Topic 2 : BUSINESS ETHICS

Chapter Outlines
 DEFINITION OF BUSINESS ETHICS
 ETHICAL THEORIES
 IMPACT OF UNETHICAL BEHAVIOR IN
MARKET SYSTEM
 BUILDING TRUST WITH ETHICS
 THE LOST OF TRUST IN BUSINESS
 WHY BUSINESS NEED TRUST
 INTERGRATIVE SOCIAL CONTRACT
THEORY (ICST)
 Business Ethics
• Business ethics is a branch of ethics
that examines ethical rules and
principles within a commercial
context, the various morals or ethical
problems that can arise in a business
setting, and any special duties or
obligations that apply to persons
engaged in commerce.
 cont….Business Ethics

• It 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 its stakeholders.
 Ethical Theories
oNormative Ethics (Prescriptive Ethics)
• Provide moral guidance on how one
ought to act as to examine whether
the action is wrong or right, good or
bad.
• Eg.; to take care of our parents is an
obligation.

• (Key words: moral behaviour)

 Normative Ethics (Prescriptive Ethics)
3 moral theories:-
(1) The Virtue Theory of Aristotle
- moral is vital. Only people with good
character are able to do good.
(2) The Deontological Theory of Kant
- actions are judged right or wrong can be
determined by reason, and an individual has
a duty to act in accordance with the
principles (action).
(3) The Utilitarian Theory of Mill
- morality action should be judged by the consequences, not by action.
Meta-Ethics
• Talks about the nature of ethics
of its properties, attitudes,
judgments and reasoning.

• Eg.; “Why being nice to our

mother is good?”

• (Key words: moral reasoning)

Meta-Ethics
- Moral Dissensus.
- Ethical Relativism.
Moral Dissensus
-- Difference of opinion and decision making.
-- Understand the nature of moral dissensus
in term of human rituals – differences of
civilizations, cultures and moralities.
-- Eg:- people’s disagreement about abortion,
female circumcision, polygamy,
homosexuality.
Ethical Relativism
-The theory that holds that morality is
relative to the norms of one's culture. That is,
whether an action is right or wrong depends
on the moral norms of the society in which it
is practiced.

- Eg.:-The practice of slavery in pre-Civil war

U.S. society, or the practice of apartheid in
South Africa is wrong despite the beliefs of
those societies. // The treatment of the Jews
in Nazi society is morally reprehensible
regardless of the moral beliefs of Nazi
society.
 Impact of Unethical Behaviour in
the Market System

Unethical behaviour on market system are:

Coercion
Deceptive Information
Theft
Bribery
Coercion
-is the practice of forcing another party
to behave in an involuntary manner.

-eg.; A bank teller who hands over some

money from cash drawer to an armed
robber.

- eg.; to terminate/demote an employee

who is an aggravation to
management/company in some way.
Ignorance
- is a state of being unaware, which can lead to unwise acts.

- eg.; A manager who signs an overtime claim of an employee even

though the employee does not perform the overtime job in a proper
manner.
Deceptive Information
- an act to propagate information that

is not true.
- eg.; A mobile phone provider signing you up to a contract without telling
you that there is no coverage in your region.
- eg.; A shop that sells watches promoting that a watch was RM500 and is
now marked down to RM300, when the fact that it was never sold the watch
for RM500.
Theft
- eg.; A bank staff steals cash money from customer’s bank account for
personal use.
- eg.; An employee who swindles the company’s money thru forgery of
company’s cheque.
Class/Group Activity
Share your personal experience that
relates to unethical behavior in market
system.
 Building Trust With Ethics
- Trust – firm belief in the reliability.
- Ethics can promote trust in organizations.

Trust is a Social Phenomenon

-Human Interaction between two parties
“trustor” & “trustee” that influenced each
other.
-A “Trustor” places the trust & the Trustee
relies upon to respond favorably to the trust
invested on her/him.
Trust is a Process
- Not a single event.
-Trust is based on a history of interaction .
-Eg.; before deciding to do investment, I
have to calculate the risk at all angles,
whether or not to invest.

Trust can be weak or strong

-When a trustee acts in a way that affirms the
trust we have put in him/her, our trust is
reinforced.
-Should the opposite happen, our trust
decreases.
Trust is always a risk
-Trust always represents a risk to the
trustor.
-All risk-taking behaviour requires an act
of faith on behalf of trustor.

Trust varies from person to person

-It depends on our feelings of optimism or
pessimism about others.
 The Lost of Trust in Business
Globalization
-business activity expanded & started diversifying
their business with others.

Less Job Security

-business operations closed, corp. take-over,
employees lost jobs – betrayal.

Flatter Company Structures

- With few layers of authorities in hierarchical
organizations can jeopardize the trust that was
offered by long-term & stable working conditions.
 Why Business Needs Trust?

Distrust is expensive.
-A business relies on its employees & stakeholders to
care for its assets. If trust has been violated &
employees feel betrayed, they will look for
opportunity to revenge. So, constant monitoring has
to be done & this is time consuming & costly.

Trust facilitates co-operation.

-With the breakdown of hierarchical structures,
participative management is needed, & teamwork &
expertise needs to be shared among employees &
management – trust one another.
 ..cont…Why Business Needs Trust?
Trust unlocks knowledge.
-An environment of trust is needed for employees to
be willing to share their expertise with others.
-Company needs to gain access to the employees’
knowledge/expertise & ensure this is made available
to those who can benefit from it.

Trust promotes loyalty.

-Trust can inspire loyalty which results in actions that
advance the interests/goals of its organization.
-If managers can succeed in winning the trust of their
subordinates they can expect them to be more loyal
to managerial goals.
 Integrative Social Contract Theory
(ISCT)
- Thomas Donaldson & Thomas Dun fee
proposed the integrative Social contract theory.
- An integrative social contract is an informal
agreement concerning behavioral norms that are
developed from shared goals, beliefs and attitude of
groups of people or communities. The goal is to
provide a framework by which managerial and
business decisions can be made.
- The main elements of the social contract theory
are:-
- Hyper norms
- Macro social contract
- Micro social contract
Hyper norms
- refer to universal
moral principles that are the limits of
acceptable action -- to evaluate what is and is
not ethical for human beings and business
entities.

Macro social contract

- this contract is concerned with
normative rules influencing economic and
business affairs. These norms must not
conflict too much with divergent cultural or
religious norms -- where consent without
coercion is the governing factor of whether
or not a norm or value is constitutive.
Micro social contract
- produce norms that are governed by a community's
generally accepted norms and values.
************
(ISCT ) Integrative Social Contracts Theory provides a loose
method for making ethical decisions. First, you must
identify all communities that will be impacted by the
decision. Then, it is necessary to identify the norms by
which those communities freely conform. Those norms
must not conflict with larger moral standards which are
taken as universally applicable to everyone, such as
hypernorms. Finally, if conflicts remain, give priority to
norms that are more pervasive, consistent and coherent
within the framework of the macrosocial contract. This
method would theoretically allow decision-makers to act
in accordance with regard to an acceptable set of values,
practices and norms.
 CLASS DISCUSSION
 Is it considered stealing to take pens from a
bank? What about extra napkins from a fast-
food restaurant?
 My boss gave me credit for a project on
which a colleague did most of the work.
Should i accept the praise?
 My boss asked me to cover for him on his
expense report by saying I was at a meal
when I wasn't. Should I do it?
THANK
YOU
 Is it considered stealing to take pens
from a bank? What about extra napkins
from a fast-food restaurant?
 My boss gave me credit for a project on
which a colleague did most of the work.
Should i accept the praise?
 My boss asked me to cover for him on
his expense report by saying I was at a
meal when I wasn't. Should I do it?