CHAPTER 1

ETHICS AND BUSINESS

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Learning outcomes
What is business ethics What are the six basic stages of moral development? Should moral standards be applied to business? When is a person morally responsible for doing wrong?
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WHAT IS BUSINESS ETHICS?

What is ethics? According to the dictionary, the term ethics has a variety of different meanings. The principles of conduct governing an individual or a group Ethics is the study of morality A set of moral principles.
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 Ethics is the discipline that examines ones moral standards or the moral standards of a society. It asks how these standards apply to our lives and whether these standards are reasonable or unreasonable. 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. Morality: The standards that an individual or a group has about what is right and wrong or good or evil
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 Although ethics deals with morality, it is not quite the same as morality. Ethics is a kind of investigation and includes both the activity of investigating as well as the results of the investigation whereas morality is the subject matter that ethics investigates. The ultimate aim of ethics is to develop a body of moral standards that we feel are reasonable to hold i.e standards that we have thought about carefully and have decided are justified standards for us to accept and apply to the choices than we make in our lives.
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Sources of Ethical Norms

Fellow Workers Fellow Workers Regions of Country

Family The Individual Conscience Friends

Profession

Employer

The Law

Religious Beliefs

Society at Large

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Moral and Non moral Standards

Moral standards The norms about the kinds of actions believed to be morally right and wrong as well as the values placed on the kinds of objects believed to be morally good and morally bad. Moral norms can usually be expressed as general rules or statements, such as Always tell the truth, It is wrong to kill innocent people. Non moral standards The standards by which we judge what is good or bad or right or wrong in a non moral way.
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 Examples of nonmoral standards include the standards of etiquette by which we judge manners as good or bad, the standards we call the law by which we judge legal right and wrong, the standards of language by which we judge what is grammatically right and wrong, the standards of aesthetics by which we judge good and bad art, and the athletic standards by which we judge how well a game of football or basketball is being played
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 What are the characteristics that distinguish moral standards from standards that are not moral? Moral standards deal with matters that we think can seriously injure or seriously benefit human being. For e.g moral standards against theft, rape, enslavement, murder etc. Moral standards are not established or changed by the decisions of particular authoritative bodies. Laws and legal standards are established by the authority of a legislature or the decisions of voters. Moral standards, however, are not established by authority nor does their validity rest on voting procedures. Instead, the validity of moral standards rests on the adequacy of the reasons that are taken to support and justify them, so long as these reasons are adequate, the standards remain valid.

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 Moral standards, should be preferred to other values, including self-interest. Moral standards are based on impartial considerations. Moral standards are associated with special emotions (guilt, shame, remorse, etc.).

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Normative and descriptive studies Ethics is not the only way to study morality. The social sciences-such as anthropology, sociology, and psychology also study morality, but do so in a way that is quite different from the approach to morality. Although ethics is a normative study, the social sciences engage in a descriptive study of ethics.
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 Normative study is an investigation that attempts to reach normative conclusion- that is, conclusions of what things are good or bad or what actions are right or wrong, it aims to discover what should be. A descriptive study is the one that does not try to reach any conclusion about what things, are truly good or bad or right or wrong. Instead it attempts to describe or explain the world without reaching any conclusions about whether the world is as it should be.
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Business Ethics
A specialised study of moral right and wrong that concentrates on moral standards as they apply to business policies, institutions, organisations, and behavior.

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Business ethics issues

The three basic types of issues 1. Systematic issues: Questions raised about, political, legal, economical or other social systems within which businesses operate. For e.g questions about the morality of laws, Corporate issues: questions that are raised about a particular company. These include questions about the morality of the activities, policies, practices, or organisational structure of an individual company taken as a whole. Individual issues: questions about a particular individual within an organisation and their behaviors and decisions. These include questions about the morality of the decisions, actions, or character of an individual.
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2.

3.

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Relativism

Egoism

The 4 Concepts of Ethics Utilitarianism

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Deontologism
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Business Ethics and Cultural Differences

When faced with the fact that different cultures have different moral standards, the managers of some multinationals have adopted the theory of ethical relativism. Ethical relativism Ethical relativism is the theory that, because different societies have different ethical beliefs, there is no universal way of determining whether an action is morally right or wrong other than by asking whether the people of this or that society believe it is morally right or wrong.
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 Relativism holds that something is right for the people or companies in one particular society if it accords with their moral standards and wrong for them if it violates their moral standards. Moral codes demonstrates that there is no one right answer to ethical questions. The best a company can do is to follow the old adage, When in Rome, do as the Romans do. In other words, there are no absolute moral standards.
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Critics of ethical relativism 1.There are certain moral standards that the members of any society must accept if that society is to survive and if its members are to interact with each other effectively. Thus all societies have norms against the following: injuring or killing other members of the society, norms about using language truthfully when communicating with members of one society, and norms against taking the personal goods of other members of ones society
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 Many apparent moral differences among societies turn out on closer examination to mask deeper underlying similarities. For e.g, anthropologists tell us that in some Alaskan Inuit societies it was morally acceptable for families to abandon their aged to die outdoors during times of hardship, whereas other societies felt they had a moral obligation to protect and nurture their aged at all times. Yet on close examination, it can turn out that underlying the different practices of both kinds of societies is a belief in the same ethical standard: the moral duty of ensuring the long term survival of the community.

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 In their harsh environment, Inuit people may have had no way of ensuring their communitys survival when food supplies ran short other than by abandoning their aged. Other communities ensured their long term survival by protecting the elders who carried within them the knowledge and experience the communities needed. 2. Because different people have different moral beliefs about some issue, it does not follow logically that there is no objective truth about that issue nor that all belief about that issue are equally acceptable.
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 When two people or two groups have different beliefs, philosophers are fond of pointing out at least one of them is wrong. For e.g the late philosopher James Rachels put his case on the matter as follows: The fact that societies have different moral codes proves nothing. There is also disagreement from society to society about scientific matters: in some cultures it is believed that the earth is flat and evil spirits cause diseases. We do not on that account conclude that there is no truth in geography or in medicine. Instead, we conclude that in some cultures people are better informed than in others. Similarly disagreements in ethics might signal nothing more than that some people are less enlightened than others. At the very least the fact of disagreement does not, by itself, entail that the truth does not exist.
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3. Ethical relativism has incoherent consequences. If ethical relativism were true, opponents claim, then it would make little sense to criticize the practices of other societies so long as their practices conformed to their own standards. For example, we could not say that: child slavery, as practiced in many parts of the world, is wrong nor that the discrimination practiced in the societies of apartheid South Africa in the 20th century was unjust, nor that the Germans treatment of Jews in the Nazi society of the 1930s was immoral.
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 Nor could we criticise the actions of businesses that participate in these practices. For example, a journalist recently discovered that IBM knowingly supplied the data-processing machines that the Nazis used to track down and exterminate Jews in Germany and that its profits from doing business with Nazis helped make it the successful company it is today. Several oil companies, including Caltex and Mobil, helped the South African government exploit its oil resources in the 1980s knowing that government would use the revenues to enforce the apartheid regime that discriminated against blacks and violated their civil rights. Is ethical relativism correct when it tells us that we cannot say these companies acted unethically since they were just following local standards?

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4. Opponents also claim that if ethical relativism were correct, then it would also make no sense, in fact it would be morally wrong to criticise any of the moral standards or practices accepted by our own society. If our society accepts that a certain practice such as slavery is morally right, then as members of this society, we too must accept that practice as morally right, and it is immoral for us to tell others in our society to go against this belief because right and wrong for us must be determined by the standards of our society. According to critics, then, the theory of ethical relativism implies that whatever the majority in ones society believes about morality is automatically correct

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Lesson? The ethical relativism theory correctly remind us that different societies have different moral beliefs and that we should not simply dismiss the moral beliefs of other cultures when they do not match our own.

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MORAL DEVELOPMENT AND MORAL REASONING

Moral Development The psychologist Lawrence Kohlberg, pioneered a research in the field of moral development over 20 years. He concluded that there is a sequence of six identifiable stages in the development of a persons ability to deal with moral issues. He grouped these stages of development into three levels, each containing two stages.
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Heinz Steals the Drug In Europe, a woman was near death from a special kind of cancer. There was one drug that the doctors thought might save her. It was a form of radium that a druggist in the same town had recently discovered. The drug was expensive to make, but the druggist was charging ten times what the drug cost him to make. He paid $200 for the radium and charged $2,000 for a small dose of the drug. The sick woman's husband, Heinz, went to everyone he knew to borrow the money, but he could only get together about $ 1,000 which is half of what it cost. He told the druggist that his wife was dying and asked him to sell it cheaper or let him pay later. But the druggist said: "No, I discovered the drug and I'm going to make money from it." So Heinz got desperate and broke into the man's store to steal the drug-for his wife. Should the husband have done that? (Kohlberg, 1963, p. 19)
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Six Stages of Moral Development Level 1. Pre-conventional stages The Pre-conventional level is especially common in children. The child is able to respond to rules and social expectations and can apply the labels good, bad, right, ad wrong. These rules, however, are seen as something externally imposed on the self. Right and wrong are interpreted in terms of the pleasant or painful consequences of actions or in terms of the physical power of those who set the rules.
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Stage 1: Punishment and Obedience Orientation At this stage, the physical consequences of an act wholly determine the goodness or badness of that act. The childs reasons for doing the right thing are to avoid punishment or defer to the superior physical power of authorities. There is little awareness that others have needs similar to ones own. Stage 2: Instrumental and Relative Orientation At this stage, right actions become those that can serve as instruments for satisfying the childs own needs or the needs of those for whom the child cares. At stage two the child shows a limited interest in the needs of others, but only to a point where it might further ones own interests, such as you scratch my back and Ill scratch yours.
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Level 2. Conventional Stages The conventional level is typical of adolescents and adults. They judge the morality of actions by comparing these actions to societal views and expectations. Maintaining the expectations of ones family, peer group, or nation is now seen as valuable in its own right, regardless of the consequences. The conventional level consists of the third and fourth stages of moral development.
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Stage 3: Interpersonal Concordance Orientation Good behavior at this early conventional stage is living to the expectations of those for whom one feels loyalty, affection, and trust, such as family and friends. Right action is conformity to what is generally expected in ones role as a good son, daughter, brother, friend and so on. Good behavior means having good motives and interpersonal feeling such as love, empathy, trust and concern for others. The morality of an action is judged by evaluating its consequences in terms of a persons relationships, which now begin to include things like respect, gratitude etc.
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Stage 4: Law and Order Orientation Right and wrong at this more mature conventional stage now come to be determined by loyalty to ones own larger nation or surrounding society. Laws are to be upheld except where they conflict with other social duties. The emphasis is on obeying laws, respecting authority, and performing ones duties so that the social order is maintained.
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Level 3. 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 views that impartially takes everyones interests into account. The person questions the laws and values that society has adopted and redefines them in terms of self-chosen moral principles that can be justified in rational terms. If an adult at this stage is asked why something is wrong, the person will respond in terms of what has been decided through processes that are fair
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to every one or in terms of justice, or societys overall welfare. The post-conventional level, also known as the principle level, consists of stages five and six of moral development. Stage 5: Social Contract Orientation At this stage the person becomes aware that people hold a variety of conflicting personal view and opinions and emphasises fair ways of reaching consensus by agreement, contract, and due process. Individuals are viewed as holding different opinions and values.
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Stage 6: 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.

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Moral Reasoning 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. Two essential components of moral reasoning 1. An understanding of what reasonable moral standards require, prohibit, value, or condemn 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.
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 To evaluate the adequacy of moral reasoning, ethicists employ three main criteria: 1. Moral reasoning must be logical. 2. Factual evidence must be accurate, relevant, and complete. 3. Moral standards must be consistent.

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The consistency requirement can be phrased as follows: If I judge that a certain person is morally justified (or unjustified) in doing A in circumstance C, then I must accept that it is morally justified (or unjustified) for any other person:
(a) To perform any act relevantly similar to A (b) In any circumstances relevantly similar to C.

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Arguments For and Against Business Ethics

Three Objections to Bringing Ethics into Business Persons involved in business should singlemindedly pursue the financial interests of their firm and not side track their energies or their firms resources into doing good works. Three kinds of arguments are advanced in support of this view. 1. First, they argue that the pursuit of profit in perfectly competitive free markets will by itself, ensure that the members of a society are served in the most socially beneficial ways.
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 To be profitable, each firm has to produce only what the members of society want and has to do this by the most efficient means available. Questionable assumptions on which the argument rests: The argument assumes that any steps taken to increase profits will necessarily be socially beneficial, when in fact several ways of increasing profits actually injure society: allowing harmful pollution to go uncontrolled, deceptive advertising, concealing product hazards, etc.
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 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 participate fully in the marketplace. 2. Secondly, they claim that employees as loyal agents, are obligated to serve their employers single-mindedly, in whatever ways will advance the employers selfinterest.
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 The argument can be paraphrased as follow:

As a loyal agent of his or her employer, the manager has a duty to serve the employer as the employer would want to be served. An employer would want to be served in whatever ways will advance his or her self-interests. Therefore, as a loyal agent of the employer, the manager has a duty to serve the employer in whatever ways will advance the employers selfinterests.

Therefore, as a loyal agent of the employer, the manager has a duty to serve the employer in whatever way will advance the employers self-interest.
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The loyal agents argument relies on several questionable assumptions: The argument tries to show, again, that ethics does not matter by assuming an unproved moral standard that the employee has a duty to serve his or her employer and there is no reason to assume that this standard is acceptable. An agents duties are defined by what is called the law of agency (i.e., the law that specifies the duties of persons [agents] who agree to act on behalf of another party and who are authorised by the agreement to act). Agreements to serve another do not automatically justify doing wrong on anothers behalf.
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3. The third objection is that, to be ethical it is enough for business people merely to obey the law and that business ethics is, essentially, nothing more than obeying the law. questionable assumptions: Law and morality do not always coincide and it is wrong to see law and ethics as identical. It is true that some laws require behavior that is the same as the behavior required by our moral standards. For e.g laws that prohibit murder, rape theft, fraud etc. Some laws have nothing to do with morality because they do not involve serious matters. For e.g parking laws
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 Other laws may even violate our moral standards so that they are actually contrary to morality. For e.g slavery law. This does not mean, of course, that ethics has nothing to do with following the law. Our moral standards are sometimes incorporated into the law when enough of us feel that a moral standard should be enforced by the pressures of a legal system. None of the arguments for keeping ethics out of business seems forceful. In contrast, there are fairly strong arguments for bringing ethics into business.
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Arguments for bringing Ethics into Business Ethics should govern all voluntary human activities and because business is a voluntary human activity, ethics should also govern business. In short, there is nothing about business that would prevent us from applying the same standards of ethics to business activities that should be applied to all voluntary human activities. Business activities like any other human activities, cannot exist unless the people involved in the business and it surrounding community adhere to some minimal standards of ethics.
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 All businesses require a stable society in which to carry on their business dealings. Yet the stability of any society requires that its members adhere to some minimal standards of ethics. One interesting argument actually claims that ethical considerations are consistent with business activities such as the pursuit of profit. Indeed, the argument claims that ethical companies are more profitable than other companies.
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 Perhaps the most fascinating argument for bringing ethics into business is the prisoners dilemma. A prisoners 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.
If both choose not to cooperate, neither gets the benefit. If one cooperates while the other chooses not to cooperate, the one who cooperates suffers a loss while the one who chooses not to cooperate gains a benefit.
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 Though it may seem a bit stilted, close examination will reveal that we all face such dilemmas in our everyday lives. The prison dilemma demonstrates that cooperation is more advantageous than continuously trying to take advantage of others at least when we will meet these others again. This has significant implications for business. Though a business might get away with unethical behavior much of the time, if retaliation is a real threat then such behavior will impose costs that are greater than ethical behavior would have been in the first place.
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 Even self-interested organisations have a good reason to be ethical in their business dealings: it is in their long-term best interests. In reality, of course, most people seem to be social and so are also motivated by a concern for the welfare of others. To the extent that people are motivated by a concern for others, they will probably behave ethically. 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
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Moral Responsibility and Blame

Moral responsibility is directed not only at judgements concerning right or wrong. Sometimes, they are directed at determining whether a person or organisation is morally responsible for having done something wrong. People are not always morally responsible for the injuries they inflict on others. A person for example, who injures someone by accident is excused from any blame.
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 So when is a person morally responsible or to blame for an injury? Traditional: A person is morally responsible for an injury when the person caused the injury and did so knowingly and freely. However, this characterisation ignores the fact that people are sometimes responsible for injuries which they did not cause but which they could and should have prevented, that is they are morally responsible for their omissions when they had a duty to act.

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A person is morally responsible for an injury or a wrong if: 1. The person caused or helped cause it (wrong or injury), or failed to prevent it (wrong or injury) when he could and should have done so, 2. The person did so knowing what he or she was doing, and 3. The person did so of his own free will. The absence of any of these three elements will completely eliminate a persons responsibility for an injury and so will fully excuse a person from any blame for the injury.
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A person is NOT morally responsible for an injury or a wrong if: 1. The person did not cause and could not prevent the injury or wrong, or 2. The person did not know he was inflicting the injury or the wrong, or 3.The person did not inflict the injury or the wrong of his own free will. Although the absence of any of the three requirements will completely remove a persons moral responsibility for a wrong, there are also several mitigating factors that can lessen a persons moral responsibility depending on the severity of the wrong.
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Mitigating Factors 1. Circumstances that minimise but do not completely remove a persons involvement in an act (these affect the degree to which the person actually caused or helped to cause the wrongful injury), 2. Circumstances that leave a person uncertain but not altogether unsure about what he or she is doing (these affect the persons knowledge), and 3. Circumstances that make it difficult but not impossible for the person to avoid doing it (these affect the persons free will). The extents to which these mitigating circumstances can diminish an agents responsibility depend on the seriousness of the injury. Generally, the more serious the injury, the less the mitigating circumstances will lessen responsibility.

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Corruption destroys our good social, ethical and moral standards and values. Some of these standards and values are trust, honesty, faith, integrity of our calling, good image of a person/institution, reputation and our respectful standing in society. Rev. Gotthard Gurirab

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