Chapter 1: Ethics and Business

For business students, ethics is an important field of study.

Business ethics is a process of decision making.
• Business must take ethics into account and integrate ethics into its organizational structure.
Scandals are brought about by ethical failures and unethical decisions.
• This text provides a decision-making model that can help analyze avoid future ethical failures.

Business ethics involves making decisions at the individual, at the organizational, and at a broader
social and governmental level.
• As individuals, each person interacts with businesses as customers, as employees, and as citizens
of the countries in which they operate.
• Organizational culture and corporate leadership have important roles to play in decision making.
• Individual businesses' and industries' decisions are influenced by social, economic, and political
environments.

Goals of Business Ethics

• Developing the knowledge base and skills needed to identify ethical issues.
• Understanding how and why people behave unethically.
• Deciding how one should act, what one should do, and the type of person one should be as an
individual.
• Creating ethical organizations.
• Thinking through the social, economic, and political policies that we should support as citizens.

Making the Case for Business Ethics

Separation thesis: Asserts that ordinary ethical standards should be kept separate from, and not be used
to judge, business decisions because business has its own standards of good and bad.
• Remains common in business circles.
• Holds that business ought to be governed by some ethics and some values.
Both the existence of a firm and the conditions under which it operates require that decision makers
consider the impact of those decisions on a wide range of stakeholders.
• A business stakeholder is anyone who affects or is affected by decisions made within the firm,
for better or worse.

Ethics and the Law

Deciding what one should do in business does require consideration of what the law requires, expects,
or permits.
Legal norms and ethical norms are not identical.
Ethical considerations demonstrate that business cannot avoid making ethical judgments, even if it is
fully committed to obeying the law.
Many corporations establish ethics programs and hire ethics officers who are responsible for managing
corporate ethics programs.
Laws offer general rules clarified by legal precedent.
• There is no unambiguous answer for those wishing only to obey the law.

Risk assessment is a process to identify potential events that may affect the entity and manage risk to be
within its risk appetite.
• To provide reasonable assurance regarding the achievement of entity objectives.
• When the risks involve potential harms and benefits to a variety of stakeholders, it is a judgment
that involves ethics as well.
• Business must take ethics into account and integrate ethics into its organizational structure.

Business Ethics as Ethical Decision Making

• Responsible decision making and deliberation will result in more responsible behavior.
• Here, ethics refers to how human beings should properly live their lives.
• The authors’ fundamental assumption is that a process of rational decision making can and will
result in behavior that is more reasonable, accountable, and ethical.
• Teaching ethics must challenge students to think for themselves.

Business Ethics as Personal Integrity and Social Responsibility

Normative VS descriptive

Ethics involves asking an important question—how should we live?

• Philosophers emphasize that ethics is normative, dealing with our reasoning about how we
should act.
• Social sciences also examine human decision making and actions.
• But these sciences are descriptive rather than normative.
• They provide an account of how and why people do act the way they do – they describe.
• As a normative discipline, ethics seeks an account of how and why people should act a certain
way, rather than how they do act.

How Should We Live?

If defining "We" individually: Ethics is based on our value structures:

• Defined by our moral systems.
• and, sometimes referred to as morality.
• Or "personal integrity."
If morals refer to the underlying values on which decisions are based ethics refers to the application of
those morals to the decisions themselves.
If defining "We" collectively: Refers to how we live together in a community.
 • This area is sometimes referred to as social ethics.
• Here, we judge companies from a social perspective; for their social responsibility.
• Managerial decisions involve the following aspects of ethics:
• Personal integrity.
• Social responsibilities.

Business Ethics as Personal Integrity and Social Responsibility

Distinguishing ethics from other practical decisions faced within business involves two approaches.
• Social-scientific approach: Examines the situation and the decision by exploring the factors that
led to one decision rather than another or by asking why the manager acted in the way that he
did.
• Normative approach steps back from the facts to ask:
• What should I do?
• What rights and responsibilities are involved?
• What good will come from this situation?
• Am I being fair, just, virtuous, kind, loyal, trustworthy?
Ethics is a normative discipline as it deals with norms.
• Norms: Those standards of appropriate and proper (or "normal") behavior.
• Norms establish the guidelines or standards for determining what we should do, how we should
act, and what type of person we should be.
• Normative disciplines presuppose some underlying values.

Distinction Between Values and Ethics

Values are the underlying beliefs that cause us to act or to decide one way rather than another.
• Many different types of values can be recognized.
• Individuals have their own personal values and institutions also have values—shown in the
company’s culture.
• An individual’s or a corporation’s set of values may lead to either ethical or unethical
results.
• One way to distinguish values is in terms of the ends or goals they serve.
Ethical values serve the ends of human well-being.
• Those properties of life that contribute to human well-being and a life well lived.

Ethics as Practical Reason

Ethics is a vital element of practical reasoning—reasoning about what we should do.

• Distinguished from theoretical reasoning, which is reasoning about what we should believe.
• Theoretical reason is the pursuit of truth.
There is no single methodology for ethics that works in all situations, but guidelines provide direction
and criteria for decisions.
• Ethical theories explain and defend various norms, standards, values, and principles used in
ethical decision making.
Chapter 2: Ethical Decision Making: Personal and
Professional Contexts
Malala Yousafzai said: “It is very important to know who you are. To make decisions. To show who
you are”.

A Decision-Making Process for Ethics

An initial sketch of an ethical decision-making process.

• The first step is to determine the facts of the situation.
• Perceptual differences surrounding how individuals experience and understand
situations can explain many ethical disagreements in a situation.
• An ethical judgment made in light of a diligent determination of the facts is a more
reasonable ethical judgment than one made without regard for the facts.
A second step requires the ability to recognize an ethical decision or an ethical issue—then
identify the ethical issues involved.
• The first and second steps may arise in a reverse order in some circumstances.
• Economic decisions and ethical decisions are not mutually exclusive.
• An ethical decision should be made based on how it would affect the well-being of all
the people involved.

• Some call the inability to recognize ethical issues as normative myopia, or

shortsightedness about values.
• Others warn of inattentional blindness, which is a result of focusing on too narrow a
range of questions.
• When we focus on the wrong thing, or fail to focus, we may fail to see key
information that will lead us to success or prevent unethical behavior.
• Change blindness occurs when gradual change goes unnoticed over time.
Third step is to identify and to consider all of the people affected by a decision, the people
often called stakeholders.
• Many perspectives and interests at stake means that ethical decisions often involve conflicts and
dilemmas.
Figure 2.1: Stakeholder Map

The third step involved in ethical decision making

requires decision makes to identify and to consider
all of the people affected by a decision, the people
often called stakeholders.
 An Ethical Decision-Making Process
• Determine the facts. • Identify stakeholders and
• Identify the ethical issues involved. consider the situation from
Consider the available alternatives—also called their point of view.
using moral imagination.

Compare and weigh the alternatives, based on:

• Consequences (for all stakeholders).
• Duties, rights, principles.
• Implications for personal integrity and character.

Make a decision.
Monitor and learn from the outcomes.

The fourth step is to consider the available alternatives.

• When facing an ethical decision, moral imagination is the ability to envision various alternative
choices, consequences, resolutions, benefits, and harms.
The fifth step in the decision-making process is to compare and weigh the alternatives on each
stakeholder you defined.
• The point of this exercise is to recognize that a responsible and ethical decision should be
explainable, defensible, and justifiable to all stakeholders involved.
• Some alternatives might concern principles, rights, or duties that override consequences.
• Decision making requires consideration of the effects of a decision on one’s own integrity, virtue,
and character.
Once the variables are explored, the sixth step is to make a decision.
• Making a decision in business usually means formulating a plan and carrying it out.
The final step is to evaluate the implications of the decisions, to monitor and learn from the
outcomes, and to modify actions accordingly when faced with future similar challenges.

When Ethical Decision Making Fails

Some stumbling blocks to responsible decision making are intellectual or cognitive.

• Ignorance.
• Considering only limited alternatives.
• Finding comfort in simplified decision rules.
• Selecting the alternative that satisfies the minimum decision criteria, also known as satisficing.

Other stumbling blocks to decision making are more a question of motivation and willpower.
• Sometimes it is easier to do the wrong thing.
• Sometimes people make decisions that they regret later because they lack the courage to do
otherwise at the time.
• Courage is also needed when responding to peer pressure.
 Ethical Decision Making in Managerial Roles

Within a business setting, individuals must consider the ethical implications of both personal and
professional decision making.
Some of our roles are social and some roles are institutional.
• Social roles are friend, son or daughter, spouse, citizen, neighbor.
• Institutional roles are employees, managers, employees, parents, children, professor, and
president of a student club.
Managers, executives, and board members have the ability to create and shape the organizational
context in which all employees make decisions.
• They have a responsibility to encourage ethical behavior and discourage unethical behavior.

Chapter 3: Philosophical Ethics and Business

Ethical Frameworks
An ethical framework is nothing more than an attempt to provide a systematic answer to the
fundamental ethical question.
• How should human beings live their lives?
• Ethics attempts to answer the question of how we should live, but it also gives reasons to
support the answers.

Ethics is not comprised of a single principle or framework.

Ethical frameworks that have proven influential in the development of business ethics and that have
a practical relevance in evaluating ethical issues in modern business.
• Utilitarianism is an ethical tradition that directs us to decide based on overall consequences of
our acts.
• The principle-based framework directs us to act on the basis of moral principles such as
respecting human rights.
• Virtue ethics tells us to consider the moral character of individuals and how various character
traits can contribute to, or obstruct, a happy and meaningful human life.
Philosophical Ethics and Business
“Warren Buffett said” It’s better to hang out with people better than you. Pick out associates
whose behavior is better than yours and you’ll drift in that direction.

Utilitarianism: Ethical Consequences

Utilitarianism’s fundamental insight is that outcomes matter, and so we should decide what to do by
considering the consequences of our actions.
• In that sense, utilitarianism has been called a consequentialist approach to ethics and social
policy.
• We should act in ways that produce better consequences than the alternatives.
• What is meant by better consequences?
• Better consequences are those that promote human well-being: the happiness,
health, dignity, integrity, freedom, and respect of all the people affected.
Utilitarianism is commonly identified with the rule of producing "the greatest good for the greatest
number."
• The emphasis on producing the greatest good for the greatest number makes utilitarianism a
social philosophy that opposes policies that aim to benefit only a small social, economic, or
political minority.
Utilitarians tend to be very pragmatic thinkers, and no act is ever absolutely right or wrong in all cases
in every situation.
• Utilitarian reasoning usually acknowledges some support for competing available alternatives.
Utilitarian position is that happiness is the ultimate good, the only thing that is and can be valued for
its own sake.
Utilitarianism and Business

The free market is decidedly utilitarian.

• So, utilitarianism has a strong impact on business and business ethics.
How to achieve the goal of maximizing the overall good?
• Two answers prove especially relevant in business and business ethics.
• Some utilitarians agree with Adam Smith, claiming that free and competitive markets are
the best means for attaining the goal.
• Policy experts in predicting human action are familiar with the specifics of how society
works, and they therefore are in a position to determine which policy will maximize the
overall good.
• The dispute between the "market" and the "administrative" versions of utilitarianism
characterize many disputes in business ethics.
• Egoism is also a consequentialist theory, but it focuses exclusively on the happiness of
the individual making the decision.

Challenges to Utilitarian Ethics

Problems concern the need to count, measure, compare, and quantify consequences.
Utilitarians determine both ethical and unethical acts by their consequences—so the end justifies
the means.
• This seems to deny one of the earliest ethical principles that the end doe not always justify the
means.
• We have certain duties or responsibilities that we ought to obey even when doing so does not
produce a net increase in overall happiness.
Utilitarian reasons contributes to ethical decision by requiring that we consider the consequences of
our actions.
• Important to remember that utilitarian reasoning does not exhaust the range of ethical
concerns.
• Responsible ethical decision making also involves duties, principles, and personal integrity.
An Ethics of Principles and Rights
Some decisions should be a matter of principle, not consequences—the ends do not always justify
the means.
The ethical framework that will prove crucial for business ethics begins with the insight that we
should make some ethical decisions as a matter of principle rather than consequences.
• Principles are ethical rules that put values into action.
• Principles create ethical duties that bind us to act or decide in certain ways.

What principles or rules should guide our decisions?

• Legal rules. • Organizational rules. • Role-based rules. • Professional rules.
Ethical duties should be categorical imperatives rather than hypothetical.
• A categorical imperative is an overriding principle of ethics.

Hypothetical duties: Could include a professional code of conduct that binds you only if you in that
profession.

Categorical duties.
• Do not contain an "if" clause.
• I should or must obey a fundament ethical rule no matter what.

Human Rights and Duties

Are there any fundamental or "categorical" duties?

• Immanuel Kant believed we all have a duty to treat each person as an end in themselves and
never only as means to our own ends.
• Persons must never be treated as mere tools.
The U.S. Declaration of Independence speaks of "inalienable rights" that cannot be taken away by
government.
Human, or moral rights is central to principle-based ethics.
• The inherent dignity of each individual means that we cannot do whatever we choose to another
person.
Human rights protect individual dignity.
Rights imply that some acts and some decisions are "off-limits."
• Our moral duty is to respect the human rights of others.
Humans are said to have a fundamental human right of autonomy, or "self-rule."

Human Rights and Social Justice

Two rights emerged as fundamental components of social justice—liberty and equality.

• More fundamental and persistent than legal rights created by governments and communities.
• They are particularly fundamental to theories of social justice upon which democratic societies
and capitalist economies have been built.
• Crucial to an understanding of business ethics.
 Libertarian Egalitarian
Here, individual liberty is the central element • Here, equality is the central element of
of justice. justice.
• A just society is one in which individuals are • Socialist egalitarian theories argue for
free from government intrusion as long as equal distribution of basic goods and
they are not harming others. services.
• Other theories argue that equal
Ethical business pursues profit within the law. opportunity is crucial.
• Unethical businesses would include fraud, • Supports greater governmental
deception, and anticompetitive behavior. responsibility in the economy to guarantee
equality of opportunity outcomes.
Human Rights and Legal Rights

What is the difference between human rights and legal rights?

• Using employee rights as an example, there are three kinds of employee rights common in
business.
• First, there are those legal rights granted to employees on the basis of legislation or
judicial rulings.
• Minimum wage and equal opportunity are some examples.
• Second, employees have rights to those goods that they are entitled to on the basis of
contractual agreements with the employer.
• Health care, pension, and paid holidays are examples.
• Finally, employees have rights grounded in moral entitlements to which employees have
a claim independently of any particular legal or contractual factors.
• Examples include the right not to be bullied, right not to be lied to, and the right
not to be sexually harassed.
Legal rights place certain issues outside the realm of the employment contract.
• Such legal rights set the basic legal framework within which business operates.
Human rights lie outside the bargaining that occurs between employers and employees.

Challenges to an Ethics of Rights and Duties

There are two big challenges to this ethical tradition.

• There is disagreement about what rights truly are basic human rights.
• It is unclear how to apply this approach to practical situations, especially in cases where rights
appear to conflict.
Critics charge that unless there is a specific person or institution that has a duty to provide the goods
identified as “rights,” talk of rights amounts to little more than a wish list of things that people want.

Virtue Ethics: Integrity and Character

Virtue ethics seeks a full and detailed description of those character traits that constitute a good and
full human life.
Virtues are those character traits that would constitute parts of a good and meaningful human life.
 • The best place to see the ethics of virtue is in the goal of every good parent who hopes to raise
happy and decent children.
To understand how virtue ethics differs from utilitarian and principle-based frameworks, consider
egoism.
• There is a gap between self-interest and altruism.
• Ethics requires us to act for the well-being of others at times, something egoism claims is not
possible.
An ethics of virtue shifts the focus from questions of what a person should do, to a focus on who that
person is.
• A person’s character is not independent of that person’s identity.
• Character: Those dispositions, relationships, attitudes, values, and beliefs that popularly
might be called a "personality."
• This shift changes the nature of justification in ethics.
Ethical controversies often involve a conflict between self-interest and ethical values.
How much we act for the well-being of others depends on our character.

Virtue ethics recognizes that human beings act according to who they are, according to their character.
• Given that character plays a key role in our behavior and given that our character can be shaped
by controllable factors, virtue ethics seeks to understand how those traits are formed and which
traits are conducive to and which ones undermine a meaningful, worthwhile, and satisfying life.
Virtue ethics offer us a more fully textured understanding of life within business.

Virtue ethics reminds us to examine how character traits are formed and conditioned.
• Many individual moral dilemmas arise when tension between who we seek to be and the type of
person business expects us to be.

Virtue ethics should lead us to ask questions about the choices we make and how those choices affect
our character.
• First, note that each decision you make has a subtle but meaningful impact on subsequent
decisions.
• This suggests a reciprocal relationship between character and action.
• Our character affects how we act, but how we act ends up affecting our character.
• The second way in which our choices affect character is through the people we choose to
associate with and the organizations we choose to become part of.
• This has important implications for the companies we choose to work for.
• The organizational culture that we become part of will inevitably change who we are, so
choose carefully.

Chapter 4: The Corporate Culture—Impact and Implications

Peter Drucker said: Culture eats strategy for breakfast.

What is Corporate Culture?
The ethical decision-making model emphasizes the individual responsibility for the decisions made.
• But personal decision making does not exist in a vacuum.
Decision making within a firm is influenced, limited, shaped, and, sometimes, determined by the
corporate culture of the firm.
• This chapter explores some of the major issues surrounding the development, influence, and
management of a corporate culture.
• It also explores the role of business leaders in creating, enhancing, and preserving cultures
that support ethical behavior.
Even in this age of decentralized corporations, there remains a sense of culture in organizations.
• This is especially true in small local firms, but just as true of major global corporations.

Culture: A shared pattern of beliefs, expectations, and meanings that influences and guides the
thinking and behaviors of the members of a particular group.

While culture shapes the people who are members of the

organization, it is also shaped by the people who make up
that organization.
Geert Hofstede organized national cultures into six
“dimensions”:
• Power distance index: The distance between
individuals at different levels of a hierarchy (more
equal = low power distance).
• Individualism versus collectivism: The degree to which people prefer to act individually or in
groups.
• Uncertainty avoidance: The extent to which people are comfortable with uncertainty, ambiguity,
change, and risks.
• Time and order orientation: A high long-term orientation (LTO) is comfortable with commitments,
traditions, rewards.
• A low LTO indicates that change may occur more rapidly.
• Masculinity versus femininity: Low masculinity indicates greater equality, stronger relationships,
service, and solidarity while high masculinity suggests assertiveness and competition.
• Indulgent versus restrained: The extent to which people try to control their desires and impulses.

Hofstede’s National Culture Categories

Supporters say: Critics say:
• He validated his country • His divisions are based on generalizations and
scores across over 400 stereotypes.
measures. • National cultures do not explain all differences.
• His results have been • His work focused on a single period and place.
replicated many times. • His perspective is biased by his Western views.
• Only a limited number of countries were included.
Just as there are national cultures, businesses also have unspoken, yet influential standards and
expectations.
• If you join a firm with a culture that supports values, you are uncomfortable with—there will be
conflicts.
• No culture is static—cultures change; but modifying culture is a bit like moving an iceberg.
• The iceberg is always moving, and if ignored, the iceberg will continue to float along on
the current.
• Strong leaders—from within or at the top—can have a significant impact on a culture.
A firm's culture can be its sustaining value:
• Offering direction and stability during challenging times,
• Or it can prevent a firm from responding to challenges in creative and timely ways.
The stability a culture provides can be a benefit at one time and a barrier to success at another time.
Some corporate cultures are defined from the top-down, others are developed by the employees
themselves.

Defining the specific culture within an organization is not an easy task because it is partially based on
each employee’s perception of the culture.
• Perception may actually impact the culture in a circular way.
• In addition, culture is present in and can be determined by exploring any of the following, among
others:
• Tempo of work.
• The organization’s approach to humor.
• Methods of problem solving.
• The competitive environment.
• Incentives.
• Individual autonomy.
• Hierarchical structure.
Even with this list of cultural elements, it can be difficult for individuals in a firm to identify the specific
characteristics of the culture within which they work.

Culture and Ethics

“If you are lucky enough to be someone’s employer, then you have a moral obligation to make sure people
do look forward to coming to work in the morning.”
John Mackey, CEO and co-founder, Whole Foods Market

• How does the notion of culture connect with ethics?

• What role does corporate culture play in business ethics?
In situations where the law provides an incomplete answer for ethical decision making, the business
culture is likely to be the determining factor in the decision.
• Ethical businesses must find ways to encourage, to shape, and to allow ethically responsible
decisions.
The cultivation of habits, including ethical virtue, is greatly shaped by the culture in which one lives.
• Where we get our habits and character is all-important.
We can choose to develop some habits.
• Habits are shaped by education and training—by culture.
• Intentionally or not, businesses provide an environment in which habits are formed and virtues,
or vices, are created.
The effect of workplace culture on decision making cannot be overemphasized.
If attended to, a strong ethical culture can deter stakeholder damage and improve bottom-line
sustainability.
• If ignored, the culture could destroy long-term sustainability in both financial performance and
employee retention.
Responsibility for creating and sustaining ethical corporate cultures rests on business leaders.
• While true that individuals can shape an organization, it is equally true that organizations shape
individuals.
• The person you become, your attitudes, values, expectations, mindset, and habits, will be
significantly determined by the culture of the organization in which you work.

Compliance and Values-Based Cultures

A distinction arose between different types of corporate cultures:

• Some firms were classified as compliance-based cultures (the traditional approach) while others
were integrity-based or values-based cultures.
• Values-based cultures: A corporate culture in which conformity to a statement of values
and principles rather than simple obedience to laws and regulations is the prevailing
model for ethical behavior.

Table 4.1: The Evolution of Compliance Programs into Values-Based Programs

Traditional Progressive (Effective Practices)

Audit focus Business focus

Transaction-based Process-based

Financial account focus Customer focus

Compliance objective Risk identification, process improvement objective

Policies and procedures focus Risk management focus

Multiyear audit coverage Continual risk-reassessment coverage

Policy adherence Change facilitator

Budgeted cost centre Accountability for performance improvement results

Career auditors Opportunities for other management positions

Methodology: Focus on policies, Methodology: Focus on goals, strategies, and risk management
transactions, and compliance processes
Compliance-based culture emphasizes adherence to rules as the primary responsibility of ethics.
• A values-based culture reinforces a set of values rather than rules.

A compliance culture is only as strong and precise as the rules.

• When rules don’t apply, a values-based culture relies on the personal integrity of its workforce.

Compliance-oriented goals may include meeting legal and regulatory requirements, minimizing risks of
litigation and indictment, and improving accountability mechanisms.
The goals of a more evolved and inclusive ethics program may entail:
• Maintaining brand and reputation. • Creating a better working environment.
• Recruiting and retaining desirable workers. • Doing the right thing as well as doing things
• Unifying a firm’s global operation. right.

Ethical Leadership and Corporate Culture

Corporate leadership has a primary responsibility to steward corporate culture.

• Stakeholders are guided by the "tone at the top"; there must be a consistent tone throughout the
firm.
One 2013 study found that senior leaders are more likely than lower-level employees to break the rules
and 60 percent of reported misconduct is attributed to managers.
• If leadership acts unethically, stakeholders receive the message this type of behavior is acceptable.
• Alternatively, if a leader acts ethically above any other consideration, stakeholders are guided by
that role model.

Beyond personal behavior, leadership sets the tone through other mechanisms.
• "Budgeting is all about value" is a long-standing management credo.
• When ethics officers were first introduced in the early 1990s, the extent of the financial
support they received indicated their relevance and influence.
• Creating a shared company culture is a key responsibility of its leaders, if they wish to
prioritize ethics in their respective companies .
• Leaders should be perceived as people-oriented, as well as engaging in visible ethical
action.
• Executives who are "quietly ethical" within the top management team, are not
perceived as ethical leaders by the distant employees.
The impact of ethical leadership is significant.

How do the effective leader and the ethical, effective leader differ?
• Not every effective leader is an ethical leader.
• One key difference is the means used to motivate others and achieve one's goals.
• Some of the discussions on leadership suggest that ethical leadership is determined by
the methods used in leading.
• Transformative or transactional leaders employ methods that empower
subordinates to take the initiative and to solve problems for themselves.
Ethically appropriate methods of leadership are central to becoming an ethical leader.
• The other element involves the end or objective toward which the leader leads.
• In the business context, productivity, efficiency, and profitability are minimal goals for
sustainability.
Beyond the goal of profitability, other socially responsible goals might be necessary before making a
conclusion that a leader is fully ethical.

Building a Values-Based Corporate Culture

Culture is built and maintained through leadership, integration, assessment, and monitoring.
• One of the key manifestations of ethical leadership is the communication of values for the
organization.

But does code make a difference?

• Before impacting the culture through a code of conduct or statement of values, a firm must
determine its mission.
• The code has the potential to both enhance reputation and provide guidance for internal
decision making.
• Thus, creating a built-in risk management system.
• The mission should be inspiring.
• Establishing the core tenets (especially through a participatory process), lays down the
law for all future decisions.
• The mission statement or corporate credo articulates the fundamental principles that
should guide all decisions, without abridgment.
• From a universalist perspective, many decisions might be made with the end in mind, but
none should ever breach the underlying mission as an ultimate dictate.

Developing the Mission and Code

Critical to ask what the company stands for.

• Why does the firm exist? What are its purposes?
Development of guiding principles through articulation of a clear vision.
Identify clear steps as to how a cultural shift will occur between the stakeholders and organizations.
To have an effective code that will impact culture there must be a belief that this culture is possible and
achievable.
While businesses have codes of conduct, industries and/or professions might also publish codes of
conduct.
• These codes of conduct apply to firms or people who do business in those arenas.
 Ethics Code Guidelines

The Ethics Resource Center provides the following guidelines for writing an ethics code:
• Be clear about the objectives the code is • Respond to real-life questions and
intended to accomplish. situations.
• Get support and ideas for the code from all • Provide resources for further information
levels of the organization. and guidance.
• Be aware of the latest developments in the • In all its forms, make it user-friendly
laws and regulations that affect your industry. because ultimately a code fails if it is not
• Write as simply and clearly as possible. Avoid used.
legal jargon and empty generalities.

Cultural Integration

Integration can take different forms, depending both on the organizational culture and the ultimate goals
of the process. One of the most decisive elements of integration is communication.
• Communication of culture must be incorporated into the firm’s vocabulary, habits, and attitudes
to become an essential element in the corporate life, decision making, and determination of
success.
Integration can take different forms, depending both on the organizational culture and the ultimate
goals of the process.
One of the most decisive elements of integration is communication.
• Communication of culture must be incorporated into the firm’s vocabulary, habits, and attitudes
to become an essential element in the corporate life, decision making, and determination of
success.

Whistle-blowing.
• A practice in which an individual within • Vocabulary has an impact, and a change of
an organization reports organizational language could inspire workers to feel a sense of
wrongdoing to the public or to others in empowerment from their contribution to the
position of authority. corporate culture.
• It is a classic issue in business ethics. • It occurs internally and externally.
• It can have extremely negative • Reporting to external groups can be harmful.
connotations, depending on the culture • Internal mechanisms for reporting wrongdoing
and environment where it occurs. are preferable.

Internal reporting mechanisms must be effective.

• They must allow confidentiality, if not anonymity.
• They must strive to protect the rights of the accused party.
Company norms and culture can encourage internal reporting.

Many firms have created ethics’ ombudspersons and internal or external reporting helplines.
One challenge with reporting systems is they do not make the values of the organization clear.
• What is or is not accepted within the company’s culture.
Firms ensure a successful reporting scheme by ensure the following methods are followed:
• Leaders should model the act of reporting • Allow sufficient time for reflection in
wrongdoing. order to reach responsible decisions
• Leaders can explain the decision-making might encourage consideration of
process that led to their conclusion. appropriate implications.
• Crisis management teams are often • Consistently and continuously
unsuccessful, but running drills or rehearsals communicate values and expectations
of challenging events is a valuable exercise to all stakeholders.
that can be followed.

Assessing and Monitoring the Corporate Culture

Monitoring and an ongoing ethics audit allows the discovery of silent vulnerabilities which could pose later
challenges.

Effective monitoring system may include significantly positive objectives.

• How to better allocate resources. • Whether all the program’s positive results are
• Determine whether a program is being accurately measured and reported and
keeping pace with organizational the firm’s compensation structure is adequately
growth. rewarding ethical behavior.
• Whether the “tone at the top” is being shared
effectively .

How do you detect a "toxic" culture?

• A clear sign is a lack of values for the organization.
• Warning signs can occur in the various component areas of the organization.
• If the manner in which a firm manages and communicates its financial environment is disastrous.
How to measure the impact of efforts to change a culture?
• Determine if employee perceptions have changed.
• External audits provide information, as does hotline data.
• Any employee feedback should be gathered and analyzed for input regarding the culture.

Chapter 5: Corporate Social Responsibility

“Business has to take account of its responsibilities to society in coming to its decisions, but
society has to accept its responsibilities for setting the standards against which those decisions
are made”.
Sir Adrian Cadbury

Corporate Culture Ethics and Social Responsibility

The words responsible and responsibility are used in several different ways.
• One meaning attributes something as a cause for an event or action.
 • In a second sense, to be responsible does carry ethical connotations.
o When a business is responsible to someone or for something, it means what a business
ethically ought or should do.
o Product safety and liability laws involve these meanings of being responsible.
• Corporate social responsibility refers to the ethical expectations that society has for business.
o Ethical responsibilities are those things that we ought, or should, do, even if sometimes
we would rather not.

Philosophers often distinguish three different levels of ethical responsibilities on a scale from less to
more obligatory.
Ethical responsibilities to do good.
• Volunteering. • Sponsoring a charity event.
Prevent harm.
• Good Samaritan. • Use renewable energy
Do not cause harm to others.
• A duty or an obligation. • Enforced by legal punishment.

The strongest sense of responsibility is not to cause harm.

• Even when not explicitly prohibited by law, ethics demands we not cause avoidable harm.
• Overrides business’s pursuit of profit.
Is there a responsibility to prevent harm?
• A more inclusive understanding of corporate social responsibility would hold that business has a
responsibility to prevent harm.
Is there a responsibility to do good?
• Most wide-ranging, standard of CSR holds that business has a social responsibility to do good
things and to make society a better place.
• Philanthropy is not something that every business ought to do.
• There are competing understandings of corporate social responsibility and management’s role in
fulfilling these responsibilities.
• The narrow economic model of CSR directs managers to maximize profit and shareholder wealth
within legal limits.
• The stakeholder model assets that neither a business nor the employees are exempt from ordinary
ethical responsibilities.
• The integrative model of CSR says that part of the managerial responsibility to shareholders is to
serve the social good.
Figure 5.1: Models of Corporate Social Responsibility

Corporate Social Responsibility: “Corporations are people.” Mitt Romney

Economic Model of CSR

The general definition of the term corporate social responsibility (CSR) is the ethical responsibilities
that a business has to the society in which it operates.
From an economic perspective, a business is an institution.
• By doing this, the business is creating jobs and wealth that provide further social benefits.
The law created a form of business called a corporation, which promotes these economic ends by
limiting the liability of individuals for the risks involved in these activities.

Holds that businesses’ sole social responsibility is to fulfill the economic functions they were designed
to serve.
• Managers are employees, or agents, of those owners and must work to further the owners’
interests, primarily by maximizing profits.
• Many observers identify this perspective as the dominant model of CSR and refer to it as
"managerial capitalism."
Places shareholders at the center of the corporation.
• Managers have a primary responsibility to pursue profit within the law.
Corporations are expected to obey legal mandates.
 Stakeholder Model of CSR

Business has no social responsibilities beyond the economic and legal ends for which it was created.
Friedman suggests that managers fulfill their ethical responsibility by increasing shareholder wealth
and pursuing profit.
• This common view of corporate social responsibility has its roots in the utilitarian tradition and
in neoclassical economics.
Within this dominant economic model, there is room to pursue social responsibilities.

Business is free to contribute to social causes as a matter of philanthropy.

• It builds goodwill and/or a good reputation, provides tax deduction, and builds goodwill or a
good reputation within the community.
• Some support causes that have little or no business or financial payoff as a matter of giving back
to their communities
The economic model in which business support for a social cause is done simply because it is the right
thing to do differs from the reputational version only in terms of the underlying motivation.

Businesses exist within a web of social and ethical relationships and create value for a range of
stakeholders.
Norman Bowie argues that business has an ethical duty to respect human rights.
• It is the "moral minimum" that we can expect of every person.
• The obligation to cause no harm overrides other ethical considerations.
• If managers comply with the moral minimum, they should maximize profits.

Corporate Social Responsibility: Make the World a Better Place.

Ben and Jerry’s corporate mission statement.
Stakeholder theory
• Recognizes that every business decision affects a wide variety of people, benefiting some and
imposing costs on others.
• The stakeholder model simply acknowledges this principle and points out that other
ethical duties have an equal claim on managerial decision making.
• Acknowledges this fact by requiring management to balance the ethical interests of all affected
parties.
• Like utilitarianism, it asks managers to consider the consequences of its decisions.
• Social responsibility requires decisions to prioritize competing and conflicting responsibilities.
• Because stakeholder theory recognizes that some stakeholders have different power and
impact on decisions than others.

Integrative Model of CSR

Should business be expected to sacrifice profits for social ends?

• There are organizations that pursue social ends as the very core of their mission, such as
nonprofits.
• Some for-profit organizations have social goals as a central part of the strategic mission.
 • Because these firms integrate economic and social goals, they use the integrative model of CSR.
• There are no claims that every business should adopt the principles of benefit corporations.
• Benefit corporations show profit is not incompatible with doing good, and therefore that
one can do good profitably.
• Others argue sustainability is relevant to every business concern.

The Implications of Sustainability

As a topic within CSR, sustainability means a firm’s financial goals must be balanced against, and may
be overridden by, environmental considerations.
Defenders say all economic activity exists in a biosphere that supports all life.
• And they argue that the present model of economics, and especially the macroeconomic goal of
economic growth is already running up against the limits of the biosphere's capacity to sustain
life.
• From this perspective, success must be judged by the financial bottom line, as well as the
ecological and social bottom lines.
• A corporate sustainability report provides all stakeholders with financial and other
information regarding a firm’s economic, environmental, and social performance.

Kenneth Dayton, former chair of the Dayton-Hudson Corporation

We are not in business to make maximum profit for our shareholders. We are in business…to serve
society. Profit is our reward for doing it well. If business does not serve society, society will not long
tolerate our profits or even our existence.

Exploring Enlightened Self-Interest

Are there other reasons besides self-interest and economics for a business to engage in socially
responsible activities?
o CSR can impact a firm’s reputation within a community.
• The problem with a focus on reputation is that social responsibility then can become
merely social marketing.
• The practice of attending to the "image" of a firm is referred to as reputation
management; failure to do so might be a poor business decision.
• Companies may be challenged for engaging in CSR activities solely for the purpose of
affecting their reputations.
o There are many aspects of a firm’s reputation.
• It can be well-respected for its products and services, for its financial performance, as a
good place to work, and as a good corporate citizen.
• If a firm develops a bad reputation, it can create significant barriers to business success.
 Conclusion

This chapter sought to answer the question of whether there exists a social responsibility of business.
• Several sources were proposed.
• Responsibility may be based in a concept of good corporate citizenship, a social contract, or
enlightened self-interest.
The chapter explored the challenge of how an inanimate entity (a corporation) could have a
responsibility to others.
• It also discussed the extent of that obligation, both in law and ethics.
One thing that is certain today is that it is impossible to engage in business today without
encountering and addressing CSR.

Chapter 6: Ethical Decision Making: Employer Responsibilities

and Employee Rights
Peter Schutz said: “Hire character. Train skill”.
J. Paul Getty said: “The employer generally gets the employees he deserves”.

Introduction

Ethics in the employment context is a universal topic.

The law provides guidance for thinking about ethical issues in the workplace, but these issues go well
beyond legal considerations.
This chapter explores areas of ethical decision making in the workplace remains relatively fluid and where
answers are not easily found by simply calling the company lawyer.
Various ethical challenges facing the nature of employer responsibilities and the employee are
addressed in this chapter.
• As each issue is examined, try to employ the ethical decision-making process to reach the best
possible conclusion for the stakeholders.
• Utilizing an ethical decision-making process avoids later hurdles and removes barriers to progress
and momentum.

Ethical Issues in the Workplace: The Current Environment

• Ethics at work and in human resource management is about relationships with others and with
the company.
• Companies who place employees at the core of their strategies produce higher long-term returns
to shareholders than their industry peers – more than double.
50% of U.S. workers feel strong loyalty to their employer.
• Important factor for them was to feel valued by elements such as benefits and opportunities for
professional growth.
78% of those workers who experienced unethical or uncivil behavior at work report that their
commitment to the organization declined.
• 66% said their performance declined.
Treat employees well for a return.
• The return is harmony, productivity, and innovation.
• Effective firms share common practices, all of which involve treating employees in humane and
respectful ways.
• Managers have an impact on the emotions of their workers as do rewards, compensation, and
composition of teams.
Treat employees well out of a sense of duty.
• This approach emphasizes the rights and duties of all employees.
• And treating them well simply because it is "the right thing to do".
• A sense of duty might stem from the law, professional codes of conduct, corporate codes of
conduct, or moral principles.

Defining the Employment Relationship

• Ethical issues are bound to rise once a relationship is formed between an employer and an
employee.
• To work for another person raises issues of power, obligation, responsibility, fair treatment, and
expectations.
• Legal requirements might protect some of the employee's and employer's interests but can only
go so far.
The next sections cover the ethics underlying the concepts of due process and fairness that determines
acceptable workplace behavior.
• The relationship is further defined by the application of these principles to working conditions.
Issues in the following sections are settled from an ethical perspective by their justification.

Due Process and Just Cause

Should employers’ rights and ability to hire, fire, or discipline employees be restricted to prevent
injustices?
Philosophically, the right of due process is the right to be protected against the arbitrary use of
authority.
• In legal contexts, due process is the procedures that police and courts must follow in exercising
their authority over citizens.
Due process in the workplace acknowledges an employer’s authority over employees.
• Basic fairness—implemented through due process—demands that this power be used justly.
• However, workplace bullying and other emotional abuse is a problem, especially in the service
sector.
• This behavior directly and indirectly impacts employees.

Most U.S. employment law evolved in a context of a legal doctrine knows as employment at will (EAW).

EAW holds in court until and unless an exception can be demonstrated.

• The burden of proof lies with the dismissed employee to show that she or he was unjustly or
illegally fired.
 • Due process and just cause would reverse this burden of proof onto the employer.
• Just cause: A standard for terminations or discipline that requires the employer to have
sufficient and fair cause before reaching a decision against an employee.
Due process issues arise in other employment contexts.
• Fair treatment involves fairness in areas such as promotions, salary, and benefits.
• As these decisions are made on the basis of performance appraisals, due process rights should
extend to this aspect of the workplace.
The ethical questions that remain, are whether this atmosphere is fair and just for all stakeholders.
Due process is the right to be protected against the arbitrary use of authority.
• Decision makers must guard against those arbitrary decisions.
• Decisions should be made in light of reasons that can be ethically defended.

Downsizing

The reduction of human resources at an organization through terminations, retirements, corporate

divestments, or other means.
The decision itself raises ethical issues because maybe there were alternatives available to an
organization in financial difficulty.
• Consider the impact of each alternative from the stakeholders' perspective.

Negative outcomes include:

• Poor recommendations of the firm by former employees.
• A decline in customer service by surviving employees.
• An increase in errors or dangerous behavior by employees.
• Bad attitudes from remaining workers.
Ethics must be central to the design and management of layoff policies.
• The decision for downsizing should be made by a representative group to consider all
stakeholder interests and earn the trust of those who will be impacted.
• The facts should be collected, and issues should be determined.
• Notice of an intent to downsize should given as soon as the downsizing is going to happen.
• Costs and benefits must be weighed in any communication decision.
• Identify stakeholders and define the impact of downsizing on each.

From a legal perspective, the decision about whom to include in a downsizing effort must be carefully
planned.
Firms should review both the fairness of their decision-making process and the consequence of that
process on those terminated, and the resulting composition of the workforce.
• Downsizing impacts countless stakeholders.

Health and Safety

Employees have a fundamental right to a safe and healthy workplace.

• However, in some workplaces in our world, employees lack even the most basic health and
safety protections; these work environments have been called sweatshops.
The extent of employer responsibility is in dispute, and there is disagreement about the best policies to
protect health and safety.
Like work, health and safety are "goods" that are valued as a means for attaining an end and also as
ends in themselves.
• Health and safety have intrinsic value in addition to instrumental value.
• If a person dies in a workplace accident, their lost wages would be the instrumental
value.
• The intrinsic value of their life is irreplaceable by financial means.
If "safe" means completely free from risk, certainly no workplace is perfectly safe.
• If health and safety are interpreted as ideals, impossible to realize, then it would be
unreasonable to claim that employees have a right to a healthy and safe workplace.

Figure 6.1: Calculating Acceptable Level of Risk

From this perspective, a workplace is safe if the risks are acceptable.

Challenges to the Acceptable Risk Approach to Health and Safety
• Treats employees disrespectfully by ignoring their input as stakeholders.
• Ignores the fundamental deontological right an employee might have to a safe and healthy
working environment.
• Assumes an equivalency between workplace risks and other types of risks when there are
significant differences between them.
• Improperly places incentives because the risks faced at work could be controlled by others who
might stand to benefit by not reducing them.

Health and Safety as Market Controlled

Defenders of the free market and the classical model of corporate social responsibility would favor
individual bargaining as the approach to workplace health and safety.
• Workers demanding higher safety standards and healthier conditions would settle for lower
wages.
• Workers willing to take higher risks would demand higher wages.
In a competitive and free labor market, individual bargaining would result in the optimal distribution
of safety and income.
 • The market approach can support compensation to injured workers when it can be shown that
employers were responsible for the harm.
• The threat of compensation acts as an incentive for employers to maintain a reasonably safe and
health workplace.

Challenges with the Free-Market Approach to Health and Safety

• Labor markets are not perfectly competitive and free.
• Employees seldom, if ever, possess the kind of perfect information markets require.
• We ignore important questions of social justice and public policy if we approach questions solely
from the point of view of an individual.

Health and Safety as Government-Regulated Ethics

Mandatory government standards:
• Can be set with the best available scientific knowledge and thus overcoming market
failures from lesser information.
• Prevent employees from choosing between job and safety.
• Focus on prevention rather than compensation.
• Are a social approach addressing public policy questions ignored by markets.
Occupational Safety and Health Administration (OSHA): Agency of the federal government that
publishes and enforces safety and health regulations for U.S. businesses.

The Global Workforce and Global Challenges

It is helpful to consider the global dimension of an ethically responsible workplace.

• Some minimum standards might apply, and multinationals may have some core ethical obligations
to employees.
Scholars suggest the Kantian universal principles should govern the employment relationship and that
the ethical obligation of respect for persons should guide the employment interactions.
• A fundamental moral minimum set of standards exists that should be guaranteed to workers in all
countries notwithstanding culture, stage of economic development, or availability of resources.
Setting a living wage is problematic because there is no exact number that one can agree on regarding
the count of people who live in poverty.
• Almost 100 companies have joined the Ethical Trade Initiative (ETI), an alliance of corporations,
trade unions, and voluntary organizations dedicated to improving the conditions of workers.
Nonwage benefits can provide an advantage to both the worker and the employer (for example, health
checkups and basic health services).
International nongovernmental organizations suggest voluntary standards to which possible signatory
countries or organizations could commit.

The Case of Child Labor

Child labor: Exploitative work that involves some harm to a child who is not of an age to justify his or her
presence in the workplace.
• The International Labour Office (ILO) explains that there are 152 million children classified as child
laborers.
High levels of child labor are associated with low literacy levels, HIV/AIDS, non-HIV infectious diseases,
and malaria.
• Risk of passing on poverty and child labor to the next generation increases.

We should carefully review the social and economic structure within which child labor exists.
• Children:
• May begin work as young as 3 years old.
• May work in unhealthy conditions and live in unhealthy conditions.
• Are mostly required to work full-time, precluding them from education.
• Are forced to work in less-hospitable "underground" professions, if they are not working
in the manufacturing industry.
Legalizing child labor may lower the number of children who work.

Discrimination
The law allows employers to make decisions on • A global disagreement remains on
any basis other than those prohibited by the: employee rights with regard to
• Constitution, discrimination.
• Precedent • Employers continue to advocate for their
• Several statutes. rights to manage the workplace and retain
Some say employers have enormous autonomy in control of employees.
their employment decisions while employers • Employees fear unfair treatment and a
resist any regulation of their workplaces. loss of power.

Discrimination
Covert racial discrimination Covert gender discrimination
Based on one's name. Women often face distinct challenges.
• Researchers found that people with Women and men are both gender stereotyped,
Chinese-, Indian-, or Pakistani-sounding but women suffer from different expectations.
names were 28% less likely to get an • Success and likability do not go together
interview than candidates with precisely for women.
the same qualifications but with English-
sounding names.

Diversity

• Refers to the presence of differing cultures, languages, ethnicities, races, affinity orientations,
genders, religious sects, abilities, social classes, ages, and national origins of the individuals in a
firm.
• When used in connection with the corporate environment, it often encompasses the values of
respect, tolerance, inclusion, and acceptance
The U.S. workforce today is significantly more diverse than ever before.
Some European countries have outpaced the U.S. in diversity, in particular, in connection with board
representation.
• Other countries have federal laws requiring women sit on the board.
 • The business case for gender diversity is strong.
• Diversity in boards and management is associated with higher return on equity.
Aside from the benefits of diversity, it can create conflicts.
• Tension and anxiety may emerge when bringing people together with diverse differences.
• The nature of the work itself often might cause tension, and additional challenges such
as cultural challenges.
• Diversity may increase tension in several areas.
• Another concern involves integrating diverse viewpoints with a preexisting corporate culture.
• Be wary of prejudgments based solely on differences in interpretations of culturally based
standards.
• Efforts at multiculturalism, such as acknowledging and promoting diversity in the
workplace can serve to both educate and encourage diversity-related benefits.
• The cost of ignoring diversity is high, in terms of lost productivity, but also in terms of legal
liability.

Affirmative Action

When balancing employer and employee rights, a question arises over affirmative action.
• Not a question of the right to a fair process but instead whether a person has a right to the job in
the first place.
For example, efforts to encourage diversity may also be seen as a form of reverse discrimination.
• Arguments on both sides use emotional persuasion.
• Discrimination on the basis of someone’s membership in a protected class is still wrongful
discrimination.
• The text now takes a closer look at affirmative action to explore the ethical issues it raises.
The term affirmative action refers to a policy or a program that tries to respond to instances of past
discrimination by implementing proactive measures to ensure equal opportunity today.
Affirmative action arises in three ways.
• Through legal requirements of Executive Order 11246 to ensure equal opportunity.
• A court requirement of "judicial affirmative action" to remedy a finding of past discrimination.
• Voluntary affirmative action plans.
Legal constraints to an affirmative action program that support an ethical decision-making process.
• Policy may not infringe upon the majority of employees’ rights or create an absolute bar to their
advancement.
• Policy may not set aside any positions for women or minorities and may not be construed as
quotas to be met.
• It may not change legitimate expectation of employees.
• It should be only temporary in that it is for the purpose of attaining, not maintaining, a balanced
workforce.