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Topic 1

The Importance of Business Ethics

The Nature of Business Ethics

Ethical Issues in Business

Rationalizing our Actions

Prepared by Dr. Razia Irfan (Spring


Which of the following are unethical business practices

A company relies onchild slave labor that is working in dangerous
A supermarket passes a rule of 8 hour duty per day (6 days per week)
for its employees
Chefs at a restaurant are required to cover their hair while handling
A cigarette manufacturer uses advertising that targets kids try to
create the image of smokers being cool
A multinational energy and metal trading company have faced
accusations of stealing oil from South Sudan.
An energy producer dealing in oil, natural gas and petrochemicals
The avoid
a nine-year-old
firm based
in of
of dollars
of taxes management
and dump billions
of gallons
AZ, is ainto
in the crowded
field of corporate ethics rating. For the last
toxic waste

eight years it has put out a list it labels the Worlds Most Ethical Companies. 2014,
some of which are :

3M Company
(industrial manufacturing)
Adobe Systems Inc. ( computer software)
CISCO Systems Inc. (telecommunications)
Cleveland Clinic
(healthcare services)
Interntl Hospitals Construcn Co. (Construction)
Saudi Arabia
Kellogg Company (food & beverage )
Ford Motor
Worlds Most Ethical Companies

The Nature of Business


The standards that an individual or a
group has about what is right and
wrong or good and evil.

Prepared by Dr. Razia Irfan (Spring


The Nature of Business


Moral standards
The norms about the
kinds of actions
believed to be morally
right and wrong as well
as the values placed on
what we believe to be
morally good and
morally bad.

Non-Moral Standards

The standards by
which we judge what is
good or bad and right
or wrong in a nonmoral way.

Prepared by Dr. Razia Irfan (Spring


e Nature of Business Ethics

Characteristics of moral standards

Involve significant wrongs or benefits
Not established by authority figures
Should be preferred to other values including
Based on impartial considerations
Felt to be universal. (everyone should live up
to that standard).
Associated with special emotions and
Prepared by Dr. Razia Irfan (Spring

he Nature of Business Ethics


the discipline that examines ones moral

standards or the moral standards of a
society to evaluate their
reasonableness and their
implications for ones life.
Word Ethics derived from the Latin word Ethics
and Greek word ethikos, -- pertain to character.
Ethics involves the basic concepts and fundamental
principles of decent human conduct.
Ethics involves the study of universal values. (i.e
equality of men and women, human/ natural rights,
obedience to the law, concern for health and safety,
concern for the natural environment etc.)
Prepared by Dr. Razia Irfan (Spring

he Nature of Business Ethics

Ethical practice involves action that
best serves the ideas of honesty,
integrity, morality and good
management practices.
Philip Wheel Wright says- Ethics is the
branch of philosophy which is the
systematic study of selective
choice, of the standards of right
and wrong and by which it may
ultimately be directed.
Prepared by Dr. Razia Irfan (Spring

e Nature of Business Ethics

Objectives of ethics

Define the greatest good of man and establish a

standard for this
Set moral standards and establish norms of behavior

Assess what is moral and what is immoral

Apply judgment upon human behavior based on the set
standards and norms

Prescribe recommendations about Dos and Donts

Express an opinion about human conduct in general

Prepared by Dr. Razia Irfan (Spring

he Nature of Business Ethics

Objectives of ethics
A) Analysis and Evaluation:
Ethical analysis and ethical diagnosis of past events,
happenings, clarifying the standards, uncover the moral
values, habits of thought.
Ethics provides rational methods for answering the
present situation and related future issues. Wellequipped information is a must to achieve this second
objective, a careful assessment of relevant information
will lead to balanced judgments.
B) Approaches to resolve ethical dilemmas:
It provides therapeutic advice when facing the present
dilemmas and future dangers.
Only the condition,Prepared
requires a true identification of
by Dr. Razia Irfan (Spring

The Nature of Business Ethics

Business ethics

Business ethics is a specialized study of moral right

and wrong that concentrates on moral standards as
they apply to business institutions, organizations,
and behavior.

Business ethics is a study of

- Our moral standards insofar as they apply to

- How reasonable or unreasonable moral standards

we have absorbed from society are.
- The implications of our moral standards have for
Prepared by Dr. Razia Irfan (Spring
business activities.

The Nature of Business Ethics

Significance of Business Ethics

Good business ethics promotes good
This statement is supported by the research
findings of some well-known authorities
Raymond Baumhart, Brener & Molander, and
Strom & Ruch.
It was clear from their findings that only
those businesses can develop on a
long-term base that conducts activities
on ethical grounds.
Prepared by Dr. Razia Irfan (Spring

Reasons why ethics have a key role in business

Businesses depend on
mutual trust and
confidence, so ethical
businesses will have
positive consequences

Goodwill of the
business and
Ethical behavior will lead
to a strong public image
which is a symptom of
success in the long run

Self satisfaction

Encourage others

A businessman is first a
member of society, so
inner satisfaction would
only be gained with
ethical decisions

When ethical businesses

make profits, this
motivates others and
encourages them to
follow business ethics

New management
An important feature is
that it follows a code of
conduct, which remains
on all the principles of
service to humanity.
Prepared by Dr. Razia Irfan (Spring

Protection both
An ethical organization
has sincere businessmen
with higher levels of

Success and
Ethical conduct of
business leads to
development and series
of success

Types of Ethical ethical


questions about
the social,
political, legal,
or economic
systems within
questions about
a particular
corporation and
its policies,
culture, climate,
impact, or
questions about
a particular
behavior, or
Prepared by Dr. Razia Irfan (Spring

Can ethical qualities be

attributed to
View #1: corporations, like people, act
intentionally and have moral rights, and
obligations, and are morally responsible.


View #2: it makes no sense to attribute ethical

qualities to corporations since they are not like
people but more like machines; only humans can
have ethical qualities.
View #3: humans carry out the corporations
actions so they are morally responsible for what
they do and ethical qualities apply in a primary
sense to them; corporations have ethical
qualities only in a derivative sense.
Prepared by Dr. Razia Irfan (Spring

Copyright 2012 Pearson

2016) Education, Inc. All rights reserved.

Arguments for and against

Supporting business ethics
Ethics applies to all human activities.
Business cannot survive without
Ethics is consistent with profit
Customers, employees, and people
in general care about ethics.
Studies suggest ethics does not
detract from profits and seems to
contribute to profits.

Against business ethics

In a free market economy, the

pursuit of profit will ensure
maximum social benefit so business
ethics is not needed.
A managers most important
obligation is loyalty to the company
regardless of ethics.
So long as companies obey the law
Prepared by Dr. Razia Irfan (Spring
they will do all that ethics requires.

Corporate Social Responsibility (CSR)

Corporate social responsibility refers
to a corporations responsibilities or
obligations toward society.
Business ethics is both a part of
corporate social responsibility and
part of the justification for corporate
social responsibility.
Shareholder vs. Stakeholder Theory
Copyright 2012 Pearson Education, Inc. All rights reserved.

Ethical Issues in Business

New Issues in Business Ethics

Advances in technology often create new issues for
business ethics.
Currently, advances in information technology are
creating new issues in business ethics.
Biotechnology has created yet another host of difficult
ethical issues
Increasing connections between the economic and
social systems of different nations, known as
globalization, has also created new issues in
business ethics.
Copyright 2012 Pearson Education, Inc. All rights reserved.

New Issues in Business Ethics

Important definitions
Information technology: the use of extremely powerful and
compact computers, the Internet, wireless communications,
digitization, and numerous other technologies and that have
enables us to capture, manipulate, and move information in new
and creative ways.
multinational corporation: A company that maintains
manufacturing, marketing, service, or administrative operations
in several "host" companies
Cyberspace: A term used to denote the existence of information
on an electronic network of linked computer systems
Genetic engineering: A large variety of new techniques that
allows change in the genes of the cells of humans, animals and
Copyright 2012 Pearson Education, Inc. All

Many of the pressing issues in business
ethics are related to globalization driven
by multinational corporations

Globalization is:
Blamed for many ills including rising
inequality, cultural losses, a "race to the
bottom" (lower wages, environmental
standard, etc. to attract foreign
companies), introduction of inappropriate
technologies into developing countries.

Beneficial in that it has brought great

benefits to developing countries
including job skills, income,
technology, a decrease in poverty,

Differences among nations

- Include differences in law,
governments, practices, levels of
development, cultural
- Raise the question whether
managers in foreign countries should
follow local standards or their home
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Resolving Cross-Cultural Ethical Differences

Moral Relativism: the theory that there are no
ethical standards that are absolutely true and that
apply or should be applied to the companies and
people of all societies.

Objections to Moral Relativism:


Some moral standards are found in all societies;

Moral differences do not logically imply relativism;

Relativism has incoherent consequences;
Relativism privileges whatever moral standards are
widely accepted in a society.
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According to the Integrative Social Contracts

Theory (ISCT), there are two kinds of moral
Moral standards

those moral standards that
should be applied to people in
all societies.

Microsocial norms:
those norms that differ from one
community to another and that
should be applied to people only if
their community accepts those
particular norms.

Rationalizing our Actions

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

about what
is being

A moral
about what
is being

Moral reasoning should be logical, rely on information that

is accurate, relevant and complete and be consistent.

Rationalizing our

Moral development

The psychologist Lawrence Kohlberg conducted 20 years of

research and found that there are 6 identifiable stages of
development of a persons ability to deal with moral issues
Kohlbergs Three Levels of Moral Development
First Level: Pre-conventional Stages person follows his own point of
view only
Stage One: punishment and obedience
Stage Two: instrumental and relative


Second Level: Conventional Stages person takes point of view of

similar people
Stage Three: interpersonal concordance
Stage Four: law and order orientation

Third Level: Post-conventional Stages person can judge moral

principles of society
Stage Five: social contract orientation

Stage Six: universal principles orientation

Rationalizing our

Steps Leading to Ethical Behavior

Step One: Recognizing a situation is an ethical situation.

Requires framing it as one that requires ethical reasoning
Situation is likely to be seen as ethical when:
involves serious harm that is concentrated, likely, proximate, imminent, and potentially violates our
moral standards
Obstacles to recognizing a situation:
Euphemistic labeling, justifying our actions, advantageous comparisons, displacement of
responsibility, diffusion of responsibility, distorting the harm, and dehumanization, and attribution of
Step Two: Judging the ethical course of action.
Requires moral reasoning that applies our moral standards to the information we have about a
Requires realizing that information about a situation may be distorted by biased theories about the
world, about others, and about oneself.
Step Three: Deciding to do the ethical course of action.
Deciding to do what is ethical can be influenced by:
The culture of an organizationpeoples decisions to do what is ethical are greatly influenced by
their surroundings.
Moral seductionorganizations can also generate a form of moral seduction that can exert subtle
pressures that can gradually lead an ethical person into decisions to do what he or she knows is
Step Four: Carrying out the ethical decision.
Factors that influence whether a person carries out their ethical decision include:
Ones strength or weakness of will
Ones belief about the locus of control of ones actions

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Rationalizing our

Moral Responsibility
Three Components of Moral Responsibility:
Person caused or helped cause the injury, or
failed to prevent it when he or she could and should
have (causality).
Person did so knowing what he or she was doing
Person did so of his or her own free will (freedom).
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Rationalizing our

Factors that Mitigate Moral Responsibility

Minimal contribution
In general, the less ones actual actions contribute to the outcome
of an act, the less one is morally responsible for that outcome.
A person may be fairly convinced that doing something is wrong
yet may still be doubtful about some important facts, or may have
doubts about the moral standards involved, or doubts about how
seriously wrong the action is.
A person may find it difficult to avoid a certain course of action
because he or she is subjected to threats or duress of some sort or
because avoiding that course of action will impose heavy costs on
the person.
Moral responsibility is not Mitigated by:
The cooperation of others
Following orders
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