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Chapter 1: An Introduction to
Business Ethics
Material: Chapter 1+2 in textbook

1. Defining ethics and business ethics

What is ethics?
Definition

Comes from the Greek words “ethikos” and “ethos”, meaning character

Reflects the character of the individual and more contemporarily perhaps, the character
of the business firm, which is a collection of individuals

Ethical decisions also involve morals, which are society’s accepted standard of behavior
Example: Ethics in Marriage

Polygamy - there are more than 2 people in a marriage

Monogamy - one husband and one wife

Gay marriage

→ Change in perception ↔ change in ethics

Types of Ethics

Philosophical ethics → the nature of moral terms

Discipline, no negotiation

Apply for both organizational context and social context

→ apply to every situation

Normative ethics

Chapter 1: An Introduction to Business Ethics 1

 Focus on what ought to or should be occurring
→ give you the principle/moral reasoning to explain whether the decision is right or
wrong
→ resolve the dilemmas which may arise when making difficult decisions

Practical ethics

Give the principle for the practical context/develop context specific areas of
theory

eg. medical ethics, business ethics

Descriptive ethics

Lack of the philosophical context

Apply in the specific context, may raise up new principle

Looks at how individuals/groups/organizations approach ethical evaluation +

decision making in practice

Cannot apply to every situation

⇒ In this course: apply Normative and Practical ethics

We don’t apply the Philosophical ethics in this course because it’s not flexible

We don’t apply the Descriptive ethics because it’s too special and only focus on
specific ones

2. Ethical terms in organization

Business ethics
The study of:

right or wrong

duty and obligation

moral norms

individual character

responsibility

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 → In the context of business (based on Normative ethics)

Corporate Social Responsibility (CSR)

The obligation companies have to develop and implement courses of action that aid in
social issues ↔ impact society

Functional or Professional ethics

Differentiate by environmental context:

Marketing ethics → concern about the customer when implementing marketing action

Human resource ethics → concern about the workers/employees

Accounting and finance ethics → concern about the stakeholders and investors

→ Useful to consider the ethical problems which tend to arise within specific functional
areas (of an organization)

3. Ethics and the Law

Ethical Unethical

Provide good working

Legal environments for Death penalty
employees

Doctors allow euthanasia

The company pay below
Illegal for patients who are
minimum wage
suffering in pain

The law and ethics can overlap in many respects

The law is a reflection of what society thinks are minimal standards of conduct and
behavior

Ethics sometimes represent a standard that exceeds the legal minimum

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 4. Role of ethics in business
Why should Business be Ethical?
Meet demands of Business Stakeholders

A company upholds ethical standards

→ consumers conduct more business with the firm

→ stockholders benefit as well

Comply with Legal Requirements

A legal requirement

Avoid punishments

Enhance Business Performance

Imparts a sense of trust → promotes positive alliances among business partners

Study by DePaul University: statistically significant linkage between management

commitment to strong controls that emphasize

ethically responsible behavior on the one hand

favorable corporate financial performance on the other hand

Study by the Institute for Business Ethics in UK: support the relationship between
being ethical and being profitable

4 measures used in the study:

economic value added

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 market value added

price/earnings ratio

→ were all stronger for companies that had a code of ethics than for those that
did not

Data collected also indicated: firms with explicit commitment to doing business
ethically → produced profit/turnover ratios 18% higher than those without a
similar commitment

Prevent or Minimize Harm

“Do no harm”: Prevent harm to the general public and corporation’s stakeholders

Many ethical rules operate to protect society against various types of harm →
businesses are expected to observe these common sense ethical principles

Example: A company that is careless in disposing of toxic chemical wastes → breaks

the ethical conjunctions

Promote Personal Morality

Most people want to act in ways that are consistent with their own sense of right or
wrong

→ being pressured to contradict their personal values ↔ creates emotional stress for
people

One works in a supportive ethical climate contributes to one’s sense of psychological

security

5. Why ethical problems occur in business?

Personal Gain and Selfish Interest

Greed → causes ethics problems

Businesses sometimes employ people whose personal values are less than desirable

→ who will put their own welfare ahead of all others, regardless of the harm done to
other employees, the company, or society

Competitive Pressures on Profits

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 When companies are squeezed by tough competition

→ (sometimes) engage in unethical activities to protect their profits

May be especially true in companies whose financial performance is already

substandard

→ poor financial performers/companies with financial uncertainty are more prone to

commit illegal acts

Conflict of Interest

Occurs when an individual’s self-interest conflicts with acting in the best interest of
another

Are normally considered unethical: because a failure to disclose a conflict of interest

represents deception

→ may hurt the person or organization on whose behalf judgment has been exercise

Example of conflicts between business and ethics:

Society wants companies to create many well-paying jobs >< organizations want to
limit compensation costs and raise productivity levels

Customers want to purchase goods and services at low prices >< businesses want to
maximize profits.

Society wants to reduce pollution levels >< businesses want to minimize the cost
that environmental regulations add to their operations.

⇒ Since these conflicts are fundamental to the nature of business

→ managers must continuously and consciously balance the needs of:

the organization and its stockholders

the needs of other stakeholders (workers, customers, and the larger community)

Cross-Cultural Contradictions

The policy makers and strategic planners in all multinational corporations (regardless of
the nation where they are head quartered) → face this kind of ethical dilemma

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