BUSINESS ETHICS AND ETHICAL

DECISION MAKING
Lesson 1

Instructor: Kimberly Jane F. Launio

Objectives:
• To define & describe the importance of business
ethics.
• To understand the diverse and complex nature of
existing and emerging ethical issues.
• To discuss the individual factors that influence
ethical or unethical decisions.
• To explore the effect of organizational
relationships on ethical decision making.
• To evaluate the role of opportunity in ethical or
unethical decisions.
 “Most businesses are establishing
initiatives that include the
development and implementation of
ethics programs designed to deter
conduct that some stakeholders might
consider objectionable.”
 THE NATURE OF BUSINESS ETHICS
ETHICS- relates to choices & judgments about
acceptable standards of conduct that guide the
behavior of individuals and groups.
These standards require both organizations &
individuals to accept responsibility for their actions and
to comply with established principles & values.
Without a shared view of which values and
norms are appropriate and acceptable, companies may
fail to balance their desires for profits against the
wishes and needs of society.
 As businesses, we have a
responsibility to society. We also have an
extraordinary opportunity.
Society has developed rules-both legal
& implied-to guide companies in their
efforts to earn profits through means that
do not bring harm to individuals or to
society at large.
 BUSINESS ETHICS
- comprises the principles & standards
that guide the behavior of individuals and
groups in the world of business.
- it relates to rules, standards, and
moral principles of what is right or wrong
in specific situations.
 PRINCIPLES – specific & pervasive
boundaries for behavior that are universal
& absolute.
Ex. Freedom of speech, principles of
justice, & equal rights to civil liberties.
VALUES - are used to develop norms
that are socially enforced.
Ex. Integrity, Accountability, Trust
 It is vital to recognize that business ethics
goes beyond legal issues. Ethical business decisions
foster trust in business relationships, and trust is a
key factor in improving productivity and achieving
success in most organizations.
Some businesspeople choose to behave
ethically because of enlightened self-interest or the
expectation that “ethics pays”. They want to act
responsibly and assume that the public and
customers will reward the company for its ethical
actions.
 FOUNDATIONS OF BUSINESS ETHICS
Because all individuals and groups within a
company may not have embraced the same set of
values, there is always the possibility of ethical
conflict.
The legal ramifications of some issues and
situations may be obvious, but questionable
decisions and actions more often result in disputes
that must be resolved through some type of
negotiation or even litigation.
When ethical disputes wind up in court, the
costs and distractions associated with litigation can
be devastating to a business.
FOUNDATIONS OF BUSINESS ETHICS

“Codifying ethical standards

into meaningful policies that
spell out what is and is not
acceptable gives
businesspeople an opportunity
to reduce the probability of
behavior that could create legal
problems.”
 ETHICAL ISSUES IN BUSINESS
ETHICAL ISSUE – a problem, situation, or
opportunity requiring an individual, group, or
organization to choose among several actions
that must be evaluated as right or wrong, ethical
or unethical.
there are also issues related to business
decisions that harm consumers, (products that cause
obesity), or that encourage socially unacceptable
behavior in children (alcohol consumption).
Specific Types of Observed Misconduct
1. Abusive or Intimidating Behavior
-physical threats, false accusations,
annoying a coworker, profanity, insults, yelling,
harshness, and ignoring someone to being
unreasonable; and the meaning of these words
can differ by person.
It is difficult to assess and manage because
of diversity in culture and lifestyles.
Bullying is now considered a legal issue.
Specific Types of Observed Misconduct
2. Lying
- it relates to distorting the truth.
Three types:
2a. Joking without malice (white lie)
2b. Lying by commission – creating a perception or
belief by words that intentionally deceive the
receiver of the message. It is also an intentional
creation of “noise”.
2c. Lying by omission – intentionally not informing
the receiver of material facts. (Tobacco
manufacturers that do not allow negative research
results on cigars.
Specific Types of Observed Misconduct
3. Conflict of Interest
- when an individual must choose whether
to advance his or her own interests, those of his
or her organization, or those of some other
group.
4. Fraud
- any false communication that deceives,
manipulates, or conceals facts to create a false
impression and damage others.
Specific Types of Observed Misconduct
5. Accounting Fraud
- reporting a false and inaccurate financial
condition of the companies for which they work.
6. Marketing Fraud
- the intentional misrepresentation or
deceit during the process of creating,
distributing, promoting and pricing products.
Ex. Deceptive advertising, Puffery, Implied falsity
((2 subcategories: test prove (establishment
claims); bald assertions (non-establishment
claims)), Labeling issues
Specific Types of Observed Misconduct
7. Consumer fraud
- occurs when consumers attempt to
deceive businesses for their own gain.
Ex. Price-tag switching, item switching, lying to
obtain age-related or other discounts, and
taking advantage of generous return policies by
returning used items, especially clothing that
has been worn (with price tag still attached).
Specific Types of Observed Misconduct
8. Discrimination (race, gender)
Affirmative Action Program (AAP)
- programs that involve efforts to
recruit, hire, train, and promote qualified
individuals from groups that have traditionally
been discriminated against on the basis of race,
gender, or other characteristics.
 UNDERSTANDING THE ETHICAL
DECISION-MAKING PROCESS

Individual Factors

Organizational Ethical or Unethical

Relationships Decisions

Opportunity
I. INDIVIDUAL FACTORS

“If today’s students are tomorrow’s leaders,

there is likely to be a correlation between
acceptable behavior today and tomorrow,
adding to the argument that the leaders of
today must be prepared for the ethical risks
associated wit this downward trend.”
A. Moral Philosophies
- principles, or rules, that individuals apply
in deciding what is right or wrong.

Q: What is the difference between moral

philosophies and business ethics?
A: Moral philosophies are person-specific,
whereas business ethics is based on decisions in
groups or those made when carrying out tasks
to meet business objectives.
 Classification of Moral Philosophy
1. Consequentialism – a class of moral philosophy
that considers a decision right or acceptable if it
accomplishes a desired result (pleasure,
knowledge, career growth, the realization of
self-interest, or utility)
2 Important Consequentialist Philosophies:
2a. Egoism- a philosophy that defines right or
acceptable conduct in terms of the consequences for the
individual.
2b. Utilitarianism- concerned with seeking the
greatest good for the greatest number of people.
 Classification of Moral Philosophy
2. Ethical Formalism – a class of moral philosophy
that focuses on the rights of individuals and on the
intentions associated with a particular behavior
rather than on its consequences.

3. Justice Theory – relates to evaluation of fairness

or the disposition to deal with perceived injustices
of others.
Three Types of Justice:
1. Distributive Justice – evaluates the outcomes
or results of a business relationships.
2. Procedural Justice – assesses the processes
and activities employed to produce an
outcome or results. It is associated with
group cohesiveness and helping others
behaviors.
3. Interactional Justice – evaluates the
communication processes used in the
business relationship.
2 Possible Reasons of Using Different
Moral Philosophies:
a. In the business arena, some goals and
pressures for success differs from the goals and
pressures in a person’s life outside of work.

b. The corporate culture where they work.

B. Stage of Moral Development
1. The stage of punishment and obedience. An
individual defines right as literal obedience to rules
and authority and responds to rules in terms of the
physical power of those who determine such rules.
2. The stage of individual instrumental purpose &
exchange. An individual defines right as that which
serves his or her own needs.
3. The stage of mutual interpersonal
expectation, relationships, & conformity. An
individual emphasizes others over himself or herself.
B. Stage of Moral Development
4. The stage of social justice and conscience
maintenance. A person in this stage determines what is
right by considering duty to society as well as to other
specific people.
5. The stage of prior rights, social contract, or
utility. An individual is concerned with upholding the
basic rights, values, and legal contracts of society.
6. The stage of universal ethical principles. An
individual believes that there are inalienable rights that
are universal in nature & consequence. (Ex. Justice &
equality)
II. ORGANIZATIONAL RELATIONSHIPS

“The culture of the organization, as well as

superiors, peers, and subordinates, can
have a significant impact on the ethical
decision-making process.”
Organizational Culture
- also known as “ Corporate Culture”.
- a set of values, norms, and artifacts
shared by members or employees of an
organization.
- it answers the questions: “What is
important?”; “How do we treat each other?”;
and “How do we do things around here?”
Ethical Climate
- part of corporate culture that relates to
organization’s expectations about appropriate
conduct that focuses specifically on issues of
right and wrong.
Significant Others
- include superiors, peers, and
subordinates in the organization who influence
the ethical decision-making process.

Most experts agree that the chief executive officer

establishes the ethical tone for the entire firm. Lower-
level managers obtain their cues from top managers,
and they in turn impose some of their personal values
on the company.
III. OPPORTUNITY
- is a set of conditions that limit barriers or
provide rewards-financial gain, recognition,
promotion, or simply the good feeling from a job
well done!.