TOPIC 3 (A) – ETHICAL

FRAMEWORK FOR BUSINESS

ENVIRONMENT
Textbook: Chapter 4 & 7)
 LEARNING OUTCOMES

• Identify fundamental interests of Stakeholders

• Apply Ethical Decision Making (EDM) Framework

• Demonstrate the measurement & assessment on quantifiable & non-quantifiable impacts

• Stakeholder Impact Analysis: Assessing Decisions & Actions and Decision Making
Approaches

• Developing a Comprehensive Ethical Decision Making Framework

 Introduction
• Traditionally, business making decision based only on profit, legality & self-interest
• Led to significant ethical failures

LOSS OF
REPUTATION

(Financial Scandals)
Call for
 Revenue & profit
 Share price ETHICAL
 Career ending for many DECISION
executives/employees MAKING
(EDM)
 Ethical Decision Making (EDM)

• EDM incorporates traditional requirements for profitability & legality,

together with philosophies that demanded by stakeholders
• A decision or action considered ethical or right if its conforms to certain
standards. However, one standard alone is insufficient.
• Therefore, EDM proposes that decisions or actions are be compared
against 4 standard for a comprehensive assessment of ethical behaviour
i. Consequences created in term of net benefit or net cost Applying the Principles of
consequentialism,
ii. Rights & duties affected deontology and justice on
the impact of the decision
iii. Fairness involved on the shareholders and
stakeholders
iv. Motivation or virtues expected  Applying the Principles of virtue
ethics when assessing current
and future governance problems Stakeholder Impact Analysis
as part of risk management
practices.
 1.
Practical Questions
and approaches
under EDM

2.
 EDM CONSIDERATIONS
Well-offness or well-being
Fundamental Respect of the rights of stakeholders
Interests of the
Stakeholders
Fairness among stakeholders
Expectations for character traits, virtues
Specific EDM Issues
Different behavior in different cultures
Conflicts on interest, and limits to self-
interested behavior
*Refer to Textbook page 185
PHILOSOPHICAL THEORIES
Consequentialism, utilitarianism,
theology
Deontology (rights & duties)
Kant’s Categorical Imperative, justice as
impartiality
Virtue ethics
Relativism, subjectivism
Deontology, subjectivism, egoism
 Preliminary Test of the Ethicality of a Decision

*Sniff Tests for Ethical Decision Making

• Often managers/employees are
asked to check a proposed decision
in a quick, preliminary manner to
see if further thorough analysis is
required – known as
SNIFF TEST (or SMELL TEST)
Would I be comfortable if this action or decision were to
appear on the front page of a national newspaper
tomorrow morning?
Will I be proud of this decision?
Will my mother be proud of this decision?
Is this action or decision in accord with the
corporation’s mission and code?
Does this feel right to me?

* Some of the commonly asked questions

* If any of these quick tests are negative  should consult an ethics officer or
conduct thorough analysis
 … cont’d
• Most executives developed their own rules of thumb for
deciding whether their action is ethical or not.
Golden Rule: Do unto others as you would have them do unto you.
Disclosure Rule: If you are comfortable with an action or decision after asking yourself whether you would mind if all your associates,
friends, and family were aware of it, then you should act or decide.
The Intuition Ethic: Do what your “gut feeling” tells you to do.
The Categorical Imperative: You should not adopt principles of action unless they can, without inconsistency, be adopted by everyone else.
The Professional Ethic: Do only what can be explained before a committee of your professional peers.
The Utilitarian Principle: Do “the greatest good for the greatest number.”
The Virtue Principle: Do what demonstrated the virtues expected.

Principle Source: A.B. Carroll, “Principles of Business Ethics: Their Role in Decision making and Initial Consensus,”
Management Decision, 28:8 (1990): 20-24, see Figure 3
 … cont’d

• Although sniff tests and rules of thumbs are often very useful, they rarely
represent a comprehensive examination of the decision made.
• Thus, more comprehensive techniques should be employed
• A good DM, should consider all these factors:

Profitable?
Benefits > Costs
Consequences, Utility
Risk adjusted

Fiduciary duty
Duty, Rights, Justice Individual rights
Fairness, Legality

Character
Integrity
Virtue Expectations
Courage
Process
 Stakeholder Impact Analysis (SIA) – Comprehensive Tool
for Assessing Decisions & Actions
Two assumptions made for
traditional corporate accountability:
Fundamental Interests of Stakeholders
i. All shareholders want to
maximize only short term Interests Description
PROFIT Well- Proposed decision should result in more
ii. Rights & claims of many non- offness benefits than costs for a
fied
shareholders a.k.a stakeholders s a tis ical
Fairness Distribution of benefits t and
b e burdens E th should
(employees, public, suppliers, u s e re d
be fair st s m si d
lenders, governments & e re co n
In t be
L 4 n t o
investors) are ignored Right AL decision
Proposed cis io should not offend the
d e
stakeholder’s rights
Virtuosity Proposed decision demonstrate virtues
reasonably expected
Modern Corporate Accountability:
i. Longer-term profit / sustainability
ii. Business conducted ethically
Further reading on Quantifiable and Nonquantifiable Impacts 10
 SIA: Traditional Decision-Making
Approaches

1) 5-Question Approach (by Graham Tucker)

The examination or challenge of a proposed decision through 5 questions. Questions vary
from the short term to long term & from a quantitative to a qualitative aspect.

2) Moral Standards Approach (by Velasquez)

Three fundamental interests were used which is more suited to the consideration of
decisions that have significant impact outside company (to test the morality of the action)

3) Pastin Approach (by Pastin)

Involves in examining the 4 key aspects of ethics to determine the stakeholder’s impacts
analysis (to test differing ethics approach)

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 Traditional 5-Question Approach

The following 5 questions are asked about a proposed decision:

IS THE DECISION STAKEHOLDER INTEREST EXAMINED
1. profitable? Shareholders’–usually short-term
2. legal? Society at large–legally enforceable rights
3. fair? Fairness for all
4. right? Other rights of all
5. going to further Specific rights
sustainable development?
Question 5 is an optional question designed to focus the decision-making
process on a particular issue of relevance to the organization(s) or decision
maker involved.
 Traditional Moral Standard Approach

MORAL STANDARD QUESTION OF PROPOSED DECISION

Utilitarian:
Maximize net benefit to Does the action maximize social benefits
society as a whole and minimize social injuries?

Individual rights:
Respect and protect Is the action consistent with
each person's rights?

Justice:
Will the action lead to a just distribution
Fair distribution of
of benefits and burdens?
benefits and burdens

*All three moral standards must be applied; none is a sufficient test by itself.
 Traditional Pastin Approach

KEY ASPECT PURPOSE FOR EXAMINATION

Ground rule ethics To illuminate an organization's and/or
an individual's rules and values

End-point ethics To determine the greatest net good

for all concerned

To determine what boundaries a person

Rule ethics or organization should take into account
according to ethical principles
Social contract ethics To determine how to move the boundaries
to remove concerns or conflicts
 Modifying Traditional Approaches: Assessing
Motivation, Expected Virtues & Character Traits
Additional Elements

• Motivations expected:
• Self-control rather than greed
• Fairness or justice considerations
• Kindness, caring, compassion, and benevolence
• Virtues expected:
TRADITIONAL • Dutiful loyalty ETHICAL DECISIONS
APPROACHES • Integrity and transparency AND ACTIONS THAT
i. 5 Questions • Sincerity rather than duplicity
CAN IMPROVE
ii. Moral Standards • Character Traits expected: GOVERNANCE
iii. Pastin Approach • Courage to do the right thing per personal and/or professional
standards PROCESS
• Trustworthiness
• Objectivity, impartiality
• Honesty, truthfulness
• Selflessness rather that selfishness
• Balanced choices between extremes

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additional
additional
 Relate back with the 4 Fundamental
Interests of the Stakeholders (slide 10)
 Steps for EDM
7. MAKE YOUR
DECISION

1. DETERMINE THE FACTS

6. ASSESS THE what, who, where,
CONSEQUENCES when & how

5. COMPUTE VALUES 2. DEFINE THE

AND ALTERNATIVES, ETHICAL ISSUE(S)
AND SEE IF A CLEAR
DECISION EMERGES

3. IDENTIFY MAJOR
PRINCIPLES, RULES, AND
4. SPECIFY THE VALUES
ALTERNATIVES
 Summary of Steps for an Ethical Decision

4.
1.

2.
3.
THANK YOU!
ANY QUESTIONS?
 KANT’S CATEGORICAL IMPERATIVE

• Morality is universal  the same for everyone

• Should only do actions that you believed that everyone would also
do
• Ethical action of individual  ethical law
• Action is ethically correct  the action can be consistently
universalized

• Example:
• Can’t say it is acceptable for you to lie to your investor’s about the
quality of your firm’s financial statement while also saying
unacceptable for other’s to falsify their financial statement
 Measurements of QUANTIFIABLE IMPACTS
• PROFIT - Fundamental Shareholders’ interests & essential for survival & company’s
performance

Concern more on PROFIT or LOSS only

Involves Externalities (i.e Cost-Benefit Analysis)

Involves Probabilities (i.e Risk-Benefit Analysis)

Ranking of Stakeholders
 Eg: Cost-Benefit Analysis

• Intervention to reduce trans fat in the food supply:

 Eg: Risk-Benefit Analysis

• Risk-benefit analysis of having open data

Source: https://fpf.org/2018/01/30/fpf-publishes-model-open-data-benefit-risk-analysis/
 Assessment of NON-QUANTIFIABLE IMPACTS

Fairness Among Stakeholders

- Concern for fair treatment on current issues that related to human society
(discrimination against women, hiring, promotion & pay);
- A decision will be considered unethical if its not properly addressed fairly among
other stakeholders.
Rights of Stakeholders
- Decision considered as ethical if the impacts do not involve the stakeholders’ rights
& the rights of the person making the decision;
- The stakeholders rights involve life, health & safety, fair treament, exercise of
conscience, dignity & privacy, freedom of speech

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