This document provides an overview of key concepts in business ethics. It discusses the nature of morality and how moral standards differ from other standards like etiquette or law. It also covers topics like ethical relativism, conscience, self-interest versus moral principles, and individual versus organizational responsibility. The document emphasizes that business ethics is about making defensible moral judgments and responsible decisions through logical and fact-based reasoning using acceptable moral principles.

1. BUSINESS ETHICS
Lecture 1
AP. Azmi Ariffin MBA, CA (M), IIA
McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

2. ETHICS IS TOUGHER THAN YOU
THINK . . .
A person with outward
courage dares to die.
A person with inward
courage dares to live.
- Lao Tzu
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3. CHAPTER 1 – The Nature of Morality
o Ethics & business ethics
o Ethics deals with individual character and the moral
rules that govern and limit our conduct. It investigates
questions of right and wrong, duty and obligation and
moral responsibility.
o Business ethics is the study of what constitutes right
and wrong (or good and bad) human conduct in a
business context. Closely related moral questions
arise in other organizational contexts.
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4. Moral vs nonmoral standards
o Moral standards concern behavior that is of serious
consequence to human welfare, that can profoundly
injure or benefit people.
o Moral standards take priority over other standards,
including self-interest.
o The soundness of moral standards depends on the
adequacy of the reasons that support/justify them –
depends on the quality of the arguments/reasoning
that supports them.
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5. Morality & etiquette
o Etiquette refers to the norms of correct conduct in polite
society/more generally to any special code of social
behavior/courtesy.
o Example of good etiquette – say “please” when requesting &
“thank you” when receiving & to hold a door open for
someone entering immediately behind you.
o Example of bad etiquette – to chew with your mouth open or
to pick your nose when talking to someone.
o Violations of etiquette can have moral implications.
o Example: the male boss who refers to female subordinates as
“honey” or “doll” shows bad manners. The female employees
can raise moral issues concerning equal treatment and denial
of dignity to human beings.
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6. Morality and law
o There are four kinds of law: statutes, regulations, common law
& constitutional law.
o Statutes
o Laws enacted by legislative bodies. Congress & state
legislatures enact statutes.
o Example: The law that defines & prohibits theft is stature.
o Administrative regulations
o Legislatures often set up boards/agencies whose functions
include issuing detailed regulations of certain kinds of
conduct.
o Example: state legislatures establish licensing boards to
formulate regulations for the licensing of physicians & nurses.
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7. Morality and law
o Common law
o Laws applied in the English-speaking world when there were
few statutes.
o Courts frequently wrote opinions explaining the bases of their
decisions in specific cases, including the legal principles they
deemed appropriate.
o Each of these opinions became a precedent for later decisions
in similar cases.
o Constitutional law
o Refers to court rulings on the requirements of the Constitution
& the constitutionality of legislation.
o Although the courts cannot make laws, they have far-reaching
powers to rule on the constitutionality of laws & to declare
them valid. 1-7

8. o People sometimes confuse legality & morality – the
legality of an action does not guarantee that it is
morally right.
o An action can be illegal but morally right
o An action that is legal can be morally wrong
o It may have perfectly legal for the chairman of a
profitable company to lay off 125 workers & use
three-quarters of the money saved to boost his pay &
that of the company’s other top manager, but the
morality of his doing so is open to debate.
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9. Professional codes
o Professional codes of ethics – the rules that are
supposed to govern the conduct of members of a
given profession.
o The members of a profession are understood to have
agreed to abide by those rules as a condition of their
engaging in that profession.
o Sometimes those codes are unwritten & are part of
the common understanding of members of a
profession.
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10. Where do moral standards come from?
o Our early upbringing, the behavior of those
around us, the explicit & implicit standards of
our culture, our own experiences & our critical
reflections on those experiences.
o For philosophers, the important issues is not
where our moral principles came from, but
whether they can be justified.
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11. Religion & morality
o Religion involves not only a formal system of
worship but also prescriptions for social
relationships.
o Morality is not necessary based on religion –
the issues is whether those beliefs can be
justified.
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12. Ethical relativism
o The theory that what is right is determined by
what a culture/society says is right.
o Example: abortion is condemned as immoral
in Ireland but is practiced as a morally neutral
form of birth control in Japan.
o Thus, for the ethical relativist there is no
absolute ethical standard independent of
cultural context, no criterion of right & wrong
by which to judge other than that of particular
societies.
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13. Ethical relativism (cont’d)
o Ethical disagreement does not imply that all opinions are
equally correct. Moreover, ethical relativism has
unsatisfactory implications:
o It undermines any moral criticism of the practices of other
societies as long as their actions conform to their own
standards.
o For the relativist there is no such thing as ethical progress.
Although moralities may change, they cannot get better/worse.
o It makes no sense from the relativist’s point of view for people
to criticize principles/practices accepted by their own society.
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14. Ethical relativism (cont’d)
o According to Albert Carr, a number of things
that we normally think of as wrong are really
permissible in a business context.
o Example: lying about one’s age on a resume,
deceptive packaging, automobile companies’
neglect of car safety.
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15. Conscience
o People can & unfortunately sometimes do, go
against their moral principles, but we would
doubt that they sincerely held the principle in
question if violating it did not bother their
conscience.
o Example: When you were very young, you
were probably told to tell the truth & to return
something you filched to its proper owner.
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16. The limits of conscience:
1. When we are genuinely perplexed over what we
ought to do, we are trying to figure out what our
conscience ought to be saying to us
2. It may not always be good for us to follow our
conscience – because they didn’t think through the
implications of what they were doing or perhaps
because they failed to internalize strongly enough
the appropriate moral principles & a person’s
conscience might disturb the person about
something that is perfectly all right.
o
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17. Moral principles & self-interest
o Example: imagine that you are in your car hurrying
home along a quiet road, trying hard to get there in
time to see the kickoff of an important football game.
You pass an acquaintance who is having car trouble.
He doesn’t recognize you. As a dedicated fan, you
would much prefer to keep on going than to stop &
help him, thus missing at least part of the game. You
might rationalize that someone else will eventually
come along & help him if you don’t, but deep down
you know that you really ought to stop. On the other
hand, self interest seems to say, “Keep going”.
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18. Moral principles & self-interest (Cont’d)
o Should you follow your self-interest or your moral
principles?
o From the moral point of view, you should follow your
moral principles.
o But from the selfish point of view, you should look out
solely for “number one”.
o Your choice will depend on your character, on the kind of
person you are, which depends in part on how you were
raised.
o Individuals who care only about their own happiness will
generally be less happy than those who care about others.
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19. Individual integrity & responsibility
Organizational norms
o Major characteristics of organization is the shared
acceptance of organizational rules by its members.
o Group cohesiveness requires that individual members
commit themselves – relinquish some of their
personal freedom in order to further organizational
goals.
o According to recent survey by the American
Management Association, pressure to meet unrealistic
business objectives & deadlines is the leading cause
of unethical business conduct
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20. Conformity
o Organizations exert pressure on their members to conform to
norms & goals.
o Sometimes, some people didn’t want to seem different, even
though they continued to believe their judgments were correct,
the majority couldn’t be wrong.
o Groupthink happens when pressure for unanimity within a
highly cohesive group overwhelms its members’ desire/ability
to appraise the situation realistically & consider alternative
courses of action.
o Members of the group close their eyes to negative information,
ignore warnings that the group may be mistaken & discount
outside ideas that might contradict the thinking or the
decisions of the group.
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21. Diffusion of responsibility
o Diffusion of responsibility inside an organization
can weaken people’s sense of moral responsibility.
o They tend to see themselves simply as small
players in a process
o No control and are unaccountable
o I’m just doing my job
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22. o Defensible moral judgments
o Moral judgments should be supported by moral
standards & relevant facts.
o Patterns of defense & challenge:
4. Evaluating the factual claims
5. Challenging the moral standard
6. Defending the moral standard
7. Revising & modifying the argument
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23. Requirements for moral judgments:
o Should be logical
o Able to support our moral judgments with reasons & evidence
rather than basing them solely on emotion, sentiment or social
or personal preference.
o Our moral judgments should be logically compatible with our
other moral & nonmoral beliefs – avoid inconsistency.
o Should be based on facts
o Information should actually relate to the judgment, should be
complete or inclusive of all significant data, accurate or true.
o Should be based on acceptable moral principles
o Reliable moral judgments must be based on sound moral
principles – principles that are unambiguous & can withstand
critical scrutiny & rational criticism.
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24. BUSINESS ETHICS IS A PROCESS OF
RESPONSIBLE DECISION-MAKING
 The scandals and ruin experienced since the Enron collapse were
brought about by ethical failures.
 We will discuss a decision-making model that can help individuals to
understand such failures and avoid future business and personal
tragedies.
Why explore ethics in business?
Because
Ethics Failures = Business Failures
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25. AN ETHICAL CORPORATE
CLIMATE . . .
“…is either developing or deteriorating, enriching
itself or impoverishing itself. It needs constant
care and attention.”
Study by the Woodstock Center
Georgetown University, D.C.
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26. AN ETHICAL CORPORATE CLIMATE…
“…the hottest places in hell are reserved for those
who, in a period of moral crisis, maintain their
neutrality.”
- Dante
“In morality, as in literature – or in any field of
human creativity – indifference is the enemy;
indifference to evil is worse than evil.”
- Elie Wiesel, Nobel Peace Prize Laureate
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27. WHY IS ETHICS IMPORTANT IN THE
BUSINESS ENVIRONMENT?
 Consider the range of people who were harmed by the collapse
of Enron.
 Stockholders lost over $1 billion in stock value.
 Thousands of employees lost their jobs, their retirement
funds, and their health care benefits.
 Consumers in California suffered from energy shortages
and blackouts that were caused by Enron’s manipulation
of the market.
 Hundreds of businesses that worked with Enron as
suppliers suffered economic loss with the loss of a large
client. 1-27

28. WHY IS ETHICS IMPORTANT IN THE
BUSINESS ENVIRONMENT?
 Enron’s accounting firm, Arthur Andersen, went out
of business as a direct result.
 The wider Houston community was also hurt by the
loss of a major employer and community benefactor.
 Families of employees, investors, suppliers were
also hurt.
 Many of the individuals directly involved will
themselves suffer criminal and civil punishment,
including prison sentences for some.
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29. Multiply the harms by the dozens of other
companies implicated in similar scandals and
one gets an idea of why ethics is no longer
dismissed as irrelevant.
The consequences of unethical behavior and
unethical business institutions are too serious
for too many people to be ignored.
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30. “STAKEHOLDERS”
 The decisions made within a business firm will affect many more
people than only an individual.
 Ethically responsible business decision-making must move beyond a
narrow concern with stockholders, and consider the impact that
decisions will have on a wide range of stakeholders.
 A business stakeholder will be anyone who affects or is affected by
decisions made within the firm.
 Failure to consider these additional stakeholders will have a
detrimental impact on those stakeholders, stockholders, and on the
firm’s long-term sustainability.
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31. WHY CARE ABOUT ETHICS?
 Unethical behavior creates financial and marketing risks.
 A company can go out of business, and its employees can go to jail,
if no one is paying attention to the ethical standards of the firm.
 A firm’s ethical reputation can provide a competitive advantage, or
disadvantage.
 Consumer boycotts give even the most skeptical business leader
reason to pay attention to ethics.
 Managing ethically can also pay significant dividends in
organizational structure and efficiency.
 Trust, loyalty, commitment, creativity, and initiative are just some of
the organizational benefits that are more likely to flourish within
ethically stable and credible organizations.
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32. REALITY CHECK
Why be good?
The Institute for Business, Technology and Ethics suggests the
following “Nine Good Reasons” to run a business ethically:
6. Litigation/indictment avoidance
7. Regulatory freedom
8. Public acceptance
9. Investor confidence
10. Supplier/partner trust
11. Customer loyalty
12. Employee performance
13. Personal pride
14. It’s right
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33. DOES “RIGHT” OR “INTEGRITY” HAVE
REWARDS?
 “While the headlines are going to all the guys who are doing it
wrong, there is a very strong corps of people who are really
committed to doing it right. Part of doing it right is you're not
doing it to get headlines. You're doing it to really make a
difference in the lives of people.”
-- Georgetown College President Bill Crouch, speaking at a
business ethics conference sponsored by the Ethical
Leadership Institute. ("Strong Ethics Help Businesses
Succeed, Conference Speakers Say," AP, Mar. 25)
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34. BUSINESS ETHICS AS ETHICAL
DECISION-MAKING
 Decisions which follow from a process of thoughtful and
conscientious reasoning will be more responsible and ethical
decisions.
 Responsible decision-making and deliberation will result in
more responsible behavior.
 What is the point of a business ethics course?
 Ethics refers not only to an academic discipline, but to
that arena of human life studied by this academic
discipline, namely, how human beings should properly
live their lives.
 An ethics course will not change your capacity to think,
but it could stimulate your choices of what to think about.
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35. BUSINESS ETHICS AS ETHICAL
DECISION-MAKING
 An ethics class strives to produce more ethical
behavior among the students who enroll. But the only
academically and ethically legitimate way to do this
is through careful and reasoned decision-making.
 A process of rational decision-making, a process that
involves careful thought and deliberation, can and
will result in behavior that is both more reasonable
and more ethical.
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36. SO, WHAT DO WE MEAN BY
“ETHICS?”
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37. ETHICS IS NOT THIS:
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38. WHAT IS “ETHICS?”
At its most basic level, ethics is concerned
with how we act and how we live our lives.
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39. WHAT IS “ETHICS?”
 Ethics involves what is perhaps the most monumental
question any human being can ask:
How should we live?
 Ethics is, in this sense, practical, having to do with
how we act, choose, behave, do things.
 Philosophers often emphasize that ethics is
normative, in that it deals with our reasoning about
how we should act.
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40. WHAT IS “ETHICS?”
How should we live?
 This fundamental question of ethics can be interpreted in two
ways.
 "We" can mean each one of us individually, or it might mean
all of us collectively.
 In the first sense, this is a question about how I should live my
life, how I should act, what I should do, what kind of person I
should be.
 This meaning of ethics is sometimes referred to as morality,
and it is the aspect of ethics that we refer to by the phrase
“personal integrity.”
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41. PERSONAL RESPONSIBILITY VS.
SOCIAL RESPONSIBILITY?
 There will be many times within a business setting where an
individual will need to step back and ask:
What should I do? How should I act?
 Social ethics raises questions of justice, public policy, law, civic
virtues, organizational structure, and political philosophy.
 In the second sense, “How should we live?” refers to how we live
together in a community.
 Business ethics is concerned with how business institutions ought to
be structured, about corporate social responsibility, and about
making decisions that will impact many people other than the
individual decision-maker.
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42. PERSONAL RESPONSIBILITY VS.
SOCIAL RESPONSIBILITY?
 This aspect of business ethics asks us to examine
business institutions from a social rather than an
individual perspective.
 We refer to this broader social aspect of ethics as
decision-making for social responsibility.
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43. ETHICAL NORMS AND VALUES
Values =
Those beliefs that incline us to act or to choose in one way
rather than another.
 A company’s core values, for example, are those beliefs and
principles that provide the ultimate guide in its decision-
making.
 Individuals can have their own personal values and,
importantly, institutions also have values.
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44. DISTINGUISHING VALUES
 One way to distinguish various types of values is in terms of
the ends that they serve.
 Financial values serve monetary ends, religious values
serve spiritual ends, aesthetic values serve the end of
beauty, legal values serve law, order, and justice, and so
forth.
 Different types of values are distinguished by the various
ends served by those acts and choices.
 So, how are ethical values to be distinguished from these other
types of values? What ends are served by ethics?
 Ethical values are those beliefs and principles that
impartially promote human well-being.
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45. LEGAL RESPONSIBILITIES VS.
ETHICAL RESPONSIBILITIES
 The law provides a very important guide to ethical decision-
making, but legal norms and ethical norms are not identical nor
do they always agree.
 Over the last decade, many corporations have established
ethics programs and hired ethics officers who are charged with
managing corporate ethics programs.
 Much good work gets done by ethics officers, but it is fair to
say that much of this focuses on compliance issues. The
Sarbanes-Oxley Act created a dramatic and vast new layer of
legal compliance issues.
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46. CAN’T THE LAW ANSWER THE
QUESTION OF RIGHT OR WRONG?
 What’s good about this approach?
 What’s challenging (negative) about this approach?
1-46

47. WHY LEGAL COMPLIANCE IS
INSUFFICIENT?
 Holding that obedience to the law is sufficient to fulfill one’s
ethical duties begs the question of whether the law, itself, is
ethical.
 Societies that value individual freedom will be reluctant to
legally require more than just an ethical minimum.
 On a practical level, telling business that its ethical
responsibilities end with obedience to the law is just inviting
more legal regulation.
 The law cannot possibly anticipate every new dilemma that
businesses might face; so, often, there may not be a regulation
for the particular dilemma that confronts a business leader.
 The perspective that compliance is enough relies on a
misleading understanding of law. 1-47

48. REALITY CHECK
ETHICS GOES MAINSTREAM!
 A 2003 poll by Deloitte of 5,000 directors of the top 4,000 publicly
traded companies reported that 98 percent believed that an ethics
and compliance program was an essential part of corporate
governance.
 Over 80 percent had developed formal codes of ethics beyond those
required by Sarbanes-Oxley, and over 90 percent included
statements concerning the company’s obligations to employees,
shareholders, suppliers, customers, and the community at large in
their corporate code of ethics.
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49. HOW IS ETHICAL DECISION-MAKING
DIFFERENT FROM OTHER DECISION-
MAKING?
 Ethics is practical and normative
 Ethics is therefore a vital element of practical
reasoning: reasoning about what we should do, and
is distinguished from theoretical reasoning, which is
reasoning about what we should believe.
 Theoretical reason is the pursuit of truth, which is the
highest standard for what we should believe.
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50. PHILOSOPHICAL ETHICS AND
THEORIES
 Is there a comparable methodology or procedure for
deciding what we should do and how we should act?
 There are guidelines that can provide direction and
criteria for decisions that are more or less reasonable
and responsible: philosophical ethics.
Ethical theories are patterns of thinking, or
methodologies, to help us decide what to do.
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51. End of Lecture 1
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