What is Business Ethics?

Business Ethics
♦ The application of general ethical concepts
to the unique situations confronted in
business. It asks what is right or wrong
behavior in business and what principles or
rules can be used as guidance in business
situations.

Two Characteristics
♦ Tells people what they ought to do
♦ Set of principles or rules

Why Study Ethics?
♦ Will not make you more ethical
♦ Help in trying to do the right thing

What is Ethics?
♦ Ethics and Religion
♦ Ethics and Social Responsibility
Ethics - two levels of concern
individual
organizational
♦ Soc. Responsibility - Win -Win
♦ Ethics - Don’t do things that may be in your
own self interest

Relativism Egoism
The 4
Concepts of
Ethics
Utilitarianism Deontologism

Concepts of Ethics
♦ Developed by moral philosophers over
generations
♦ Used to distinguish ethical from unethical
behavior
♦ Each has problems

Relativism
♦ There is no universal standard by which
morality can be judged
♦ What is correct for one society may be
wrong for another
♦ Ethics and morality are relative
♦ What do you think of this?

Relativism - Problems
♦ There are no absolutes - murder, slavery,
torture, rape OK
♦ What is meant by a society?
Sub-societies
♦ Leads to conclusion - each person’s opinion
is correct
♦ Nothing that anyone does is morally wrong

Egoism
♦ One ought to act in his or her own self
interest
♦ Ethical behavior is that which promotes
one’s own self interest
♦ Does not mean should not obey laws - only
do so if in self interest

Egoism
♦ What do you think of this concept?
♦ Problem - Externalities associated with
private actions - OK to dump toxic wastes
as long as don’t get caught

Utilitarianism
♦ The morality of an action can be determined
by its consequences
♦ An action is ethical if it promotes the
greatest good for the greatest number

Benefits and Costs of an Action
to Whomsoever They Accrue
B1 + B2 + B3 + . .+Bn> C1 + C2 + C3 + . . .+Cn
Then the Action is Ethical
B1 + B2 + B3 + . .+Bn< C1 + C2 + C3 + . . .+Cn
Then the Action is Unethical

Utilitarianism Example
♦ Harry Truman and Decision to Drop Bomb
on Japan

What do you think of this
concept?
♦ How do you quantify benefits and costs?
♦ How do you value benefits and costs?
♦ Can lead to unjust consequences
♦ Restrictions against the majority to protect a
minority is not utilitarian

Deontologism
♦ Derived from the Greek word for Duty
♦ Actions are not justified by their
consequences. Factors other than good
outcomes determine the rightness of actions

Utilitarianism Vs. Deontologism
♦ Utilitarianism - The ends justify the means
♦ Deontologism - It is the means which are
important

Catagorical Imperative
♦ Developed by Immuel Kant
♦ “I ought never to act except in such a way
that I can also will that my maxim should
become a universal law”
♦ Are you willing to permit everyone to adopt
the action?
♦ Yes - Moral No - Immoral

Guidance in Dealing with People
♦ People should never be treated as a means
to an end, but as ends in themselves
♦ To treat people as ends requires respect for
persons
♦ Reject slavery
♦ Deals with murder, rape, etc
♦ How to deal with employees

General Ethical Behavior
♦ Builds security, friendliness, cooperation
and trust in a society
♦ These are public goods created by generally
ethical behavior

What are Characteristics of
Public Goods?
♦ Not subject to exclusion - cannot exclude
people from consumption even if they do
not contribute
♦ Joint Supply - Provide for one individual,
provide for all
♦ Free Rider Problem

Catagorical Imperative and
Public Goods
♦ Security, Friendliness, Cooperation and
Trust
♦ Not Subject to Exclusion
♦ Joint Supply
♦ Free Rider Problem

Examples
♦ Is it Ethical to Rob Banks?
♦ Is it Ethical to Give Everyone in this Class
an A?

What Do You Think of
Deontologism?
♦ Conflicts between duties
♦ Utilitarians argue that secretly appeal to
consequences to demonstrate the rightness
of actions

Ethical Tests

Is It Legal Test?
Ethical
Quadrant II Quadrant I
Codification
Ethical and Illegal Ethical and Legal
Manifestation
Corporate
Illegal Legal
Decisions
Quadrant IV Quadrant III
Unethical and Illegal Unethical and Legal
Unethical

Ethical Tests
1. Is It Legal?
I Ethical - Legal
II Ethical - Illegal
III Unethical - Legal
IV Unethical - Illegal
I and IV Easy
II and III Difficult

Ethical Tests
2. Benefit Cost Test
Do the benefits exceed the costs to
whomsoever they accrue?
3. Categorical Imperative
Are you willing to allow everyone to
practice the proposed action or do you want
to be a special case?

Ethical Tests
4. Light of Day Test
What would be your reaction if the
action were brought out into the open
for public scrutiny?
5. Do Unto Others Test
Golden Rule - If you would like others
to do the same to you - passes the test

Ethical Tests
6. Ventilation Test
Seek out others views. Discuss the 5
tests with them. If others feel it is OK -
passes the test

Examples
♦ Robbing a Bank
♦ Driving Above the Speed Limit
♦ Cheating on an Exam
♦ Having Sex with an Intern

Ethical Dilemmas in Business
♦ Conflict of Interest
Have two interests - cannot purse one
without having negative impact on other
♦ Two Types
Private Interest Conflicts with Corporate
Business Interest Conflicts with Public

Conflict of Interest Mini Case
♦ Personnel Director
♦ Brother - in - law out of work
♦ Lackluster performer
♦ Unemployment about to run out - will loose
house
♦ Sister asks you to recommend him for job
♦ What would you do?

Whistleblowing
♦ Act of disclosing wrongdoing in an
organization
♦ Like blowing a whistle to call attention to a
thief
♦ Types
Internal
External

Can Cause Bitterness in
Organization
♦ Dissent - Must speak out against others in
organization
♦ Breach of Loyalty - Perceived as one who
violates confidentiality and loyalty
♦ Accusation - Singles out specific
individuals as threats to organization or the
public

Possible Retaliation
♦ Fired
♦ Blacklisted
♦ Transferred to undesirable locations
♦ Lifestyles, sex lives and mental stability
questioned
♦ Physical abuse and murder possible

Failure to Reveal Wrongdoing
♦ Severe problems for society or organization
♦ Can be implicated as an accessory before or
after the fact

Ethics of Whistleblowing
♦ When is it ethical to reveal wrongdoing ?
♦ When is it ethical to remain silent?

Whistleblowing Example
♦ In charge of Quality Control
♦ Company makes parts for automobile
brakes
♦ Find defect in brake part
♦ Could cause failure in brakes
♦ Failure not certain
♦ May take many years to develop

Whistleblowing Example (cont.)
♦ Go to VP of Production, your boss
♦ He tells you to overlook defect - company
may loose too much money
♦ What would you do?

Challenger Disaster
♦ Morton-Thiokol
♦ “O” rings
♦ Cold in Florida
♦ Engineers warned “O” Rings could fail
♦ NASA management made decision to
launch Space Shuttle anyway

Cautious Approach to
Whistleblowing
1. Make sure situation involves an imminent
threat to society or to the business
2. Document all allegations
3. Examine internal whistleblowing first
4. Should you remain anonymous?
5. Get another job first!!!

Bribery
♦ A payment, usually to a public official, to
induce that person to either do something
improper or to influence decisions or
actions
♦ Extortion - same as bribery - recipient of
payment initiates transaction

Case
♦ International consulting firm - designs and
supervises construction of hydroelectric
power generating systems
♦ Your proposal is far superior to any other
technically
lowest bid
♦ To get job, must deposit $250,000 in
official’s personal Swiss bank account

Should you pay the money?
♦ Foreign Corrupt Practices Act of 1997
♦ Grease payment allowed
♦ Standard Practice in most foreign countries
♦ Results in lost business opportunities for US
companies
♦ American tax dollars may be used to pay
bribe

Bluffing and Deception
♦ Negotiating a labor contract
♦ Plant has experienced losses over past
several years - not clear why
♦ Want concessions from labor
♦ Tell labor that plant will be closed if no
concessions are made. In reality , no such
plans contemplated
♦ Is This Ethical?

Managerial Implications
♦ Top Management Leadership
Organizational Culture
♦ Realistic Goal Setting
♦ Ethics Audit
♦ Code of Ethics
♦ Ethics Committee

Managerial Implications
♦ Ethics Advocate
♦ Whistleblowing Mechanism
♦ Ethics Training

Polaroid in and Out of South
Africa
♦ Apartheid System
♦ 17% White 70% African
♦ Whites only could be in government,
possess firearms
♦ Enforced segregation of races
♦ Blacks relegated to “native reserves”

Apartheid (cont.)
♦ Blacks allowed to own 13% of land
♦ Whites - 87%
♦ Black workers paid less than Whites

US Involvement in South Africa
♦ 320 American companies there
♦ American companies controlled
43% of petroleum market
23% of auto sales
70 percent of computer business

Polaroid
♦ Rumors that products used in Pass Book
System
♦ Commission to South Africa
No sales to government
Improve salaries for Blacks for local
distributors and suppliers
Training program so Blacks could take
better jobs
Some profits for Black education

Success of Program
♦ Improvements in Black salaries,
advancement and benefits
♦ Principle of same pay for same job accepted
♦ Ban on direct sales successful
♦ Ban on indirect sales not successful

Sales to Government through
Frank and Hirsch
♦ Secretly selling Polaroid products to
government
♦ Billed as shipments through drugstore in
Johannesburg
♦ Polaroid terminated its involvement in
South Africa

Ethical Questions
♦ What is the ethics of American companies
doing business in a country with human
rights abuses?
♦ Was Polaroid responsible for the use of its
products?
♦ Are companies responsible for the use of
their products?

Ethical Questions
♦ Was Polaroid’s presence a positive or
negative influence on Blacks?
♦ What is happening in South Africa today?