Business Ethics

Lecture 20
Chapter Nine: Moral Choices
Facing Employees

Source: Shaw
Purpose of this Chapter
1. What are the obligations of an employee from the
point of view of loyalty and conflict of interest?
2. How can one abuse his / her official position for
private gain through insider trading and access to
proprietary data?
3. How can bribe and kickbacks raise moral issues?
4. The moral issues arising from Gifts and
entertainment, and criterions to test a gift as
bribe.
5. When whistle blowing is morally justified?
Obligation to the Firm

When we accept employment we generally agree to

perform certain tasks, usually during certain specified
hours, in exchange for financial remuneration.
Whether it is oral or written, implicit or explicit, a
contract governs our employment relationship and
provides the basic framework for understanding the
reciprocal obligations between us and our employer.
We can explain this point from two different point of
views; 1) Loyalty to the firm, 2) Conflict of interests
Loyalty to the Firm

Since, we have an obligation to the employer to act on

the behalf of the organization we should be loyal when
we are performing our tasks in accordance to our
agreement and / or some extra duties out of the
agreement terms. We should act in good faith for the
organization. But, we don have to give our private
lives for our organization. Morality requires neither
blind loyalty nor total submission to the organization.
Loyalty to the Firm

Some loyalty aspects come with job; like

1. The obligation to warn the organization of

danger,
2. The obligation to act in a way that protects its
legitimate interests,
3. The obligation to cooperate actively in the
furtherance of legitimate corporate goals.
Loyalty to the Firm

Some loyalty aspects are out of the job agreement. The

organization may expect employees to_
1. Defend the company, if it is maligned,
2. Work overtime when the company needs,
3. Accept a transfer if necessary,
4. Demonstrate their loyalties in other required
ways.

Displaying loyalties in these ways certainly seems

morally permissible, even if it is not morally required.
Loyalty to the Firm (The contra view)

1. Most employees believe that loyalty is a two way

street and the company should earn the loyalty of
the employee and retain it.

2. Because a business firm functions to make money,

self-interest is all that binds the relationship of the
firm and employees. But, loyalty depends on ties
that demand self-sacrifice with no expectation of
reward. So, one can owe loyalty to family, friends,
or country, but not to a corporation.
Conflict of Interests

When an individual acts on behalf of his own interest

over the interests of the organization, conflict of
interests arise. In this point, the employee doesnt
exercise the obligation to the company. Conflicts of
interests may arise from different sources:

1) Personal Sources
2) Financial Sources
Conflict of Interests

Personal Sources:
Sometimes a particular individual (agent) may want to
assist his / her relatives or a particular person who
belongs to his own preferential group.
Ex: A manager is giving a contract to his brother-in-
law, thought he knew that he could get the work done
elsewhere with a lower price quote. Here, the manager
doesnt have any financial motive, he just want to
assist the people he knows by acting against the
organizations interest.
Conflict of Interests

Financial Sources:
This is the most common source of conflict of interest.
Here a particular agent got interested to act against
the corporation just for pure financial incentive.

Ex: A manager may buy raw materials from that

particular supplier where he has a substantial amount
of investments.
Abuse of Official Position

The use of ones official position for personal gains

always raises moral concerns and questions because of
the risk that one will thereby violate ones obligation
to the firm or organization.
Ex: 1) Using subordinates for unofficial tasks,
2) Using organization's fund for personal party.

The two main dimensions of abusing official position

are: 1) Insider Trading, & 2) Disclosing Proprietary
Data
Abuse of Official Position
Insider Trading

It refers to the buying or selling of stocks (or other

financial securities) by business insiders on the basis of
information that has not yet been made public and
which is likely to affect the price of the stock.
Ex: Suppose one of the managers know that his firm is
going to fall for an fraud within the next 2 weeks or
so. So, he managed to sell all of his shares and he
suggested his FnF to do the same. Here he gained a lot
because he knew a non-public information.
Abuse of Official Position
Insider Trading

Ex: Opposite might happen here one employee

knows that his organization had a major success
and it will be revealed within the next week. So, he
manages to buy a lot of stocks at a lower price and
sell it on the next week at a much higher price.
Abuse of Official Position
Insider Trading

It raises some moral questions on the basis of

Utilitarian point of view and Kants right based point
of view.

Sometimes, the total benefit might get lower,

sometimes it could become higher.
The right to know all the information to take a
informative and free decision is violated cause the
insiders take decision on non-public information.
Abuse of Official Position
Proprietary Data

These are sensitive information of an organization,

which if it is revealed, might vibrate the competitive
standing of a particular organization.

This sort of information may stem from two sources:

1) Patent
2) Trade secret
Abuse of Official Position
Proprietary Data (Patent Vs Trade Secret)

Patent is created and registered and if anyone tries to

copy the way, procedures, formula of the patent, then
the government might take legal action against the
copycat. The organization has to pay some patent
charge every year. Here the free market concept is
violated, but if we want innovative and developed
product then we have to provide this incentive to the
innovator / Entrepreneur.
Abuse of Official Position
Proprietary Data (Patent Vs Trade Secret)
A trade secret is any formula, pattern, device or
compilation of information which is used in ones
business and which gives him an opportunity to obtain
an advantage over competitors who do not know or
use it.

Trade secret do not enjoy the same protection as

patented information. If any organization can reveal
trade secret by backward engineering then it would
do no legal harm.
Abuse of Official Position
Proprietary Data (Moral Issues)

If any employee reveals any sensitive proprietary

information of one organization to another because of
switching job or job hopping, he might violate some
moral standings. It might destroy the position of the
influenced company. Because, a particular company
invests in an employee from the point of view of
training (Skills, capabilities), and then if that employee
switches organization and reveal those secret skills and
capabilities., it is not justified in most of the cases.
Bribes and kickbacks

A bribe is a remuneration for the performance of an act

that is inconsistent with the work contract or the
nature of the work one has been hired to perform. The
remuneration can be money, gifts, entertainment or
preferential treatment.

Bribery sometimes take the form of kickbacks, a

practice that involves a percentage payment to a
person able to influence the or control a source of
income.
Bribes and kickbacks

It has severe impact on utilitarian and Kant based

ethics. The total net benefit of the organization
decrease, because some of the resources of the
organization flows to the employee and the rights of
some persons getting some minimal treatment is
violated. Because, sometimes people have to get those
treatment by paying bribe and kickbacks to a
particular employee.
It also questions the exercise of obligation of a
particular employee to an organization.
Gifts & Entertainment

Business gifts and entertainment of clients and

business associates are a familiar part of the business
world. Still, both practices can raise questions from the
point of view of conflict of interest and bribery.

To determine whether a gift / entertainment raises

moral questions or not is not that easy and conclusive.
But we can look into some criterions by which we can
testify whether a gift / entertainment is morally
questionable or not. These are stated at the next slides:
Gifts & Entertainment

1. What is the value of the gift? Is it nominal or

substantial; is it frequent or infrequent? If it is
substantial and frequent it could raise moral issues.

2. What is the purpose of the gift? If the gift is to

influence a particular individuals decision, then it
might raise moral issues. But, a gift which is given
for pure advertising intent it would not raise any
moral issue.
Gifts & Entertainment

3. What are the circumstances under which the gift

was given or received? Was the gift given for a special
event? Was the gift open or secret? If the gift was
given for a special event and public knows about the
gift, it raises less doubt about the integrity of the gift.

4. What is the position and sensitivity to influence of

the person receiving the gift? Is the person in a
position to affect materially a business decision on
behalf of the gift giver?
Gifts & Entertainment

5. What is the a accepted business practice in the

industry? When giving gifts is an integral part of
customary business practice, they are far less likely to
pose moral questions.

6. What is the company policy? Many firms explicitly

forbid the practice of giving and receiving gift to
minimize even the suspicion that a conflict may exist.
When such a policy exists, the giving or receiving of a
gift would normally be wrong.
Gifts & Entertainment

7. What is the law? When the gifts transactions

violate the law, they are clearly unacceptable.

So, there are no certain or conclusive criterions for

deciding whether a gift / entertainment creates conflict
of interests and / or related to bribery; but these points
could clarify or give ground to defend your position.
Whistle-Blowing

Whistle-Blowing refers to exposing activities that are

harmful, immoral, or contrary to the public interests or
to the legitimate goals and purposes of the
organization. It doesnt encompass sabotage or taking
penalizing action against the employer or firm, but it
does require going outside normal channels.

So, the whistle-blowers override loyalty to colleagues

and to the organization in order to serve the public
interests.
Whistle-Blowing

So, the whistle-blower are sometimes titled as

disloyal (considering the obligation to the firm that
the whistle-blower was supposed to exercise), but
many of them see themselves as acting in the best
interest of the organization.

One must bear in mind that the whistle-blowers are

only human beings, not saints, and they can sometimes
have their own self-serving agendas.
Whistle-Blowing
There are some particular criterions by which you can
justify whether whistle-blowing is morally justified or
not; these are:

1. Whether it is done from a moral motive: It must be

motivated by a desire to expose unnecessary harm,
illegal or immoral actions, or conduct counter tot the
public good or the defined purpose of the organization.
Desire for attention or profit or the exercise of ones
general tendency to make things troublesome is not a
justification for whistle-blowing.
Whistle-Blowing

2. The whistle-blower, except in special circumstances,

has exhausted all internal channels for dissent before
going public. The duty of loyalty to the firm obligates
workers to seek an internal remedy before informing
the public of a misdeed.

3. The whistle-blower has enough evidence and he / she

is convinced that those evidence are adequate to guard
his whistle-blowing act.
Whistle-Blowing

4. The whistle-blower has acted after careful analysis

of the danger: He / she analyses from the three
concerns; namely;

a) Gravity: How important the matter is?

b) Time Factor: Do I have enough time to wait
or should I blow right now?
c) Specific: The blowing factor should be specific,
blowing that reveals general act would not
attract peoples concern
Whistle-Blowing

5. The whistle-blowing has some chances of success:

Whistle-blowing that stand no chance of success is less
justified than that with some chance of success.

Even so, sometimes merely drawing attention to an

objectionable practice may align justification, although
it may fail to improve the specific situation.