Ethics: An Introduction

Lecture 1
Source: Crane et al.
Business Ethics (5th Edition)

Zuni Barokah
FEB UGM 2023
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 Introducing
Business Ethics

Lecture 1
Source: Crane et al.
Business Ethics (5th Edition)
Overview

• What is business ethics?

• Why is business ethics important?
• Globalization: a key context for business ethics?
• Sustainability: a key goal for business ethics?
 What is Ethics?
Meriam-Webster dictionary:
1. The discipline dealing with what is good and bad and with moral duty and obligation.
2. A set of moral principles: a theory or system of moral values.
3. The principles of conduct governing an individual or a group.
4. A guiding philosophy.
5. A consciousness of moral importance.
6. A set of moral issues or aspects.

Origin of ETHICS: Middle English ethik, from Middle French ethique, from Latin ethice, from
Greek ēthikē, from ēthikos

First Known Use: 14th century

What is business ethics?

Business ethics is the study of business

situations, activities, and decisions where
issues of right and wrong are addressed.

• Right or wrong from the moral perspective

• As opposed to: commercially, strategically, or financially
right or wrong.
Tingkatan Permasalahan Etika

• Sistemik—berupa pertanyaan-pertanyaan etika tentang

sistem sosial, politik, hukum atau sistem ekonomi dimana
perusahaan beroperasi.
• Korporasi—berupa pertanyaan-pertanyaan tentang kebijakan,
budaya, iklim kerja, dampak operasi serta tindakan-tindakan
yang diambil oleh sebuah perusahaan tertentu.
• Individu—berupa pertanyaan-pertanyaan etika tentang
keputusan-keputusan, perilaku, dan karakter dari individu
tertentu.
Ethics and the law

Ethics

grey
area

Law
Defining morality, ethics and ethical theory

• Morality is concerned with the norms, values and

beliefs embedded in social processes which define
right and wrong for an individual or a community.
• Ethics is concerned with the study of morality and the
application of reason to elucidate specific rules and
principles that determine right and wrong for any
given situation.
• These rules and principles are called ethical theories.
The relationship between morality, ethics
and ethical theory

Ethics … to
rationalizes produce …that can
morality … ethical be applied
theory … to any
Potential
Morality Ethics Ethical situation.
solutions to
theory ethical
problems
Why is business ethics important?

1. Power and influence of business in society

2. Potential to provide major contribution to society
3. Potential for businesses to inflict harm on individuals,
society and the environment
4. Increasing demands from stakeholders
5. Lack of business ethics education or training
6. Continued occurrence of ethical infractions
7. Businesses face a trust deficit
8. Evaluating different ways of managing business ethics
9. Interesting and rewarding
Ethical Issues in Different Industries

• Chemical industry – competitive practices,

environmental responsibility, health and safety and
human rights
• Information and mobile technology industry –
competitive practices, fair pricing, global production
methods, data protection, protection of consumer
from harmful materials and energy and CO2 usage
• Financial services – weak regulation, financial crime,
responsible lending, sales practices and consumer
protection, tax evasion and avoidance

Adapted from Schaefer (2013)

Life offers slippery slopes. Cheat just a little; you can fix it later. Cut a corner, stretch a truth, keep a
mouth shut. HBS Professor Max Bazerman talks about slippery slopes in his book The Power of
Noticing. A major fraud, can begin as a minor shortfall that a fund manager or auditor decides (or is
convinced) to hide. Future success will replenish the funds, no problem. But when future success
doesn’t come, the deceit grows harder to hide even as it gets more awful to admit.
(Chussils, 2016, Keep a List of Unethical Things You’ll Never Do (hbr.org)
 Differences across organizational types

Stakeholders Large Small Civil Society Public Sector

Corporations Businesses Organisations
Main priorities Financial integrity, Employee, Delivery of Rule of law,
in addressing employee/custom customer/commu mission to clients; conflict of interest;
ethical issues er issues nity issues legitimacy and accountability
accountability issues
issues

Approach to Formal, public Informal, Informal values Formal,

managing relations and/or relationship and based bureaucratic,
ethics systems-based trust based regulated
Responsible Shareholders and Owners and Donors and General public,
and/or other family members clients higher level
accountable to stakeholders government
organisations

Main Shareholder Lack of Lack of resources Inertia, lack of

constraints orientation; size resources, and formal transparency
and complexity including time training
Globalization: a key context for
business ethics?
What is globalization?

• According to Scholte (2005) globalization is not:

• ‘internationalization’
• ‘liberalization’
• ‘universalization’
• ‘westernization’

• Globalization is: a process which diminishes the

necessity of a common and shared territorial basis for
social, economic, and political activities, processes, and
relations.
• ‘deterritorialization’
Relevance of globalization for business
ethics

• Cultural issues
• Legal issues
• Accountability issues

Globalization can affect all stakeholders of the

corporation
 Ethical impacts of globalization

Stakeholders Ethical impacts of globalization

Stakeholders Globalization provides potential for greater profitability, but also greater risks. Lack of regulation of capital
markets, leading to additional financial risks and instability.

Employees Corporations outsource production to developing countries in order to reduce costs in global marketplace -
this provides jobs but also raises the potential for exploitation of employees through poor working
conditions.

Consumers Global products provide social benefits to consumers across the globe, but may also meet protests about
cultural imperialism and westernization. Globalization can bring cheaper prices to customers, but
vulnerable consumers in developing countries may also face the possibility of exploitation by MNCs.

Suppliers & Suppliers in developing countries face regulation from MNCs through supply chain management. Small
scale indigenous competitors exposed to global players.
Competitors
Civil Society Global activities brings the company in direct interaction to local communities with possibility for erosion of
traditional life; globally active pressure groups emerge with aim to “police“ the corporation where
(e.g. NGO’s) governments are weak and tolerant.

Government & Globalization weakens governments and increases the corporate responsibility for jobs, welfare,
maintenance of ethical standards, etc. Globalization also confronts governments with corporations from
Regulation different cultural expectations about issues such as bribery, corruption, taxation, and philanthropy.
International perspectives on
business ethics
Different approaches to business ethics

• Who is responsible for ethical conduct in business?

• Who is the key actor in business ethics?
• What are the key ethical guidelines for ethical
behaviour?
• What are the key issues in business ethics?
• What is the most dominant stakeholder management
approach?
 Regional differences: Europe, North America,
Asia
Europe North America Asia
Who is responsible for Social control by the collective The Individual Top Management
ethical conduct in
business?

Who is the key actor in Government, trade unions, The Corporation Government, corporations
business ethics? corporate associations

What are the key Negotiated legal framework of Corporate codes of ethics Managerial discretion
guidelines for ethical business
behaviour?

What are the key issues Social issues in organizing the Misconduct and immorality in Corporate governance and
in business ethics? framework of business single decision situations accountability

What is the dominant Formalised multiple Focus on shareholder value Implicit multiple stakeholder
stakeholder stakeholder approach approach, benign
managerialism
management
approach?
Sustainability: a key goal for
business ethics?
Defining sustainability

• Sustainable development is development that meets

the needs of the present without compromising the
ability of future generations to meet their own needs.
(World Commission on Environment and
Development 1987)
• Sustainability refers to the long-term maintenance of
systems according to environmental, economic and
social considerations
The three components of sustainability

Economic Social

Environmental
Triple bottom line

• Coined by John Elkington

• Bottom line thinking suggests sustainability as a goal
• Three dimensions:
• Environmental perspectives
• Economic perspectives
• Social perspectives
Corporate commitments to sustainability

Company Sustainability Commitment/Policy Source

The Volkswagen Group The Volkswagen Group has made a commitment to sustainable, https://www.volkswagenag.c
transparent and responsible management. In line with the om/en/sustainability/policy.h
recommendations of the German Corporate Governance Code, we tml (2019)
practice Group-wide sustainability coordination and forward-looking
risk management and ensure a clear framework for the future-oriented
handling of environmental issues, responsibility towards our
employees and social engagement by our brands and in the various
regions.

Shell Sustainability at Shell means providing energy in a responsible https://www.shell.com/sustaina

manner, respecting people, their safety and the environment. bility/our-
approach/sustainability-at-
shell.html (2019)

Marks and Spencer's Plan A is our way to help build a sustainable future by being a https://corporate.marksandspe
business that enables our customers to have a positive impact on ncer.com/plan-a (2019)
wellbeing, communities and the planet through all that we do.

Alibaba Group At Alibaba, we believe acting in a socially responsible way is part of https://www.alibabagroup.com/
our business model. Since our founding, we have been highly en/about/sustainability (2019)
committed to supporting and participating in charitable and socially
responsible projects that align with our core values and mission, and
to establishing a technology-driven charitable ecosystem to extend the
benefits of our technological capabilities to the community at large.
Summary

• Definition of business ethics

• Business ethics is vital for business in contemporary
capitalism
• Global view is essential to understand ethical issues
• Different regions have distinctly different perspective
on business ethics issues
• Sustainability is an important goal for business ethics