BUSINESS ETHICS

Chapter 1 Ethics and Business

Lecturer: Risa Virgosita, S.E., M.Sc

Are ethics important?

Morality
Morality: The standards that an individual/group has about what is right/wrong and good/evil Moral standards: The norms about actions believed to be morally right/wrong and the values placed on the kinds of objects believed to be morally good and bad Nonmoral standards: The standards of whats right/wrong and good/bad in a nonmoral way

Ethics
Ethics is the study of moral standards
The process of examining the moral standards of a person/society to determine whether these standards are reasonable or unreasonable to be applied to concrete situations/issues

Business Ethics:
A study on moral standards How moral standards apply to social systems and organizations that produce and distribute goods and services

Ethical Issues
Systemic
Social systems or institutions within which business operate

Corporate
An individual company taken as a whole

Individual
A particular individual(s) within a company and their behaviors and decisions

Business Ethics & Cultural Differences

Ethical Relativism
A theory that there are no ethical standards that are absolutely true and that apply or should be applied to the companies and people of all societies different societies have different moral beliefs

Objections to Theory of Ethical Relativism

Some moral standards are found in all societies Moral differences do not logically imply relativism Relativism is incoherent Relativism privileges the current moral standards of a society

Technology & Business Ethics

New technologies raise new ethical issues for business Ethical issues related to technology:
The use of information technology Cyberspace Nanotechnology Genetic engineering

Moral Development
Kohlbergs 3 Levels of Moral Development Level 1: Preconventional Stages
1. Punishment & Obedience Orientation 2. Instrumental & Relative Orientation

Level 2: Conventional Stages

3. Interpersonal Concordance Orientation 4. Law & Order Orientation

Postconventional, Autonomous, or Principled Stages

5. Social Contract Orientation 6. Universal Ethical Principles Orientation

Moral Reasoning
Moral Reasoning The reasoning process by which human behaviors, institutions, or policies are judged to be in accordance with or in violation of moral standards

Essential Components of Moral Reasoning

1. An understanding of what reasonable moral standards require, prohibit, value, or condemn 2. Evidence or information that shows that a particular person, policy, institution, or behavior has the kinds of features that these moral standards require, prohibit, value, or condemn

Business Ethics: Cons

1. In a free market economy, the pursuit of profit will ensure maximum social benefit 2. A managers most important obligation is to serve the company
Law of Agency A law that specifies the duties of persons who agree to act on behalf of another party & who are authorized by an agreement so to act (e.g. lawyers, managers, stockbrokers, etc)

3. Business ethics is limited to obeying the law

Business Ethics: Pros

1. 2. 3. 4. 5. Ethics applies to all human activities Business cannot survive without ethics Ethics is consistent with profit seeking Prisoners dilemma argument Customers & employees care about ethics

The Prisoners Dilemma

A & B who are arrested for robbing a store secretly agree to cooperate that neither of them will confess the crime. The police officer separates the two prisoners and tell each of them the following:
B cooperates with A A cooperates with B A gets 1 year B gets 1 year A goes free B gets 3 years B does not cooperate with A A gets 3 years B goes free A gets 2 years B gets 2 years

A does not cooperate with B

The Prisoners Dilemma

When people must choose between cooperating or not cooperating in rules/agreement, and when each has more to gain by NOT cooperating the best choice: not cooperating the rules/agreement Ethics consists of rules that each of us can choose to follow or not a prisoners dilemma In real life, individuals have an ongoing relationship with the other party if we cheat the other party, they will do the same in the next opportunity

The Prisoners Dilemma

In business, interactions with employees, customers, suppliers, and creditors are repetitive and ongoing if a business is trying to take advantage of them through unethical behavior, they will likely to retaliate in the next opportunity. Over the long run and in the most part, its better to be ethical in business than to be unethical Ethics is a key component of effective management

Moral Responsibility
A person is morally responsible for an injury or a wrong if:
1. He/she caused or helped cause it, or failed to prevent it when he/she could and should have 2. He/she did so and knows what he/she was doing 3. He/she did so of his/her free will