BUSINESS ETHICS

LESSON OUTCOME

 Describe what ‘ethics’ means in business terms

 Present reason why organisations should behave
ethically
 Explain what ethical decision making entails
INTRODUCTION

 Why the debate? The actions of organisations affect the

prosperity of all stakeholders and the health of people and
the environment in which they operate
 Organisations and managers have area or potential impact on
a wide variety of issues that extend beyond normal business
& which affect individuals, communities, the environment,
countries & the entire world
INTRODUCTION

 Do business decisions have an ethical component?

 What is the appropriate balance between profits and the
public good?
 The public is wary of the abuse of power and the betrayal of
trust, and business managers and managers of all types of
organisations are expected to make a wide variety of
economic and social contributions.
THE ETHICAL DIMENSION OF MANAGEMENT

 Highly publicized accounts of corporate misconduct in

recent years have led to widespread cynicism about business
ethics.
 What sort of role models do senior-level business executives
as powerful people make?
DEFINITION OF ETHICS

 Where does ethics fall? Prescribed law vs free Choice

 Definition: Ethics
 Is the study of moral obligation involving the distinction between
right and wrong
 Business Ethics
 The study of the complex business practices and behaviors that give
rise to ethical issues in organizations
BUSINESS ETHICS

 Business ethics is concerned with truth and justice, and has a

variety of aspects, such as the expectations of society, fair
competition, advertising, public relations, social
responsibility, consumer autonomy, and corporate behaviour
 Business ethics examines ethical principles and morals that
can arise in a business environment
 Business ethics promote non-economic values under a
variety of headings (e.g. ethics code, social responsibility,
charters)
7
BUSINESS ETHICS

 We want to look at the ethical dimension of managerial decisions.

 Many decisions that managers make require looking at the ethical
dimension of managerial decisions.
 Many decisions that managers make require them to consider who
may be affected in terms of the results as well as the process.
 We will consider four different views of ethics and look at the
factors that influence a manager’s ethics. We will conclude by
offering some suggestions for what organisations can do to
improve the ethical behaviour of employees.
FOUR DIFFERENT APPROACHES TO ETHICAL DECISION-MAKING

 Utilitarian approach
 Rights approach
 Theory of Justice approach
 Integrative social contracts approach
UTILITARIAN VIEW OF ETHICS

 Decisions are made solely on the basis of their

outcomes or consequences.
 A manager studies the effects of a particular action
on the people directly affected by it and takes a
decision that will benefit most people
 The goal of utilitarianism is to provide the greatest
good for the greatest number.
 Following the utilitarian view, a manager can conclude that
laying off 20 percent of the workforce in her plant is justified
because it will increase the plant’s profitability, improve job
security for the remaining 80 percent, and be in the best interest
of stockholders.
 On the one hand, utilitarianism encourages efficiency and
productivity and is consistence with the goal of profit
maximization.
 On the other hand, however, it can result in biased allocations of
resources, especially when some of those affected by the
decision lack representation or a voice in the decision.
 Utilitarian can also result in the rights of some stakeholders
(minority) being ignored.
RIGHTS VIEW OF ETHICS

 According to the human rights approach, the individual is entitled to fundamental

freedom and rights that another cannot take away
 An ethically correct decision is one that protects the rights of those affected by it
(e.g. human rights, bill of rights)
 This position is concerned with respecting and protecting individual liberties and
privilege, including the rights to privacy freedom of conscience, free speech, and
due process.
 This would include for example, protecting the rights of employees to free
speech when they report violations of laws by their employers.
 The positive side of the rights perspective is that it protects individuals’ freedom
and privacy.
 But it has a negative side in organisations. It can present obstacles to high
productivity and efficiency by creating a work that is more concerned with
legally protecting individual’s rights than getting the job done.
THEORY OF JUSTICE APPROACH

 States that ethical decisions are equitable, fair, and impartial distribution
of benefits and costs among individuals and groups
 This calls for managers to impose and enforce rules fairly and
impartially.
 A manager would be using a theory of justice perspective in deciding to
pay a new entry-level employee K7.50 an hour over the minimum wage
because he or she believes that the minimum wage is inadequate to allow
employees to meet their basic financial obligations.
 Imposing standards of justice also comes with pluses and minuses.
 It protects the interests of those stakeholders who may be under
represented or lack of power; but it can encourage a sense of entitlement
that might make employees reduce risk taking, innovation, and
INTEGRATIVE SOCIAL CONTRACTS THEORY

 This view proposes combining empirical (what is) and normative (what
should be) approaches to business ethics.
 This view of ethics is based on the integration of two “contracts”: the
general social contract among economic participants that defines the
ground rule for doing business and a more specific contract among
specific members of a community that covers the acceptable ways of
behaving.
 This view of business ethics differ from the other three in that it suggests
managers need to look at existing ethical norms in industries and
corporations in order to determine what is right and wrong.
WHAT'S THE BEST ETHICAL APPROACH?

 Capitalists and managers follow utilitarian approach

 However, the emphasis on individual rights and social
justices forcing managers to use new approaches
 Maintain right balance depending situation & stakeholders
 Shortcut ethical test – based on common sense
 Treat others as you would want to be treated
 Intuition ethics – people have a moral sense of what is right
or wrong
ETHICAL ISSUES IN ORGANISATIONS
 Many people with limited business experience find
themselves making decision about product quality,
advertising, pricing, hiring practices, and pollution control
 The values learn from family, church, and school may not
provide specific guidelines for these complex business
decisions
 Examples?
 Is a particular advertisement deceptive?
 Should a gift from a customer be considered a bribe, or is
it a special promotional incentive?
 Many business ethics decisions are close calls.
PRACTICAL LESSONS FROM BUSINESS
ETHICS RESEARCH

 a) Ethical Hot Spots: Research reveals that

employees from all levels across industries performed
at least one illegal or unethical act from a list of 25
questionable practices. E.g calling sick when well,
cheating on expenses accounts, forging signatures,
and giving or accept in kickbacks, to ignoring
violation of environmental laws.
 The top 10 workplace hot spots responsible for
triggering unethical and illegal conduct are:
PRACTICAL LESSONS FROM
BUSINESS ETHICS RESEARCH

• Ethical Hot Spots – Need to meet sales,

budget, or profit goals
– Balancing work and
– Little or no recognition of
family
achievements
– Poor internal
– Company politics
communications
– Poor leadership – Personal financial worries
– Work hours, work load – Insufficient resources
– Lack of management
support
PRACTICAL LESSONS FROM BUSINESS
ETHICS RESEARCH (CONT’D)

 (b) Pressure from Above

 A number of studies have uncovered the problem of superiors pressuring
subordinates to achieve results is widespread. (E.g. Walt Pavlo, Zambeef)
 Excessive pressure to achieve results is a serious problem, because it can cause
otherwise good and decent people to take ethical shortcuts just to keep their jobs.
 The challenge for managers is to know where to draw the line between
motivation to excel and undue pressure.
 Managers’ responses to pressure from above

1. Consciously avoid putting undue pressure on subordinates (who may

act unethically to relieve the pressure).
2. Prepare to deal with excessive organizational pressure.
PRACTICAL LESSONS FROM BUSINESS
ETHICS RESEARCH (CONT’D)

 c) Ambiguous Situations: These are situations

in which there are no clear-cut ethical guidelines.
Ethical codes can satisfy this need for guidelines.
 Surveys of purchasing managers and field sales
personnel showed that the respondents were
uncomfortable with ambiguous situations in
which there were no clear-cut ethical guidelines.
PRACTICAL LESSONS FROM BUSINESS
ETHICS RESEARCH (CONT’D)

 d) A Call to Action: Each manager needs to understand her

own personal code of ethics: what is fair; what is right; what
is wrong? Where is the ethical line that I draw, the line
beyond which I shall not go? And where is the line beyond
which I shall not allow my organization to go?
 Rationalization: How Good People End Up Doing Bad
Things
 Perceiving an objectively questionable action as normal
and acceptable
HOW EMPLOYEES TEND TO RATIONALIZE
UNETHICAL CONDUCT
PERSONAL VALUES AS ETHICAL ANCHORS

 Definition: Values are abstract ideals that shape an individual's thinking

and behaviour.
 (Rokeach, 1973) (pp.5) defined value as “an enduring belief that a
specific mode of conduct or end-state of existence is personally or
socially preferable to an opposite or converse mode of conduct or end-
state of existence.”
 Schwartz et al., (2001) view values as desirable, transitional goals,
varying in importance, which serve as guiding principles in people’s
lives.
 Personal values play a pivotal role in managerial decision making and
ethics.
 Instrumental and Terminal Values
INSTRUMENTAL AND TERMINAL VALUES

 Def.: An instrumental value is an enduring belief that a certain

way of behaving is appropriate in all situations (e.g. honesty).
 Def.: A terminal value is an enduring belief that a certain end-
state of existence is worth striving for and attaining (e.g.
freedom).
 Individual value systems are like fingerprints, hence each one
of us has a unique set.
 This is because a person can hold a number of different
instrumental and terminal values. Thus, it is important that
each person identifies his own values and rank them
accordingly.
PERSONAL VALUES AS ETHICAL ANCHORS

 Values
 Abstract ideals that shape one’s thinking and behavior
 Instrumental value: Enduring belief that a certain way
(mode) of behaving is appropriate in all situations
 Terminal value: Enduring belief that a certain end-state
of existence (being admired) is worth striving for
 Identifying Your Own Values
 Basic personal values are taken for granted.
 They are not arranged consciously in order of priority.
 MANAGERIAL RANKING OF VALUES

• Terminal Values • Instrumental Values

– Self-respect – Honesty
– Family security – Responsibility
– Freedom – Capability
– A sense of – Ambition
accomplishment – Independence
– Happiness
SCHWARTZ’S VALUE THEORY
 SCHWARTZ’S VALUE THEORY
Table 1
Definitions of Motivational Types of Values in Terms of their Goals and the Single Values that Represent Them

Power: Social status and prestige, control or dominance over people and resources
(social power security, authority, wealth, preserving my public image)
Achievement: Personal success through demonstrating competence according to
social standards (successful, capable, ambitious, influential)
Hedonism: Pleasure and sensuous gratification for oneself (pleasure, enjoying life)
Stimulation: Excitement, novelty, and challenge in life (darling, a varied life, an
exciting life)
Self-direction: Independent thought and action choosing, creating, exploring
(creativity, freedom, independent, curious, choosing own goals)
Universalism: Understanding, appreciation, tolerance, and protection for the
welfare of all people and for nature (broad-minded, wisdom, social justice,
equality, a world at peace, a world of beauty, unity with nature, protecting
the environment)
 Benevolence: Preservation and enhancement of the welfare of
people with whom one is in frequent personal contact (helpful,
honest, forgiving, loyal, responsible)
 Tradition: Respect, commitment, and acceptance of the customs and
ideas that traditional culture or religion provide the self (humble,
accepting my portion in life, devout, respect for tradition, moderate)
 Conformity: Restraint of actions, inclinations, and impulses likely to
upset or harm others and violate social expectations or norms
(politeness, obedient, self-discipline, honoring parents and elders)
 Security: Safety, harmony, and stability of society, or relationships,
and of self (family security, national security, social order, clean,
reciprocation of favors)
 GENERAL ETHICAL PRINCIPLES
 Like your highly personalized value system, your ethical beliefs have been
shaped by many factors, including (1) family and friends, (2) the media, (3)
culture, (4) schooling, (5) religious instructions, and (6) general life experiences.
 Ten ethical principles (generally unstated taken-for-granted ethical beliefs) are
 self-interests,
 personal virtues,
 religious injunctions,
 government requirements –
 utilitarian benefits,
 universal rules,
 individual rights,
 economic efficiency,
 distributive justice and contributive liberty.
GENERAL ETHICAL PRINCIPLES
 1. Self-interests. “Never take any action that is not in the long-term self-
interests of yourself and/or of the organization to which you belong.”
 2. Personal virtues. “Never take any action that is not honest, open, and
truthful and that you would not be proud to see reported idely in national
newspapers and on television.”
 3. Religious injunctions. “Never take any action that is not kind and that
does not build a sense of community, a sense of all of us working
together for a commonly accepted goal.”
 4. Government requirements. “Never take any action that violates the
law, for the law represents the minimal moral standards of our society.”
 5. Utilitarian benefits. “Never take any action that does not result in
greater good than harm for the society of which you are a part.”
GENERAL ETHICAL PRINCIPLES

 6. Universal rules. “Never take any action that you would not be willing
to see others, faced with the same or a closely similar situation, also be
free to take.”
 7. Individual rights. “Never take any action that abridges the agreed-
upon and accepted rights of others.”
 8. Economic efficiency. “Always act to maximize profits subject to legal
and market constraints, for maximum profits are the sign of the most
efficient production.”
 9. Distributive justice. “Never take any action in which the least
[fortunate people] among us are harmed in some way.”
 10. Contributive liberty. “Never take any action that will interfere with
the right of all of us [to] self development and self-fulfillment.”
ENCOURAGING ETHICAL CONDUCT

Four specific ways to encourage ethical

conduct within the organization are:
1. Ethics training
2. Ethical advocates
3. Ethics codes
4. Whistle-Blowing
ETHICS TRAINING

Managers lacking ethical awareness are

called amoral: neither moral nor immoral, but
indifferent to the ethical implications of their
actions. Since managers in this category far
outnumber moral or immoral managers, there
is a great need for ethics training.
ETHICAL ADVOCATES

 Def.: An ethical advocate is a business ethics specialist who

sits as a full-fledged member of the board of directors and
acts as the board's social conscience.
 This person may also be asked to sit in on top-management
decision deliberations.
 The idea is to assign someone the specific role of critical
questioner (Refer to the Table has some recommended
questions).
TWELVE QUESTIONS FOR EXAMINING THE
ETHICS OF A BUSINESS DECISION
ETHICS CODES

 Def.: An organizational code of ethics is a published

statement of moral expectations for employee conduct.
 Some codes specify penalties for offenders.
 To encourage ethical conduct, formal codes of ethics for
organization members must satisfy two requirements.
 First, they should refer to specific practices such as
kickbacks, payoffs, receiving gifts, record falsification, and
misleading claims about products.
 Second, they must be firmly supported by top management
and equitably enforced through the reward-and-punishment
system. `
WHISTLE-BLOWING

 Def.: Whistle-blowing is the practice of reporting perceived unethical practices

to outsiders such as the news media, government agencies, or public-interest
groups.
 Not surprisingly, many managers believe that whistle-blowing erodes their
authority and decision-making prerogatives. Because loyalty to the organization
is still a cherished value in some quarters, whistle-blowing is criticized as the
epitome of disloyalty. Whistle-blowing generally means putting one‟s job and/or
career on the line. The challenge for today‟s management is to create an
organizational climate in which the need to blow the whistle is reduced.
 Constructive steps include: encourage the free expression of controversial and
dissenting views; streamline the organization‟s grievance procedure so that
problems receive a prompt and fair hearing; find out what employees think about
the organization‟s social responsibility policies and make appropriate changes;
let employees know that management respects and is sensitive to their individual
consciences; and, recognize that the harsh treatment of a whistle-blower will
probably lead to adverse public opinion.
TOWARD IMPROVING ETHICAL BEHAVIOUR

 Selection
 Codes of Ethics and Decisions Rules
 Top Management’s Leadership
 Job Goals
 Ethics Training
 Comprehensive Performance Appraisal
 Independent Social Audits
 Formal Protective Mechanisms
STEPS IN THE ETHICAL DECISION-MAKING
PROCESS

 1. identify the problem (QC drugs for pregnant)

 2. determine whose interest are involved
 3. Determine the relevant facts
 4. determine the expectations of those involved
 5. weigh up the various interest
 6. determine the range of choices
 7. determine the consequences of these choices for those
involved
 8. make your choices
SUMMARY

 Ethics research indicates that many employees have acted

unethically, have been pressured to act unethically, desire
ethical standards, and engage in rationalization to defend their
behaviors.
 Managers must pay attention to the instrumental and terminal
values that comprise employee’s personal value systems.
 There are at least ten general ethical principles that guide
behavior.
 The typical manager is considered to be amoral.
DISCUSSION QUESTIONS

 What can an organisation do to ensure ethical

decision-making?
 Write on the management of ethics in an
organisation. Explain which approach, in your
view, would be the most effective for shaping long-
term ethical behaviour in an organisation.