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Chapter 1

January 12, 2017

Should be able to :
Understand the general nature of business ethics.

Know the stages of moral development and the

principles of moral reasoning.

Recognize the legitimacy of business ethics.

Define and discuss the different types and levels

of moral responsibility.
Was one of a number of US companies able to
trade in Vietnam after President Bill Clinton
lifted a US economic embargo in 1994
River blindness (A disease caused by parasitic
worm by the bite of black fly)

Massive medical research cost

Ethical behaviour, is it profitable?

Hard to distribute the medicine

Big risk to end the profit of existing product

What does ethical mean ???
(from study of businessmen)

What "conforms to
the golden rule
What my feelings
tell me is right
What is in accord 50%
with my religious
Conscience" sometimes commands
wrongly or not at all

Religion: sometimes commands wrongly

The golden rule:

perhaps commands wrongly: different
strokes for different folks
hard to interpret it
Definition: "the standards an individual or group
has about what is right and wrong, or good and

Standards that are not moral, e.g.:

Legal standards

These standards are absorbed as children from a

variety of influences and we revise them as we
Deal with matters we think can seriously injure or
benefit human beings

Not established or changed by the decisions of

authoritative individuals or bodies

Are overriding: take precedence over other

standards & considerations (especially of self-

Are based on impartial considerations

Associated with special emotions and vocabulary

Definition: the activity of examining one's
moral standards or societies' and asking:
how these standards apply to our lives
whether they are reasonable or unreasonable
Social Scientific Ethics
Study of Morality (Evaluative Study of Morality)
Descriptive Normative
- what there standards are - questions about consistency & rationality
- how they came by them - completeness & adequacy
Normative study of moral standards as they apply
to business policies, institutions, and behavior

The ethical analysis of business practices

concerning the economic, political, and other
social systems within which businesses operate.

concerning issues & practices of a particular

concerning particular individuals within
Applying Ethics to Corporate Organizations

Human individual Corporate organization

Globalization, Multinational, and Business Ethics

Fact: most large companies today are
multinationals: firms that maintain operations
in many different countries.

There are ethical dilemmas:

Able to shift operations out of one country & into
another that offers more favorable conditions
(e.g. cheaper labor)
Enabling them to playing off one government
against another (as happens even between U.S.
states) (e.g. escape social control)
To go along with ethically questionable local
practices (e.g., apartheid as previously practiced
in South Africa) vs. Risk their operations & market
in the host country

To practice tax avoidance to the maximum of

their abilities vs. Paying what might be viewed as
their fair share

Benefits of technology transfer vs. Risks

Ethical Relativism (ER) holds
Negative thesis: there are no ethical standards
that are absolutely true for all societies

Positive thesis: something is right within a given

society if it accords with that societies moral
Fact of cultural disagreement over the likes of
polygamy & homosexuality, etc

Doesn't necessarily mean there are no objective

standards that are universally true

Some norms or standards are universal in the sense

that every society must have them

Seeming different practices may express shared

underlying values

If ER were correct then the moral standards of a

society are above criticism (Absurd Consequence)
Ethical issues therein raised concern
Utility: risk vs. promise: costs vs. benefits of the
Justice: fairness of the distribution of resulting
costs or risks & benefits
Culture & Character: human habitability of the
world as transformed ... do we really want to go
Information technology including the internet and
issues of privacy
issues of property: copyrights v. "fair use

Nanotechnology poses unknown risks

Biotechnology and especially genetic engineering

poses dimly understood ecosystemic risks
Level One : Pre-conventional stages
1. Punishment & Obedience Orientation
2. Instrumental & Relative Orientation

Level two: Conventional Stages

3. Interpersonal Concordance Orientation
4. Law and Order Orientation

Level three: Post-conventional, Autonomous,

or principled staged
5. Social contract Orientation
6. Universal Ethical Principles Orientation
Logical validity
Does the conclusion really follow from the premises?
Given some hidden assumptions?
Concerning the factual evidence
Is it accurate?
Is it relevant?
Is it complete?
Concerning the moral standards
Are they consistent with other acknowledged moral
Are they being consistently applied?
Perfectly free markets insure maximum social
benefits better than anything

Loyal Agent's Argument

Business ethics is essentially just obeying the

Leads most efficiently to the production of
goods & services that the buying public needs
and wants

Attempts by managers to impose their moral

convictions only gets in the way of the workings
of the marketplace

So managers should single-mindedly pursue

profit to the exclusion of all else (including
what they take to be morality)
Questionable assumptions:
in fact industrial markets are not perfectly free
not all profit increasing practices are socially beneficial
unconstrained pollution
deceptive advertising
price fixing
the buying public <> the public: distribution of goods &
services also an essential purpose of economic institutions
Inconsistency: the conclusion that managers should
single-mindedly pursue profit to the exclusion of all
else (morality included) is itself a normative ethical
A loyal agent's duty is to serve his/her employer
as the employer wants to be served.

An employer wants to be served in whatever

ways will advance his/her self-interest.

Therefore, as loyal agents of their employers

(stockholders) managers have a duty to serve
their employers in whatever ways advance their
employers self-interest.
the argument rests on an normative/ethical assumption (an
agent's moral duty being asserted)
to argue that ethical considerations don't apply in business
Assumes there are no limits to an agent's duty to serve
his employer, but
the managers duty to serve his employer are limited
by duties as citizen, etc.
by morality & even law
law of agency
"when considering whether or not orders . . . to the agent are
reasonable . . . business or professional ethics are to be considered"
"in no event would it be implied that and agent has a duty to perform
acts which are illegal or unethical"
Nuremberg Principle: "Following orders" does not excuse
immoral actions.
Wrongful business practices are those forbidden
by law.

Therefore following the law is sufficient to

prevent wrongful conduct in & by businesses
some illegal acts are not immoral
(laws enforcing slavery )

some immoral acts are not illegal

(e.g. killing & raping slaves was not illegal in the U. S. South)

morality couldn't shape our laws if morality

equaled legality
Abortion is not illegal. Therefore, it's not wrong, so it
shouldn't be made illegal.
Simple Argument
Ethics should govern all human activities.

Business is a human activity.

Therefore, ethics should govern business too.

Unethical businesses become targets of moral

outrage which works to their detriment.
Businesses can't survive without ethics
business requires at least a minimal adherence to ethics on
the part of those involved in the business: e.g., the honoring
of contracts by customers, managers, & employees
business requires a stable society in which to carry on its
dealings: morality is a stabilizing force in society.

Therefore it is in the best interests of businesses

to promote ethical behavior (and practicing it is
the best way to promote it).
Observed evidence
example of Merck, Inc. and others shows business
can have exemplary ethics & still be very profitable
no studies have found a negative correlation
between socially responsible behavior and profits.

Reasons behind the profitability of ethical

behavior (cited earlier in connection with the
Merck example): ethical behavior cultivates good
will & loyalty
among customers
among employees
The prisoner's dilemma" lesson: "when
people deal with each other repeatedly, so
that each can later retaliate against or reward
the other party, cooperation is more
advantageous than continually trying to take
advantage of the other party.
Conditions of Moral Responsibility: A person is
morally responsible only for those acts and
their foreseen injurious effects of deliberate
acts or ommissions
knowingly and freely performing or bringing about
what it was morally wrong for the person to perform
or bring about
knowingly and freely failing to perform or to prevent
which it was morally wrong for the person to fail to
perform or prevent
Excusing Conditions: Total absolve the agent of blame:
Eliminate responsibility
ignorance: didn't know asbestos exposure was
inability: workers refused to wear protective masks &
company was unable to force them
Exceptions to Excusing Conditions
Willful ignorance: carefully avoided studying up on the
effects of asbestos exposure because they didn't want to
Ignorance of Principle vs. Ignorance of Fact
Principle: bribery is wrong
Fact: by tipping a customs official I was actually bribing him into
canceling certain import fees
Both exculpatory to they extent that they are not willful
Mitigating Conditions: partially absolve the agent of
blame: diminish responsibility

Circumstances which leave a person uncertain but

not altogether unsure about what they're doing
Circumstances making it difficult but not impossible
to avoid doing it
Circumstances that minimize but do not completely
remove a person's direct involvement in the act:
diminished instrumentality
Factoring in the seriousness of the wrong
duress is no excuse (some say)

there's no real difference between omission and

commission: letting die is as bad as killing (some
Corporate acts: acts brought about by several
actions or omissions of many different people
all cooperating together so that their linked
actions and omissions jointly produce the
corporate act.

Question: Who is morally responsible?

"Traditional" Individual Responsibility View: those who
knowingly & freely did their parts are each morally
responsible for the act.
Alternative Corporate Responsibility View: the
corporate group and not the individuals who make up
the group must be held responsible.
We (and the law) say EXXON was responsible for the Valdez
oil spill: not just the Captain (though he was drinking) + the
person who hired this captain + . . .

More often than not . . . employees of large corporations

cannot be said to have "knowingly and freely joined their
actions together" to bring about a corporate act or pursue a
corporate objective. Employees of large-scale
organizations follow bureaucratic rules that link their
activities together to achieve corporate outcomes of which
the employee may not even be aware.
engineers may design a product with certain weaknesses
not knowing
that marketing dreamt up an application for which the
product is unfit and plans to sell the product for that
application (without knowing its unfit for that application)
In such cases ordinary mitigating factors
suffice to mitigate the employees responsibility
without appeal to any such notion as
"corporate responsibility"
e.g., the engineers didn't know it would be used that
e.g., the marketing dept. didn't know it couldn't
safely be used that way
Amply mitigates the individuals: but isn't there some
responsibility left over that belongs to no particular
individual but rather the Corporation: say due to its
corporate culture engineers don't talk to marketing
Corporations generally have hierarchical
authority structures in which
those above issue orders & directives
which those below them are expected -- on pain of
dismissal -- to follow & carry out

One view: those who are "only following orders"

are not responsible for the acts that result (only
those who gave the orders): the Nuremberg
When a subordinate acts on the orders of a legitimate
superior this absolves the subordinate of all
responsibility for the act.
They were only "following orders"
A subordinate has no obligation to obey an immoral
order -- quite the contrary

The subordinate's responsibility

may be mitigated by the duress: "Do it or I'll find
some one who will," the Boss says.
but they are not excused.

The superior bears unmitigated responsibility

the fact that the superior used a "human instrument"
(the subordinate) to do the act
does not diminish the superior's own
"instrumentality" in bringing it about.
Slavery in the Chocolate Industry
What are the systemic, corporate, and individual
ethical issues raised by this case?

Is child slavery absolutely wrong (no matter what)

or only relatively so (depending on whether your
culture disapproves of slavery)?

Who shares the moral responsibility for the slavery

occuring in the chocolate industry?
Enron (ABC News Video)
What are the systemic, corporate, and individual
ethical issues raised by this case?

Who was morally responsible for the collapse of


If Enron had not collapsed and Enron's accounting

practices had adhered to the letter if not the spirit
of the Generally Accepted Accounting Principles
would there have been anything wrong with what
Enron did?