilegitimate San Lu Corporation, 137
items), 376 Sarbanes-Oxley Act 2002, i30
Masyir (gambling), 383 Satyam computer services, 113,I42
Rlba (interest), 380, 38l Scriptures, 362
Property Rights Theory, 139 Secularism, 15-16
Public Bank Berhad,176 Securities and Exchange Commrssion (SEC), 154
Public corporation, 121 Securities commission, i28, 15i, i54
Puffer1., 295-6 CapitalMarket and Serr.,ices Act 2007 (CMSA),
Purpose of a br"rsiness, 182 151
Securitres Commission Act (1993), 151
o Security thre ats, 263

Scl [-corrt rol, l')
Qr-rality of life, 328,349 Selt-reflection, 2
Quarantine software, 27 1
Sexual harassneni, 235
Shahadah,363
R Shareholder actiyism. l49
Shareholder n ealth nraxirnization, 135
Ralvls'.s Egalitarian / iustice The or y, 87, 89, 223
Sherron \Vatkins, 109
altrr,rism, 87
Sime Bank Berhad, 120
social justice, BB
Sime Darbl', 127
Regulation, 151
Srnith Barney, 137
Religion, /-B
Social Institr-rtiorr'fi-reory, I 34, 140
Reneu,able resources, 323-5, 349
Renong Berhad, 120
Socral issues, l8l
Social marketers, 281
Resource clepletion, 345, 349
Social responsillility, 268, 27 5, 280
Respect lbr humirns and non-humans, 19
Social Security C)rganrzation, 1 50
Respcxisibilities, of a, 366
behavioural codes, 2 Sociai sr,rstainabilitl., 32 j
Khalrfith,365 Soft theft,305
universal iaw, 4, 65 Soliciting information, -105
li.etail sales pressures, 300 Sony Corporation, 184
i{HB Banking Gror"rp, 178 Sourcing of products, 307
Rights, 221,226,238-9 Spamming,265
llisk, 153, 156 Spoofing,263,265
control,153,156 Spynvare. 264
excessive,156 Stake,138, 170
excessive business, 153 Stakeholder re1:rtionships, 366
Robert Kuok Group, 126 from Islamic perspectivc, 366, 367,369'76
?-4 index
Stakeholder s, 3 5, 17 0 -7 7 epistemology, 57
analysing stakeholders' relative importance, 172 ethics, 57
defining a stakehold er, 170 metaphysics, 57
primary,lTl politics, 57
secondary, 171 Theory ofJustice, 82-4
social responsibiiily, 17 5 *7 7 justice as a sociai process, 83
types of stakeholders, 171 Theory ofRights, 77*82
Stakeholder Theory, 134, 137, 173 general rights, 79
descriptive perspective, 17 3 -4 legal rights, 79
forms of stakehoider theory, 173 moral rights,70
instrumentai perspective, 17 4 negative rights, 79
norrnative perspective, 173 positive rights, 79
Steps towards sustainable consumption, 331 specific rights, 79
producing environmentally responsible 'Iotal labour force, 229
products, 331 Trademark, 262,27A
product recapture, 331, 332 Trade secrets, 199-200
product sharing, 331, 332 commercial espionage, 200
reducing demand, 331, 332 condition' ttr qualill as. Jt)t)
scrvice replacenlent for products, 33i, 332 confidential ir-rtbrmation. 199, 204
Stereotypin g, 230 definition of, tg9
Sttnnah (Hadith),360 exanple of, Ztlil
Surr,eiilance, 211 steps to protect, 200
c0nsLrnler privac1,, 2 14 r.ioiation of, iqg
data snrveillance,21l World lntellectual Propcrties Organizatrot-t, 199,
indivrdual privacy, 21 2 200
Sustainability, 3 16, 323, 325-6 Transmile Berhad, i20
exten"rality effects,'1 I "lrusl (Amanah),362
Sustainable business, 42 Truth in advertisrirg, 295
long tern-i relationships. 42 Tyco lnternatiorral, 113, 142
Sustainable consumption, 328 -31 Type I agencli probleni, 127
barriers, 329 Type II agency pr,-.blem, 127
ses Barriers tor.r,ards sustainable consumption
steps,331
sce Steps tor,vards sustainable consumption U
Sustainable developmeut, 323, 325-7 Llkhuww ah (brotherho ocl), 367
Sustenance (rizq),366 Ul\4W Holdings, 127
Unfairness, 300, 301
T Llnited Nations Universal IJeclaratron of t{urnan
Rights, B0
fan Sri Syed Mokhtar Albukhary,lTS
Unity of Aliah (Tawheed), 361, 362, 366
lan Sri T. Ananda Krishnan, 178 Universalism, 15,6C
'lan Sri Vincent Tan, 178
Urgency, 172,173
Taqwa,3o3
Usaha Tegas, 178
Tenaga Nasional, 127
Usaha Tegas Be.had, l78
The five branches ofphilosophy,5T
Utilitarian, 214,222
acsthetics, 5;
lndex 425
utilitarianism,225 matters of public interest or safbty, 196

consequentialism,60 misconception' 197
four theses of, 60 Procedure, 197
hedonism, 6o rePorting sYstem' 197

maximalism, 60 retaliatory actions' 197' 198
universalism, see universalism voluntary, 194,196" 197
utilitarian Theory of Ethics, 59 whistleblower protection Act 2010, 197
written poiicy, 196
Workstress,z37,24l
V Workplace surveillance and privacy, 267
2BB
\ralue durability, WorldCom,l2}' 142
\ricegerent (Khalifah),2,363,364 Worldview, 361
Virtue,2l definition of, 3Ol
standards and definitions, 21 definition of Islamic, 361
Virtuous deeds (al'amal assalitL,r,'t57 Worship ('Ibadah),362
iioluntary reduced time (V tine),2i3
X
W xerox CorPoration, 154
\\Ihistieblor'r'ing' 109-10, 196 9

conditions to iustifl', i98 Y
defini ng rvhistlebiort'er, I 96
evidence of rvrongdoing, i96 YTL Group, 126
examples of wrongdoing, 196 Yu Cai Education Foundation. l78

internal and external, 197

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V)an t*N,'rr Ehotrlrs (t0onsho)

rolo3r Pq S' OXFORD

-u\ r:r"lIC A Lti*ru:,r,,

Ali ' Zulkufly Ramly o Lau Teck Chai

@ Oxford L-ajar Sdn. Bhd. (008974'T) 2014

ISBN 978 983 17 1271 6

All righx reserved. No part cyf this publication rnay be reproduced,

Vrhile e.very efiort has been mode to trace the originaL

P er pustakaan N ego.ra M aLay'sra D ata P engkatalogttn - dalarn Penerbrtan

Text set in 10.5 point Minion Regular by CLtitra Computers, India

Khalidrh Khalid Ali

Khalidah Khalid Ali

Khalidah Khalid Ali

Ethics and Its Conceptualization in Life 1

]9 Fthics arrd its imporlarce rn busi;.ress ?2

Internalizing Ethics in the

2.2 The three leveis of decision-making 36

2.4 Role as an ethical ccncePt 40

References and suggested readina 53

Ethical Theories and PrinciPles 55

Ethical Leadership and

4.0 lntroduction i00

4.5 Detining corporate culture and ethical culture 1tl

4.6 Ethical leadership and ethical corporate culture 1i3

Corporate Governance 119

Corporate Social Responsibility 1,68

6.0 lntroduction 169

Common Issues at the Workplace 194

Business Ethics and

B.'1 Overview of ethical and social concerns in

Marketing Ethics and Consumerism 279

9.3 Ethicai issues in product develol-ment

9.4 Ethical issues in packaging and labelling 289

Ethics and the Environment 314

Islamic Ethics 354

ll.4 Axioms of lslamic ethical philosophy 365

11.6 Relationship with stakeholders from the

Case study 389

Ethics in the Global Environment 392

12.5 An ethical drlemma 4l)2

Ethics and Its

At the end of this chapter, you should be able to:

1.2 THE CONTRAST BETWEEN ETHICS

1.3 THE ORIGIN OF ETHICS

'C) ye t+,ho believe! Savc yourselves and your

Figure 1 .1: The far:tors inf lr-iencing one's ethical values

1.4 ETHICS AND ITS IMPORTANCE IN

Humans, despite their differences, live in a community and develop a web of

complementing others. We value compassion, respect, fairness and gratitude. Tf

1.5 THE CONTRAST BETWEEN ETHICS

The collapse of Enron, 'fyco International and World.Com at the beginning of

1.6 RELIGION AND ETHICS

Figure 1.2: Rukun Negara

1.6.1 lslamic Ethics: Ethics of the Soul

by changes in external conditions and circumstances of life (Al-Maududi, 1978).

The Five Pillars of lslam

i Faith or belief in the Oneness of God'and the

* Establishmenl of the daily.playeqs (! timesla

(S o tt rce'. http://www.isl a m 1 0 1.co m/d awah/ pi I I a rs.htm l)

Figure 1.3: The five pillars o{ lslam

Belief in the 'ri! &*ii ngg toJtr *ie, ;

Figure 1.4: The six pillars a{ lman

w A 'irlthe AlOuran that carries

'ely obey the rule-s of Allah and be grateful to

Belief in the 'ri! &ii ngg toJtr ie, ;