Introduction to Business

3rd Week
Ethics and Values

Dr.Erdem ERCIYES
 Barış Manco
(The Dining Table of Prophet Abraham)

Please evaluate this song from a moral point of view?

 Who is more successful?

Heinrich Harrer Pema Lhaki Peter Aufschnaiter

 Ethics Morals Values
Etymology From Greek word From Latin word From Latin word
ēthos "moral moralis "proper valere "be strong,
character" behavior of a be well
person in society
Definition the science of characterized by principles or
morals. right behavior standards of
behaviour. Stimuli
of our thinking.
Examples Honesty, Loyalty, Do not do Protecting poor
Respect etc. plagiarism, telling people, showing
truth respect to older
people
What does business ethics mean?
 Business ethics means acting within business for
nonbusiness reasons in business environment (Stark, 1993).
BUSINESS ENVIRONMENT

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 INTERNAL STAKEHOLDERS
Internal stakeholders
• Consist of employees, owners, and the board of directors.
Owners
• Consist of all those who can claim the organization as
their legal property.
Board of directors
• Members elected by the stockholders to see that the
company is being run according to their interests.
 EXTERNAL STAKEHOLDERS
External stakeholders
• People or groups in the organization’s external
environment that are affected by it.
The task environment
• Consists of 10 groups that present an organization with
daily tasks to handle.
The general environment
• Refers to the macroenvironment, such as economic,
technological, and sociocultural.
 The TASK ENVIRONMENT (1 of 3)
Customers
• Those who pay to use an organization’s goods or services.
Competitors
• People or organizations that compete for customers or
service.
Supplier
• Provides raw materials, services, equipment, labor, or
energy to other organizations.
Distributor
• A person or organization that helps another organization
sell its goods and services to customer.
 The TASK ENVIRONMENT (2 of 3)
Strategic allies
• The relationship of two organizations who join forces to
achieve advantages neither can perform as well alone.
Employee organizations
• Labor unions and professional associations.
Local communities
• May institute clawbacks: rescinding tax breaks when
firms don’t deliver promised jobs.
 The TASK ENVIRONMENT (3 of 3)
Financial institutions
• Banks, savings and loans, and credit unions.
• May engage in crowdfunding, raising money for a project
by obtaining many small amounts of money from many
people (the crowd).
Government regulators
• Regulatory agencies that establish ground rules under
which organizations may operate.
Special-interest groups
• Groups whose members try to influence specific issues.
 The GENERAL ENVIRONMENT (1 of 2)
Economic forces
• Consist of the general economic conditions and trends:
unemployment, inflation, interest rates, economic
growth.
Technological forces
• New developments in methods for transforming
resources into goods and services.
Sociocultural forces
• Influences and trends originating in a country’s, a
society’s, or a culture’s human relationships and values
that may affect an organization.
 The GENERAL ENVIRONMENT (2 of 2)
Demographic forces
• Influences on an organization arising from changes in the
characteristics of a population, such as age, gender, or
ethnic origin.
Political-Legal forces
• Changes in the way politics shape laws and laws shape
the opportunities for and threats to an organization.
International forces
• Changes in the economic, political, legal, and
technological global system that may affect an
organization.
 The ETHICAL RESPONSIBILITIES REQUIRED of
YOU as a MANAGER

Ethical dilemma
• Situation in which you have to decide whether to pursue
a course of action that may benefit you or your
organization but that is unethical or even illegal.
 The ETHICAL RESPONSIBILITIES REQUIRED of
YOU as a MANAGER

• According to a recent study, solving ethical

dilemmas is an important skill. An investigation of
400 senior executives and 455 college students
revealed that 62% of the students believed that
they were well prepared to deal with ethical
judgments, whereas only 30% of executives see
students as prepared.
• Volkswagen Fails the Test. What are the
fundamental ethical dilemma faced by
Volkswagen’s managers. How well do they think
Volkswagen is managing the balance between its
economic and its social performance? What
could it be doing better?
 DEFINING ETHICS and VALUES
• People rely on values, which are relatively
permanent beliefs that may influence their ethical
behavior. This means that some behavior may be
viewed as ethical by some, but unethical by others.
• Why some doctors may believe that their
attendance at a pharmaceutical presentation (with
a top-dollar supper) might be a useful educational
experience, while other doctors may believe that it
is a bribe? Defining ethical behavior depends a lot
on a person’s value system.
 FIVE MOST COMMON
UNETHICAL BEHAVIORS at WORK
1. Misusing company time.
2. Abusive behavior.
3. Employee theft.
4. Workplace cheating.
5. Violating corporate Internet policies.

A report from the Ethics Resource Center revealed that 41% of

workers in the US are likely to have witnessed some form of ethical
misconduct at work.
Most of this behavior was committed by someone with managerial
authority.
 CONFLICTING VALUES
Organizations may have two value systems that
conflict.
1. The value system stressing financial
performance.
2. The value system stressing cohesion and
solidarity in employee relationships.

How a value system stressing financial performance

could conflict with a value system stressing cohesion
and solidarity in employee relationships?
 FOUR APPROACHES to RESOLVING ETHICAL DILEMMAS (1 of 4)

The utilitarian approach

• Guided by what will result in the greatest good for the
greatest number of people.
• Often associated with financial performance.

Example: Firing thousands Do you believe that decisions

of employees may improve
the bottom line and provide
immediate benefits for
stockholders. However, this
action may damage
workforce morale and lead
to the loss of employees
with experience and skills.
should be guided by what
will result in the greatest
good for the greatest
number of people? In what
ways can this be problematic
for an organization to adhere
to?
FOUR APPROACHES to DECIDING ETHICAL DILEMMAS (2 of 4)

The individual approach

• Guided by what will result in the individual’s best long-
term interest, which ultimately is in everyone’s self-
interest.
• Assumes that people will act ethically in the short run to
avoid harm in the long run.
• Flaw is one person’s short-term gain may not be good for
everyone in the long term.
FOUR APPROACHES to DECIDING ETHICAL DILEMMAS (3 of 4)

The moral-rights approach

• Guided by respect for the fundamental rights of human
beings: the right to life, liberty, privacy, health, safety, and
due process.

Example: The difficulty is when rights

are in conflict, such as employer and
employee rights. Should employees on
the job have a guarantee of privacy? Is
it legal for employers to listen to
business phone calls and monitor all
non-spoken personal communications.
FOUR APPROACHES to DECIDING ETHICAL DILEMMAS (4 of 4)

The justice approach

• Guided by respect for impartial standards of fairness and
equity.
• Policies administered impartially and fairly, regardless of
gender, age, sexual orientation, and the like.

Example: Fairness can often be an issue. Employees

may be resentful when a corporation’s CEO is paid a
salary and bonuses worth hundreds of times more
than what they receive, even when the company
performs poorly.
 QUESTION
Dorukhan, a manager at State University, is deciding
how to set up a procedure for registering online that
gives students fair access to courses. Pat is engaged in
the ______ approach.
A. utilitarian
B. individual
C. moral-rights
D. justice
 QUESTION
Answer: D. justice approach.

Dorukhan is guided by respect for impartial standards

of fairness and equity.
 Question
Why should managers be ethical?
 The SARBANES–OXLEY REFORM ACT
An array of scandals in the early 21st century led to the passing of the Sarbanes-
Oxley Act of 2002, sometimes called SarbOx or SOX.
White-collar crime
• Illegal trading, Ponzi schemes, and other white-collar crimes dominated the
headlines in the early 21st century.
Sarbanes-Oxley Act of 2002
• Established requirements for proper financial record keeping for public
companies.
• A company’s CEO and CFO to personally certify the organization’s financial
reports, prohibits them from taking personal loans and lines of credit, and
makes them reimburse the organization for bonuses and stock options
when required by restatement of corporate profits.
• It also requires the company to have established procedures and
guidelines for audit committees.
• Penalties of as much as 25 years in prison for noncompliance.
 HOW DO PEOPLE LEARN ETHICS?
Kohlberg’s three levels of personal moral
development:
• Level 1, preconventional: follows rules to avoid
unpleasant consequences.
• Level 2, conventional: follows expectations of
others (most managers are at this level).
• Level 3, postconventional: guided by internal
values, they lead by example.
HOW ORGANIZATIONS CAN PROMOTE ETHICS
1. Create a strong ethical climate through the policies,
procedures, and practices that are used on a daily basis.

2. Screen prospective employees through resume and

reference checks or use personality or integrity testing
to identify potentially dishonest people.

3. Institute ethics codes and training programs. A code of

ethics is a written set of ethical guidelines on how to
treat customers, suppliers, competitors and other
stakeholders. According to the Society for Human
Resource Management Weekly Survey, 32% of human
resource professionals indicated that their organizations
HOW ORGANIZATIONS CAN PROMOTE ETHICS
4. Reward ethical behavior: Protecting whistle-blowers
who report organizational misconduct. A whistle-blower
is an employee, or even an outside consultant, who
reports organizational misconduct to the public, such as
health and safety matters, waste, and corruption.
 The SOCIAL RESPONSIBILITIES REQUIRED of
YOU as a MANAGER
If ethical responsibility is about being a good individual
citizen, social responsibility is about being a good
organizational citizen, taking on organizational citizenship
behaviors that exceed employees' job descriptions, such as
altruism, courtesy, sportsmanship, conscientiousness, and
civic virtue.
Social responsibility
• Manager’s duty to take actions that will benefit the interests
of society as well as of the organization.
Corporate social responsibility
• Notion that corporations are expected to go above and
beyond following the law and making a profit.
 CARROLL’S GLOBAL CORPORATE SOCIAL
RESPONSIBILITY PYRAMID
According to Archie B. Carroll,
corporate social responsibility
rests at the top of a pyramid of a
corporation’s obligations, right
up there with economic, legal,
and ethical obligations. Some
people might hold that a
company’s first and only duty is
to make a profit. However,
Carroll suggests the
responsibilities of an
organization in the global
economy should take the
following priorities, with profit
being the most fundamental
(base of the pyramid) and
corporate citizenship at the top.

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 TYPES of SOCIAL RESPONSIBILITY (1 of 2)
Sustainability
• Economic development that
meets the needs of the
present without
compromising the ability of
future generations to meet
their own needs.
Natural Capital
• The value of natural
resources, such as topsoil, air,
water, and genetic diversity,
which humans depend on.
• 2016 poll: 70% of Americans
believe climate change
causes extreme weather, a
rise in sea level.
 TYPES of SOCIAL RESPONSIBILITY (2 of 2)
Philanthropy
• Making charitable donations to benefit humankind.

• “He who dies rich dies thus disgraced,” Andrew Carnegie.

• 136 billionaires have joined Bill and Melinda Gates in the

Giving Pledge; a commitment to dedicate a majority of
their wealth to philanthropy.
 HOW DOES BEING GOOD PAY OFF?
1. According to one survey, 88% of the respondents said they were more apt to buy from
companies that are socially responsible than from companies that are not.
2. Employees reported higher levels of organizational commitment, job satisfaction, trust
in the leader, and motivation when their managers displayed ethical leadership.
3. Employees were more willing to display citizenship behavior and to produce higher
task performance when their managers exhibited ethical leadership.
4. Studies suggest that profitability is enhanced by a reputation for honesty and
corporate citizenship.

Participants OUTCOMES RESEARCH FINDINGS

Employees • Millennials more likely to stay with a company when
management is committed to helping society.
Interpersonal • Employees feel confident in doing the right thing when faced
relationships with an ethical situation when the organization has an effective
ethics and compliance culture.
Customers • Believe it’s important to purchase from socially responsible
companies.
Profits • Companies ranked as “America’s Best Corporate Citizens” by
Forbes, outperform their competition by 1 to 4 percentage
points.
 CORPORATE GOVERNANCE
How can I trust a company is doing the right thing?
• The company is governed so that the interests of
corporate owners and other stakeholders are protected.
• More attention paid to strengthening corporate
governance so that directors are clearly separated in
their authority from the CEO.
 References
• Ebert, R.J. And Griffin, R.W. (2020). Business Essentials, 12th
Edition, Harlow: Pearson.
• Kinicki, W. and Williams, B. (2019). Management- A Practical
Introduction, 9th Edition, New York: McGraw-Hill Higher
Education.
• Stark, A. (1993). What’s the Matter with Business Ethics? Harvard
Business Review May-June.