ETHICS
CHAP 1 INTRODUCTION
Ethics is a topic of social science that is connected with moral values and
social values. 'Business Ethics' can be called as a study of proper business
policies and performs regarding possibly controversial issues, such as
corporate governance, insider trading, bribery, discrimination, corporate social
responsibility, and fiduciary responsibilities.
Businesses must stand by some simple principles. It should offer quality
goods and services at sensible prices to consumers. It must also evade
adulteration, misleading advertisements, and other unfair malpractices.
A business must also implement other duties such as allocating fair wages,
providing good working situations, not abusing the workers, encouraging
competition, etc.
Business Ethics – Definition
There are numerous meanings of business ethics, but the ones given by
Andrew Crane and Raymond C. Baumhart are considered the most
appropriate ones.
 According to Crane, "Business ethics is the study of business situations,
activities, and decisions where issues of right and wrong are addressed."
 Baumhart defines, "The ethics of business is the ethics of responsibility.
The business man must promise that he will not harm knowingly."
 
 
Features of Business Ethics
There are eight major types of business ethics  16.
1. Code of Conduct − Business ethics is really a form of codes of conduct.
It lets us know what to do and what not to do. Businesses must follow
this code of conduct.
2. Based on Moral and Social Values − Business ethics is a topic that is
based on moral and social values. It proposals some moral and social
principles (rules) for conducting a business.
3. Protection to Social Groups − Business ethics defend numerous social
groups counting consumers, employees, small businesspersons,
government, shareholders, creditors, etc.
4.
Offers a Basic Framework − Business ethics is the basic framework for
doing business correctly. It constructs the social, cultural, legal,
economic, and other limits in which a business must operate.
5. Voluntary − Business ethics is intended to be voluntary. It should be
self-practiced and must not be enforced by law.
6. Requires Education & Guidance − Businessmen should get good
education and leadership about business ethics. Trade Relations and
Chambers of Commerce should be active enough in this matter.
7. Relative Term − Business ethics is a qualified term. It alters from one
business to another and from one country to another.
8. New Concept − Business ethics is a comparatively newer concept.
Established countries have more experience to business ethics, while
poor and developing countries are moderately backward in applying the
principles of business ethics.
Principles of Business Ethics
The principles of business ethics are connected to social groups that include of
consumers, employees, investors, and the local community. The important
rules or principles of business ethics are as follows −
1. Avoid Exploitation of Consumers − Do not fraud and abuse consumer
with measures such as artificial price rise and adulteration.
2. Avoid Profiteering − Dishonest business actions such as hoarding,
black-marketing, selling banned or harmful goods to earn exorbitant
profits must be avoided.
3. Encourage Healthy Competition − A well reasonable atmosphere that
offers certain profits to the consumers must be encouraged.
4. Accuracy − Correctness in weighing, packaging and quality of
providing goods to the consumers has to be followed.
5. Pay Taxes Regularly − Taxes and other duties to the government must
be fairly and frequently paid.
6. Get the Accounts Audited − Good business records, accounts must be
achieved. All official persons and authorities should have admission to
these details.
7. Fair Treatment to Employees − Fair wages or salaries, facilities and
incentives must be delivered to the employees.
8. Keep the Investors Informed − The shareholders and investors must
know about the financial and other important choices of the company.
9. Avoid Injustice and Discrimination − Evade all types of unfairness
and prejudice to employees. Judgment based on gender, race, religion,
language, nationality, etc. should be avoided.
10. No Bribe and Corruption − Do not give expensive gifts,
commissions and payoffs to people having influence.
11. Discourage Secret Agreement − Making secret agreements with
other business people to influence production, distribution, pricing
etc. are unethical.
12. Service before Profit − Accept the principle of "service first and
profit next."
13. Practice Fair Business − Businesses should be fair, humane,
efficient and dynamic to offer certain benefits to consumers.
14. Avoid Monopoly − No private monopolies and concentration of
economic power should be practiced.
15. Fulfill Customers’ Expectations − Adjust your business activities
as per the demands, needs and expectations of the customers.
Respect Consumers Rights − Honor the basic rights of the consumers.
17. Accept Social Responsibilities − Honor responsibilities towards the
society.
18. Satisfy Consumers’ Wants − Satisfy the wants of the consumers as the
main objective of the business is to satisfy the consumer’s wants. All
business operations must have this aim.
19. Service Motive − Service and consumer's satisfaction should get more
attention than profit-maximization.
20. Optimum Utilization of Resources − Ensure optimum utilization of
resources to remove poverty and to increase the standard of living of
people.
21. Intentions of Business − Use permitted legal and sacred means to do
business. Avoid Illegal, unscrupulous and evil means.
Nature of Business  
 Business is as old as a human Civilization. 
 Business is an activity that is part and parcel of human society.
 Business also is complex enterprises that involve major activities like
purchasing, manufacturing, marketing, advertising, selling and
accounting.
 Business deal with suppliers, customers, workers, employees and even
competitors.
 Business is a good human activity however, it is the selfish motive and
personal interest of scrupulous businessmen that make business bad and,
in some instances, unproductive. 
The Importance of Ethics in Business
a. The study of Business Ethics paves the way for a common ground in our
understanding of the fundamental idea of what is good and what is bad
in our human conduct. 
b. Ethics as a science does only evaluate the morality of human conduct but
also provides us with a common understanding of the universal,
objective, and irreversible moral principles that should govern our
human behaviour and guide our moral decisions.
c. Business Ethics opens a novel way of resolving moral problems and
ethical dilemmas affecting business transactions and the interactions of
people in the corporate world.
d. The study of Business Ethics will also enhance the human and
interpersonal skills of managers so they can be more effective in
managing the human side of organization. 
ETHICS
The Businessman’s Myth’s about Business Ethics
 Businessmen are not immoral, and it would be disastrous to judge and
conclude that business people commit unethical act in doing business.
 Business, certainly is a good and productive human activity. However, it
is the businessman’s wrong perception about the role that ethics plays in
the world of business that affects the moral judgment and decision
making.
Here are some myths that businessmen have about Business Ethics;
a. Ethics is a personal affair and not a public debatable matter
b. Ethics and business do not mix
c. Good business means good ethics
d. Business is a war
The Relationship between Ethics and Business
Ethics play an important role in business. Without morality, business will be a
chaotic human activity.  Ethics is not a study of positive laws intended to
govern and regulate the actions of people doing business. The concern of
ethics as a philosophical science is to discover that there are unwritten laws,
written in the hearts of man that should govern our human conduct where
positive law may be absent, and in some cases are not clear.
The following arguments justify the significant role that ethics plays in
the world of business;
1. Business is an integral part of human society. Therefore, the actions of
individuals and institutions in business must be subjected to moral rules
and moral evaluation.
2. In business, as in any other human endeavor, “what is legal may not
necessarily be moral.” People tend to be confused legality and morality.
An action may be legal but not necessarily moral.
3. Law is insufficient.
Moral Reasoning in Business
The essence of studying Business Ethics is to provide the manager as a
decision maker with a framework for the resolution of moral issues and
problems affecting business activates and the organization itself.   Moral
reasoning is a process in which ethical issues and problems are benchmarked
against a moral standard so that a moral judgment is made possible.
Characteristics of a Good Moral Standard;
1. A good moral standard is one that looks as the issue as something that is
very serious.
2. A good standard must be grounded on good moral argument. A good
argument is an argument that always tells the truth.  A solid moral
argument leaves the room for loopholes and counter arguments.
3. A good moral standard should be objective not subjective. It should be
universally accepted and should apply to all.  being philosophical. Secondly, the process of moral reasoning involves use of
4. A good standard, when violated, brings about feelings of guilt, shame
and remorse of conscience.
Requirements for a Good Moral Judgment
1. A good moral judgment must be logical. 
2. A good moral judgment must be based on facts and solid evidence.
3. A good moral judgment must be based on sound and defensible moral
principle. A weak ethical principle is open to a lot of criticisms.
The Morality of Profit Motive
 People go into business for a number of reasons:
 Some go to business for personal satisfaction.  philosophize means to wonder about life, to question reality and to find sense
 In business to earn a livelihood.  in what we do as human beings.
 Others are in business because they want to serve the society through the
goods and services they offer to the customers.  Other definition of Philosophy;
 To make a profit. (Most common reason)
Businessmen consider profit as a form of anticipated reward or a
compensation for the efforts they spend, skills they apply and returns for the
capital they invested in putting up and organizing the business.
The issue of profit motive is a subject matter that needs to be carefully
considered in the study of Business Ethics. Is profit motive in business good
or bad? Is it moral or immoral?
The Good and the Bad Sides of Profit Motive
The Good Side of Profit Motive;
 Profit motive motivates people to do something meaningful.
 Profit motive promotes ingenuity and cleverness in running business.
 Profit motive makes people productive.
 Profit motive generates potential capital for the business.
The Bad Side of Profit Motive;
 Motive promotes rivalry among competitors.
 Profit motive makes people focus only on making money, that is, to sell
as many goods as possible without considering whether or not these
products satisfy the needs and wants of consumers and end users.
 Profit motive turns the businessman from being a reflective and a
questioning person because he focuses his attention only on the practical
activity of making money.
 Profit motive promotes self-interest rather than the common good.
Ethical Considerations of Profit Motive Business
 Earning profit is a good and valid activity in business.
 Making excessive profits is totally wrong. It leads to greed, avarice, and
manipulation of the customers.
 Profit is not the “be-all and the end-all” of doing business. Certainly,
there are factors to be considered in business such as, customer’s
satisfaction, respect for the environment, enhancement of the quality of
life and the preservation of the society.
 The teachings of the Catholic Church do not totally condemn profit as
part of business activity. Pope Pius XI, does not prohibit the producer
from himself provided “one respects the law of God, does not prejudice
the right of others, and work according to faith and right reason.”
The Concept of Moral Responsibility
 Moral Responsibility refers to holding to people morally accountable for
some past action or actions. This simply means assigning to people
blame or praise for particular actions that they have performed.
 Moral Responsibility also means care, welfare, or treatment of others as
derived from the specific social role that one plays in the society. 
 Moral Responsibility likewise refers to one’s capacity for making moral
or rational decisions of his own.
CHAP 2: INTRODUCTION
Business Ethics as an applied branch of General Ethics must be studied from
the perspective of philosophy. This is because ethics is a part of philosophy,
and t it is unthinkable to discuss ethical concepts and moral principles without
metaphysical technologies and concepts that is best understood only in the
light of philosophical abstractions.
A. Ethics and Philosophy
What is Philosophy?
Philosophy, etymologically, came from two Greek words “philos,” which
means love, and “sophis,” which means wisdom. Philosophy means “love of
wisdom.” As a science, philosophy is interested with the meaning of reality,
including our human experiences. It is a science that seeks to explain the
ultimate cause of everything by the use of human reason alone. To
1. Philosophy according to Plato, is the highest form of inquiry.
2. For William James, philosophy is a collective name for questions that
have not been answered to the satisfaction of the one asking question.
Questions like; Who am I? How do live? Where am I going?
3. Philosophy is also defined as the science that studies the ultimate causes
or explanation of things attained by the use of human reason alone.
 ETHICS
These different definitions of philosophy only affirm that it is a metaphysical
science which basically deals with abstractions. It is from this perspective that
Business Ethics, as an applied branch of philosophy must be discussed since it
involves investigating the human values which are basically metaphysical in
nature and which are operative in fiduciary relationships both in business
transactions and in the interactions of people in business organizations and in
the corporate world.
DEFINITION OF ETHICS
 Ethics is a practical science of the morality of human acts.
 Ethics is the study conduct from the standpoint of morality.
 Ethics is a practical science that guides us in our actions that we live
rightly and well.
 Ethics is the science which lays down the principles of right living.
B. ETHICS AND MORALITY
The term ethics and morality are often used interchangeably. Indeed, these
terms usually can mean the same thing, and in casual conversation there is not
a problem with switching between one and the other. However, there is a
distinction between them in philosophy.
Morality refers to the quality of goodness or badness in human act. Good is
described as moral and bad is described as immoral. It means conformity to
the rules of the right conduct. It implies judgment and refers to what we could
call moral standards and moral conduct while ethics is used to refer to the
formal study of those standards and conduct. For this reason, Ethics is also
often called “moral philosophy.”
Ethics, on the other hand, involves the study of those standards and judgment
which people create. Ethics assumes that the standards exist and seeks to
describe them, to evaluate them, or to evaluate the premises upon which those
standards exist. Ethics, basically indicates the nature of moral principles,
ethical systems and moral norms that people use to justify their moral
judgment.
A. ETHICS AS NORMATIVE SCIENCE
Ethics is a branch of philosophy and it is considered as a normative
science because it is concerned with the systematic study of norms
of human conduct. Ethics is a normative science because it
involves a systematic search for moral principles and norms that
are used to justify our moral judgments.
There are three categories of General Ethics;
1. Descriptive Ethics consists of studying and describing the morality of people,
culture, or society. It also makes comparisons and contrasts on the different values,
principles, code of ethics, beliefs, and practices of people. It does not prescribe or
attempt to assess the moral soundness of any ethical system but only to describe
objectively the values and belief of people.
Examples:
a. Psychological Egoism
A concrete example of Descriptive Ethics is the study of human motivation. Is
says nothing about what is god or bad or right or wrong, rather it simply
declares results based on various scientific studies.
b. Cultural Relativism
It does not prescribe how people should act, rather it describes how people,
when grouped and observed in their own cultural realities, actually differ in
their behaviour. What is good or bad, moral or immoral according to this
theory is relative to the people’s own culture or sets of cultural beliefs and
practices.
Normative Ethics involves moral judgment based on ethical norm or theory. This
consists both of the basic moral principles and values and the particular moral rules
that govern people’s behaviour, which is right or moral and wrong is immoral.
The three tasks of Normative Ethics are the following;
 To form into a related whole the various norms, rules and values of a
society’s morality.
 To find the basic principle from which the particular norm can be
derived.
 To justify an ethical norm or moral principle.
Metaethics is a branch of Normative Ethics. In some other ways, both Normative
and Descriptive Ethics involve some mathematical activity. Metaethics is concerned
with analysis of the meaning of words and logic of moral reasoning. It analyses
moral terms like, “good”, “bad”, “moral”, “immoral”, “moral obligation”, and the
like. Metaethics does not describe moral belief of people, does not evaluate the
process of moral reasoning but simply analyses the usage and meaning of words.
B. DEONTOOGICAL VERSUS TELEOLOGICAL
APPROACHES TO ETHICAL EVALATION OF
THE HUMAN CONDUCT
1. Deontological Ethics or non-consequentialist approach is a body of
ethical theories that measures and evaluates the nature of a moral act
based on the validity of the motive of an act. This means that the motive
or intention is good, then regardless of the consequences, the whole
action is good.
Examples:
 Kantianism is also known as the categorical imperative approach, the
idea that one should always base his action on maxims or rules that are
believed to be universal. For Kant moral goodness or badness of the act
does not depend on the consequences of the act but on the motive or
intention of the actor, the motive is good if it is an expression of the
person’s sense of duty.
 Divine Command Theory holds that the standard of right and wrong is
the will or law of God. The Christian Ethics is an example of an ethical
system that uses deontological approach in evaluating the morality of
human conduct, the will of God is expressed in the Bible and in tradition
of Roman Catholic Church.
2. Teleological Ethics or consequentialist theory measures the morality of
an action based on its consequences and not in the motive or intention of
the actor. If the consequences is good, regardless of the motive, then act
is always morally good.
Examples:
 Hedonism or the view that measures is the only good as an end.
 Utilitarianism is another example of a consequentialist theory. This
school of thought, maintains that the “greatest good is the greatest
happiness or pleasure of the greatest number.” This means that if the
action can provide the greatest happiness to the greatest number of the
people who are affected by the action, the action s to be considered
morally good.
Implications of the Deontological and Teleological Ethics to Decision
Making
These two approaches to the ethical evaluation of the
human conduct are also used by the managers in the decision-
making process. Some managers decide on the basis of their
personal principles and convictions. In this regard, managers are
ETHICS
said to be biased towards deontological perspective because of
their principle-oriented decision-making process. On the other
hand, some managers could be result-oriented in terms of decision
making. In this regard, they favor the perspective of Teleological
Ethics because they focus on the consequence or the result of the
action regardless of the intention of the motive of the one
performing the action.
F. THE “MORAL SENSE” IN US
One of the basic questions in ethics is to determine how people
develop their fundamental concepts of good and evil. Traditional
ethics believes that man has a natural insight to morality, this being
the gift the Creator who gave man a “moral sense.”
1. The Synthesis of Man According to St. Thomas Aquinas
According to Aquinas, the moral sense in man is manifested and
expressed in three ways;
 Man is able to distinguish or to know what is good or what is bad. Of all
creatures, only man has the capacity to know the difference between
good and bad action.
 Man is always obligated to do good and to avoid evil. In any given
circumstance, man is the only creature who feels time primary duty to do
what is good and to avoid what is evil.
 Man knows that he is accountable for his actions- good or bad. Of all
creatures, only man realize that the performance if an action entails
reward and punishments. If he does an evil action, he expects
punishment.
2. Freud’s Theory of the Id, Ego, and the Superego
Freud believes that the human mind has three important components, that of
the preconscious, conscious, and unconscious. No other psychologist except
Freud has studied the unconscious part of the human mind.
Freud founded the Psychoanalysis Theory where the approach is to understand
human behaviour which views men and women as constantly between internal
unconscious forces and external social forces. The key points of
psychoanalytic theory are the following;
 Man must learn to control his inborn desires.
 Man must achieve fulfilment in ways that are harmonious with others.
Business Application
A businessman may be tempted to cheat to his customer in process of selling.
He realizes however, that to give in to this enticement could be a violation of
Code of Ethics for Businessman and the other positive laws, like Customer
Act of the Philippines. He therefore discerns well and begins to rationalize
that it is better not to fool or cheat the customer. In this case, the perceived
good action not fooling the customer is a decision made by the ego as a result
of its interaction with the enticement of the id and the pressure of the
superego.
3. Kohlberg’s Theory of Moral Development
Kohlberg believe that the people progressed in their moral reasoning through a
LEVEL STAGE SOCIAL ORIENTATION
Pre-conventional 1 Obedience and Punishment
2 Individualism, Instrumentalism, and
Exchange
Conventional 3 “Good Boy/Girl Image”
4 Law and Order
Post-conventional 5 Social Contact Rights
6 Principled Conscience
7 Transcendental Morality
series of stage. His theory of moral development was based on the earlier
works of Swiss psychologist Jean Piaget. Kohlberg help to clarify the general
cognitive development approach of Piaget, through the analysis of changes in
moral reasoning or extending the approaches into a series of stage.
Kohlberg Classification of the Person’s Moral Development
1. Pre-conventional- This behaviour is generally found in young children
and older children. There are two stages in this level; (1) reaction to
punishment, (2) desire for the right behaviour that will satisfy the
person’s self-interest. Stage 1 explains the concept of being good by
following commands and authority and avoiding being punished. Stage 2
is the stage of individual instrumental Purpose of Exchange.
Business and Organizational Application
Some individuals do the right thing only to avoid punishment or to obtain
approval, an employee who thinks that the only person not to steal money
from the employer is the currently of getting and fired. The person at hi stage
has little sense of needs of the others. At second stage, the persons become
aware that others have their needs also and begins to defer to them to get what
the individual wants.
2. Conventional
This level is generally found in an ideal civilized society, hence, the name
“conventional.” The first stage of this level (Stage 3) is the Stage of Mutual
Interpersonal Expectations, Relationships and Conformity. This is
characterized by an attitude which seeks to do what will gain the approval of
others, commonly referred to us as “Putting oneself in the other person’s
shoes.” Stage 3 is also known as the “good boy and good girl” orientation
stage. This implies that a good or bad behaviour of the person depends on
his/her conformity or non-conformity with the norms of his/her immediate
community or environment. Stage 4 on the other hand is the stage of Social
System and Conscience Maintenance wherein one is oriented by the law and
responding to the obligations of duty. A person is considered a law-abiding
citizen when he or she follows the law of society but will be considered
deviant when the same person violates the same law.
Business and Organizational Application
Stage 3 of the second level describes the right behaviour is one that conforms
to conventional expectations, an employee considers the importance of being
loyal follower to avoid conflicts. Stage 4 on the other hand, explains that the
right behaviour consists of performance of duty, respect for authority and
maintaining social order, an employee address to organizational rules and
policies and obeys order from the superior.
3. Post-Conventional
This third level of moral thinking is one that Kohlberg felt is not reached by
majority of adults. Stage 5 is the Stage of Prior Rights and Social Contract
Utility. It is the stage of understanding of rights and values. It gives the person
a sense of democracy but relativity of rules. This means that people at this
stage realize that there are fundamental concepts of right and wrong but the
application of which is confined to their own culture and environment. Each
person’s moral rights however, must be protected. The last stage (Stage 6) is
the Stage of Universal Principles. It is based on respect of universal principles
and the demands of individual conscience. At this stage Kohlberg believe that
people do good and avoid evil because they are convinced that there are
universal ethical principles that govern and justify their actions.
Business and Organizational Application
Stage 5 maintains that the laws may be important and must be followed but
they are not absolute, they can be changed if necessary. Stage 6 maintains that
people could act in accordance with their conscience and universal ethical
principles, the individual is likely to act in accordance with these principles
rather than rules.