Business Ethics Study Guide PDF

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Business Ethics - Study Guide
Business Ethics (Damelin)
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B Com in Marketing and Business Management
Module: Business Ethics
Module Code: BET 320
STUDY GUIDE

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Table of Contents
STUDY UNIT 1: KEY CONCEPTS AND IMPORTANT DISTINCTIONS IN ETHICS................ 1
1.1 Introduction .................................................................................................................................. 1
1.2 Business......................................................................................................................................... 1
1.3 Ethics ............................................................................................................................................. 2
1.4 Business ethics .............................................................................................................................. 3
1.5 Right, wrong, and dilemmas ......................................................................................................... 3
1.6 Ethics and the law ......................................................................................................................... 3
1.7 Ethics and values ........................................................................................................................... 3
1.8 Integrity ......................................................................................................................................... 4
1.9 Personal and organisational ethics ............................................................................................... 4
1.10 De-scriptive versus pre-scriptive ethics - and other Ethical Confusions ..................................... 5
1.11 Conclusion ................................................................................................................................... 8
Group discussion ................................................................................................................................. 8
Self- evaluation questions ................................................................................................................... 8
References: ......................................................................................................................................... 8
STUDY UNIT 2: ETHICS ON THE MACRO-ECONOMIC LEVEL ............................................. 10
2.1 Introduction ................................................................................................................................ 10
2.2 The Rise of Capitalism ................................................................................................................. 11
2.3 Key Features of Capitalism .......................................................................................................... 12
2.4 Theories of justice ....................................................................................................................... 13
2.5 Conclusion ................................................................................................................................... 16
Reference .......................................................................................................................................... 16
STUDY UNIT 3: THE SOCIAL RESPONSIBILITY OF BUSINESS ........................................... 17
3.1 Introduction ................................................................................................................................ 17
Reading material in prescribed text book ......................................................................................... 17
3.2 Dimensions of corporate responsibility ...................................................................................... 17
3.3 Economic responsibility .............................................................................................................. 18
3.4 Mandatory responsibilities ......................................................................................................... 19
3.5 Societal expectations .................................................................................................................. 19
3.6 Discretionary considerations ...................................................................................................... 20
3.7 Corporate citizenship .................................................................................................................. 20
3.8 Conclusion ................................................................................................................................... 20
Self- evaluation questions ................................................................................................................. 20
Reference .......................................................................................................................................... 21
STUDY UNIT 4: ETHICS IN ORGANISATIONS ........................................................................... 22

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4.1Introduction ................................................................................................................................. 22
4.2 Business without ethics .............................................................................................................. 22
4.3 The ethical dimension of the organisation ................................................................................. 22
4.4 Conclusion ................................................................................................................................... 23
Reference .......................................................................................................................................... 23
STUDY UNIT 5: THE MODES OF ETHICS MANAGEMENT ..................................................... 24
5.1Introduction ................................................................................................................................. 24
5.2 The amoral mode: ....................................................................................................................... 24
5.3 The survival mode ....................................................................................................................... 25
5.4The reactive mode ....................................................................................................................... 26
5.5 The compliance mode ................................................................................................................. 27
5.6 The integrity mode...................................................................................................................... 28
5.7 The totally aligned organisation (TAO) mode ............................................................................. 29
5.8 Conclusion ................................................................................................................................... 30
Reference .......................................................................................................................................... 30
STUDY UNIT 6: CLASSICAL ETHICAL THEORIES.................................................................... 31
6.1 Introduction ................................................................................................................................ 31
6.2 Virtue theory ............................................................................................................................... 31
6.3 Deontological ethics.................................................................................................................... 33
6.4 Utilitarian ethics .......................................................................................................................... 34
6.5 Conclusion ................................................................................................................................... 36
6.7 Reference .................................................................................................................................... 36
STUDY UNIT 7: THEORIES OF THE MODERN CORPORATION ........................................... 38
7.1 Introduction ................................................................................................................................ 38
7.2 Corporate social responsibility.................................................................................................... 38
7.3 Corporate moral agency ............................................................................................................. 41
7.4 Stakeholder theory ..................................................................................................................... 41
7.5 Conclusion ................................................................................................................................... 42
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7.6 Reference .................................................................................................................................... 42

STUDY UNIT 8: MAKING ETHICAL BUSINESS DECISIONS ................................................... 44
8.1 Introduction ................................................................................................................................ 44
8.2 Is it legal? .................................................................................................................................... 45
8.3 Does it meet customer standards? ............................................................................................. 45
8.4 is it fair to all stakeholders? ...................................................................................................... 47
8.5 Can it be disclosed?..................................................................................................................... 47
8.6 Conclusion ................................................................................................................................... 48
Reference .......................................................................................................................................... 48
STUDY UNIT 9: RESOLVING ETHICAL DILEMMAS .................................................................. 50
9.1 Introduction ................................................................................................................................ 50
Reading material in prescribed text book......................................................................................... 51
9.2 Moral dissensus .......................................................................................................................... 51
9.3 Assumptions behind the RIMS strategy ...................................................................................... 53
9.4 The RIMS strategy ....................................................................................................................... 53
9.5 Distinguishing affirmative action from related concepts ........................................................... 54
9.6 Defining affirmative action ......................................................................................................... 54
9.7 Objections to affirmative actions................................................................................................ 54
9.8 Applying RIMS to the affirmative action case ............................................................................. 55
9.9 Conclusion ................................................................................................................................... 55
Reference .......................................................................................................................................... 55
STUDY UNIT 10: ETHICS AND CORPORATE REPUTATION ................................................. 57
10.1 Introduction .............................................................................................................................. 57
10.2 Reputation ................................................................................................................................ 57
10.3 Reputation and stakeholders .................................................................................................... 58
10.4 Reputation and financial performance ..................................................................................... 58
10.5 Conclusion ................................................................................................................................. 58
Reference .......................................................................................................................................... 59
STUDY UNIT 11: ETHICS AND HUMAN POTENTIAL ........................................................................... 60
11.1 Introduction .............................................................................................................................. 60
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11.2 Ethical neglect ........................................................................................................................... 60

11.3 Ethics as the key to unlock human potential ............................................................................ 61
11.4 Conclusion ................................................................................................................................. 62
Reference .......................................................................................................................................... 62
STUDY UNIT 12: ETHICS AND CORPORATE GOVERNANCE .............................................. 64
12.1 Introduction .............................................................................................................................. 64
12.2 Corporate governance: Perceptions and approaches .............................................................. 64
12.3 The prominence of corporate governance ............................................................................... 65
12.4 The corporate governance in South Africa ............................................................................... 66
12.5 Framework for the governance of ethics.................................................................................. 68
12.6 Conclusion ................................................................................................................................. 69
Reference: ......................................................................................................................................... 69
STUDY UNIT 13: ETHICS RISK AND STRATEGY ...................................................................... 70
13.1 Introduction .............................................................................................................................. 70
13.2 Risk management...................................................................................................................... 70
13.3 Ethics risk .................................................................................................................................. 71
Moody’s credit rating........................................................................................................................ 77
13.4 Ethics management strategy .................................................................................................... 77
Reading Activity ................................................................................................................................ 78
Comments and Discussion on Reading Activity ................................................................................ 78
Think Point and comments ............................................................................................................... 78
Self-assessment ................................................................................................................................ 78
Case study ........................................................................................................................................ 78
Reading Activity ................................................................................................................................ 78
Think point and comments ............................................................................................................... 79
13.5 Conclusion ................................................................................................................................. 79
References ........................................................................................................................................ 79
STUDY UNIT 14: CODES OF ETHICS ......................................................................................... 80
14.1 Introduction .............................................................................................................................. 80
14.2 The prominence of codes of ethics ........................................................................................... 81
14.3 What is code of ethics? ............................................................................................................. 82
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14.4 Purpose of a code ..................................................................................................................... 82

14.5The process of code development ............................................................................................. 83
14.6 The format of the code ............................................................................................................. 83
14.7 The content of the code ............................................................................................................ 84
14.8 The tone of the code ................................................................................................................. 85
14.9 Implementation of the code ..................................................................................................... 85
14.10 Limitations of codes of ethics ................................................................................................. 85
14.11 Conclusion ............................................................................................................................... 86
Reference .......................................................................................................................................... 86
Bibliography ...................................................................................................................................... 87
Module Information
Name of programme Bachelor of Commerce Marketing and Business Management
Type of programme Contact (Full-Time & Part Time)
NQF Level 7
Name of module Business Ethics
Credits 15
Notional hours 150
Module purpose By the end of this module, students will demonstrate an

understanding of business ethics as the moral analysis of
business activity and practices and underpinned by
professionalism, values and moral principles. Students will be
able to apply ethics to the role of reflection practices in the
workplace.
Learning Outcomes: At the end of this module learners should be able to:
By the end of this module, students will be able to:

• Demonstrate an understanding and application of various
ethical definitions, concepts, philosophies, theories and
different schools of thought
• Demonstrate why ethics is good for business
• Internalise descriptive and prescriptive ethics through
understanding and application
• Analyse meta ethics and its significance to RIMS
• Practice ethical decision making in business through
addressing the moral dilemmas in business using RIMS
• Implement ethics in managing businesses through
establishing trust, fighting fraud, realising human potential,

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and encouraging whistle blowing

• Develop skills in managing ethics by implementing Corporate
governance, and managing risk, codes, institutionalising and
reporting ethics
• Develop overall holistic skills associated with ethical decision
making
• Demonstrate an acute awareness of the type of moral issues
likely to occur in the work place.
Prescribed textbooks Roussow D, and van Vuuren .L.( 2017) Business Ethics. 6th
and other sources Edition. Cape Town : Oxford press.
Icons Additional information
Self-check activity
Reading in prescribed textbook
Bright ideas
Think point
Case Study
Study Group Discussion
Vocabulary
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STUDY UNIT 1: KEY CONCEPTS AND IMPORTANT DISTINCTIONS IN ETHICS
1.1 Introduction
1.2 Business
1.3 Ethics
1.4 Business ethics
1.5 Right, wrong, and dilemmas
1.6 Ethics and the law
1.7 Ethics and values
1.8 Integrity
1.9 Personal and organisational ethics
1.10 Descriptive versus prescriptive ethics - and other Ethical Confusions
1.1 Introduction
Business ethics refers to doing good to the business and business stakeholders without
exploiting them. The business must be self-interested and maximise shareholder wealth and
treat all its stakeholders fairly and with respect. Key concepts and distinctions are discussed.
After studying this unit you should be able to:
• Understand what business really means
• Discuss the importance of ethics
• Define business ethics
• Analyse the right, wrong, and dilemmas in Business ethics
• Evaluate the importance of ethics and Law
• Discuss the importance of values and integrity
Reading material in prescribed text book
Roussow, D. with van Vuuren .L. Business Ethics (pg.3-10:2017).Sixth Edition: Oxford
press. Cape Town
1.2 Business
The term business may refer to a specific type of an organisation or enterprise that provides
goods and services in exchange for a payment in order to make a profit. It can also refer to a

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type of an activity where individuals or organisations voluntarily enter into transactions of

goods and services for economic benefit.
Economic ethics: The economic ethics is influenced at national level by political decisions,
laws and regulations and social norms that shape the economic playing field (Rossouw and
van Vuuren 2017:3).
Corporate responsibility refers to the role the business organisations perform in ensuring
that they are doing what is right to the societies they coexist with.
Organisational ethics refers to the role played by organisations in developing structures,

systems and standards that ensure business activities are carried out in a way that benefit
all stakeholders without harming anyone.
1.3 Ethics
Figure 1. 1: Ethics: the central concepts
Source: (Rossouw,D and Van Vuuren, L, 2017, p. 5)
What is Ethics?
Ethics refers to what is good or right in human interaction. It refers to doing good to others as
you want them do good to you. It navigates around three central concepts: “self”, “good” and
“other”. Ethical behaviour exists when one considers what is good for oneself and what is
good for others. When the concept of “good” is neglected, the unique nature of ethics
collapses. Ethics is also concerned with quality of the interaction between oneself and other
whether it is good or bad. A distortion also occurs when self-interests are excluded and it is
almost unattainable in life. It is dangerous in life to neglect one’s interest, as one’s interests
are a prerequisite for sustained interaction with other people.
The “other” cannot be excluded from the definition of ethics. When a person is concerned
about what is good for himself or herself only, this becomes selfishness. Therefore, it is
important to be self interested without being selfish.
What is business ethics?
It has become commonplace in business ethics to distinguish 3 broad dimensions of

economic activity:

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1.4 Business ethics
Business Ethics is about identifying and implementing standards of conduct that will ensure
that, at a minimum level, business does not detrimentally impact on the interests of the
stakeholders (Rossouw,D and Van Vuuren, L, 2017, p. 5). At an optimum level, business
ethics is about standards of behaviour that will enhance the interests of all who are affected
by business. In Business ethics the ethical impact of economic activity is studied, but so too
is the economic impact of ethicality. Business should make ethical sense, but ethics can also
make business sense. Business ethics is about identifying and implementing standards of
conduct in and for business which address the interests of its stakeholders.
1.5 Right, wrong, and dilemmas
When it comes to ethical behaviour it is important to distinguish between what is ethically

right, what is ethically, and what is an ethical dilemma. There are certain behaviours that are
considered ethically right such as the respect for the dignity of employees and for company
property. Behaviours that are considered ethically wrong could be discrimination against
employees. Privacy in e-mail use is a typical moral dilemma in a business. Dilemmas can be
either interpersonal or intrapersonal- they do not only occur between people, but often an
individual may experience a dilemma within her or himself. This normally happens when an
individual is faced with more than one option but finds it hard to decide which option is
morally the best. Both social and personal dilemmas are characterized by the fact the choice
is no longer a choice between right and wrong, but between conflicting moral options
(Rossouw and van Vuuren, 2017:6).
1.6 Ethics and the law
There are similarities between ethics and law but there are also significant differences. Both
ethics and the law strive towards what is right in human interaction and society. The law
does so through a public and political process and employs the power of the state to ensure
that all abide by the stipulations of the law. Ethics emanates from personal values such as;
the sense of obligation to do what is right is internal as opposed to the external pressure of
the law. Actions can be both ethical and legal, example: a company publishes accurate
statements of its income in accordance with accepted accounting regulations. Discrimination
that occurred under apartheid era is an example of action that was legal but unethical.
Actions can be both unethical and illegal in the case of crimes perpetrated against innocent
people.
1.7 Ethics and values
Values can be defined as relatively stable convictions about what is good or desirable. The
difference from ethics here is clearly that one can have values that are not ethical or that
have nothing to do with ethics. Within organizations 3 different kinds of values can be
distinguished:

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• Strategic values: refer to the shared conviction of the organization about its desired
objectives. Strategic values are usually mentioned in the vision and mission
statements of an organisation.
• Work values: refer to the priorities that organizational members should adhere to in
their jobs. All organisational members need to work in a particular way. Typical work
values include punctuality, innovation and excellence.
• Ethical values: refers to respect, transparency, fairness etc. For an organisation to

function well, good relations and interactions between stakeholders are required.
Strategic , work and ethical values should mutually support one another.
1.8 Integrity
Integrity refers specifically to human character. A person is regarded as someone with

integrity when he/ she consistently adhere to a set of ethical standards. This is the reason
integrity is often associated with concepts like fairness, consistency, uprightness and
wholeness.
1.9 Personal and organisational ethics
There is a distinction between personal and organisational ethics. The metaphor of apples
and barrels is usually used to explain this distinction between personal and organisational
ethics. Individuals are presented as apples and the organisation as the barrel that
contains the apples. A few bad apples (individuals with flawed moral character) are
responsible for ethical failure in the organisation. Ethical failure within an organisation can be
corrected by removing a few bad apples from the organisation and replacing them with good
apples.
Individuals can affect negatively the ethical culture of the organisations they find themselves.
This means the ethics of the apples can affect the ethics of the barrel. The opposite can also
happen. The business organisations (barrels) can have either a constructive/ positive or
corruptive/ negative influence on moral character of employees (apples) working in them.
Employees with questionable character or good character can be influenced to behave

unethically when they find themselves in organisations where unethical conduct is the norm.
Bad apples can corrupt dubious/ questionable or even good apples. The reverse is true.
Dubious/ bad apples can be restrained from bad behaviour when find themselves in
organisations where unethical behaviour is not tolerated but reward ethical behaviour.
Ethical behaviour should not only be addressed at individual level but also on the levels of
organisational culture and practices.
Organisations cannot be isolated from the societal environment and norms within which they
operate. Barrels are kept in a warehouse. This acknowledges the interplay between
business and the broader society and social norms within which they operate. The
relationship between the business organisation can be constructive or corruptive. This
relationship is bidirectional. The warehouse (society) can corrupt or conserve business

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organisations (barrels). Business organisations can also corrupt or improve the moral fibre
of the society.
1.10 De-scriptive versus pre-scriptive ethics - and other Ethical Confusions
Exponential advances in technology are vastly improving our lives. Sadly, at the same time,
lack of progress in moral theory is undermining this bonanza – in fact threatening our very
survival.
There are many reasons for ethics' stagnation - the following are prime suspects:
• The lack of definition of the terms used.
• There is confusion caused by the deeply ingrained idea of 'duty ethics'.
• There is the misconception that (prescriptive) morality cannot be approached

rationally, scientifically.
• There is almost universal lack of distinction between descriptive and prescriptive

ethics (what is vs. what is desirable).
Definition: Morality is a set of principles that characterize behavior as right or wrong – good
or bad. Ethics is the study of morality.
• Principles are generalized rules which have a wider range of applicability.
• Morality consists of a number of principles, that may or may not combine to form a
system. In reality, moral codes range from being arbitrary collections of contradictory
rules, to evolved social customs, to explicit comprehensive integrated philosophies.
• Morality usually applies to human action, but is sometimes expanded to include

organizations and (intelligent) machines.
• Lastly, there is the crucial meta-ethical issue of what right and wrong are measured
against – the meaning of 'good'.
The definition encompasses many interpretations and approaches that are regarded as
highly unworkable or undesirable.
The Good - There are two basic views:
• Consequentialist/ Teleological - The belief that things can only be judged as good (or
bad) in relation to some end, goal, or standard - e.g. 'greatest happiness for the
greatest number', 'perpetuation of the human race', 'furthering evolution', 'individual
flourishing'.
• Deontological/ Duty ethics - Good with a capital 'G'. The belief that things can be
good for no further reason or purpose - 'good in themselves', 'good for goodness'
sake', 'because we should - we have a duty'. Naturally, as soon as a reason is
offered of why we should have a duty to something or someone, then such morality is
re-classified consequentialist.

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• Duty ethics undermines reason. It represents an age-old mechanism of social control

– be it in the name of paternalism or tyranny. It leverages our infantile conditioning of
'because I say so'. Any rational or scientific discourse must ultimately specify some
standard or goal by which the actual or projected effectiveness of a moral code can
be judged. Addressing the questions 'Good for whom?' and 'Good to what end?' are
cornerstones of moral theory.
• Description versus Prescription
There is a crucial difference between principles that describe or explain behavior,

and those that guide or prescribe. Fields such as sociology and evolutionary ethics
concern themselves with what is, while moral philosophy addresses what ought to
be. (Naturally, to the extent that what ought to be depends on the nature of things,
including what is possible – like identifying limits of human adaptability - prescriptive
morality too concerns itself with is. As mentioned before, what ought to be – what is
desirable – really consists of two fundamentally different issues: Firstly, the meta-
ethical point of what we regard as good – our standard or goal. Secondly, identifying
or discovering the set of principles we should adopt if we want to optimize our
chances of attaining our goal. The rules or principles can be as mindless as citing
'the will of some god', as simplistic as 'the golden rule', as complex as a utilitarian
happiness calculus, or as integrated and comprehensive as an Objectivist morality.
The discourse on ethics is largely wasted because these distinctions are not made.
Worse, debaters frequently talk past each other being totally unaware of the issues.
Confusion reigns supreme as purpose, motivation, and methods of discovery (implicit
or explicit) may differ substantially.
Ethics as Science - Over the centuries epistemology has discovered certain

universal methods of optimizing the acquisition of reliable knowledge – any kind of
knowledge. Ethical knowledge is no exception. The most basic method is the use of
logic to unify numerous empirical observations. Inductive premises and deductive
conclusions can then further be justified through consistency testing, experiments,
and further observations. The system of knowledge aims to be coherent (integrated
and non-contradictory) and to correspond with reality. This approach is also called
rationality - with science representing a specialization.
Almost everyone would agree that this is an important and the correct way to deal
with descriptive ethics. However, many (if not most!) people allege that prescriptive
ethics is different - that there are some transcendent, non-rational means of knowing
right from wrong, or that for some (unspecified) reason logic does not apply. Suffice
to say that view is debatable.
All ethical fields must be based on what is. They must take specific facts of a reality
as a starting point. Descriptive ethics may go beyond that to formulate general
theories of human conduct – what motivate people, and why peple behave the way
they do. These theories may be based on genetic, environmental/ social, or mental/
abstract factors. Most theories claim to have predictive power.
A rational prescriptive ethic – as opposed to an arbitrary set of commands –

comprises the marriage of a specific meta-ethical goal with a system of behavioral

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principles aimed at achieving it (- or at least getting close to it). Such systems are
inherently predictive.
Choice - While it may be argued that descriptive ethics does not require people to
have freedom of choice, prescriptive ethics, on the other hand, directly implies an
ability to choose actions. It makes no sense to talk about 'should do'' if there are no
option open to people. In order to speculate about what is best for people we need to
either accept the reality of volition, some more limited freedom to choose, or at the
very least, assume that the 'illusion of freewill' is utterly pervasive.
A rejection of choice manifests itself in the fact that most (descriptive) moral theories
fall in the nature/ nurture camp – our genes and/ or our environment 'made us do it'.
Only a few philosophers have elevated the debate to include the cognitive dimension:
deliberate individual choice of value and behavior. While much of what we do can be
explained at the lower level, a more comprehensive account must be formulated at a
higher level of abstraction - such as values, thoughts, choices, etc. It is strange that
while most researchers are happy with environmental explanations, they reject
cognitive ones – even though both ultimately reduce to material causes.
It is debatable whether 'evolutionary ethics' shouldn't be considered an oxymoron.

Ethics, as a branch of philosophy, has traditionally concerned itself with 'ought', in
clear contradiction to the choice-less determinism of evolution.)
Scope - Moral inquiry cover both group as well as individual behavior. While the
former is important and serves as a foundation to politics & law, the latter is really the
more fundamental issue: societies are made up of individuals. Descriptive ethics
often relies heavily on statistics to describe morality, however, no explanation is
complete without taking individual thought and action into account.
Prescriptive ethics on the other hand, totally relies on being able to influence the
individual – it is the individual who has to change in order for any shared goal to be
attained. In addition, if human flourishing is the goal of an ethic, then how can we
possibly determine what will make for a society of happy or successful humans, if we
don't address achieving this in the individual?
It is unfortunate that many people mistakenly believe that there is a necessary

dichotomy between what is good for the individual and what is good for the group. In
addition to defining the personal vs. group focus, there are two other important
dimension to scope: Firstly, how general or specific a given description or
prescription is – whether it is at the level of principles, virtues, and character traits, or
at the level of specific rules, situational deliberation, and utilitarian calculus.
Secondly, there is selection of a time-horizon - addressing short-term vs. long-term
consequences, costs and benefits.
Any constructive exploration of morality - be it human, organizational, or machine –

has to be explicit about the definition of all important terms, whether it is descriptive
or prescriptive. The means of knowledge acquisition that is employed (reason/
scientific method, or feeling/ intuition, etc) must be explained. On prescriptive ethics
discussions, both of the standard of good (goal) needs to be defined, and the issue of
choice/ freewill must be addressed. In addition, individual vs. group focus, and the
moral principles' level of generality and time-horizon should be made explicit.

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Descriptive ethics is a form of empirical research into the attitudes of individuals or

groups of people. Those working on descriptive ethics aim to uncover people's
beliefs about such things as values, which actions are right and wrong, and which
characteristics of moral agents are virtuous
Learning theories describe how people learn, often by reference to a particular

model of human cognition or development. Depending on the learning theory,
different requirements arise regarding the learning process, e.g. how to structure it,
what questions to ask the learner, etc.
Learning theories can be divided into descriptive and prescriptive theories.

Descriptive learning theories make statements about how learning occurs and
devise models that can be used to explain and predict learning results.
1.11 Conclusion
Business Ethics is about identifying and implementing standards of behaviour that will
ensure that, at a minimum level, business does not impact negatively on the interests of the
stakeholders. At an optimum level, business ethics is about standards of behaviour that will
enhance the interests of all who are affected by business. Businesses that engage in
corporate social responsible programmes are being ethical and doing what is right to the
societies they coexist with. Actions can be both ethical and legal. Some actions can be legal
and unethical. Businesses must strive to do what is ethically right and legal.
Group discussion
1. Explain in detail what business really means
2. Discuss the importance of ethics to a business
3. Justify the importance of values to a business
Self- evaluation questions
1. Analyse the right, wrong, and dilemmas in business.
2. Evaluate the importance of ethics and Law
References:
Enderle,G.(2003). ‘ Business Ethics. The Blackwell Companion to business ethics. 2nd

Edition. Blackwell:Oxford.
Erasmus, B. Strydom, J and Rudansky-Kloppers S. (2016). Introduction to Business

Management. 10th ed: Oxford University press
Nieman, G and Bennett, A. (2014). Business Management- A Value Chain Approach. 2nd
Edition. Pretoria: Van Schaik Publishers
Goodpaster,K.F.(1992). Encyclopedia of Ethics. New York: Garland

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Roussow D, and van Vuuren .L.( 2017) Business Ethics. Sixth Edition. Cape Town: Oxford
press

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STUDY UNIT 2: ETHICS ON THE MACRO-ECONOMIC LEVEL
2.1 Introduction
2.2 The Rise of Capitalism
2.3 Key Features of Capitalism
2.4 Theories of justice
2.1 Introduction
As we study Business ethics, the question will often arise: ‘how do we justify that a leading
import agent for sought –after brands such as Cartier, Gucci and other luxury perfumes is
going through a messy divorce where his spouse spent in excess of R1million a month on
clothes, and that in a country where people are dying of hunger?
The evaluation of ethical context falls under the domain of macro-ethics. Macro-ethics is the
study and evaluation of social, economic, political, environmental and cultural context that
shape our practices. These contexts can constrain and enable individual and group
behaviour.
First and foremost, societies seek economic growth and development , because in a world of
scarce resources, there is not a nation that need not concern itself with finding the optimum
return on its citizens’ labour with the endowment of capital that they have been dealt.
The second and important dimension is asking what the moral ramifications are that guide
the choice a macro-economic model. There is hardly a rich choice between different
economic models in this world.
Capitalism in one form or the other is by far the most prevalent in modern society. With the
fall of socialism, capitalism has no strong contenders. The greater concern for business
ethicists are the values upon which capitalistic system is built on and the social issues that
capitalism gives rise to.
• Capitalism has led to many advances in the society including incentivising

development and innovation in science, technology, transportation and medicine.
• Capitalism has given customers a wider variety of goods and services
• Capitalism facilitates the development of global trade and finance community.
• It has increased the general wealth of the society.
Capitalism has resulted in the stead increase in socio-economic inequality. People seek to
maximise both monetary and non-monetary utility. This view is influential in economic theory
and accounts for the self interested dimension of human nature. People are acquisitive,
materialistic and individualistic. These characteristics are embodied in the way in which
capitalism is practised.
Capital, by definition, are the assets used in the process of the further production of goods
and services, rather than being exhausted through consumption.
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After studying this you should be able to:
I. Understanding of ethics at macro-economic level
II. Understand the free-market system
III. Explain the justification of the free market
IV. Understand command systems
V. Discuss the moral dimensions of different economic systems
VI. Explain macro-ethics and moral challenges to the enterprise
press. Cape Town
2.2 The Rise of Capitalism
Capitalism versus Statism
Capitalism refers to a market system in which production and distribution are privatised.
According to Adam Smith capitalism can function where supply and demand of goods and
services are dictated by market forces or invisible hand with minimum state interference.
Adam Smith emphasised that capitalism promotes division of labour and specialisation.
Smith argues that division of labour paves way for the great multiplication of the productions
of all different kinds of art and a general plenty diffuses itself through all the ranks of the
society.
The opposite of capitalism is statism which is market socialism. In socialism there is public
ownership of property and the economy is state controlled. Karl Marx is the father of this
doctrine. According to Karl Marx, capitalism brings about the alienation and exploitation of
the workforce. It creates hierarchies which lead to the exploitation of workers.
Karl Marx had predicted a communist revolution which never took place. Socialism has failed
to be a suitable replacement for capitalism. Many of the specific measures first proposed by
Karl Max have been implemented. These measures include:
• The institution of a minimum wage;
• The establishment of health and safety laws to protect workers.
A centrally-planned economy, such as with communism, tried to set pricing and production
schedules for the whole market, and loses the benefit of thousands of little adjustments that
private entrepreneurs can make when closer to the market.
The great depression of the 1930s legalised state interference in the economy. Most states
have put policies and regulations in place to reduce the impact of negative economic cycles.
Most economies navigate between capitalism and statism.
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Regulation is often enforced to guard against so-called ‘externalities’ i.e., when a company
manages to shift a cost associated with its production onto other parties, and most likely the
unsuspecting public.
State intervention in the economy is time specific and context specific.
2.3 Key Features of Capitalism
William Shaw (2011) states that the increasing influence of the corporation, private property,
the profit motive and competition are important core tenets of capitalism.
Corporation
It refers to a body of people running a business for economic benefit. There are three
outstanding features for a corporation:
• The corporation has a perpetual life span. The corporation can exist beyond the
lifespan of its individual members. The identity of the corporation does not depend on
the identity of its members.
• A corporation is a juristic person. According to the law, corporations are viewed as

artificial persons who enjoy legal rights and privileges. Corporations have
responsibilities and duties.
• A shareholder has limited liability. One’s liability for corporate debt equals the
amount of one’s investment.
Private property
Private property refers to tangible assets such as factories, offices, equipment, land and
other assets which individually owned. Private property is an indication of one’s present
wealth and one’s potential to generate wealth.
The key to converting movable or immovable assets into capital appear to be the quality and
protection of the property rights assigned to the rightful owners of the assets.
Competition
Capitalism promotes healthy competition. The assumption is that when several producers
complete directly against one another, they become efficient and productive at what they do,
put downward pricing pressure on each other to the benefit of the consumer, and have to
improve the quality of their product or service to remain competitive.
Profit motive
The combination of the profit motive and the free choice of economic activity jointly drive
output upwards in the free-market system. There is no limit to how much wealth a single
person can accrue. The profit motive is the driving force behind capitalism. According to
Adam Smith, the profit motive speaks to our desire to maximise our own utility, as
underscored by the view to of the individual as homo economicus (Smith,1985).
The joint-stock, Limited Liability Corporation
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There are two real reasons why the concept of the corporation has contributed so immensely
to economic expansion in the West. Firstly, because it is a joint-stock entity, it allowed for the
pooling of investment by multiple parties in one venture, thereby creating the ability to
achieve scale and reach that would have remained beyond the capacities of most
individuals.
The second reason for the success of the corporation and its contribution to society is its
ability to limit the liability of each individual investor to the sum total of his or her investment.
Justification of the free market
It has been discussed in this chapter that capitalism is a successful mechanism in fast
tracking economic growth and development of a nation. However, we are stuck by the
obvious inequality that is the direct result of this system. Some nations are far richer than
others and the gap between rich and poor nations, the gap between rich citizens and poor
citizens too has been getting progressively larger.
Equity and equality
There are some economic principles for which there is broad support. The difference
between equity and equality is explained by Phillips (2003): Equality implies similar
outcomes; that is that regardless of the level of the playing field, or of the nature of the
starting line-up and each economic agent’s efforts, each individual gets exact the same in
the end. Equity, on the other hand, finds some acceptable metric or ratio on which the
population can agree, whereby the distribution of goods may be determined.
2.4 Theories of justice
Challenges related to justice arise in a world dominated by an economic system which result
in certain people having more opportunities in life to advance, more resources at their
disposal for realising their dreams and more socio-economic power to facilitate the
achievement of their goals. Challenges related to justice are concerned with fair acquisition,
distribution and use of limited resources.
Defining justice
Plato stated that the four cardinal virtues on which our moral life is based are prudence,
temperance, courage and justice. According to Comte-Sponville, out of the four cardinal
virtues, only justice is good in itself whereas the other virtues only lead to good results if the
will of the doer is good. When the will is not good, prudence, temperance and courage can
be instrumental in creating, sustaining and promoting the moral life. These qualities take a
different value if the will is not good. A murderer may be prudent, courageous or tempered
but can never be just. According to Aristotle, justice is therefore a “complete virtue”.
Following Aristotle, Comte-Sponville (1996) argued that there two common conceptions of
justice, namely justice as respect of state legality and justice as equality among individuals.
According to the first conception, justice demands consistency and impartiality before the
law, meaning that like cases should be treated alike. The judiciary system is a blindfolded
figure that balances the scales of truths and accurately represents this scale of justice. All
people must be treated morally and equally, consistently and impartially before the law. The
three the influential views on distributive justice that influence social and political philosophy
are the utilitarian, egalitarian and libertarian justice theories.
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2.4.1 Utilitarian theory of justice
The utilitarian idea is that the greatest good for mankind is happiness, and from this they
derived what is called “The Greatest Happiness Principle’. “The Greatest Happiness
Principle’ is used as a morality for our actions. According to this principle an action is right to
the degree that it promotes happiness, and wrong to the degree that it produces
unhappiness to everyone affected by the given situation (Mill, 1965). This philosophy is
associated with societal reform. According to Mill, distributive justice is based on the
principle of social utility which means that an action is deemed just if it promotes the overall
societal welfare. The distribution of benefits and burdens must be on the basis of equality,
need, personal effort or merit and this depends on which actions maximise social utility.
Merit can be rewarded above effort if talented workers are able to make a greater
contribution than industrious workers to the overall welfare of the society.
Utilitarianism versus Capitalism
The Utilitarians tend to be critical of the prevailing capitalistic system which contributes to a
situation in which 31,2% of the world’s population live below the poverty datum line(CIA
World Factbooks, 2003-2011). The Utilitarians support policies that lead to a more equal
distribution of resources because societal welfare will certainly be improved if everyone has
enough resources to secure a decent living.
2.4.2 Egalitarian theory of justice
According to John Rawls, justice should be understood in terms of fairness and that the only
way in which we can ensure fairness is to hypothesise an original position of equality. Rawls
resists the genetic theory, where an individual is born into a set of unique circumstances that
influence opportunities in life. Genetic lottery is the outcome of chance. According to Rawls
the society must work against the inequalities that arise as a result of the genetic lottery. A
thought experiment must be undertaken whereby the principles that regulate the society
must be chosen. Rawls’s thought experiment hypothesises the original position in which
people are placed behind a hypothetical veil of ignorance. According to the thought
experiment people are ignorant of personal circumstances in life, including gender, class or
position in society, economic status, abilities, intelligence and strengths etc. It is from this
position that we choose the governing principles of the society which will be just. When
people are unaware of their unique circumstances in life, they would be unable to campaign
for principles that promote their specific ends. The original position makes the status quo
and everyone is in this initial position. Therefore principles of justice agreed on by individuals
in the original position will thus be fair because the situation in itself is fair.
Parties in the original position should be treated as rational and mutually disinterested.
According to Rawls, behind the veil of ignorance, each individual chooses governing
principles that are rational and do not disadvantage him/ herself in future. A person makes a
rational choice which is conservative and does not gamble with his/ her future. There is no
individual who would opt for distribution of resources that would benefit e.g. only 10% of the
population, since the person’s chances of being a member of that privileged group once the
veil of ignorance is lifted are very small. Each person is self interested and chooses
principles that are likely to benefit himself/ herself once the veil of ignorance is lifted.
Everyone tends to be like that hence, people are able to agree on principles of justice.
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Rawls is critical of utilitarianism because utilitarianism emphasises that under certain

circumstances people sacrifice self interests in order to promote net balance of utility. Rawls
(1994:73) argues that the principle of utility is fundamentally incompatible with the
conception of social cooperation among equals for mutual advantage. As people are rational
and self interested they will be dictated by the maximum principle in their deliberations.
People will choose the division of resources that will maximise the minimum. As people are
ignorant of their stakes in life, and in fear that they would end up at the bottom of the socio-
economic hierarchy, they would want those who are at the bottom in the society to be at the
best possible position in comparison to the alternative societal arrangement. Therefore
Rawls(1994:73) postulates that there are two governing principles which we can settle on.
• The first governing principle guarantees the moral equality of people. This is
expressed in terms of rights and duties which is a reference point of a just
society. Every person has an equal right to the most comprehensive set of basic
freedoms that are compatible with a reciprocal system of freedom for all.
• According to Rawls’s second principle, the social and economic inequalities

will only be justifiable when they benefit the worst off in the society and if they
attached to positions and offices open to all.
Egalitarianism in practice
Egalitarians criticise policies that promote economic growth at the expense of the poor, such
as providing tax breaks for businesses and wealthy individuals. The egalitarians argue that
such policies increase socio-economic inequality under the pretext that it would benefit the
poor. Looking at the prevailing global economy, it is clear that economic policies and
programmes have not always been developed in line with Rawls difference principle.
2.4.3 Libertarian theory of justice
According to Nozick, people should live as they wish, without any interference. Freedom is
the highest value. Individuals can make choices on the condition that they do not violate or
interfere with other people’s freedom. Libertarians advocate minimum state interference. The
state must play the role of a night-watch-man with functions limited to enforcing contracts
and protecting citizens from violations of their freedoms by theft, violence and fraud. State
interference cannot make a just allocation of benefits and burdens. Resource allocation must
be the outcome of voluntary exchanges between individuals, which result to new holdings to
which individuals are entitled. Nozick like Locke argues that each person posses both
natural and negative rights. An individual has a natural right which he/she possesses
independently of any political and social institutions and a negative right prompts inaction or
non-interference. A person is entitled to his/ her belongings as long as he/she acquired them
without violating anyone’s moral rights. When a person acquires a private property he / she
is free to do whatever he/she wishes to do anything with it without any obligation to help the
less fortunate.
There are two ways in which property can be acquired legally which are stated as follows:
I. Through the original acquisition of property; property is justly acquired if you claim
something that belongs to no one else, or if you create something new with your own
labour that does not violate anyone’s rights.
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II. Through the valid transfer of property; property acquired through sales, gift,
exchange or inheritance is deemed a valid transfer, whereas property acquired
through theft, force or fraud constitutes an invalid transfer.
Therefore no one is entitled to ownership of property unless the holding is acquired

according to principle of justice in acquisition or the principle of justice in transfer. According
to Nozick’s entitlement theory distributive justice does not go beyond navigating the
conditions of a just acquisition of property to include an assessment of the consequences
that develop from the actual resource holding trends.
2.5 Conclusion
The choice of a country’s macro-economic policies and political system directly influence the
day-to-day strategic and operational choices that the modern organization has at its
disposal.
I. Discuss the role of ethics at macro-economic level
II. Explain the key features of capitalismExplain the justification of the free market
III. Explain the features of command systems
IV. Discuss the moral dimensions of different economic systems
V. Explain macro-ethics and moral challenges to the enterprise
Reference
Comte-Sponville, A.(1996). A short treatise on the great virtues: The uses of philosophy in
everyday life.London: Metropolitan Books.
Masaka, D.(2011).Zimbabwe’s land contestations and her politico-economic crisis: A

philosophical dialogue. Journal of Sustainable Development in Africa, 13(1):331-347.
Moon,C. And Bonny, C.(2001). Business Ethic. London: The Economist Books.
press.
West, A. (2006). “Theorising South Africa’s corporate governance”, Journal of business

ethics,68:433-448
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STUDY UNIT 3: THE SOCIAL RESPONSIBILITY OF BUSINESS
3.1 Introduction
3.2 Dimensions of corporate responsibility
3.3 Economic responsibility
3.4 Mandatory responsibilities
3.5 Societal expectations
3.6 Discretionary considerations
3.7 Corporate citizenship
3.1 Introduction
Business companies are part of societies and therefore always find themselves in
relationships with the societies in which they operate. Companies can impact the societies in
which they operate either positively or negatively. Companies can add value to the society
by creating employment, creating value for the stakeholders and developing opportunities for
societal members. They can affect the society negatively by exploiting employees, corrupting
officials or by harming local communities and damaging the environment. The relationship
between the society therefore has an ethical dimension. The way in which this relationship
between companies and societies is conceived differs not only from company to company,
but also from society to society. Some corporations keep their responsibilities to the society
to absolute minimum or even shy responsibilities. Some corporations take their societal
responsibilities seriously and even step their efforts beyond minimum societal expectations.
Some societies have limited expectations of companies and some have extended
expectations in the form of written laws, regulations and codes that business organisations
have to abide by.
After studying this unit, you should be able to:
• Explain Economic responsibility of business to the society

• Discuss the formal obligations
• Explain and understand social expectations
• Explain social investment or philanthropy
• Identify and Describe social development
press. Cape Town
3.2 Dimensions of corporate responsibility
There is a general agreement that business organisations have responsibilities in the

following four broad areas: the economy, the workplace, the social environment and natural
environment.
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I. The first area of responsibility that a company needs to consider is the economy
(market place). The company must carry out an assessment and establish how its
operations and financial affect the economy in which it operates. It must establish
any of the following:
➢ Whether it strengthens or weakens the economy;
➢ Whether it promotes or undermines fair competition in the marketplace
➢ Whether it promotes corruption or does not promote corruption.
II. The workplace is the second area of responsibility. The company must establish how
it affects, the health, safety and development of employees. It must establish any of
the following:
➢ Whether it provides a health and safety environment for its workforce or not;
➢ Whether it invests adequately in the development of its employees or not;
➢ Whether it creates a respectful and good work relationships with its

employees or not.
III. The social environment is the third area of responsibility and business organizations
have to assess the impact they have on the communities in which they operate. The
business organizations must determine the impact of their operations, goods and
services have on the communities. The business organizations must determine the
following:
➢ Whether they put health and safety at risk or not;
➢ Whether they have a positive or negative effect on the development of

communities affected by their operations.
IV. The natural environment is the fourth dimension of responsibility and the business
organization must assess how its operations impact on the conservation and
sustainability of the natural environment.
3.3 Economic responsibility
A business organisation must make a profit. This is the first and most basic responsibility
that a company has if it has to fulfil its fundamental responsibilities to the society. The
company must create value for a wide range of stakeholders if it has to be economically
viable. The first responsibility of a company to society is thus to take due care of its own
affairs in order to ensure that it remains a viable economic operation. A business
organisation performs the following roles:
• It produces goods and services and that are needed and provides them to the
society.
• It provides a return on investment and income to shareholders and employees

respectively.
• It provides business to suppliers.
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• Business organisations pay taxes to SARS and the revenue generated is used by the
government to correct market failures. The government invests in the development of
local and national infrastructure.
3.4 Mandatory responsibilities
The second social obligation of companies is to comply with formal standards imposed by
society. The purpose of these obligations is to deter companies from engaging in
irresponsible activities that can jeopardise the functioning of the market, society or the
environment. These mandatory responsibilities promote the protection of employees,
suppliers, customers and minority shareholders. The companies must comply with national
laws which include the following: anti-competition, labour Act, Consumer protection Act etc.
Mattern and Moon (2008) distinguish between implicit and explicit corporate social
responsibility. Implicit corporate social responsibility refers to the social responsibility that
companies perform when they adhere to formal external standard, while explicit corporate
social responsibility refers to responsibility that companies perform in the absence of laws or
regulations.
3.5 Societal expectations
After complying with the formal obligations, companies still have to deal with social
expectations. These are:
1. Legitimacy consideration
2. Strategic considerations
3. Ethical Obligations
3.5.1 Legitimacy considerations
For a company to be legitimate, it must be profitable and at the same time not harm the
society. When the company disregards the well being of the society by engaging in illicit
activities it will not be considered legitimate by the society. The company’s licence to operate
is also dependable on its acceptance and approval by the society.
3.5.2 Strategic considerations
In order for a company to operate successfully, it needs the cooperation and support of its
stakeholders. The company depends on the regulatory framework provided by the state to
protect its operations and assets. The government provides electricity, water, transport and
communication networks to companies. The society provides human resources with skills,
knowledge and effort to companies to produce goods and services needed by communities.
Companies depend on customers who but the goods and services. Companies require
external funding from financial institutions, investors and governments to fund the start-up
and expansion of their businesses. It is strategically important for companies to build strong
and reliable relationships with their stakeholders (Clarkson, 1995:94).
3.5.3 Ethical considerations
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It is within the self interest of the company to meet the social expectations because fulfilment
of societal expectations is key to the success of the organisation. The society and other
stakeholders can only be respected it they impact the performance of an organisation. A
stakeholder group can be ignored if it can be established that it has no influence on the
performance of the business organisation. The business organisation must be self interested
without being selfish. The company must treat societal members with respect, decency,
honesty and fairness regardless of their status.
3.6 Discretionary considerations
Discretionary responsibilities are types of responsibilities that the companies choose to do

should they wish to do so. These responsibilities can take the form of social investment or
philanthropy. A company can donate funds to the cause it wishes to support. The company
can donate to less fortunate members of the society it sympathises with. The company may
feel obliged to give back to the society from which it is deriving its prosperity. A company can
also donate to the society when it believes that it stands to benefit from such contributions
long-term. Such donations help an organisation earn good reputations within the
communities in which it is investing socially.
A form of social investment that has recently gained in prominence is ‘bottom-of-the-pyramid

investment’ (Garriga & Mele, 2004:54-55) cited by Roussow, D. with van Vuuren .L.
(2017). The pyramid refers to the socio-economic strata of society.
3.7 Corporate citizenship
Corporations do find themselves from time to time in situations where they are being called
upon, or where they are being presented with opportunities, to fulfil roles that have
previously been associated with the role of the state.
The principle of corporate citizenship can be used either narrowly or broadly. According to
Nѐron and Norman the principle of corporate citizenship has profound political inclinations. It
brings with it specific civic duties. Some of the duties that are included are obeying the laws,
paying taxes, acting in the best interest of the community and engaging in political
processes. The political or corporate citizenship role of companies is much more
controversial than the other social responsibility roles of business in society.
3.8 Conclusion
Business organisations find themselves engaging the society in relationships of

responsibility. The dimensions of corporate responsibility include the economy, the
workplace, social environment and natural environment. In addition to economic and
mandatory responsibilities, businesses have to fulfil societal expectations. The business
organisation may themselves carrying civic duties.
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I. Explain Economic responsibility of business to the society.
II. Discuss the formal obligations of a business.
III. Discuss the importance social expectations to a business.
IV. Explain the importance of social investment or philanthropy
V. Identify and Describe social development
Reference
Donaldson,T. and Preston,L.E. (1995). The stakeholder theory of the corporation concepts,
evidence and implications, Academic of management review,20(1): 65-91

Roussow D, and van Vuuren .L.( 2017) Business Ethics.6th Edition. Cape Town: Oxford
press
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STUDY UNIT 4: ETHICS IN ORGANISATIONS
4.1Introduction
4.2 Business without ethics
4.3 The ethical dimension of the organisation
4.1Introduction
The modern business organization is often perceived as an entity that practices amoral
management. In a way that such organization would display little of the intrinsic ethical
obligation it may have towards society. The micro level of enquiry is aimed at understanding
ethics in organizations. In this unit an intra-organisational perspective is presented. It shows
that ethics cannot be divorced from business activity.
After studying this uni,t you should be able to:
• Understand why business operates without ethics
• Understand ethical dimension of the organization
press. Cape Town
4.2 Business without ethics
The ever-evolving myth in modern organizational thinking is that organizations are inhabited
by homo economicus – the rational person only driven by the desire to further his or her
economic self-interest.
It further creates a sentiment among members of an organization that ethics and business
cannot mix. This sentiment could manifest as a way of thinking and doing that is devoid of
ethical concerns. Such ways of thinking and doing could be;
• Shareholder value dominance

• Motive of ethical Neutrality
• Amoral Managers
• Amoral beliefs and business language
• Impact on stakeholders
4.3 The ethical dimension of the organisation
This section will provide you with counter-logic around the fact that ethics is not business.
Ethics is inherently part of business. The following factors relate to the relationships and
interwoven alliance between ethics and business;
• The relational nature of business
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• The co-operation nature of work
• Trust and
• Commitment and quality of work
4.4 Conclusion
Ethics is an integral part of the organisation and without practising it an organisation would
be unable to fulfil its purpose, mission and goals.
I. Explain in detail why a business can operate without ethics
II. Explain the ethical dimension of the organization
Reference

IoDSA, (2016). Report on Corporate Governance for South Africa 2016. Johannesburg:
IoDSA.
press
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STUDY UNIT 5: THE MODES OF ETHICS MANAGEMENT
5.1Introduction
5.2 The amoral mode
5.3 The survival mode
5.4The reactive mode
5.5 The compliance mode
5.6 The integrity mode
5.7 The totally aligned organisation (TAO) mode
5.1Introduction
A descriptive model of different modes of ethics management that can be expected to be

found in a business organisation is presented in this study unit. Business leaders have to
deal with ethical dimension of business. Within a spectrum, there are business leaders who
on one end develop and support unethical business practices as they believe that is only
way to have a successful business. On the other extreme end of the spectrum there are
managers who promote ethical behaviour within the organisation. The purpose of the
descriptive approach to business ethics is to offer an accurate description of the ethical
dimension of business. It wishes to describe and explain states of ethical affairs. Such
information enables business practitioners to manage these affairs. This unit deals with
different modes of ethics management. The following are different types of ethical of modes:
the amoral mode; the survival mode; the reactive mode; the compliance mode; the integrity
mode and totally aligned mode.
• Understand descriptive approach to ethics
• Evaluate the mode of managing morality model
press. Cape Town
5.2 The amoral mode:
Nature
Business is considered to be an ethics-free domain. Intentional amoral managers

deliberately exclude ethics from business affairs and this is based on the notion that
business and ethics should never be mixed. Unintentional amoral managers do not
deliberately ignore ethical issues but are casual and careless about ethical issues
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Organization in this mode usually exposes unethical conduct as good business and ascribe
to the cynical viewpoint that business ethics is an oxymoron.
Purpose
Ethics must be removed from business decisions and is perceived to be an unnecessary

constraint. The aim of this mode is to maximise profit at all cost. This mode justifies motives
and actions beyond reasonable capitalistic greed.
Management mode
Management persistently and consistently dismiss ethics as inappropriate to the business

environment. Ethical conversations are snubbed by management. Management argues that
laws are sufficient to dissuade businesses from harming the environment. In such
organizations there is a lack of sensitivity to ethical issues and there is reluctance to tackle
them. Managers tend to be insensitive to stakeholder’s ethical expectations.
Challenges
There are risks to organisations that practice amoral mode. The risks can take the following
forms:
• Companies are always susceptible to scandals. Complying with laws does not
prevent companies from being involved in scandals. There are many negative
behaviours and practices that are not illegal. When a company is engulfed scandals,
it is likely to rethink its amoral attitude towards ethics. The real financial
consequences of immorality may become unaffordable.
• A company that neglects its ethical responsibilities is likely to estrange its

stakeholders. People who are treated unfairly, dishonestly and disrespectfully are
likely to be alienated from the company.
• Employees may develop severe cognitive dissonance. Employee values may

contradict the unethical values of business. These employees may become
disgruntled, dissatisfied and will not be committed to the organisation. Some
employees may sever ties with the organisation and leave. Other stakeholders may
experience similar dissonance and may experience similar feelings of dissonance
and resultant alienation.
5.3 The survival mode
Nature
Businesses promote unethical conduct as good business. They believe in myths such as
“dog eat dog” and survival of the fittest. They believe that you either trample others or you
will be trampled on. The competitive nature of the business environment does not allow
managers to pay attention to the interests of others.
Purpose
The aim is to maximise profits and shareholder wealth at all costs. It focuses on winning at
all costs. The survival mode recognises the myths mentioned above as part and parcel of
good business.
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Management mode
Management does not see the need to make decisions concerning ethics. There is no
commitment to deal with ethical issues. Management is insensitive to other stakeholders’
ethical concerns.
Challenges
Three types of challenges manifests in the survival mode and they are as follows:
• The consequences of unethical may be financially unaffordable. Unethical conduct

may consequently become an overwhelming threat to business when it is exposed.
• When stakeholders such as shareholders, customers, suppliers and the local

community are treated dishonestly, disrespectfully and fairly they become estranged.
This can lead to a breakdown of relationships and severing of ties.
• There may be an increase in dissonance between personal and corporate values.

Employees becoming dissonant may respond by being passively hostile. They may
resign and move on to other companies where ethical values are practised.
5.4The reactive mode
Nature
Organisations enter into this mode as an automatic response to challenges experienced in

the survival mode. The reactive mode is prompted by awareness that something needs to be
done in order to avoid the risk and consequences of unethical conduct. The business
organisations confess conducting their business activities in ethical ways but do not go
beyond that.
Purpose
The business organisations fear rejection from their stakeholders and protect themselves
against the consequences of unethical behaviour. The organisations are sensitive to the
negative impact unethical practices may have on the reputations of their operations. They
confess ethical values as a way of avoiding threats of lawsuits, boycotts, strikes and
stakeholder alienation. Compliance with institutional regulatory standards may force
business organisations to get into the reactive mode. These organisations may also turn a
blind eye to violations of rules.
Management mode
Attempts to manage ethics are rarely based on the notion that ethics is good business but on
the desire to protect the organisation against investigation and punitive action. The business
drafts standards that reject unethical behaviour. Ethical standards exists but are not adhered
to. Senior managers have the desire to mend their ways and attitudes. They carry out
strategic planning sessions that result in drawing up of a number of corporate ethical values.
These values may signal a commitment to integrity, respect and organisational ethics but do
not have the impact to create an ethical context in which employees can operate.
Management interventions are usually limited in scope and depth. In an effort to avoid
paying a high price for engaging in unethical conduct, these organisations are quick to put in
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place minimum measures of ethics management interventions. The effort can be

summarised as window dressing. A code of ethics may be designed. The process of
designing the code of ethics is not inclusive. The design may be done by a single member or
it can be delegated to a function such as internal audit, risk management, legal services, the
company secretariat or human resources or external consultants.
Challenges
• There is a gap between talking and walking ethics. There are serious credibility
problems with stakeholders. Stakeholders will find it difficult to trust the organisation
whose words and actions are not aligned.
• The employees morale may be very low in an organisation where the organisation
has credibility challenges.
• An organisation that talks about ethical standards and does not enforce compliance
with those standards, is very likely to be exploited and be involved in scandals.
• Institutional investors, consumers and talented employees who have lost confidence
in the organisation will not be satisfied with token gestures to ethical performance.
The lack of confidence in the organisation may be a driving force to convince the
reactive mode organisation to revise its ethical mode.
5.5 The compliance mode
Nature
This represents a substantial move away from the reactive mode. Organisations commit
themselves to monitoring and managing their ethics performance and ensuring that all
members of the organisation abide by the ethical standards of the organisation. When
deviation from the code of ethics occurs, the company takes corrective action by disciplining
or penalizing the transgressors.
Purpose
The management’s aim of the compliance mode is to deter unethical behaviour by the
business. The commitment to eliminate unethical behaviour can either be found in the desire
to avoid the cost and damage associated with unethical behaviour (Moon and Bonny,
2001:26).
Management mode
Management consciously enforce ethics and has commitment to eliminate unethical

behaviour. The management’s primary role is to ensure that the code of ethics is clear,
detailed and understood by the organisational members. The ethics management team must
support the code and drive the process of compliance with the code. The ethics
management team must ensure that employees and suppliers are familiar with the code and
comply with it. The management team must engage in processes such as communication,
training and induction of new employees into the ethics code (Rossouw,D and Van Vuuren,
L, 2017, p. 61).
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Challenges
The compliance approach may result in a number of unpleasant side effects that can
potentially pose a serious challenge to the viability of this approach. The following are some
of the likely unpleasant side effects:
• Some employees may develop the attitude that what is not forbidden is allowed.
Members may follow rules without thinking about what is wrong or right.
• Personal moral autonomy and responsibility are undermined. The drive to adhere to
adhere to ethical standards resides externally in the ethics management function.
Ethical values and standards of the company are not likely to be internalised.
• There may be a development of bureaucratic proportions with proliferation of ethical

rules and guidelines for conduct. There are too many rules and it is impossible to
recall all of them and put them into practice. Therefore the rules may have very little
impact on actual corporate behaviour.
• Employees are disempowered. This mode does not rely on the moral discretion of
employees but on their almost blind adherence to rules of conduct. The employees
ability to cope with issues and grey areas that are not addressed in the code of ethics
are undermined.
5.6 The integrity mode
Nature
It consists of a value-based approach to managing ethics and there is the desire to promote
ethical behaviour. There is internalisation of ethical values and standards. Employees are
encouraged to be committed to a set of shared corporate values. The employees are
intrinsically motivated to adhere to corporate values. There is no need for external guidance
but more reliance on discretion of individual members to be ethically responsible.
Purpose
The aim of this mode is to increase the level of ethical responsibility within the organisation.
Management promotes proactively ethical responsibility. The responsibility of ethical
behaviour is a collective effort commonly shared by all organisational employees. A
company undertakes this approach when it realises that ethical performance is of strategic
importance and gives it a competitive advantage.
Management mode
The integrity approach facilitates the internalization of ethical standards in all members of the
organisation. This starts with the evaluation of the corporate ethical culture and the current
state of corporate ethics. Stakeholders can be consulted about their ethical expectations of
the company. The core ethical values are identified and revisited. There are two important
parts of an integrity mode which are:
• There is promotion of ethics talk. Employees must discuss the ethical dimension of
their work and decision-making.
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• Another integrity approach relies on modelling behaviours of the leaders. Leaders

must talk and practice ethical values.
There must be ongoing communication, training and induction of new employees. There is
increased reliance on discretion of employees. This justifies intense training on decision-
making. Systems on evaluating and rewarding the ethical performance of employees must
be established. Emphasis is on rewarding ethical behaviour than punishing.
Challenges
• The greater discretion granted to employees can be abused and unethical conduct
can increase, thereby eroding the integrity approach, which risks gradually reverting
to a compliance approach.
• The promotion of moral autonomy that results from an integrity approach can also
lead to moral dissidence in a company.
• This approach relies heavily on its leadership. When leaders do not practise what
they talk about, integrity approach can be discredited.
• Integrity approach can only be exercised when core ethical values are aligned with
corporate identity and priorities. Lack of clarity with respect corporate identity and
priorities creates an obstacle that can threaten the sustainability of the integrity
approach.
5.7 The totally aligned organisation (TAO) mode
Nature
This mode is characterized by a boundless integration of ethics into the purpose, mission,
and goals of the organisation. Ethics is central to how an organisation defines itself and how
things are done. Ethical behaviour is considered to be strategically important and unethical
behaviour is regarded as a threat to business success.
Purpose
Ethics is reinforced as part of the company’s identity/ culture and purpose. Ethical behaviour
is central to the nature, purpose of the organisation and is embedded in decision-making.
Management mode
Management team emphasises the strategic importance of ethical behaviour for the
sustained success of the organisation. Ethics is widely dispersed throughout the
organisation and all management levels. Ethics is embedded in strategic and operational
activities.
Challenges
• The TAO mode can breed a mentality of ethical complacency or even ethical
arrogance. Ethical behaviour is accepted as the norm and it may be taken to be
superficial to keep on emphasising its importance. This may end up with ethics being
just a talk and not put into practice.
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• When members who are steeped into the corporate culture assume that what is
evident to them is also obvious to others, this may result in new employees not being
properly inducted.
• As ethics management is a responsibility of all managers, there may not be a single

person who will be committed to coordinate and strategically plan for corporate
ethical performance.
• An organisation may lose its rules and procedures due to its over reliance on its
members to make decisions. This may result in ethical failures.
5.8 Conclusion
The Modes of ethics management model is helpful to business ethics learners who can now
make sense of the differences that exist in the ways in which different organisations manage
their ethics. The model is a useful diagnostic tool which can identify the main features,
purposes and challenges of an organisation’s approach to managing ethics.
I. Evaluate descriptive approach to ethics
II. Evaluate the mode of managing morality model
Reference

IoDSA.
Roussow D, and van Vuuren .L.( 2017) Business Ethics. 6th Edition. Cape Town: Oxford
press
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STUDY UNIT 6: CLASSICAL ETHICAL THEORIES
6.1 Introduction
6.2 Virtue theory
6.3 Deontological ethics
6.4 Utilitarian ethics
6.1 Introduction
Ethical theories provide standards that can be used to make judgements on what is ethical
and unethical. They provide criteria on which specific actions can be judged. They assist
people to carry out a reasoned analysis of specific actions and provide justified reasons on
why an action can be considered to be ethical or unethical. Three ethical theories are
discussed in study unit. The three ethical theories are:
• the Virtue theory of Aristotle
• the utilitarian theory of Mill
• the deontological theory of Kant
The thinkers that will be discussed below are not the sole representatives of the respective
theories. They are a part of an ongoing tradition that continues to this day. These thinkers
are commonly and widely regarded as the classical representatives of each of these moral
theories.
After studying this unit, you should be able to :
• Explain the Generic moral theories
• Describe the applied theories of the modern corporation
press. Cape Town
6.2 Virtue theory
Aristole, the Greek philosopher is the figure closely associated with the Virtue Theory. This
theory begins with the assumption that morality is both necessary and vital for human
beings. It is impossible to live with human dignity without being a well developed moral
being. Morality is not a luxury that one can choose to have or not to have. On the contrary,
morality is a pre – conditioned for life with human dignity. People who forsake morality are
debased beings who miss their goal in life.
Telos
According to Aristotle, everything in life has a specific goal and he uses the Greek word
Telos when referring to the goal of something. The telos/ goal of a knife is to cut and that of
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a pencil is to write. People share a common telos. People must have the energy to achieve
the telos of human life in order for them to live a life of human dignity. Aristotle uses the
Greek word eudaimonia to give a description of the telos of all human beings. The term
eudaimonia is commonly translated in English as happiness but has a deeper meaning than
this. It means a life worth living and refers to a person who has reached a full human
potential (Rossouw,D and Van Vuuren, L, 2017, p. 69).
A person needs the following to achieve the telos of eudaimonia:
• A person needs to live in a society where justice prevails
• In order to experience eudaimonia, a person must be surrounded by good friends

who can give him / her good support
• Materials must be provided amply
• Human potential must be developed and cultivated.
The self
According to Aristotle, morality begins with the self. He says morality hinges upon the
character of the individual. Morality needs people of good character and they are the only
ones who have the ability to do good. Morality can only develop in people with self love and
who are willing to invest in self realization.
Virtues
A person’s character is developed through the cultivation of virtues. According to Aristotle, a

virtue is a character trait that enables a person to reach his/ her telos. When the telos (goal)
of human beings is eudemonia (a life worth living), it follows that the virtues needed by
people are those traits of character that capacitate them to reach their telos. A virtue is a
rational principle of the soul of a human being and Aristole assumed that there are two
distinct dimensions of rationale. There are rational and irrational dimensions. The rational
dimension must be the dominant dimension and it distinguishes people from animals and
other creatures.
The mean
Aristotle introduces the concept of the mean to indicate what is implied by rationally
controlled dispositions. A person gravitates in one of two directions. A person may be too
inclined to do something or too little inclined to do something. This means that people have
either excessive or deficient dispositions. The existence of the mean is to provide a remedy
to erroneous dispositions. The mean is the midpoint between excessive and deficient
dispositions. This mean disposition is person specific and can be achieved by taking one’s
control of rational dispositions.
By looking at an example of courage, a person may have too much or too little courage.
When a person has too much courage his/ her disposition towards courage is excessive.
The disposition towards courage is deficient when a person has too little courage. When a
person’s tendency is to be too courageous, he/she must take rational control of his/ her
behaviour in order to become less courageous. If person has naturally too little courage, that
person must also take rational control of his/her behaviour and the mean must be in the
direction of being more courageous.
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Pleasure
According to Aristotle, the prerequisite for attaining the personal mean, is by having the right
attitude towards pleasure. Pleasure can be beneficial and costly to establishing personal
mean. People tend to concentrate on activities that give them pleasure and avoid activities
that cause pain hence excessive dispositions exist. People’s natural experience of pleasure
and pain is the main reason for erroneous dispositions. People should not be guided by
natural instincts of pleasure but should take rational control of their natural feelings of
pleasure. Human beings must educate themselves to find pleasure in attaining their personal
means and this creates an enabling environment for moral development.
The virtuous person
Aristotle believes that people need to be educated in order to change from being inclined to
act in accordance with their natural instincts of pleasure and pain, to the point where they
depart from these natural instincts and explore ways of finding pleasure in acting with virtue.
The government must educate the youth to be sensitive and receptive to the ideals of
virtuous life. Actual development of virtue can take place after recognition of the importance
of virtue and the propensity to develop it. Virtue develops by taking control of one’s
dispositions. It is through continuous practice of virtuous conduct that virtue becomes a habit
and part of a person’s character. According to Aristotle, a “ virtuous man” is person who
takes rational control of his life, has developed his natural dispositions into moral virtues and
consistently finds pleasure in acting in accordance with the virtues.
6.3 Deontological ethics
According to virtue ethics morality depends on the moral virtues of one’s character where as
deontological ethics maintains that moral action requires conformity to moral principles. The
German philosopher, Immanuel Kant is the classical representative of this theory. Immanuel
Kant believes that people’s moral principles cannot be guided by their practical experience.
Moral guidance can be found outside the boundaries of practical experience. It can only be
found within the scope of pure rational thinking.
The dual nature of human beings
According to Kant human beings are both natural and rational. From the natural being
perspective, human beings are under the control of their natural instincts and needs. With
reference to their natural instincts, human beings are like animals that obey the laws of
nature. Unlike animals, human beings have the ability to think rationally. Human beings have
the capacity to be creative and make free choices. People can gain insight into the laws of
nature and formulate their own guidelines for behavior. Kant states that natural instincts are
too unstable and unpredictable to maintain stable moral judgements. The rational ability of
human beings is the only source of reliable, stable and objective moral guidance.
The goodwill
Kant argues that pure reason, is the only adequate source of moral guidance. He also
believes that goodwill is needed to maintain moral behavior. The principle of goodwill is
central to Deontological ethics. Kant asserts that, “nothing can possibly be conceived in the
world or even out of it, which can be good without qualification, except a “goodwill”. A
person’s will is his/ her ability to decide what he/she wants to do and wishes to become. This
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freedom makes a person autonomous to make independent and rational decisions. The
freedom to act autonomously, gives a person human dignity. A person’s will is influenced by
both natural and rational dimensions. This is the reason why Kant does not only refer to
human will, but clearly to the goodwill. The human will can be contaminated when it gives in
to the pressures of natural tendencies. A corrupted will cannot gain consistent moral action.
The goodwill is the source of consistent moral behavior. The universal moral law is obeyed
by the goodwill.
The category imperative
An imperative is an order that a person has to obey. It is something that one has to do.
Kant’s perspective of pure reason culminates to the discovery of the universal and objective
moral law which is applicable to all rational human beings. In order to apply the categorical
imperative, people must be guided by the principles of universalisabilty and reversibility.
According to the principle of universalisability, a person must be willing to make the principle
of his / her proposed action into a universal law that will be followed by all other people. The
implication of the principle of reversibility is that people must be willing to live in a world in
which everyone else’s behavior complies with the universal law. When a person’s proposed
action is not conforming to the universal law, it follows that the proposed action is certainly
wrong. An imperative may be applicable to a particular person who is willing to achieve a
specific goal. In order for a business owner, who is willing to gain a reputation for reliability, it
is imperative that he/ she provide reliable product offerings to his/her customers.
The first practical imperative
This first practical imperative states that a person should act as if the maxim of his/her action
were to become by his/her will a universal law of nature. Kant emphasizes that a person’s
moral actions should not be guided by his/ her own inclinations, but must be guided by the
sense of duty to comply with the universal law.
The second practical imperative
Kant state that a person must always treat humanity in his or her own person or that of
another as an end and not as a means only. The categorical imperative compels us not to
act for the sake of our subjective goals but for the sake our objective goals which are
applicable to everyone. An objective goal must exist and the objective end is the dignity of all
human beings. Every person’s dignity must be respected and this originates from pure
reason.
The third practical imperative
According to Kant every human will is a will in which in all its maxims gives universal laws.
This categorical imperative is not foreign to human beings but is identifiable to people as part
of their own creation. People create moral principles that guide their lives. People are
authors of moral universal law and in this way they demonstrate human dignity.
6.4 Utilitarian ethics
This theory states that morality of actions should be judged by their consequences.
According to Mill actions are good when they contribute towards fulfilling the ultimate goal of
human beings. Happiness is the ultimate goal of human life. An action is good when it
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contributes to the happiness of the majority affected by it. This is Mill’s “greatest happiness
principle”.
6.4.1 Happiness
Happiness is the definite end of all human beings. A human being is motivated by one end
only which is happiness. There are many avenues such as knowledge, love, power or
money which lead to the final destination of happiness. The ultimate goal is not the
happiness of an individual, but the happiness of all people. Individuals work hard not only to
achieve their happiness but the happiness of the society at large. People are generally
inclined to sympathize with others.
6.4.2 Defence against critics
Mill defends his theory against attacks from his critics. The following are six of the most
important points of criticism raised against his theory and his response to each of them.
• Criticism one: The theory is degrading to humans
The theory degrades human beings to the level of animals because it asserts
that people’s only goal in life is attaining pleasure. In his defence Mill argues
that the pleasure that excites people differ greatly from those of animals.
People and animals enjoy bodily pleasures such as eating, drinking and
sleeping. People enjoy mental pleasure such as learning, planning and
caring. Comparing mental pleasure to bodily pleasure, people prioritise
mental pleasure.
• Criticism two: Happiness cannot be the rational purpose of life.
The pursuit of happiness cannot be considered to be the only rational

purpose of a person’s life. According to the critics, there are a number of
noble people who sacrificed their own happiness for the good of others. Mill
responded by saying that the noble sacrificed their happiness for the good of
a greater number of people. He states that one should act for the general
good even if it means sacrificing one’s happiness.
• Criticism three : Utilitarianism encourages selfishness
According to critics, utilitarian theory is concerned with maximising one’s own

happiness. Mill refutes that because his theory states the opposite of that.
The theory does not propagate the happiness of an individual but the
happiness of all.
Mill states the utilitarian ideal advocates that the state should carry out social
activities that will give people equal opportunities and address the interests
and provide happiness to all its citizens.
• Criticism four: Utilitarianism is unattainable
Another criticism is that the utilitarian standard is unrealistically high.

According to the opponents, it is almost impossible to act consistently in the
general happiness of the society. Mill responded by stating that people rarely
find themselves in situations where they have to act for the general happiness
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of the society. A person generally finds himself in a situation where he/ she
has to consider the interests of a few people who are affected by his/ her
specific action. Therefore a person needs to consider the interests of only a
few and not the happiness of humanity as a whole.
• Criticism five: Utilitarianism is self serving
The fifth criticism of the theory is that it is an immoral doctrine that will result
in suitability. According to the opponents of the theory, the utilitarian theory
will be applied in an opportunistic manner in order to serve the interests of the
person making the decision. Mill’s response is that expediency and
opportunism are in contrast to the utilitarian spirit. He said that it is
incomprehensible that someone would lie for the sake of momentary benefit.
Every human being has a conscience and a sense of honesty and lying would
violate these attributes.
• Criticism six: The theory is too time consuming.
The final criticism is that the theory will be too time consuming to apply in
practice. According to critics, it is impossible to sit down each time a situation
requires a moral decision, calculate the amount of pleasure and pain made by
each course of action, and then come to a conclusion based on utilitarian
principle. Mill refutes this criticism by giving Christianity into his argument, he
argues that Christians have ample time to read through old testament and
new testament. There has been ample time throughout the past duration of
human beings’ existence.
6.5 Conclusion
Classical ethical theories show that there is a lot of common sense thinking in ethics. These
theories state that only people with decent moral character can be expected to do good.
I. Explain the Generic moral theories
II. Describe the applied theories of the modern corporation
6.7 Reference

Evan, W. and Freeman,R. (1993).Ethical Theory and Business. 4th Edition. New
Jersey:Prentice Hall.
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IoDSA.
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STUDY UNIT 7: THEORIES OF THE MODERN CORPORATION
7.1 Introduction
7.2 Corporate social responsibility
7.3 Corporate moral agency
7.4 Stakeholder theory
7.1 Introduction
The rapid increase in size and influence of corporations across the globe has given rise to
theories about moral status and moral obligations of the modern corporation. Questions
have been raised about whether corporations have moral responsibilities, whether
corporations can be considered to be moral agents and which stakeholder interests they
should serve. Three of the theories of modern corporation which are discusses in this unit
are namely corporate social responsibility, moral agency and stake holder theory.
• Understand Corporate social responsibility
• Discuss corporate moral agency
• Analyse the stakeholder theory
press. Cape Town
7.2 Corporate social responsibility
Milton Friedman
According to Milton Friedman, a business exists to make and increase its profits. Businesses
have no other social responsibilities except making profits for its shareholders. Milton
Friedman considered any reference to social responsibilities by business executives as
foolish, short-sighted and pure socialism. His fierce response was based on his appreciation
of a free and democratic society. He distinguished between economic and political spheres
of society. The economic sphere is based on the concept of unanimity. Within an economic
sphere parties have the freedom to engage in any contracts and transactions they find
suitable. There is conformity in the political sphere. People are free to cast their vote and
elect a government. As soon as the government is elected, there must be compliance with
political decisions. Business and politics cannot be mixed. Corporate social responsibility
provides an undesirable mixture between politics and economics. Business executives are
employees of business owners. The business executives are employed to serve the interest
of the shareholders. They must maximize profits.
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Business executives will be acting outside their jurisdiction when they engage in social
responsibilities activities. Although business executives have moral responsibilities which
may span to the society, they have to execute these moral obligations in their personal
capacities. They must invest their own time and resources to fulfill their moral obligations.
Corporations are not like people and do not have moral obligations. When business
executives commit company resource to acts of social responsibilities, they will be stealing
from the company. If corporate funds are spent on social responsibility programs, it is like
levying tax on the shareholders of the company who might have benefited on the money
spent. These business executives would be in a way deciding on taxes should be allocated.
The levying and allocation of taxes are governmental functions.
Governments must be publicly elected and as representatives of the people, they have the
mandate to decide on socially desirable ends and applicable taxes. Unlike the government,
business executives do not have the expertise and mandate required. The business
executives have not been appointed by the public and cannot act as civil servants and
should not be involved in carrying out social responsibility programs.
According to Friedman Milton, there are certain conditions in which corporate social
spending is justifiable. The first condition is that a person can be a sole proprietor and can
decide to spend money on social responsibility programs. The sole proprietor will be
spending his/ her money as he/ she wishes. The other scenario in which it is justifiable to
spend corporate funds on social responsibility activities, is when the corporation stands to
benefit by making a profit from such an expenditure.
Christopher Stone
Christopher Stone opposes Friedman’s view on corporate social responsibility. His argument
was against three ideas of Friedman which are written below:
• Managers’ only mandate is to maximize shareholders’ profits.
• Market forces sufficiently ensure responsible behavior by corporations
• The legal framework is sufficient to guarantee that the corporations do not harm the
society
Managers do not only have an obligation towards shareholders
Stone disputes Milton’s premise which states that managers’ only responsibility is to
maximize shareholders’ profits. According to Stone, the maximization of profit is a
promissory argument and the promissory relationship does not exist between managers and
shareholders. This kind of a relationship may exist between shareholder and a broker. Most
shareholders do not meet management teams of corporations in which they have invested
in. Therefore, no promises are ever made by managers to shareholders.
Stone also disputes the agency argument which states that managers act as agents of
shareholders. According to the agency argument, managers have the mandate to serve the
interests of their shareholders. Stone disagrees with this argument and considers it to be
legally and factually wrong. Managers do not only have moral obligations towards
shareholders but to all stakeholders of the corporation.
Market forces are not sufficient
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Stone admits that market forces are efficient in allocating economic resources. He argues
that market forces are not equally efficient in ensuring that social needs of the society are
addressed. The market forces are inclined towards economic efficiency and not towards
satisfying the social needs of the society. According to Stone, the free operation of the
market will benefit the society depending on the following four assumptions:
• The persons who will stop supporting the corporation are aware that the irresponsible
corporation is injuring them.
• That the persons know where to apply pressure on the transgressing corporations.
• That the persons know that they are in a position to apply such pressure.
• That the pressure being exerted on corporations will result in corporate behavioral
changes.
Stone asserts that all of the above assumptions are unjustifiable. It is ingenuous to assume
that business organizations will change their behaviours when pressure is applied to them.
The business organisations may resort to legal action to silence their critics or they may
launch promotional campaigns to prevent damage to their images.
The law is inadequate
Stone disputes Friedman’s claim that obedience to the national laws of a country will ensure
companies to be socially responsible. He disputes the claim based on the following grounds:
• Time limitations
Laws are usually made in response to existing problems. Owing to the reactive
nature of the laws, a lot of damage can be done during the period between the
development of a problem and the passing of the law to address the problem.
Therefore it is seriously wrong for corporations to assume that it is sufficient for the
law to ensure corporate social responsibility. It is also wrong for corporations to only
comply with the laws and not to have social responsibilities beyond the law.
• The limitations of the process of law making
It centres around the role the corporations play in formulating the laws that are
supposed to regulate them. Corporations create complex problems. Lawmakers do
not always have the technical expertise to formulate laws that deal with these
complex problems. The regulatory authorities are also careful not to formulate laws
that will put them in direct conflict with the industries that they regulate. It is common
practice for lawmakers to include industry players in the process of formulating laws
that will govern the industries. The laws do not always serve the best interest of the
society but are always a trade-off between societal interest and corporate interest.
• The limitations of the process of the law implementations
Limitations pervade the process of the implementation of the laws. The advancement
in the technical nature of the society makes it difficult to implement the laws
effectively.
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7.3 Corporate moral agency
Peter French
Peter French agrees with Friedman that corporations are artificial legal persons but refutes
that this disqualifies them from being moral persons as well. French asserts that by being a
biological living being is not a definitive criterion of being a moral agent. The distinguishing
criterion for moral personhood is central to the responsibility an organization has to its
actions. French highlights two notions of responsibility. He calls the first notion of
responsibility, ”who-dun-it”. This is about putting blame on someone for a specific action.
The second notion is about accountability and moral social responsibility belongs to this
second notion. Moral agents are accountable for the actions to all those affected by their
behaviours.
7.4 Stakeholder theory
Edward Freeman
Stakeholder theory challenges the notion that corporations must be managed for the benefit
of shareholders. Shareholder theory states that corporations should be managed for the
sake of shareholders. Managers are agents of shareholders and must maximize the return
on investment for shareholders. Stakeholder theory rejects shareholder theory and this
based on the following arguments:
• The legal argument
The rejection for the notion that a corporation should be managed solely for the
benefit of shareholders is based on recent legal developments. A number of court
cases have been ruled that corporation have duties towards stakeholders rather than
towards shareholders. Legal protection is granted to various stakeholder groups.
Employees have rights. Shareholder interests must be balanced with the interests of
employees. Legal developments enforce the balancing of shareholder interests with
those of other stakeholder groups.
• The economic argument
According to the concept of free market capitalism, the pursuit of shareholder interest
will result in the interests of the majority of people being served. Evan and Freeman
both argue that the above-mentioned doctrine because corporation seek to
internalize their benefits and externalize costs of their actions. With reference to
externalities, firms often pollute the environment in pursuit of their goals and
objectives. Market mechanisms may fail to correct these immoral activities.
Corporate activities have to be regulated by regulatory authorities.
• Stakeholders
Stakeholder rights have to be respected by management of modern corporations.

Corporations are responsible to various stakeholders for the consequences of their
corporate actions. These conclusions culminate into the following two principles that
form the basis of the stakeholder theory:
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➢ Principe of corporate right
The corporation and its management team cannot violate the legal rights of
others to determine their own future.
➢ Principle of corporate effects
The corporation and its management team are responsible for the impact of
their actions on others.
Management of corporations assumes responsibility for the consequences of their actions

on all the stakeholders of the corporation. According to Evans and Freeman(1993:82), the
stakeholder theory the corporation is described as vehicle that coordinates stakeholder
interests. There must be mutual and voluntary exchanges between the organization and its
stakeholders. None of the stakeholders must be exploited.
Kenneth Goodpaster
He believes that Freeman’s stakeholder theory’s notion can be detrimental to both the
business and society. He asserts that the theory is a multi-fiduciary stakeholder conception
and organization must have ethical relationships of trust with its stakeholders. The demands
of various stakeholders can become irreconcilable, contradictable and this becomes
intolerable. Goodpaster agrees with Friedman that organization have fiduciary duty towards
shareholders to maximize profits. This must be done in such a way the interests of other
stakeholders are not sacrificed.
7.5 Conclusion
Organisations play a key and integral role within the well being of the society. Organisations
must perform their roles morally and with integrity. Businesses must be ethical and be
profitable.

I. Discuss the concept of corporate social responsibility
II. Discuss corporate moral agency
III. Analyse the stakeholder theory
7.6 Reference

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STUDY UNIT 8: MAKING ETHICAL BUSINESS DECISIONS
8.1 Introduction
8.2 Is it legal?
8.3 Does it meet company standards?
8.4 Is it fair to all stakeholders?
8.5 Can it be disclosed?
8.1 Introduction
Businesses generally experience distinct ethical dilemmas that need to be resolved through
proper ethical deliberation. There are also usual daily decisions that need to be made about
procurement, sales, marketing, remuneration, client service and hiring, etc. that have ethical
implications.
The adage referred to in unit 1, that ‘the business of business is businesses, cannot be used
as an excuse for not attending to the ethical side of ordinary business decisions.
When dealing with the ethical side of business decisions, the ethical issue at hand might be
quite apparent, for example, when customers complain that a product that they have bought
from a business is unsafe to use. At other times the ethical issue(s) might not be so
obvious.
In this study unit, we will explore one decision-making procedure that can assist us in
making more ethically sound decisions in business. This procedure consists of assessing
whether a business decision meets a set of normative criteria. Reference will also be given
to ethical decisions that are made in relation to executive pay and downsizing. The case
study on page 172 of the prescribed text book deals with executive remuneration,
downsizing of the staff of Bon Voyage Wineries (BVW) and increasing the executive salaries
by 20%. Ethical questions were raised. The following questions should be asked to judge the
moral soundness of a decision:
• Is it legal?
• Does it meet company standards?
• Is it fair to all stakeholders?
• Can it be disclosed?
• Understand what is legal
• Understand what is legal in Downsizing
• Understand what is company standard
• Describe what is fair to all stakeholders
• Discuss the scenarios under which an action can be disclosed
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8.2 Is it legal?
For a business decision to be considered ethically sound, the first criterion that it must
comply with is that it should be legal. In an ideal world the law lays down a standard of
acceptable behaviour which all citizens need to obey in order to ensure a safe and just
society.
In order to determine whether a planned business decision is legal, it can range from a fairly
uncomplicated process to an extremely complicated one. In most business environment, the
legal standards that apply to a specific work environment are common knowledge. When a
decision is in contradicts the law it should be abandoned, unless there are exceptional
circumstances, which will be discussed later on in this section.
The fact that legal standards are sometimes not clear, and thus not common knowledge, is
one of the reasons why the criterion can never be the only criterion in determining the ethical
soundness of a decision. The law may be inadequate. It has been said above that in an
ideal world the law lays down a standard of acceptable behaviour which all citizens need to
respect in order to ensure a safe and fair society.
Example
The BVW board’s decision to lay off 40% of the staff and at the same award the executive
team a salary hike of 20% must be assessed against the first test which is the legal test. The
board’s decision is within the scope of the law. South African law is thus silent on the issue
of executive remuneration. Therefore the BVW board’s decision to retrench staff and
increase the execute management team’s salary passes the legal test.
8.3 Does it meet customer standards?
The ethical standards of a company are commonly developed as a set of company values, in
a code of ethics, or in a policy statements dealing with specific issues, like procurement,
expense accounts or the giving and receiving of gifts. These documents are created to deter
irresponsible behaviour and to promote responsible behaviour. It is evident that they should
play a central role in determining the ethical soundness of business decisions.
Both a rule-based approach (as you would often find in detailed codes of ethics and policy
documents) and a value-based approach have their respective advantages and pitfalls when
it comes to ethical decision-making. For example, when a company’s code of ethics states
explicitly that accepting kick-backs from suppliers is unacceptable, it makes it much easier
for a company staff who have to take decisions in situations where suppliers try to lure them
into signing a contract by offering them a kick-back on the deal. It is generally experienced
that companies that follow a strong rule-based approach with regard to ethical standards,will
always run a risk of undermining employees’ sense of personal responsibility. As has been
indicated earlier (in the discussion on the compliance mode of managing corporate ethics in
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unit 5) a strong rule-based approach to ethical decision-making will compromise employees’

discretion and personal responsibility by promoting an attitude of ‘what is not forbidden is
allowed’ among employees. The strength of value-based codes, on the contrary, lies exactly
in their ability to invoke personal ethical discretion and responsibility in the staff members of
a business. However, their drawback lies in their generality, which prevents them from
providing guidance on specific issues.
Example
In the South African context, the King Reports on Corporate Governance (of 1994, 2002
and 2009) have become closely associated with the best practice standards of corporate
governance. One can therefore safely assume that by committing themselves to high
standards of corporate governance, BVW means that they will adhere to the standards of
corporate Governance – which would be the King III report of 2009.
Aspirational standards typically are value-based general guidelines and they provide general
guidance on standards that can be applied to a wide variety of situations and issues. These
standards in turn have to be applied and interpreted to determine their meaning for specific
situations or issue. This is also true for the BVW Business Principles and their meaning for
the decisions that the BVW board has taken. When we take a closer look at the BVW
Business Principles there are especially three standards that have a direct bearing on the
decisions that the BVW board has taken. These standards are:
• We adhere to high standards of corporate governance
• We are socially responsible and care for our community
• We respect the dignity of each employee
The King IV report is silent on dismissal of employees based on operational constraints. The
report asserts that the board of directors need to be guided by characteristics of integrity,
competence, responsibility, accountability, fairness and transparency in all decisions
(IODSA, 2016: 43-44). The King IV report encourages companies to be good corporate
citizens who ensure that their activities contribute towards economic, social and
environmental sustainability. Based on the principle,” we are socially responsible and care
for our community”, this puts an obligation on the company to be self-interested and not
selfish. The company should not have looked at their financial performance only but should
also have looked at whether their decision was fair to the other stakeholders of the company
including the society. The company must balance the interest of the company with the
interests of the community in which it operates.
With respect to the matter of increase of salaries of the executive management team in order
to retain their commitment the company, the King III report does recommend that executive
remuneration should be linked to performance, but it also allows for incentives to retain the
services of key executives ‘when companies face the risk of losing key employees’ (IoD,
2009:51). It thus seems that at least as far as the King III guidelines are concerned, the
board’s decision passes the standards of corporate governance to which the company is
committed.
According to the principle, “we respect the dignity of each employee, this imposes an
obligation on BVW board not to make decisions that will not violate the dignity of their staff.
Although it is important to assess business decisions against company standards, it is an
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insufficient criterion to ensure that ethical decisions are made. This justifies the use of the
fairness test in the business decision-making process.
8.4 is it fair to all stakeholders?
A decision to launch a product that can potentially bring in huge profits for a company, but
that is unsafe for consumers and harmful to the natural environment, is a clear example of a
decision that only considers the immediate interests of the company, but fails to consider the
interests of the affected stakeholders.
Applying the fairness test, requires more creativity on the part of the decision maker than
applying the legal and the company standards tests that have been discussed.
Stakeholders’ engagement within the context of the fairness test refers to the process of
interacting with persons and parties who are likely to be affected by the decisions in order to
determine how they foresee that the decision is likely to impact on them.
Example
The stakeholders who are likely to be affected by the board’s decision have to be identified.
Shareholders who are only interested in short-term financial return of their investment in
BVW most probably will approve of the decision by the BVW board. The board’s decision
will, at least in the short run, reduce the losses that the company has been suffering over the
last 18 months. Shareholders that take a longer term view of their investment might be less
positive, because they would realize that such a drastic down-sizing of staff might hamper
the company’s ability to bounce back and take advantage of new opportunities that might
arise when the economy is moving out of recession.
The employees and non-executive managers of BVW are a third stakeholder group that will
be negatively and directly affected by the board’s decision. The decision will have an
undesirable impact both on those who will be dismissed as well as on those who will remain
in the company after the down-sizing has been completed.
It is important to reach a decision that is fair to all stakeholders or to the majority of

stakeholders.
8.5 Can it be disclosed?
The disclosure criterion assesses whether you would be comfortable in doing a public or
private account for the decision that you have taken. The disclosure test should preferably
be applied in two ways. The first version of the disclosure test is the public one. In the
public version of the disclosure test, you should ask yourself, whether you would be morally
comfortable if the decision and (consequent action) is reported in the newspaper, on TV or
the Internet (or for that matter in any other media that is publicly accessible).
The second version of the disclosure test is the private disclosure test. It adds a more
personal and emotional element to the disclosure test. Should you feel confident to disclose
and defend a decision both in public and in private, it is a strong indication that the decision
is ethically sound.
Example
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The public disclosure test asses the ethical soundness of the board’s decision. It is built on
determining whether the board, or its representatives like the CEO, Sarie Williams, would
feel comfortable disclosing the board’s decision to the public media. Would Sarie Williams
be able to provide convincing and socially acceptable reasons for the board’s decision?
With respect to the private version of the disclosure test, board members should ask
themselves whether they would feel comfortable in telling significant or important persons in
their lives about the decision that the board has taken.
The disclosure test should not be perceived as an excuse to avoid tough and challenging
situations. The question is not whether you would rather avoid such tough situations. The
crucial question, rather, is whether they would be able to provide good and convincing
arguments for their decisions and actions in such situations, i.e. explanations that will make
them comfortable when facing others.
8.6 Conclusion
It therefore makes both business and personal sense to ensure that business decisions are
ethically sound. Business decisions need to be based on the four criteria that and this will
assist in preventing business decisions turning into ethical embarrassment.
The benefit of using a disciplined procedure such as testing decisions against a set of
criteria ensures that business decisions are ethically sound. It also systematically introduces
ethical considerations into the business decision-making process that otherwise could have
been easily overlooked.
Discuss how the following questions can be used to judge the moral soundness of a
decision:
I. Is it legal?
II. Does it meet company standards?
III. Is it fair to all stakeholders?
IV. Can it be disclosed?
Reference

IoDSA.
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STUDY UNIT 9: RESOLVING ETHICAL DILEMMAS
9.1 Introduction
9.2 Moral dissensus
9.3 Assumptions behind the RIMS strategy
9.4 The RIMS strategy
9.5 Distinguishing affirmative from related concepts
9.6 Defining affirmative action
9.7 Objections to affirmative action
9.8 Applying RIMS to affirmative action case
9.1 Introduction
In the previous two chapters we were concerned about ensuring that business decisions are
ethically sound. The focus was not on dealing with ethical issues as such, but with the
ethical implications of business decisions. However, in the introductory chapter (Unit 1) we
already mentioned that from time to time ethical dilemmas do arise in the workplace.
In this chapter we will introduce the Rational Interaction for Moral Sensitivity (RIMS) strategy
for resolving moral dilemmas (cf. Rossouw, 1994). We will first explain why the RIMS
strategy is appropriate for a situation marked by moral dissensus.
The RIMS approach is designed as a dilemma-resolving strategy that can be used for both
social and personal ethical dilemmas in the workplace. Social dilemmas occur when
different people make conflicting judgments on what is considered to be morally right with
regard to a specific situation. Moral dilemmas arise in the workplace when two or more
parties hold morally conflicting view about issue, policy or practice. An issue that often
evokes such conflicting moral views in the workplace is employment equity. This unit will
also address ethical dilemmas related to employment equity.
• Analyse the moral Dissensus
• Describe Habermas and the ‘ideal speech situation’
• Explain the assumptions behind the RIMS strategy
• Explain the RIMS strategy
• Discuss the importance of affirmation action?
• Define affirmation action
• Distinguishing affirmation action from related concepts
• Explain objections to affirmation actions
• Apply RIMS to the affirmation action scenario
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9.2 Moral dissensus
According to MacIntyre, the current moral dissensus dates back to the 15th century, the
period regarded as the beginning of the Modern Era. In the Middle Ages (the fifth to the 14 th
centuries) moral dissensus was not only uncommon, but even the slightest indication of
moral dissensus was regarded as a dangerous defect. Any human idea that did not accord
with the dogma of the church was discredited and the life of the thinker was in danger.
Consider for example Galileo’s predicament in this regard.
A good example of the role played by reason is to be found in the concept of morality that
was dominant in the Middle Ages. By the 12th Century, Aristotle’s scheme of ethics was
dominant. MacIntyre shows how Aristotle’s ethics could be located within a threefold
scheme consisting of:
• Human nature in its natural and uncultivated state
• Ethical guidelines that could transform and cultivate human nature
• Human nature in its fulfilled and cultivated stage. (cf. MacIntyre, 1958:52)
The function of moral guidelines within this scheme was to transform individuals from their
untutored state into a morally cultivated state. This threefold scheme was the model for
Christian, Jewish, Islamic and other moral systems during the Middle Ages.
After the Reformation in the 16th century, Protestants in particular began to insist that reason
could not conceive the true end for humankind. The power of reason had been destroyed by
the humankinds fall into sin.
MacIntyre outlines its new role:
Reason does not comprehend essences or transitions from potentiality to act; these
concepts belong to the despised conceptual scheme of scholasticism. Hence anti-
Aristotelian science sets strict boundaries to the powers of reason. Reason is calculative; it
can assess truths of fact and mathematical relations but nothing more. In the realm of
practice it can therefore speak only of means. About ends it must be silent. (McIntyre,
1985:54).
The new way of thinking about ethics, according to MacIntyre, was based on what was
considered the appropriate role for reason to play. The key features of this new standard of
rationality were subjectivity and universality: knowledge should no longer be based on the
authority of the church, but on the rational insights of the individual (subjectivity).
Philosophers of the Modern Era took up the challenge of developing a new concept of
ethics, within the restrictions imposed upon them by modern rationality. MacIntyre suggests
that Kant’s deontological ethics is a particularly fine example of such an approach. It is an
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attempt to meet the two criteria proposed by the modern concept of rationality. On the one
hand it states that the rational individual is the source and authority of moral laws.
• Coping with moral dissensus
One of the more promising attempts to deal with moral decision-making in the context of
moral dissensus is offered by the German philosopher, Jurgen Habermas. According to
Habermans (191930, modern rationality excludes vast areas of human life from rational
discourse.
The big difference between Habermas’s approach to ethics and the prescriptive ethical
theories discussed in unit 6 is that the previously discussed theories focus on the content of
our moral considerations, and Habermas’s theory focuses on the process by which ethical
decisions are made.
The RIMS approach is designed as a decision making strategy that can be used for both
social and personal ethical dilemmas in the workplace. Social dilemmas arise when different
people make conflicting judgments on what is considered to be morally right with regard to a
specific situation. Personal dilemmas occur when a person becomes uncertain about what
the most appropriate moral decision should be in a specific situation. The purpose of RIMS
strategy is to structure a process of rational interaction between the rival points of view in a
moral dispute that will result in morally sensitive decisions.
According to Habermas (1993), modern rationality excludes vast areas of human life from
rational discourse. Instead of empirical verifiability that modern rationality demands,
Habermas proposes consensus within an ‘ideal speech situation’ as the criterion for ethical
knowledge. The big difference between Habermas approach to ethics and the prescriptive
ethical theories discussed earlier is that whereas they focus on the content of our moral
considerations, his theory focuses on the process by which ethical decisions are made.
The obvious objection to his concept of rationality is that it opens the door to relativism and
so cannot be seen as a serious substitute for modern scientific rationality. Habermas denies
this by indicating that there are certain rules that apply to this discursive process of
knowledge formulation. The ‘ideal speech situation’ does not refer to the personality or skills
of the participants, but to the structural features of the discussion. In a simplified way it could
be portrayed as that situation where all participants in the discourse are treated as if they are
truly equal and in which all forms of coercion or force have been removed. The basic rules of
the process of knowledge formation are as follows:
• The only evidence that participants may introduce into the discourse is empirical
experience which is objectively accessible.
• The process of communicative interaction is driven only by the force of the strongest
rational argument.
• Only those experiences, arguments, and norms that can attain consensual
agreement are regarded as knowledge.
• Any knowledge formulated in this way is always open to future revision.
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9.3 Assumptions behind the RIMS strategy
Assumption one: Moral dissensus is a given:
• Moral dissensus is an inescapable feature of current culture.
• Modernity, in its attempt to find secular and rational grounding for morality, has
produced any number of varying moral theories.
• All modern moral theories are rationally justifiable and defensible.
Assumption two: Moral dissensus does not equal ethical relativism:
• Assumes moral dissensus dos not necessarily result in ethical relativism.
• Moral dissensus only equals ethical relativism if it is assumed that discourse between
the rival moral viewpoints has become meaningless.
• The RIMS approach assumes that interaction between rival moral viewpoints is not
only necessary, but is also an important source of creativity that can help to find
morally sensitive answers.
Assumption three: Dialogue can produce solutions
• Assumes that, through dialogue, conflicting moral views can be creatively harnesses
to produce morally sensitive solutions to moral dilemmas.
Assumption four: Focusing on motives is futile
• The assumption is that focusing on the motives underlying moral viewpoint cannot
solve moral dilemmas in a situation of moral dissensus.
Assumption Five: Only moral arguments are allowed
• Only arguments that meet the minimum requirements of a moral argument will be
allowed.
• To qualify, an argument should display a concern and respect for others and not be
merely selfish.
9.4 The RIMS strategy
• Begins with ‘rational interaction’
• Rational debate between 2 or more rival views on the moral issue.
• The following 3 steps sums up the RIMS strategy:
• Step one: Generate and evaluate all points of view.
• Step two: Identify Implications
• Step three: Find Solutions
Objections to the RIMS strategy
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• Objection One: it is too time – consuming
• Objection Two: No – one can be forced to use it.
Why do we need affirmative action?
Africa’s colonial history is blemished by acts of large – scale exploitation and discrimination
against black people. At the same time discrimination against black people coincide with
discrimination against women. Affirmative action is one way to redressing the discrimination
of the past.
9.5 Distinguishing affirmative action from related concepts
• Equal opportunities versus affirmative action
An equal opportunities dispensation closes the book on the past injustice. Without
further discrimination, opportunities and jobs are awarded to the person best qualified
for the job. All members compete on equal footing for a specific job. Affirmative
action is seen as a mechanism that can bridge the gap between the situations of
inequality caused by discrimination and the ideal of equal opportunities. Should
affirmative action lose its character as a temporary transitional device and become a
permanent policy of favoring the previously disadvantaged. It turns into something
else, namely reverse discrimination.
• Reverse discrimination versus affirmative action
Although e term ‘reverse discrimination’ was previously used a synonym for

affirmative action, the current tendency is to reserve it for situations where one form
of discrimination has been traded in for another form of discrimination.
9.6 Defining affirmative action

•
Temporary intervention
• Preferential Treatment
• Rectify consequences of discrimination
• Enable to compete as equals.
9.7 Objections to affirmative actions
• Objection One: It can generate negative feelings
• Objection Two: It can harm those it is supposed to help.
• Objection Three: Affirmative action appointees can be stigmatized.
• Objection Four: It can cause standards to drop
• Objection Five: It can aggravate negative stereotypes.
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9.8 Applying RIMS to the affirmative action case
• Step one: Generate and evaluate all points of view.
Any moral point of view that satisfies the following criteria should be taken into
consideration in the decision making process.
• Step two: Indentify implications.
The focus should not be on the motives behind the various points of view. Instead the
focus should be on indentifying the positive and negative implications articulated in
the different points of view.
• Step three: Find Solutions.
Participants should cooperate in finding solutions that will keep negative implications
to a minimum, while retaining the positive implications.
9.9 Conclusion
Reference: Roussow, D. with van Vuuren .L. Business Ethics (pg. 181-206, 2017) Oxford
press.
I. Discuss the moral dissensus concept.
II. Describe Habermas and the ‘ideal speech situation’.
III. Explain the assumptions behind the RIMS strategy.
IV. Explain the RIMS strategy.
V. Discuss the importance of affirmation action?.
VI. Define affirmation action.
VII. Distinguish between affirmation action and related concepts.
VIII. Justify the objections to affirmation actions.
Reference

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IoDSA.
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STUDY UNIT 10: ETHICS AND CORPORATE REPUTATION
10.1 Introduction
10.2 Reputation
10.3 Reputation and stakeholders
10.4 Reputation and financial performance
10.1 Introduction
When an organisation can accept that unethical behaviour may cause high reputational risk
to an organisation, it is strategic that organisations avoid the costs associated with unethical
behaviour. Ethical behaviour is important to a business organisation. Is there a real and
growing concern in some organizations to promote ethical behaviour? Or is the interest in
business ethics being fuelled by fear that the exposure of unethical behaviour might result in
organizational scandals?
• Define the term reputation
• Explain the importance of corporate reputation
• Discuss the impact of reputation at country, corporate and stakeholder level
• Explain the correlation between corporate reputation and financial performance
press. Cape Town
10.2 Reputation
Corporate reputation can be defined as the collective opinion of stakeholders towards an

organisation, based on its past record (Nakra, 2000). A company’s reputation affects its
ability to sell products and services, to attract investors, to hire talented staff, and to exert
influence in government circles. Good reputations are built up over the years. Ethical and
socially responsible practices are simply good business: they result in a favourable
reputation and ultimately in increased sales decreased costs of doing business.
• Reputation at country level
• Reputation at corporate level
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10.3 Reputation and stakeholders
The dramatic improvement of information and communication technologies in the twentieth

century has shrunk and continents of our planet into a global village with a truly global
market.
Investor confidence
As this global market emerges and national borders become exceedingly perforated,
investors are increasingly able to take advantage of investment opportunities wherever these
arise around the globe. This has resulted in a situation where the mobility of capital has
increased to unprecedented levels. Investors now have more freedom and opportunities
than ever before to invest their capital wherever they believe they might receive the highest
returns. In this new dispensation created by a global investment market, it is not surprising
that corporate governance has become prominent. The importance of good corporate
governance for investors was clearly illustrated in the 2002 McKinsey Investor Opinion
Survey.
Discerning consumers
Organizations need to anticipate the market needs, identify potential consumers, and then
provide them with high quality products or services. Sensitivity for the needs of consumers
who are concerned about the social responsibility and ethical practices of companies from
which they buy, hassled to the establishment of organizations that bridge the gap between
1st world consumers and 3rd world producers. Ethical consumerism, which is a collective
noun for the potential preferences, decisions, and actions of morally discerning consumers,
may therefore be a major determinant of the architecture of corporate strategy. The strategic
importance of the morally discerning consumer is therefore a reality that companies cannot
ignore. Companies that do not strategically account for these consumers limit their business
opportunities.
Employees
If employees have experience positive interactions over time with a manager, the manager is
likely to have a good reputation and consequently will be perceived as trustworthy.
10.4 Reputation and financial performance
The social performance consisted of charitable contributions, community outreach

programmes, environmental performance, and the advancement of woman and the
promotion of minorities. The financial performance of the firms in the study as better in terms
of operating income growth, sales to assets ratio, sales growth, return on equity, earnings to
asset growth, return on investment, return on assets and asset growth. It is expected that
companies of codes of ethics that are actually implemented, should have climates conducive
to ethical financial performance.
10.5 Conclusion
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Ethical reputation has a positive impact on investor confidence. There is indisputable

evidence that ethics is good business. When a business organisation decides to build ethical
reputation, it needs to decide how to build an ethical capacity and manage its ethical
performance.
I. Define the term reputation
II. Explain the importance of corporate reputation
III. Discuss the impact of reputation at country, corporate and stakeholder level
IV. Explain the correlation between corporate reputation and financial performance
Reference

IoDSA.
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STUDY UNIT 11: ETHICS AND HUMAN POTENTIAL
11.1 Introduction
11.2 Ethical neglect
11.3 Ethics as the key to unlock human potential
11.1 Introduction
Over time, it is human capital that creates financial capital, not the reverse. It is increasingly
recognized that it is the people, or human resources, of the organisation that are most likely
to supply the core competencies, which will be the primary source of sustained competitive
advantage and successful long term financial performance.The Peters and Waterman (1982)
study, which is described in their book In Search of Excellence, remains a landmark in
studies seeking to establish what exactly it is that makes superior organizations tick. Having
analysed several high-performing companies over time, they identified the effective
utilization of people as a central criterion for excellence (financial and otherwise) in all the
companies they investigated. Thus, people – if managed properly – can be an
organisation’s greatest competitive edge. The use of ethic in the unlocking of human
potential in organizations is then suggested as a remedy for ethical neglect.
• Understand ethical neglect
• Understand ethics as the key to unlock human potential
press. Cape Town
11.2 Ethical neglect
Ethical neglect occurs when organizations negate the effect that their actions may have on
the legitimate rights and expectations of stakeholders to be treated ethically, i.e. with trust,
fairness, honesty, empathy and consistency. Business leaders are often skeptical about the
need for business to be concerned about the goodness for ‘the other’. In the process they,
sometimes irrevocably, contaminate the trust of their stakeholders.
Ethical neglect may vary markedly from workplace to workplace. Neglect could vary from
mild neglect caused by ignorance about employees’ rights, at the one end of the spectrum,
to severe neglect caused by deliberate denial at the other. The latter results in treating
employees as mere resources to be used to achieve organizational success.
The impact of ethical neglect on employees may manifest from feelings or perceptions of
slight or moderate discomfort about the organisation to deviant employee behavior. The
discomfort that is experienced may manifest as job dissatisfaction. Another consequence of
ethical neglect is the deliberate or inadvertent withholding of effort or performance. This
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includes wasting time, shirking, job neglect, social loafing and free riding (Bennett &
Naumann, 2005), and a reluctance to be creative. Dissatisfaction clearly has an extremely
adverse impact on individual, group and organisational performance.
‘Deviant behaviour’ is used as a collective term for what is also labelled by other authors in
Kidwell and Martin (2005) as organisational antisocial behaviour, counterproductive
behaviour, dysfunctional behaviour and organisational misbehaviour.
11.3 Ethics as the key to unlock human potential
This is clearly evident from the preferred approach to managing ethics by rules and
compliance evident in many organizations In this part of the chapter we will show that ethics
is not a problem to be solved, but in fact an opportunity to be embraced.
• Ethical Organisational Mindsets
What constitutes as an ethical organisational mindset? An organisation with an ethical

mindset has a strong ethical value orientation, lives these values and practices them when
engaging with all stakeholders. An organisation with an ethical mindset is characterized by a
seamless integration of ethics into the purpose, mission and goals of the organisation –
ethics is integral to how the organisation defines itself and how things are done.
An organisation’s sense of identity is its self-defined distinctive character in response to the

question ‘What are we for whom?’ The ethical identity, or the ethical fitness for purpose of
an organisation, exists as the ethical dimension of the organisation’s character that
circumscribes the organisation’s inclination to treat the ‘whom’ ethically.
An organisation with a well-developed and espoused ethical identity is in constant

responsible interaction with its ‘other’ – in this case its employees.
In an organisation with an ethical identity the ethical culture is an integral and natural part of
the organisational culture. Culture evokes notions of rules, codes, rewards, leadership ritual
and stories, which Trevino, Butterfield and McCabe (2001) describe as sense-making
devices that guide and shape behaviour. This is more formally described by Trevino et al.
(2001) as that which ‘characterizes the organisation in terms of formal and informal control
systems (for example: rules, rewards systems, and norms) that are aimed more specifically
at influencing behaviour)’.
Inherent to the ethical culture integral to an ethical oganisation, is moral conscience (or
moral reflection): ‘Conscience is our primary check on the unbalanced pursuit of goals and
purposes’ (Goodpaster, 2007:4).
An organisation’s commitment to its people arises out of the respect for the worth and dignity
of individuals who devote their energies to the business and depend on the business for their
economic wellbeing.
Organisations with respect for the individual as a core value are likely to fulfil the ethical
obligations they have towards their employees as a core stakeholder group. Ethical focus is
consistent. Consistency, of course, involves a sense of predictability, as employees know
what their ethical boundaries are. As such, a sense of trust is established between employer
and employee.
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When human potential is unlocked, a context is created in which the business imperatives of
profit, market share, growth and competitive advantage will fall into place as they did in the
companies Peters and Waterman (1982) analysed. If organisations succeed in unlocking
human potential, they not only build ethical organisations, but also create a competitive
advantage.
• People-related Outcomes of Organisational Ethical Mindsets
Many of these theories identify specific factors that contribute toward the optimal fulfillment
of human potential. The three paradigms are:
➢ human wellness
➢ finding meaning
➢ self-actualization
• Ethics-based Facilitators for Unlocking Human Potential
Organisations are powerful vehicles of wellness, meaning and self-actualization. They

therefore need to cultivate these human strengths in the quest for human flourishing
(Pawelski & Prilleltensky, 2005).
➢ Ethical values management
➢ Ethical leadership
➢ The psychological contract
➢ Empowerment and enablement
➢ Ethical human resource management practices
11.4 Conclusion
A neglect of ethics can undermine and smother human potential. The ethical treatment of
people can have the opposite effect. It can unlock human potential and create meaning and
self-actualization in the workplace, which in turn can give the organisation a competitive
edge.
I. Discuss the concept of ethical neglect
II. Write a report on how ethics can be used as the key to unlock human potential
Reference

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IoDSA.
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STUDY UNIT 12: ETHICS AND CORPORATE GOVERNANCE
12.1 Introduction
12.2 Corporate governance: Perceptions and approaches
12.3 The prominence of corporate governance
12.4 Corporate governance in South Africa
12.5 Framework for the governance of ethics
12.1 Introduction
The responsibility from corporate governance lies with the board of directors and consists of
2 main functions: the direction of the company and the control of the company. The board of
directors are responsible for determining the strategic direction and hence the ultimate
performance of the company. The second responsibility of the board of directors is the
control of the company.
• Discuss the nature of corporate Governance
• Describe the prominence of corporate governance
• Evaluate the framework for the governance of ethics.
• Discuss the influence of the King IV report on corporate governance in South Africa
• Discuss the importance of the companies Act in corporate governance in South

Africa.
press. Cape Town
12.2 Corporate governance: Perceptions and approaches

• Internal and external corporate governance
• Shareholder and stakeholder approaches to corporate governance
• Mandatory and voluntary corporate governance
• The ethics of governance and governance of ethics
The ethics of governance and governance of ethics
Ethics relates in two different ways to corporate governance. The first way in which it is
associated with corporate governance refers to the ethical values and principles that
underpin a specific corporate governance regime. This dimension can be called the ethics of
governance.
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The send way relates to the way in which corporations are expected or required to manage
their ethical affairs. This is referred to as the governance of ethics
12.3 The prominence of corporate governance
Corporate governance has gained unprecedented prominence in recent years. This rise in
prominence is equally attributable to both the successes and failure of modern corporations.
The following are important factors that have triggered the current prominence of corporate
governance:
• Trust in corporations
• Investor demand
• Shareholder activism
Shareholder activism refers to actions taken by shareholders to influence policies.

The shareholders want to ensure that their interests are met. The shareholders want
corporations to formulate and execute strategies that will result in maintenance of
high standards of governance, effective and operational efficiency. They want to
effect changes that maximise their wealth. The shareholders do not want to assume
decision-making responsibilities.
Shareholder activism is a tool used by institutional investors to engage with

companies on behalf of individual shareholders who own shares. Shareholder
activism includes the following actions:
➢ Negotiating directly with management.
➢ Use of the media to target publicly the firm.
Shareholders and Activism
Shareholders make use of dyadic communication, proposals and proxy votes to

influence companies to behave in a particular way.
Shareholders take ownership responsibility for the companies they own shares
through constructive engagement with the company. The following is required for
active ownership:
➢ Monitoring the company carefully and closely.
➢ Ability to access and assess information which is relevant.
➢ Using shareholder’s powers and rights to engage with the company.
The following is the range of shareholder activists: single share-owning activist to the
powerful institutional investors, pension funds, unions, religious bodies, investment
firms, universities and foundations.
Shareholder activists may address corporate governance issues which may include
the following:
➢ Aspects concerning financial performance.
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➢ Social responsibility, including environmental sustainability, human rights,

health and safety aspects.
➢ Board composition and balance
➢ Management of cultural diversity, compliance with employment equity

legislation and organisational transformation.
Shareholders have the following broad options when they are not happy about the
performance of the board:
➢ They can divest / sell their shares.
➢ Remain unmoved, holding on to their shares and hope that the expected
change will take place.
➢ Remain unmoved, holding on to their shares, express dissatisfaction through

dialogue, proxy voting or filing of shareholder proposals and enforce the
expected change.
➢ The board can ultimately be removed.
Shareholder can manifest inclusively in the following ways:
➢ Evaluating and assessing annual general meetings and other meetings.

Enforcing the implementation of tasks agreed on in the meetings.
➢ Participating actively in the annual general meetings.
➢ Voting in a way that exerts pressure on directors and managers to act in the
best interest of shareholders and key stakeholders.
➢ Evicting and replacing non-performing members of the board.
➢ Carrying out research and engaging in dialogue with companies where

governance there are governance issues, company strategy flaws, social and
environmental matters that need solutions.
➢ Disinvesting from companies which fail to practise sound governance and

sustainability activities.
• Social influence of corporations
• Risk management
• Sustainability
12.4 The corporate governance in South Africa
The first King Reports on Corporate Governance for South Africa was published in 1994.
• Corporate Governance in King IV Report
• The link between ethics and governance
• The governance of ethics
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• Companies Act
The Companies Act 2008 provides a regulatory framework for companies to operate
in. It provides the regulatory framework for incorporation, registration, organization
and management of companies. It promotes the development of South African
economy.The new companies Act, Act 71 of 2008 came into existence on 8 April
2008 and was operational from 1 May, 2011. This acted was prompted by pressure
emanating from the following:
➢ Legislation which was formalistic and outdated.
➢ Administrative issues and commission.
➢ Biased legislation that is inclined towards creditors at the expense of

shareholders and other stakeholders.
➢ Globalisation and the development of democracy
➢ Upsurge of corporate failures and scandals that undermine corporate

governance.
➢ Simplification of company registration and maintenance
The purpose of the Act
The following are purposes of this Act according to (Companies Act, 2008:42) :
a) Enforcing compliance with the Bill of Rights as provided for in the
Constitution, in the application of company law;
b) Stimulating the development of the South African economy by—
I. Promoting entrepreneurship and enterprise efficiency;
II. Stimulating flexibility and simplicity in the formation and maintenance of

companies; and
III. Promoting transparency and high standards of corporate governance as

appropriate, given the significant role of enterprises within the social and
economic life of the nation;
c) Encouraging innovation and investment in the South African markets;
d) Reaffirming the concept of the company as a means of achieving economic and

social benefits;
e) Providing the creation and use of companies, in a manner that enhances the
economic welfare of South Africa as a partner within the global economy
f) Stimulating the development of companies within all sectors of the economy, and
encouraging active participation in economic organisation, management and
productivity;
g) Creating optimum conditions for the aggregation of capital for productive purposes,
and for the investment of that capital in enterprises and the spreading of economic
risk;
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h) It makes provision for the formation, operation and accountability of non-profit

companies in a manner designed to promote, support and enhance the capacity of
such companies to perform their functions;
i) It balances the rights and obligations of shareholders and directors within companies
j) It encourages the efficient and responsible management of companies;
k) It makes provision for the efficient rescue and recovery of financially distressed
companies, in a manner that balances the rights and interests of all relevant
stakeholders; and
l) It provides a predictable and effective environment for the efficient regulation of

companies.
12.5 Framework for the governance of ethics
The term governance is translated from Latin word gubernare, which means to steer.
Excellence in governance is about efficient and effective leadership. This type of leadership
is enriched with ethical values, accountability, fairness, honest and transparency. Business
leaders must formulate and implement strategies with the goal to achieve sustainable
economic, social and environmental development. Governance is central to the way in which
an organisation runs its affairs and it also refers to the relationship between the leaders who
govern and the followers who are governed.
According to Hendrikse & Hendrikse (2015: 104), corporate governance is a “partnership of

shareholders, directors and management to provide wealth creation and economic well-
being to the wider community of stakeholders and society”.
The KPMG Toolkit for the company director stated that good corporate governance should
be thought of as a basic common-sense framework in which companies can systematically
pursue superior performance and enhanced shareholder value (KPMG, n.d).
The framework for the governance of ethics is made up of the following elements:
• Leadership commitment
Top leadership should set a clear ethical tone. Without senior management support,
the governance of ethics is destined to fail.
• Governance structure
The board, social and ethics committee must take responsibility for directing and
overseeing the ethics of the organisation.
• Ethics management process
The ethics management process needs to be followed in order to ensure that ethics
governance is efficiently executed. The process comprises the following features:
➢ Ethics risk assessment
➢ Strategy
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➢ Code and policies
➢ Institutionalisation
➢ Monitoring and reporting
➢ Independent assessment and external reporting
12.6 Conclusion
An insight into the intimate relationship between business ethics and corporate governance
was provided. The difference between shareholder and stakeholder approaches and the
ethical implications of the two approaches were highlighted.
I. Discuss the nature of corporate Governance
II. With the aid of examples, describe the prominence of corporate governance
III. Evaluate the framework for the governance of ethics.
IV. Discuss the influence of the King IV report on corporate governance in South Africa
V. Discuss the importance of the companies Act in corporate governance in South

Africa
Reference:

IoDSA.
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STUDY UNIT 13: ETHICS RISK AND STRATEGY
13.1 Introduction
13.2 Risk management
13.3 Ethics risk
13.4 Ethics management strategy
13.1 Introduction
It should never be assumed that new employees enter an organisation with their own sets of
unique beliefs and behaviours which cannot be changed. Management must address ethics
of the barrels and the ethics of ethics of its apples. “Capitalism is the economic vehicle
through which entrepreneurship and enterprise can turn business opportunities into
corporate success”. “Although returns are usually in direct proportion to the degree of risk-
the higher the return, the higher the risk; the lower the return, the lower the risk- it is really
the successful businesses that, notwithstanding the exposure to risk, have the ability to
manage, control and minimize risk” (Hendrikse, 2015, p. 351). The characteristics of ethics
risk and processes that organisations can employ to anticipate and reduce risk are
discussed.
After studying this unit, you must be able:
• Evaluate the importance of risk management.
• Identify different types of risk and explain each of them
• Identify and explain different types of methods of ethics risk assessment
• Discuss ethics management strategy
press. Cape Town
13.2 Risk management
Risk is any factor that threatens the success of a business. According to Garratt (2003:194)
risk concerns the real, or possible, events that reduce the likelihood of reaching business
goals, and increase the probability of making losses. A business organisation must have
dedicated functions that deal exclusively with risk management. If risk is not managed, it can
give rise to reputational and financial costs. The King IV report asserts that directors must
take full responsibility for the governance of risk (IoDSA, 2016)
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13.3 Ethics risk
Ethics risk is any potential detrimental or beneficial outcome that is caused by unethical or
ethical beliefs, practices or behaviours. Ethics risk is an outcome that can destabilise the
“good” on the ethics definition triangle. It can destabilise the balance between the interests of
self and other. An organisation has to report comprehensively on its ethics performance. It
needs to show evidence through internal and external reporting that it has sufficiently
assessed its ethics risk. A business should not harm the interests of others. In order to
account for ethics risk, a business should estimate the ethical implications of its actions to all
its stakeholders. In order to reduce the impact of ethics risk, some organisations evaluate
their ethics risk regularly and methodically.
Some organisations assess their ethics risks because of the following reasons:
• Conformance to compliance requirements;
• Multiple bottom line reporting;
• Stock-exchange regulations;
• Business scandals that have occurred within the organisation or within the
competitors’ organisations;
• Demand by shareholders
• Past monetary losses
• Fear of being rejected by stakeholders
It is important for an organisation to evaluate the potential benefits associated with

assessing ethics risk prior to an organisation entering the process of ethics risk assessment.
The value of assessing ethics risk
When an organisation is informed about the types and magnitude of ethics threats and
opportunities it faces, it can use this information for the formulation of ethics management
strategies, creation of ethics management structures, development of ethics standards and
designing of ethics management systems. The assessment of ethics risk generates an
ethics risk profile for an organisation. The ethics risk assessment and the way risk must be
dealt with enable an organisation to position itself in relation to the current mode of
managing ethics. An organisation will have an indication of whether it is in the amoral,
survival, reactive, compliance, integrity or totally aligned modes of managing ethics. As soon
as the organisation acquires this knowledge, it is in a more informed position to reinforce its
ethics management efforts across the business organisation and select the most suitable
mode of managing ethics.
The presence of an exhaustive risk profile helps an organisation to assess the state of
current ethics management systems in terms of dealing with unethical behaviour or
promoting ethical behaviour. This may result in the appointment of ethics managers/ officers,
formation of ethics committee, restructuring and expansion of sections concerned with risk
management. The ethics risk assessment prompts the establishment of ethical behaviour
standards. The existing code of ethics and complimentary policies can address specific
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ethics risks. As part of ethics management process, the code of ethics and complimentary
policies must be implemented in order to yield maximum results (Rossouw,D and Van
Vuuren, L, 2017, pp. 268-269).
The nature of ethics risk assessment
The ethics risk assessment is a planned and structured survey process that is applied
regularly by use of multiple methods of evidence-based analysis with the intention of
enabling the organisation to identify its ethical challenges and possible responses to those
challenges. This process establishes the current and expected “goodness” within the
organisation. An organisation can determine its state of ethics and it also gives the
organisation the chance to examine its mix of right, wrong and grey areas.
An organisation must reflect on itself through engagement with its stakeholders and there is
codetermination of the organisation’s destiny by its primary stakeholders. The primary
stakeholders who have been consulted by the organisation support further ethics
management interventions. The consultation process brings awareness to the organisation.
Stakeholders feel recognised and involved, and this ushers ethics concepts and challenges
into the sphere of the organisation’s discourse. The ethics risk assessment is the first step
towards making ethics a reality for all its stakeholders. The knowledge of ethics risk prompts
the establishment of ethics management strategy and resultant systems for institutionalising
ethics management, which should be designed and set into motion to deal with ethics risk.
Identifying ethics risk: General considerations
The identification of ethics risk hover around answering the following questions ‘who’, ‘what’
and how? The governing bodies are responsible for enforcing the governance of ethics risk.
The governing bodies must ensure that ethics risk is assessed, managed and reported on.
The operational ethics committee usually handles the process of identifying ethics risk.
Primary stakeholders may not be absolutely free to express their opinions of the current
state of the ethics risk if the risk assessment process is conducted internally members of the
operational ethics committee. Therefore in order to get maximum cooperation from primary
stakeholders, it is advisable to use an independent external agency or consultancy to
conduct the risk assessment process. Internal stakeholders want assurance their names
remain anonymous and that the information they provide remain confidential.
The external consultancy can make use of their infrastructure for hosting web-based
surveys, data analysis and interpretation. When the feedback is given to the governing body
by the external principal consultant, it perceived generally to be more credible than when it is
received from an internal operational ethics committee.
Types of risk
The following are the four types of risk:
• “Internal risks;
• External exposure risks;
• Compliance risk and;
• Fraud” (Hendrikse, 2015, p. 352).
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• Ethics risk as both threat and opportunity
Referring to Garratt (2003:194), risk concerns the real, or possible, events that
reduce the likelihood of reaching business goals, and increase the probability of
making losses. It is evident that risk is perceived as negative but it often associated
with gain. The premise that risk taking is often associated with financial gain is at the
centre of entrepreneurship and capitalism. If ethics risk is perceived as negative, an
organisation must ask the questions, what can go ethically wrong? , what can affect
our stakeholders’ trust or estrange our stakeholders? The following ethics risks may
arise after analysing such questions: bribery, corruption, fraud, discrimination,
nepotism, harassment, disrespectful treatment, conflict of interest etc. This type of
approach may result in adopting approaches aimed at eliminating unethical
behaviours. This way ethical behaviour is enforced.
• Risk in beliefs, practices and behaviours
Beliefs, practices and behaviours stimulate risk by either promoting or impeding

ethical behaviour. The purpose of ethics risk assessment is to identify those beliefs,
practices and behaviours that the organisation wishes to reinforce (ethics
opportunities) and avoid (ethics risks). Beliefs, practices and behaviours may exist as
internal or external to the organisation. An external belief may be the attitude of
business people and government officials within countries with high levels of
corruption where everyone has his or her price. Employees (e.g. procurement
officials) of business organisations that do business in such a country are exposed
and vulnerable to bribery. An internal belief may be the organisation’s employees’
perception that the only way to get things done in a particular country is to make
provision for facilitation fees or bribes.
Ethics risk assessment process
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Figure 13. 1 Ethics risk assessment process
Trigger Request
Planning
Stakeholder engagement
Data gathering and analysis
Data integration
Ethics risk profile
Written report
Feedback
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A trigger prompts the ethics risk assessment. The ethics committee directs the initiation of
the risk assessment. It gives the mandate to the ethics office or operational ethics committee
to implement the ethics risk assessment process. The ethics risk assessment process must
carefully planned, structured and project managed. By engaging stakeholders information on
opportunities and threats can be gathered and analysed. Stakeholder engagement is a
proactive way of the organisation entering into a constructive dialogue with its stakeholders.
An exhaustive stakeholder engagement strategy comprises three relatively distinct phases
namely stakeholder identification, planning for stakeholder interaction and implementation.
Methodology of ethics risk assessment
The following factors affect the choice of methods for carrying out ethics risk assessment:
• The level of seriousness of an organisation with reference to dealing with ethical

issues;
• The level of commitment, time and resources available to identify risk;
• The size of the organisation;
• The diversity of the organisational staff, products, processes and markets;
• The number of priority stakeholders that have to be surveyed;
• The complexity of the stakeholders’ expectations;
• The likely sensitivity of information that may be gathered.
The methods for risk assessment can be widely classified as qualitative and quantitative
data gathering processes.
Qualitative data gathering and analysis
• Qualitative interviewing
• Personal interviews
• Group interviews
• Document analysis
• Benchmarking
• Appreciative inquiry
Quantitative data gathering and analysis
Ethics risk profile
When the above methods have been applied, the information is gathered, coded, integrated
and analysed. Findings are drawn up and reports on them are generated and presented
together with recommendations to the governing body. These findings must also be
distributed to other stakeholders for comments and attract recommendations for
adjustments. A final report that includes comments is generated and an ethics risk profile is
generated. The following topics may be included in the ethics risk profile:
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• The organisation’s state of ethics management (the five modes of ethics

management);
• The appreciation and status of ethical values in the organisation;
• The strength of the organisational ethical culture;
• The code of ethics status;
• The state of ethics-related stake-holder engagement;
• The level of stakeholder confidence within the organisation;
• Ethics risks (threats);
• Ethics opportunities;
• Leadership commitment to ethics;
• The level of the effectiveness of the current ethics management strategies, structures
and systems;
• Additional interventions that may be required.
Ethics risks and the organisational risk register
Risk management and ethics risk management may be perceived as link-up interventions
that can be designed and implemented in an integrated manner. Ethics risk ownership may
be apportioned proportionally to the ethics risk function and ethics function respectively.
Ethics risk must be integrated into the organisation’s risk register.
Ethics has to be strategically integrated into the existing business processes of the
organisation. The risk managers are responsible for all risks hence must partner with ethics
office. Risk managers enjoy the respect and cooperation of all their colleagues and they
report to the audit committee of the governing body. Through the joint effort of the risk
manager and the ethics officer, ethics risk register must be compiled after conducting ethics
risk assessment process. This approach ensures that ethics risks will be included within the
organisation-wide risk management framework.
The risk manager enables the identification of ethics risk and develops an ethics risk
register. The risk owners are usually line manager and are identified according to issues that
are highlighted on the risk assessment and these will be communicated to them. Action
plans will be developed and timelines are allocated.
Ethics risk and controls
All companies need to develop their own unique risk strategy and will typically include the
following:
• “The establishment of a risk management framework to manage and monitor risk;
• The establishment of a risk management structure and the appointment of a risk

management executive, including the use of outside agencies to assist in risk
analysis;
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• The development of a risk profile for each business division or cluster;
• The evaluation of each risk exposure in terms financial exposure;
• The development of a risk minimizing strategy and action programme” (Hendrikse,

2015, pp. 354-355).
Moody’s credit rating
“In the course of the rating process, a Moody’s analyst:
• Gathers information sufficient to evaluate risk to investors who might own or buy a
given security,
• Develops a conclusion in committee on the appropriate rating,
• Monitors the security on an ongoing basis to determine whether the rating should be
changed,
• Informs the market place of Moody’s actions” (Hendrikse, 2015, p. 360).
13.4 Ethics management strategy
The selection of a suitable strategy to manage ethics risk depends on whether the
organisation needs to protect the organisation from ethical failures or whether the intention is
to benefit from good ethical performance. Efforts to reduce ethics risks will not result in the
sustenance of ethical behaviour. An ethical way of thinking, behaving and carrying out
activities needs to be cultivated. The long-term commitment to ethics must be embedded in
the vision, mission and identity of the organisation. It is the governing body’s responsibility to
decide on suitable strategy for managing the ethics performance of the organisation. The
selected ethics strategy gives the broad outline of the focus areas and activities that the
organisation should embark on to address risks and build an ethical culture. The
development of the statement of strategic ethical intent marks the commencement of
strategy formulation
The strategy should be translated into an ethics management plan. The plan contains
measurable interventions, identification of organisational functional areas responsible for the
implementation of the interventions, target dates for the completion of interventions and the
financial resources needed to implement the strategy.
Table 13.1Ethics focus areas
Strategic focal area Description Objective
Leadership for an ethical Obtain commitment and To attain the status of having
culture action by leadership to the a well developed ethical
establishment and culture within three years
maintenance of a sustainable
ethical culture.
Sustainable awareness/ Continuously communicate To design and implement a

on ethics matters to internal three year ethics
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communication and external stakeholders. communication strategy.
Ethics risk management Manage ethics opportunities To prioritise risks, design and
and risks that emanated from implement risk mitigation
the latest ethics risk interventions.
assessment
Recommended case studies
//www.cpaaustralia.com.au/documents/Corporate-governance-case-studies.pdf
on page 184 of the website.
Reading Activity
Study table 21.3 “ converting an ethics strategy into an ethics management plan” on page
284 of the prescribed textbook.
Comments and Discussion on Reading Activity
Do you think that converting ethics strategy into an ethics management plan is necessary?
Substantiate your answer.
Think Point and comments
Refer to Figure 21.3 Ethics risk: Beliefs, practices and behaviours on page 272 of the
prescribed textbook. Give examples of ethics risks that need to be affirmed and avoided.
Self-assessment
Define risk management in your own words.
Case study
//www.cpaaustralia.com.au/documents/Corporate-governance-case-studies.pdf
Found on page 184
Reading Activity
Refer to ‘Risk control: checklist of risk control checks and balances’ on page 355 of the
prescribed textbook. This will further your understanding of risk management.
Comments and discussion on reading activity
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The best way to get a grasp on the reading would be to develop a flow chart so that you can
see the sequential nature of the process.
Think point and comments
Refer to ‘Global credit reporting’ on pages 356-357 of the prescribed textbook. Pay close
attention to the rating methodology.
Self-assessment
What are the steps in the risk management process?
13.5 Conclusion
Risk is inevitable. Many success stories occur when companies have taken risks. Some
have not been so lucky. The only way to mitigate risk is to be prepared to take them;
calculated risks.
I. Discuss the ethics risk assessment process
II. Evaluate the importance of risk management.
III. Identify different types of risk and explain each of them
IV. Identify and explain different types of methods of ethics risk assessment
V. Discuss ethics management strategy
References
Corporate Governance Case Studies. (2012). 1st ed. [pdf] Singapore City: NUS Business
School, p.184. Available at: https://www.cpaaustralia.com.au/documents/Corporate-
governance-case-studies.pdf [Accessed 19 Dec. 2016].
Hendrikse, J. and Hendrikse, L. (2015). Corporate governance handbook: Principles and

Practice. 2nd ed. Cape Town, South Africa: Juta.
Roussow D, and van Vuuren .L.( 2017) Business Ethics. Sixth Edition: Oxford press. Cape
Town
Valsamakis, AC. ,Vivian, RW and du Toit, GS.(2016) Risk Management. 4th ed. Cape Town:
Pearson.
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STUDY UNIT 14: CODES OF ETHICS
14.1 Introduction
14.2 The prominence of codes of ethics
14.3 What is code of ethics?
14.4 Purpose of a code
14.5 The process of code development
14.6 The format of the code
14.7 The content of the code
14.8 The tone of the code
14.9 The implementation of the code
14.10 Limitations of codes of ethics
14.1 Introduction
Some of the most important aspects that need to be taken into consideration in designing or
reviewing a code of ethics are discussed in this study unit. In this study unit, the reasons for
the recent upsurge in the number of corporate codes are highlighted. The purpose of the
code, process of code development, the format of a code, the content of a code,
implementation of the code and limitations of code of ethics are discussed in this unit.
• Understand what code of ethics is?
• Explain why code is important
• Explain the process of code development
• Describe format of code ethics
• Explain the content of the CODE, Tone of The CODE
• Understand how to implement the CODE
• Understand the limitations to codes of ethics
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press. Cape Town
14.2 The prominence of codes of ethics
The following are three of the main important reasons for the drastic increase in the number
of corporate codes:
• Corporate governance reform
• Change in organisational structure
• Global impact of information technology and communication technology
Corporate governance reform
An attempt to restore trust in business is one of the reasons for this move of corporate
governance reform. The ethics of business is central to corporate governance reform. The
governance of corporate ethics and codes of ethics are crucial to establishing and
maintaining high standards of corporate ethics. Within South African context, the King
reports recommend that companies should have a code of ethics as a central part of their
ethics management programme.
Organisational structure
Most organisations have transformed from hierarchical organisational structures to flatter

organisational structures with project teams, adaptable networks, flexible and service
schedules. Bureaucratic organisations have standard processes and procedures. They are
inflexible and find it difficult to cope with the needs and expectations of dynamic markets.
The shift from hierarchical structures to flatter came at the cost of losing central
organisational control. Control and focus can be attained when organisational members
agree and conform to a set of shared values. Code of ethics is a mechanism through which
control can be achieved when organisational members comply with the standards articulated
in it.
Information and communication technology
The drastic growth in information and communication technology (ICT) has increased, and
freed up the flow of information. The availability and affordability of ICT make it easy for the
impact of the corporate activity to be communicated to the global society. Corporations are
now under the public scrutiny and their irresponsible behaviours can now be reported easily
by affected parties. The corporations are now more sensitive to reputational risk than before.
Codes of ethics are now popular as a tool which is being adopted to reduce reputational risk.
Compliance with codes of ethics ensures that ethical behaviour is promoted within
organisations.
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14.3 What is code of ethics?
It is a document or agreement that states morally acceptable behavior within an

organization. The code of ethics prescribes the moral standards or guidelines that need to
be respected by all members of an organization in their decisions and actions.
14.4 Purpose of a code
The purpose of the code of ethics must be determined when designing or revising it. The
code of ethics can serve a variety of purposes in an organization. The variety of purposes
that a code can serve can be divided into the following:
• A code of ethics for internal purposes
A code of ethics can be formulated to serve at least the following internal

organisational goals:
➢ It states conduct and practices that are unacceptable in the organisation

hence deters those unethical practices.
➢ It stimulates ethical behaviour by stating ethical values and standards that all
members of the organisation are expected to conform to.
➢ It provides guidelines on dealing with and deciding on ethical issues that

organisational members are likely to experience.
➢ It forges a process of cultural change in an organisation by rallying staff

around core ethical values.
➢ It indicates a change leader inclination towards ethics.
➢ It raises the morale of an organisation and sends a message to organisational

members that management depend on them and trust them.
• A code of ethics for external purposes
A code of ethics can be developed to give guidance to staff, satisfy or calm down
external stakeholders of the organisation. Code of ethics can be directed to external
stakeholders only. The following may be the purposes of the code of ethics for
external stakeholders:
➢ It communicates to the external stakeholders that the organisation can be

trusted.
➢ It improves the image of the organisation amongst its external stakeholders.
➢ It calms down external stakeholders like special interest groups or pressure

groups who may be concerned about certain organisational activities.
➢ It highlights the adoption of standards that would satisfy the expectations of

regulators.
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➢ It establishes standards of behaviour that the business organisation expects

from its up-stream, down-stream value chain and industry peers.
➢ It promotes compliance with legal standards and protects the company from
potential lawsuits.
14.5The process of code development
This determines what the appropriate process of code development will be. The process of
code development is vital to the ultimate success of the code. The process of developing a
code will allow for the building of support for the ethical values, standards or guidelines that
will be written.
The process of code development will be geared towards determine the standards of
behaviour that management deems appropriate for the organization.
14.6 The format of the code
The code of ethics can range from short, concise single page documents to lengthy detailed
documents. A code of ethics can take one or two basic formats. It can either take the format
of an inspirational code or directional code. Each of these formats has benefits and
limitations.
• Aspirational codes
An aspirational code takes the form of a short document that states the ethical
values, principles or standards that provide guidance to an organisation in its
interaction with its internal and external stakeholders. The following are some of the
advantages of the aspirational code of ethics:
➢ Recallability- it is a short and concise document which is easy to recall.
➢ Discretion- it communicates respect for the moral maturity of people, and

gives them the discretion to apply the expressive ethical standards in their
specific work environments.
➢ General applicability- it applied to all situations.
The following are the limitations of an aspirational code:
➢ Vagueness- it provides a general standard of ethics and does not give

specific guidance on what is expected from organisational members in
specific situations. It is too vague and general.
➢ Enforceability- it is general when it comes to practices and behaviours that

are ethically acceptable. This makes it difficult to enforce the code.
• Directional codes
They are sometimes called codes of conduct. It is a more detailed document that
provides specific guidelines about what is expected from organisational members in
certain situations. A directional code has the following strengths:
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➢ Specificity- it is clear, instructive and gives guidance to company employees

on how they should behave. There is very little room for misinterpretation.
➢ The code is quite specific and it is easy to identify misconduct. The code is
enforceable.
➢ The code can identify specific sanctions that can be levied against specific
transgressions of it.
The following are some of the weaknesses of the code;
➢ Recallability- the code is lengthy and detailed. It is difficult to recall or the

detail contained in it.
➢ Discretion- the code is very specific and it undermines personal discretion

and ethical responsibility.
Table 14. 1 Aspirational vs Directional Codes
Aspirational code Directional code
Also known as Code of ethics Code of conduct
Ethics charter Code of behaviour
Primary focus Values Conduct
Approach Proactive Reactive
Nature ‘ Spirit of the law’ ‘Letter of the law’
Tone Relational and Informational and

transformational instructional
Disciplinary power Does not have a punitive May be used in disciplinary

intent hearing
Ownership Symbolically the code is Code is owned by a specific

owned by all employees function in the organisation
for compliance purposes.
Number Usually only one per An organisation could have

organisation several codes for interactions
with different stakeholders
14.7 The content of the code
• Rationale for the code
It gives the reasons for the existence of the code, details why the code was
developed and the purpose the code is to serve within the organisation. It explains
the benefits the organisation and its members will realise by adhering to the code.
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• Ethical values or standards
Ethical norms which will guide organisational behaviours are provided. The ethical
backbone of any code are provided by the ethical values, principles or standards.
• Guidelines for conduct
The guidelines for a code are prone to be found in directional codes. They give
instructions on specific practices. The guidelines spell out what is ethically
acceptable or unacceptable within the organisation.
• Guidelines for ethical decision making
A code may have guidance on how values, principles and standards can be applied.
• Sanctions
Consequences of violating the code can also be stipulated in the code. With
reference to aspirational codes, sanctions are likely to be explained in a general way.
Disciplinary procedures are also explained.
• References to resources.
If additional guidance is needed, readers can be referred to specific supporting

resources by the codes. Resources may be in the form of consultants, documents or
policies. Consultants may give advice on the implementation of the code.
14.8 The tone of the code
The spirit of the message that the code is conveying is important. The tone of a code of
ethics can have a marked influence on its effectiveness. In general a code of ethics that is
intended to stamp out ethical malpractice by imposing sanctions will have a negative and
prohibiting tone. A code intended to inspire members of an organization to live up to ethical
values will probably have a positive and supportive tone.
14.9 Implementation of the code
Proper considerations need to be given to the implementations of the code of ethics. Without
this the code will remain on paper. Plans for the implementation should not be postponed
until after its completion. Communication of the code does not need to wait until it it’s
finished, but should start long before that. Once finalized the code of ethics needs to be
communicated regularly and in different ways so that it is reinforced over and over again.
14.10 Limitations of codes of ethics
A well-developed code of ethics can be a powerful instrument for preventing ethical mal
practice as well as for raising standards of moral behaviour in an organization.
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The following are limitations of codes of ethics:
• Codes of ethics might hinder the development of moral autonomy
• One needs skills to use code of ethics
• Codes of ethics may silence other views
• Codes of ethics can be counterproductive.
14.11 Conclusion
Code of ethics can be a very effective tool that promotes ethical behaviour and deters
unethical practices within organisations. The effectiveness and relevance of the code of
ethics cannot be guaranteed. Codes of ethics have limitations and need to be complimented
by other measures.
I. Define code of ethics is?
II. Discuss the importance of the code of ethics.
III. Explain the process of code development
IV. Describe format of code ethics
V. Explain the content of the CODE, Tone of The CODE
VI. Explain how the CODE is implemented
VII. Discuss the limitations to codes of ethics
Reference

IoDSA.
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Bibliography
Corporate Governance Case Studies. (2012). 1st ed. [pdf] Singapore City: NUS Business
School, p.184. Available at: https://www.cpaaustralia.com.au/documents/Corporate-
governance-case-studies.pdf [Accessed 19 Dec. 2016].
evidence and implications, Academic of management review,20(1): 65-91.

Management. 10th ed: Oxford University press.
Goodpaster,K.F.(1992). Encyclopedia of Ethics. New York: Garland.
Hendrikse, J. and Hendrikse, L. (2015). Corporate governance handbook: Principles and

Practice. 2nd ed. Cape Town, South Africa: Juta.
IoDSA.
Edition. Pretoria: Van Schaik Publishers.
Roussow D, and van Vuuren .L.( 2017) Business Ethics. Sixth Edition: Oxford press. Cape
Town.
Valsamakis, AC. ,Vivian, RW and du Toit, GS.(2016) Risk Management. 4th ed. Pearson.
Cape Town.
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Business Ethics - Study Guide

Business Ethics (Damelin)

Studocu is not sponsored or endorsed by any college or university

B Com in Marketing and Business Management

Module: Business Ethics

Module Code: BET 320

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7.6 Reference .................................................................................................................................... 42

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11.2 Ethical neglect ........................................................................................................................... 60

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14.4 Purpose of a code ..................................................................................................................... 82

Name of programme Bachelor of Commerce Marketing and Business Management

Type of programme Contact (Full-Time & Part Time)

Name of module Business Ethics

Notional hours 150

Module purpose By the end of this module, students will demonstrate an

By the end of this module, students will be able to:

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and encouraging whistle blowing

Icons Additional information

Reading in prescribed textbook

Study Group Discussion

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STUDY UNIT 1: KEY CONCEPTS AND IMPORTANT DISTINCTIONS IN ETHICS

1.4 Business ethics

1.5 Right, wrong, and dilemmas

1.6 Ethics and the law

1.7 Ethics and values

1.9 Personal and organisational ethics

1.10 Descriptive versus prescriptive ethics - and other Ethical Confusions

After studying this unit you should be able to:

• Understand what business really means

• Discuss the importance of ethics

• Define business ethics

• Analyse the right, wrong, and dilemmas in Business ethics

• Evaluate the importance of ethics and Law

• Discuss the importance of values and integrity

Reading material in prescribed text book

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type of an activity where individuals or organisations voluntarily enter into transactions of

Organisational ethics refers to the role played by organisations in developing structures,

Figure 1. 1: Ethics: the central concepts

Source: (Rossouw,D and Van Vuuren, L, 2017, p. 5)

What is business ethics?

It has become commonplace in business ethics to distinguish 3 broad dimensions of

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1.4 Business ethics

1.5 Right, wrong, and dilemmas

When it comes to ethical behaviour it is important to distinguish between what is ethically

1.6 Ethics and the law

1.7 Ethics and values

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• Ethical values: refers to respect, transparency, fairness etc. For an organisation to

Integrity refers specifically to human character. A person is regarded as someone with

1.9 Personal and organisational ethics

Employees with questionable character or good character can be influenced to behave

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1.10 De-scriptive versus pre-scriptive ethics - and other Ethical Confusions

• The lack of definition of the terms used.