Business Ethics BBA June+July

8/4/2019 Business Ethics BBA June+July

1/82

Ethics Ethics Greek word Ethika or Ethos referring to

character

Broadly referring to principles of conduct governinggroups or individuals and trying to distinguishbetween: Right / Wrong

Good / Bad

Proper / Improper


2/82

Definitions BE is a form of applied ethics that examines ethical

principles and moral or ethical problems that arise

in a business environment System of moral principles applied in the

commercial world

Moral principles concerning acceptable and

unacceptable behavior by business people andorganizations or corporations


3/82


4/82

History of Ethics 6th Century BC Pythagoras founded Orphism

5th Century BC Socrates and Pluto

4th

Century BC Aristotle Nicomachean Ethics Propagated theories of Virtues essentially Good Habits


5/82


6/82

History of Business Ethics 1960 Ralph Nader raised issue of consumer safety

from unsafe automobiles

1965 - Unsafe At Any SpeedWatergate scandal, Vietnam war

Sale of defective material

Illegal political contributions Discrimination and reverse discrimination

Trade union tyrannies


7/82

Continued..Purpose of business?

In an economically free andcompetitive society, excessive self-interest by one will be checked by

that of other


8/82

Ethics anyone??


9/82

MoralityTerm synonymous with Ethics

Represents a code of conductSeems ideal

Is more personal than ethics


10/82

Continued..Can be applied to social contexts

E.g. Prohibition against takinghuman lives in the form of:

Mercy killing

AbortionsWars


11/82

Stages of Moral Development Pre-conventional morality:

Self focus and self interest

Forms of punishment, obedience and relativity Conventional morality:

Group focus and pressure of expectation ofgroup from person

Forms of interpersonal concordance, and lawand order


12/82

ContinuedAutonomous / Post-conventional morality:

Universal focus

Impartial orientationForms of universal ethical stance and self

sacrifice

Development of different individuals atdifferent stages and rates

Implications for managers


13/82

Adam SmithAdam Smith on ethics and morality:

Why do humans behave in generousand noble ways?

It is due to reason, principle,

conscience, the human within thequiet judge and arbiter of ourconduct


14/82

Peter DruckerPeter Drucker:

What is important is that management

realizes that it must consider the impactof every business policy and action uponsociety. It has to consider whether the

action is likely to contribute to its stability,strength and harmony


15/82


16/82

Continued..2. The corporation

Employees decisions are made in the contextof corporate policies, corporate norms,organizational structure, and corporateculture

Therefore, the corporation as a whole shouldbe held responsible

3. Both the corporation and the employeesinvolved


17/82

Continued..Does the following reduce moral

responsibility?

True ignorance of fact Ignorance due to negligence

Ignorance of ethics

True inability to do anything else


18/82

MNCs MNC entry into less developed countries:

One nation cannot control them as they operate inmultiple locations

Behave more immorally in less developed countries

Exploitation of natural resources in host country

Exploitation of labor in host country

Changes in culture of host country Luring host country nationals into buying products they

cannot afford


19/82

Nature of Business Ethics Ethics is omnipresent; at the same time, there is no

ethics that is universally accepted

Business ethics decisions could be clear or gray.

Ethics is unstructured. Value systems and ethicalpractices differ from society to society

Decisions are ethical if they result in benefit to

larger society and are unethical if they result inbenefit to self only

Decisions are ethical if they are proper, good, fair,just, right and equitable


20/82

Case Study Wal-Mart Founded in early 1960s by Sam Walton in Rogers,

Arkansas

Publicly traded in 1970 More than 5000 stores all over the world, with

more than 3000 in the US

138 million people shop at Wal-Mart each week

Has had a single minded strategy of Everyday LowPrices


21/82

Continued..Account for:

Being the single largest US importer from China

30% sale of all household goods domestic products, inthe US

Largest private employer in the US

Single largest employer in 25 US states

Controls costs through leveraging buying power asthe worlds largest retailer and by controlling laborcosts


22/82

Continued.. Benefits to all:

Stockholders financial benefits

Employees jobs Consumers low prices

Businesses benefits through supplying to Wal-Mart

Beliefs of Sam Walton respect for individuals,

service to customers and striving for excellence


23/82

Continued.. Flip side:

Least admired corporation

Has been charged with manipulative pricing and

marketing Control of labor costs through paying only minimum

wages

Very less healthcare benefits provided as an employer

Charged with illegally requiring workers to workovertime without pay

Has been charged with employee discrimination


24/82

Continued.. Has been charged with employing illegal immigrants to

keep labor costs low

Has been responsible for closing down small time

businesses in smaller towns who find it difficult tocompete on basis of prices

Harms suppliers by making them bid for low pricesagainst each other reverse auction. Suppliers then

need to outsource to keep costs low so that they cansupply to Wal-Mart

Significant contributor to practice of sweat-shops


25/82

Need for BEProtect interests of those related to business

Check malpractices

Create an identity associated with ethics

Make people conscious about their rightsand responsibilities

Increase customer confidence

Avoid exploitation


26/82

Factors influencing BEPersonal code of conduct and

behavior

Standards of superiors

Corporate policies

Countrys ethical climate


27/82

Ethical DecisionsMost ethical decisions have long range

consequences

They have multiple alternativesThey involve trade off between cost incurred

and benefits received

They have mixed outcomesThey are voluntary actions


28/82

ThalidomideDeveloped by a German

pharmaceutical companyGrnenthal

in the 1950sWas found to act as an effective

tranquilizer and painkiller and wasproclaimed a "wonder drug" forinsomnia, coughs, colds and headaches


29/82

Continued..Also, the wonder drug was found to be effective on

morning sickness; so thousands of pregnant womentook it to relieve themselves of morning sicknessduring the first 2 trimesters of pregnancy

In the late 1950s and early 1960s, more than 10,000children in 46 countries were born

with deformities such as phocomelia as aconsequence of thalidomide use

Early research findings not taken seriously enough


30/82

Continued..US had not permitted the drug due to

inadequate testing, but pregnant women

vacationing in Europe had access to it.Free samples distributed to physicians

ethics issue.

In 1968 Chemie Grnenthal executives weretried for involuntary manslaughter


31/82

Continued.. By this time the company stated that Thalidomide

was not recommended for use during pregnancy assuch

The qualifying term obstetrics was employed.

It was used in hindsight to strengthen theargument that doctors would interpret the word to

mean either the final stage of pregnancy or fromconception to delivery


32/82

Corporate ResponsibilityResponsibility towards shareholders:

Safety of investment

Maximizing dividends

Participation in management

Information to shareholdersRetaining public image


33/82

Continued..Responsibility towards consumers:

Production as per requirement

Prompt and adequate serviceCo-operation

Adequate research and development

Testing of products Innovation

Improvement


34/82

Continued..Responsibility towards workers / employees:

Fair wages

Security

Opportunities for development

Proper working conditions

Trade union rights


35/82

Continued..Responsibility towards community and

Government:

Abide by laws and regulationsCooperation

Improvement of community standards by

spread of education and through otherhelp


36/82

Drivers of CSREthical consumerism

Globalization and market forces

Social awareness and education

Laws and regulations

Crisis and consequence


37/82

CSR ConcernsPurpose of corporations is to maximize

returns of shareholders

CSR with questionable motives BP, BritishAmerican Tobacco and McDonalds

Reeks of corporate hypocrisy and insincerityas companies claiming to promote CSRsimultaneously engage in harmful activities


38/82

Types of EthicsPhilosophical Foundations of Ethics:

Ethics is a brainchild of philosophy

Philosophy is a study of thoughts andmorality

Ethics:

Normative ethics

Meta ethics


39/82

Normative and Meta EthicsNormative ethics tries to discover

criteria or rules with which moral

judgments can be made howought one act, morally speaking?

Meta Ethics tries to look at what isright and what is wrong; or what isgoodness and bad


40/82

Normative TheoriesNormative ethics has the following theories:

Relativism

Teleological theories

Egoism

Utilitarianism

Deontological theories

Immanuel Kants Categorical Imperative


41/82

Relativism Relativism:

Ethical standards must be regarded as relative to

and dependent on individual and society No action can be judged right or wrong or good

or bad by a universal standard that applies to allpeople at all times

Cultural relativism says that no standards canjudge morality of a particular culture


42/82

Relativism Continued..This approach ensures that we

acknowledge diversity and are ready to

face the challenges of it professionallyIt is the opposite of ethical absolutismwhich holds that morally right behavioris cross cultural and holds good acrossall kinds of society


43/82

Teleological theories Teleological theories:

Derived from the Greek word Telos meaningEnd.

Teleological theories determine rightness andwrongness of actions by looking at the end ofthe action

The ends or consequences of an act determinewhether an act is good or evil

It is consequentialist in nature


44/82

Continued..Egoism:

If the good produced issupposed to benefit only

the agent of action, then itis Egoism


45/82

Continued..Utilitarianism:

The good produced should benefit

maximum number of peopleJeremy Bentham, an English

Philosopher, and legal and social

reformer, gave the concept of Utility tothe world


46/82

Continued..His basic principle was that:

The right act or policy was that; which

would cause "the greatest good for thegreatest number of people",

Also known as The Greatest HappinessPrinciple", or The Principle of Utility


47/82

Continued..It is the idea that the moralworth of an action is solelydetermined by its contributionto overall utility; i.e. its

contribution to pleasure orhappiness among maximumpersons


48/82

Continued..Traditional Utilitarianism holds that an

action is right from an ethical point of

view if and only if the sum total of theutilities produced by that act is greaterthan the sum total of the utilities

produced by any other act the agentcould have performed in its place


49/82


50/82

Case Study Ford PintoLate 1960s US cars manufacturerswere in danger of being overshadowed

by Japanese car makers Lee Iaccoca, then President , of Ford

ordered engineers to build a car thatwas not to weigh an ounce over 2,000pounds and not cost a cent over $2,000.


51/82

Continued.. Normal time for a car from conception to

production is 43 months

Pinto was brought to the shopfloor in 25 months

Testing after design and initial production revealeda serious defect in the placing of the gas tank

Design required the gas tank to be placed behind

the rear axle, where it became vulnerable to beingpunctured in case of a rear end collision ofmorethan 30 miles per hour, possibly burning thetrapped passengers


52/82

Continued.. Production was none the less, continued on

grounds that: Design met with all applicable legal and governmental

standards then Government regulations required that the gas tank

remains intact in case of a rear end collision of less than20 miles per hour

Ford Managers felt that the car was comparable in safetywith other cars in the same segment

Cost benefit analysis showed that it was more beneficialto go ahead with production


53/82

Analysis of cost benefit Cost:

Autos to be produced 12.5 million

Cost of design modification - $11 per unit

Total cost - $137 million

Statistical Data:

Modification would prevent loss of:

180 burn deaths valued at $200,000 each 180 injuries valued at $67000 each

2100 cars valued at $700 each


54/82

Continued.. Benefits:

In monetary terms, the modification would have thebenefit of preventing losses with a total value of $49.15

million

Argument is that it is not correct to spend $137million of societys money to provide a benefit that

was valued at $49.15 million This is a utilitarian view of cost benefit analysis


55/82

Continued..After about 60 deaths in the following decade and

numerous burns cases, and lawsuits involvingmillions of dollars, Ford recalled 1.5 million units

of the car in 1978 In February of 1978, a California jury created a

nationwide sensation when it awarded the record-breaking sum of $128 million in a lawsuit

stemming from a Pinto accident. This one lawsuitwas three times what Ford executives andengineers had estimated their final cost would be.


56/82

Problems of Measurement Measuring utility is in itself a challenge

How can the utilities that different actions havefor different people be measured and compared?

Some costs and benefits are intractable tomeasurement like value of health and life

Some costs and benefits cannot be immediatelyand reliably predicted

What is a cost and what is a benefit?

Who and how do we measure the value of noneconomic goods love, beauty, freedom etc.?


57/82

Illustration: Using low wage foreign workers in response to

price competition

Retaining market share by decreasing capital

cost Laying off some US workers in the process and

retaining some

Refusing to use low wage foreign workers mightend up in a situation where US workers also arelaid off and foreign workers dont benefit in anycase, for whom the income might be essential


58/82

Deontological TheoriesDerived from the Greek word Deon

meaning obligation or duty

It is an approach to ethics that judgesthe morality of an action based on theaction's adherence to a rule or rules

Deontologists look at rulesand duties


59/82

Immanuel Kants TheoryTo act in the morally right way, people must

act from duty

It was not the consequences of actions thatmake them right or wrong but the motivesof the person who carries out the action

The highest good must be both good initself, and good without qualification


60/82

Continued..Those things that are usually thought to be

good, such as pleasure, intelligence etc. fail

to be either intrinsically good or goodwithout qualification

Nothing in the world - indeed nothing even

beyond the world - can possibly beconceived which could be called goodwithout qualification except agood will.


61/82

Continued..There are some moral rights and duties that

all human beings possess, regardless of any

utilitarian benefits that might arise out ofthem

Categorical Imperative:

Everyone should be treated as a freeperson equal to everyone else


62/82

Continued.. First formulation of Kants Theory of CI:

An action is morally right for a person in acertain situation if, and only if, the persons

reason for carrying out the action is a reasonthat he or she would be willing to have everyperson act on, in any similar situation

Universalizabilitythe persons reasons for acts

must be reasons that everyone could act on, atleast in principle


63/82

Continued..Second formulation of Kants Theory of CI:

An action is morally right if, and only if, in

performing that action, the person doesnot use others merely as a means foradvancing his interests, but also respects

and develops their capacity to choosefreely for themselves


64/82

W D Ross Duty of beneficence: A duty to help other people

(improve conditions of others)

Duty of non-maleficence: A duty to avoid harmingother people.

Duty of justice: A duty to ensure people get whatthey deserve.

Duty of self-improvement: A duty to improveourselves.


65/82

Continued.. Duty of reparation: A duty to recompense

someone if you have acted wrongly towards them.

Duty of gratitude: A duty to benefit people whohave benefited us.

Duty of promise-keeping: A duty to act accordingto explicit and implicit promises, including the

implicit promise to tell the truth.


66/82

Rights and JusticeUtilitarianism is unable to deal with moral

issues related to rights and related to justice

Some utilitarian actions which are deemedto be morally right, actually violate peoplesrights or could be unjust to some

By engaging in utilitarian acts, corporations

might snatch away the right to information,choice etc. of people


67/82

Concept of RightRight is an individuals entitlement to

something

Legal rights: Entitlements that are derivedfrom the legal system permission orempowerment to act in a specified way

Moral rights: Entitlements that are derived

from moral systems that people have justby the virtue of being human beings


68/82

Continued..Features of rights:

Rights are correlated with duty

Rights provide individuals with autonomyin pursuit of their interest

Rights provide basis for justification ofactions

Utilitarianism defies the Rights theory

While looking at maximum utility to many,it takes away the rights of some


69/82

Case Eli LillyEli Lilly a pharmaceutical giant, was

founded in 1876 in Indiana, by a chemist

Crucial contributions are mass productionof penicillin and super-specialization inpsychiatric medicine

Innovations fruit flavoring of medicinesand sugar coating of pills


70/82

Continued..Testing of drugs is a situation which

contradicts itself:

FDA requires drugs to be tested onhealthy humans to determine side effects

Healthy humans will not offer themselves

as subjects to untested drugsTest subjects can die, suffer from organ

failure or damage etc.


71/82

Continued..Eli Lilly discovered a large number ofvolunteers willing to take untested drugs at$85 per day plus free food and shelter

Source was homeless people taking refuge inshelters, soup kitchens etc

Tests running for several months ensured all

three for these peopleTests provided enormous benefit to society


72/82

Continued..Participants needed to give informed

consent

The people whom Eli Lilly had chosenwere mostly illiterate, so even if theyhad signed a consent form, they had no

clue what they were getting into


73/82

Justice and FairnessThese are essentially comparative terms

They are concerned with comparative

treatment is given to members given when:Rules and laws are administered

Benefits and burdens are distributed

Punishment is decidedGroups are in competition or cooperation


74/82

Types of justiceDistributive justice:

Concerned with sharing burdens and

benefits with members of a society Individuals who are similar in all respects,

relevant to the kind of treatment in

question, should be given equal / similarbenefits and burdens, even if they aredissimilar in other irrelevant respects


75/82

Continued..Justice as equality Egalitarianism:

Every person should be given exactly

equal in terms of burdens and benefitsJustice as contribution Capitalist:

Benefits and burdens should be

distributed according to the value of thecontribution the individual makes to thesociety, task, group etc.


76/82

Continued..Justice based on needs and abilities Socialism: Burdens should be distributed according to

abilities and benefits according to peoples

needsJustice as freedom Libertarianism:

Any distribution of benefits and burdens is just,if it is the result of individuals freely choosing toexchange with each other the goods each personalready owns


77/82

Continued..Justice as fairness Rawls Theory:

Principle of equal libertyeach personsliberties must be protected from invasion

Principle of difference steps must be taken toimprove the position of the most needymembers of society

Principle of fair equality of opportunityeveryone should be given an equal opportunityto qualify for more privileged positions insociety


78/82

Retributive JusticeJustice of blaming or punishing a person for wrong

actions

People cannot be held morally responsible forwhat they do out of ignorance or inability

There should be certainty before punishingabout the person being actually wrong

Punishment should be consistent andproportioned to the wrong


79/82

Compensatory JusticeJustice of restoring a person what he / she

has lost when wronged by someone

Compensation should happen only whenthe action causing the harm wasdeliberate and wrong

The persons action was the real cause ofharm


80/82

Building a Good Society Society is a dynamic and ever changing body

Base level classification is Warrior Society andIndustrial Society

As industrialization and economic activitiesincrease, previously warring countries need to becooperative with each other

Modern society free movement of monetarycapital, physical capital and intellectual capital


81/82

Continued..Businesses therefore need to be wise about

instituting changes which benefit onlythemselves

Extreme concentration on own survivalcould lead to a self defeating scenario ofconsumers lacking means to buy products

and enjoy services It is therefore in the best interest of a

business to build a good society


82/82

Continued..A good society is a just society where

everyone shares burdens according to

capability and benefits according tocontribution

As Gandhiji puts it: it is a society where the

poorest of the poor are just as happy as therichest of the rich

Documents

Business Ethics BBA June+July