Business Ethics, Anderson University DBA Fall 2001

Business Ethics Concepts & Cases

Manuel G. Velasquez

ABSTRACT

Summary of the main points of the first two chapters in the book. The remaining chapters are application of the concepts summarized as relating to political forms of government and market systems. These further chapters are less relevant to the DBA class that this summary was prepared for.

Ó 2001by Karl R. Knapp Page 1 of 17 0812/2001


Business Ethics, Anderson University DBA Fall 2001

Chapter 1 – Ethics & Business

Ethics is the principles of conduct governing an individual or a group. It is the study of morality.

Morality are the standards that an individual or group has about what is right and wrong, or good and evil.

Moral norms can usually be expressed as general rules or statements, such as “Always tell the truth”. Moral values can usually be expressed as statements describing objects or features of objects that have worth, such as “Honesty is good” and “Injustice is bad”.

Five characteristics can help pin down the nature of moral standards.

1. Moral standards deal with matters that we think can seriously injure or seriously benefit human beings.

2. Moral standards are not established or changed by the decisions of particular legislative bodies.

3. We feel that moral standards should be preferred to other values including (especially?) self-interest.

4. Moral standards are based on impartial considerations. – that is, a point of view that does not evaluate standards according to whether they advance the interests of a particular individual or group, but one that goes beyond personal interests to a “universal” standpoint in which everyone’s interests are impartially counted as equal.

5. Moral standards are associated with special emotions and a special vocabulary.

Ethics is the discipline that examines one’s moral standards or the moral standards of a society. Ethics is the study of moral standards – the process of examining the moral standards of a person or society to determine whether these standards are reasonable or unreasonable in order to apply them to concrete situations and issues. The ultimate aim of ethics is to develop a body of moral standards that we feel are reasonable to hold – standards that we have thought about carefully and have decided are justified standards for us to accept and apply to the choices that fill our lives.

Although ethics is a normative study of ethics, the social sciences engage in a descriptive study of ethics. A normative study aims to discover what should be. A descriptive study attempts to describe or explain the world without reaching any conclusions about whether the world is as it should be.

1.1 The Nature of Business Ethics

Business ethics concentrates on the moral standards as they apply to business policies, institutions, and behavior. Business ethics, in other words, is a form of applied ethics. It includes not only the analysis of moral norms and moral values, but also attempts to apply the conclusions of this analysis to that assortment of institutions, technologies, transactions, activities, and pursuits that we call business.

Business ethics investigates three different kinds of issues: systemic, corporate, and individual. Systemic issues in business ethics are ethical questions raised about the economic, political, legal, and other social systems within which businesses operate. Corporate issues in business ethics are ethical questions raised about a particular company. Individual issues in business ethics are ethical questions raised about a particular individual or particular individuals within a company.

Because corporate acts originate in the choices and actions of human individuals, it is these individuals who must be seen as the primary bearers of moral duties and moral responsibility. Nonetheless, it makes perfectly good sense to say that a corporate organization has moral duties and that it is morally responsible for its acts.

The fact that multinationals operate in more than one country produces ethical dilemmas for their managers that managers of firms limited to a single country do not face.

· The ability to shift its operations between countries enables the multinational to escape the social controls that a single nation might attempt to impose on the multinational and can allow the multinational to play one country against another.

· It can sometimes transfer raw materials, goods and capital among its plants in different countries at terms that enable it to escape taxes and fiscal obligations that companies limited to a single nation must bear.

· They often have the opportunity to transfer a new technology or set of products from a more developed country into nations that are less developed.

· It is often faced with the quandary of deciding which of these different norms and standards to implement in its many operations.

Ethical relativism is the view that there are no ethical standards that are absolutely true and that apply or should be applied to the companies and people of all societies. Thus, the theory of ethical relativism implies that whatever the majority in our society believes about morality is automatically correct. The fundamental problem with ethical relativism is that it holds that the moral standards of a society are the only criteria by which actions in that society can be judged.

Almost all ethical issues raised by new technologies are related in one way or another to questions of risk. Many of the ethical issues new technologies have created – especially information technologies – are related to privacy. Information technologies have also raised difficult ethical issues about the nature of the right to property when the property in question is information. Finally, biotechnology has created yet another host of troubling ethical issues.

1.2 Moral Development & Moral Reasoning

As people mature, they change their values in very deep and profound ways. The ability to make reasoned moral judgments develops in identifiable stages (Kohlberg).

A. Preconventional Stages

At these first two stages, the child is able to respond to rules and social expectations and can apply the labels of good, bad, right and wrong. These rules, however, are seen as something externally imposed on the self.

1. Punishment and Obedience Orientation – At this stage, the physical consequences of an act wholly determine the goodness and badness of that act.

2. Instrument and Relativity Orientation – At this stage, right actions become those that can serve as instruments for satisfying the child’s needs of the needs of those for whom the child cares.

B. Conventional Stages

Maintaining the expectations of one’s own family, peer group, or nation is now seen as valuable in its own right, regardless of the consequences.

1. Interpersonal Concordance Orientation – Good behavior at this early conventional stage is living to the expectations of those for whom one feel loyalty, affection, and trust, such as family and friends.

2. Law and Order Orientation – Right and wrong at this more mature conventional stage now come to be determined by loyalty to one’s own larger nation or surrounding society.

C. Post Conventional, Autonomous, or Principled Stages

At these stages, the person no longer simply accepts the values and norms of the groups to which he or she belongs. Instead the person now tries to see situations from a point of view that impartially takes everyone’s interests into account.

1. Social Contract Orientation – At this first post-conventional stage the person becomes aware that people hold a variety of conflicting personal views and opinions and emphasizes fair ways of reaching consensus by agreement, contract, and due process.

2. Universal Ethical Principles Orientation – At this final stage, right action comes to be defined in terms of moral principles chosen because of their logical comprehensiveness, universality and consistency.

Although people generally progress through the stages in the same sequence, not everyone progresses through all the stages. Kohlberg has been criticized for claiming that the higher stages are morally preferable to the lower stages. It fails to adequately trace out the pattern of development of women. Females, Gilligan claimed, tend to see themselves as part of a “web” of relationships. For women, morality is primarily a matter of “caring” and “being responsible” for others with whom one is involved in personal relationships, and not a matter of adhering to impartial and impersonal rules. Moral development for women is marked by progress toward more adequate ways of caring and being responsible for oneself and for others. This is called the care perspective.

Moral reasoning refers to the reasoning process by which human behaviors, institutions, or policies are judged to be in accordance with or in violation of moral standards. Moral reasoning always involves two essential components:

1. An understanding of what reasonable moral standards require, prohibit, value, or condemn; and

2. Evidence or information that shows that a particular person, policy, institution, or behavior has the kinds of features that these moral standards require, prohibit, value, or condemn.

First and primarily, moral reasoning must be logical. All the unspoken moral and factual assumptions must be made explicit, and both assumptions and premises be displayed and subject to criticism. Second, the factual evidence cited in support of a person’s judgment must be accurate, relevant, and complete. Third, the moral standards involved in a person’s moral reasoning must be consistent. The consistency requirement is the basis of an important method of showing that a given moral standard must be modified or rejected: the use of counter examples or hypotheticals.

1.3 Arguments For and Against Business Ethics

Persons involved in business, they claim, should single mindedly pursue the financial interests of their firm and not sidetrack their energies or their firm’s resources into “going good works”. First, some have argued that in perfectly competitive free markets, the pursuit of profit will by itself ensure that the members of society are served in the most socially beneficial ways. First, most industrial markets are not “perfectly competitive”. Second, the argument assumes that any steps taken to increase profits will necessarily be socially beneficial. Third, the argument assumes that, by producing whatever the buying public wants (or values), firms are producing what all the members of society want, when in fact the wants of large segments of society (the poor and disadvantaged) are not necessarily met because they cannot fully participate in the marketplace. Fourth, the argument is essentially making a normative judgment on the basis of some assumed but unproved moral standards.

A loyal agent of his or her employer, the manager has a duty to serve his or her employer in whatever ways will advance the employer’s self-interests. The loyal agent argument relies on several questionable assumptions. First, the argument tries to show, again, that ethics does not matter by assuming an unproved moral standard. Second, the loyal agent argument assumes that there are no limits to the manager’s duties to serve the employer, when in fact, such limits are an express part of the legal and social institutions from which these duties arise. The law of agency states that, “in determining whether or not the orders of the client to the agent are reasonable … business or professional ethics are to be considered,” and “in no event would it be implied that an agent has a duty to perform acts which are illegal or unethical.” Third, the loyal agent argument assumes that if a manager agrees to serve a firm, then this agreement automatically justifies whatever the manager does on behalf of the firm.

A third kind of objection is sometimes made against bringing ethics into business. This is the objection that to be ethical it is enough for business people merely to obey the law: Business ethics is essentially obeying the law. It is wrong, however, to see law and ethics as identical. Moreover, most ethicists agree that all citizens have a moral obligation to obey the law so long as the law does not require clearly unjust behavior. This means that, in most cases, it is immoral to break the law.

One way to argue that ethics should be brought into business is simply by pointing out that, because ethics should govern all voluntary human activities and because business is a voluntary human activity, ethics should also govern business.

Business activities, like any other human activities, cannot exist unless the people involved in the business and its surrounding community adhere to some minimal standards of ethics.

Ethical considerations are consistent with business pursuits, in particular the pursuit of profit (results have been mixed, but no studies have found a negative correlation).

A prisoner’s dilemma is a situation in which two parties are each faced with a choice between two options: Either cooperate with the other party or do not cooperate. From the joint standpoint of the parties involved, the best outcome in a prisoner’s dilemma is for both parties to cooperate in their agreement. In short, when people must choose between cooperating or not cooperating in rules or agreements, and when each has more to gain by not cooperating, then rational self-interest suggests that people should not cooperate in keeping the rules or agreements. The prisoner’s dilemma, then, seems to show that the rational self-interested person should be unethical in business when there is something to be gained through unethical behavior. However, this conclusion is based on a false assumption. We have assumed so far that prisoner’s dilemma situations are isolated interactions between people who never interact again. This threat of future retaliation makes it more rational for the parties in a series of repeated exchanges to cooperate than to try to take advantage of each other. The most important lesson of the prisoner’s dilemma, then, is that when people deal with each other repeatedly, so that each can later retaliate against or reward the other party, cooperation is more advantageous than continuously trying to take advantage of the other party.

Business interactions with employees, customers, suppliers, and creditors are repetitive and ongoing. The prisoner’s dilemma argument, then, implies that, over the long run and for the most part, it is better to be ethical in business than to be unethical.

Finally, we should note that there is also a good deal of evidence that most people so value ethical behavior that they will punish those whom they perceive to be behaving unethically and reward those who are perceived to be ethical.

1.4 Moral Responsibility & Blame

Moral reasoning, however, is sometimes directed at a related but different kind of judgment: determining whether a person is morally responsible, or culpable, for having done something wrong or for having wrongfully injured someone. The term moral responsibility is sometimes used as an equivalent to moral duty or moral obligation.