1.

1: The Nature of Business Ethics

Objective: Understand the basics of business ethics.

Business ethics is about how companies make moral choices. Some

believe businesses always choose profit over ethics, but Merck & Co., a
U.S. drug company, proved otherwise.

Case 1: Merck & Co., Inc. – The Cure for River Blindness

What Happened?

 River blindness is a severe parasitic disease affecting millions of

people, mostly in poor rural areas.

 Merck scientists discovered that their animal drug, Ivermectin,

could cure the disease in humans.

 The problem? Producing and distributing the drug would be very

expensive, and the affected people were too poor to afford it.

 Despite this, Merck’s CEO, Dr. Roy Vagelos, decided to develop and
distribute the drug for free, spending $200 million with little
expectation of profit.

 The decision was based on ethics, not financial gain.

Conclusion

 Merck prioritized ethical responsibility over immediate profits.

 In the long run, this built trust and goodwill, benefiting the
company’s reputation.

 The case challenges the idea that businesses always put profits
before ethics.

Ethical Principles Applied

1. Corporate Social Responsibility (CSR) – Businesses should help

society, not just focus on profits.

2. Utilitarianism – The decision benefited millions, even if it cost the

company money.

3. Long-term Ethical Strategy – Ethical actions can enhance a

company’s brand and trustworthiness.

Case 2: BFGoodrich – The Aircraft Brakes Scandal

What Happened?

 BFGoodrich won a U.S. Air Force contract to design lightweight

brakes for a new aircraft.

 They promised the brakes would meet strict weight and

performance standards.

 A young engineer, Searle Lawson, tested the brakes and

discovered they were unsafe—they could fail and cause
crashes.

 The company falsified reports to make it seem like the brakes

passed the tests.

 Lawson refused to lie and reported the issue, risking his job.

Conclusion

 BFGoodrich prioritized profit over safety—an unethical and

dangerous decision.

 This kind of dishonesty can lead to legal issues, loss of reputation,

and harm to people.

 Lawson acted ethically by standing up against dishonesty, even

at personal risk.

Ethical Principles Applied

1. Integrity & Honesty – Businesses must provide truthful

information, especially when public safety is involved.

2. Whistleblowing – Lawson did the right thing by exposing unethical

behavior.

3. Deontological Ethics (Duty-Based Ethics) – The company had a

duty to prioritize safety, regardless of profit.

Key Takeaways from Both Cases

 Ethical behavior can sometimes cost money but builds long-

term success.

 Cutting ethical corners can lead to disasters, legal trouble,

and loss of trust.

 Leaders and employees face tough ethical choices; the right

decision isn't always easy but is necessary for long-term
credibility.
Moral Norms vs. Non-Moral Norms

Moral Norms (Right vs. Wrong)

These are ethical rules about fairness, honesty, and harm.

🔹 Examples:
✅ Don’t steal
✅ Be honest
✅ Help those in need
✅ Don’t harm others

🔹 Breaking Consequences:
❌ Guilt, loss of trust, legal punishment

Non-Moral Norms (Social Rules)

These are customs or traditions that aren’t about right or wrong but
about social expectations.

🔹 Examples:
✅ Saying “thank you”
✅ Wearing formal clothes at work
✅ Driving on the right side of the road
✅ Eating with a spoon or chopsticks

🔹 Breaking Consequences:
❌ Embarrassment, seen as rude, minor legal issues (e.g., traffic rules)

Ethics and Business Ethics

Ethics is the study of moral principles that guide human behavior. It helps
us decide what is right or wrong based on logic and reasoning rather than
just tradition. For example, if you see a lost wallet, ethics helps you decide
whether to return it or keep it.

Ethical dilemmas arise when different moral responsibilities conflict. Take

the case of Vandivier at BFGoodrich—he had to choose between telling the
truth about faulty brakes or keeping his job to support his family. This
highlights the ethical question: Is personal obligation more important than
honesty?

Normative vs. Descriptive Ethics

Normative ethics deals with what should be done. Example: "Bribery is
wrong."

Descriptive ethics studies what people believe. Example: "In some

countries, bribery is common in business."

Business Ethics

Business ethics applies ethical principles to business decisions. It ensures

companies act responsibly towards employees, customers, and society.

Types of Business Ethics Issues:

Systemic Issues – Government policies or economic conditions that

influence ethical behavior. (e.g., laws allowing excessive pollution)

Corporate Issues – Company-wide ethical policies. (e.g., should a company

prioritize profits over environmental safety?)

Individual Issues – Personal decisions of employees. (e.g., should a

salesperson lie to close a deal?)

Ethical Responsibility of Corporations

Are businesses morally responsible like individuals? While corporations

don’t have personal feelings, their decisions impact society. Example: If a
factory knowingly pollutes a river, who is responsible—the company or the
managers who approved it?

In conclusion, ethics helps individuals and businesses make moral

decisions by analyzing right and wrong in real-world situations.

Can ethical qualities be attributed to

corporations?

This passage discusses three different views on whether

corporations can have ethical qualities:
 1. View #1 – Corporations, like people, act intentionally and
have moral rights and obligations, making them morally
responsible for their actions.
2. View #2 – Corporations are more like machines, not
people, so ethical qualities cannot be attributed to them.
Only humans can be ethical.
3. View #3 – Since humans carry out corporate actions, they
are primarily responsible for ethical decisions.
Corporations can have ethical qualities, but only in a
derivative sense, meaning their ethics come from the
people within them.
This debate focuses on whether corporations themselves can
be morally responsible or if only individuals within them hold
ethical accountability.

Arguments Against Business Ethics

These arguments suggest that business
ethics may not be necessary:
1. Profit ensures social benefit – In a free market, businesses
naturally contribute to society by pursuing profits, so
ethical considerations are unnecessary.
2. Loyalty over ethics – A manager's primary duty is to the
company, even if that means making decisions that might
not be ethical.
3. Law is enough – As long as a company follows legal
requirements, it does not need additional ethical
guidelines.
These arguments, however, are debated because legal
compliance alone may not always ensure fairness, honesty, or
social responsibility.
Arguments Supporting Business Ethics
These arguments support the importance of business ethics:
1. Ethics applies to all human activities – Since business
is a human activity, ethical principles should apply just as
they do in other areas of life.
2. Business cannot survive without ethics – Unethical
practices can harm reputation, trust, and long-term
success.
3. Ethics aligns with profit-seeking – Being ethical does
not mean sacrificing profits; it can enhance business
sustainability.
4. Stakeholders care about ethics – Customers,
employees, and the public value ethical behavior,
influencing loyalty and trust.
5. Ethics contributes to profits – Research suggests that
ethical businesses tend to perform better financially in the
long run.
These points highlight how ethics is not just a moral obligation
but also a strategic advantage for businesses.

Corporate Social Responsibility (CSR) -

Definition
Corporate Social Responsibility (CSR) refers to a corporation's
ethical duty to act in ways that benefit society, beyond just
generating profits for shareholders. It involves a company’s
commitment to economic, legal, ethical, and discretionary
(philanthropic) responsibilities toward all stakeholders,
including employees, customers, communities, suppliers, and
the environment.
Broader Perspective on CSR
CSR is based on the principle that businesses do not operate in
isolation; they are part of a broader social and economic
system. A responsible corporation should aim to create long-
term value by balancing profit-making with social and
environmental sustainability. CSR encompasses:
1. Economic Responsibility – Operating profitably while
ensuring sustainable business practices that contribute to
long-term economic development.
2. Legal Responsibility – Complying with laws and
regulations related to labor, consumer rights,
environmental protection, and corporate governance.
3. Ethical Responsibility – Conducting business with
fairness, integrity, and respect for human rights, even
when laws do not mandate it.
4. Philanthropic Responsibility – Voluntarily engaging in
social initiatives, such as donations, community
development programs, and sustainability efforts.
Key Theories of CSR
1. Shareholder Theory (Milton Friedman’s View) –
Argues that a corporation's primary responsibility is to
maximize profits for shareholders, as long as it follows
legal and ethical rules.
2. Stakeholder Theory (Freeman & Reed’s View) –
Suggests that corporations should consider the interests of
all stakeholders, not just shareholders, and aim for a
balance between profitability and social good.
Modern CSR Trends
 Sustainability Initiatives – Companies adopting eco-
friendly practices to reduce their carbon footprint.
 Social Equity Programs – Promoting diversity, fair
wages, and employee well-being.
 Ethical Sourcing – Ensuring suppliers follow ethical labor
and environmental standards.
Conclusion
CSR is not just about philanthropy but about integrating
ethical, social, and environmental concerns into
business strategy. Companies that engage in CSR build trust,
enhance brand reputation, and achieve long-term sustainability
while contributing positively to society.

1. Technology & Business Ethics

Technology plays a crucial role in business growth, but it also
creates ethical concerns related to privacy, security,
fairness, and risks.
Key Ethical Issues in Technology
1. Privacy & Data Protection
o Issue: Businesses collect and use customer data,
often without full transparency.
o Example: Facebook faced criticism for sharing user
data without consent (Cambridge Analytica scandal).

2. Artificial Intelligence
(AI) & Job Loss
o Issue: AI and automation replace human jobs,
increasing unemployment.
o Example: Many factories use AI-powered robots,
leading to layoffs in manufacturing.

3. Cybersecurity & Hacking

o Issue: Businesses must protect sensitive customer
and company data from cyber threats.
o Example: Banks and e-commerce platforms are
prime targets for hacking and fraud.
4. Biotechnology & Ethics
 o Issue: Genetic engineering, cloning, and lab-grown
food raise ethical concerns.
o Example: The use of genetically modified organisms
(GMOs) in agriculture is debated for its health and
environmental impact.

2. Globalization & Ethical Concerns

What is Globalization?
Globalization is the interconnection of economies,
cultures, and markets worldwide. It allows businesses to
expand beyond borders, but also creates ethical dilemmas.
Key Ethical Issues in Globalization
1. Labor Exploitation & Child Labor
o Issue: Some companies set up factories in countries
with weak labor laws to reduce costs.
o Example: Nike and H&M were criticized for using
child labor in factories in developing countries.
2. Environmental Damage
o Issue: Multinational companies (MNCs) exploit
natural resources and pollute the environment.
o Example: Oil spills by Shell in Nigeria led to
environmental destruction and health issues for local
communities.
3. Cultural Erosion & Domination
o Issue: Global brands dominate local cultures, leading
to the loss of traditional values.
o Example: The spread of McDonald’s and Hollywood
movies influences eating habits and lifestyle choices
worldwide.
4. Unequal Economic Benefits
 o Issue: While globalization creates wealth, profits
often go to richer nations, leaving poorer
countries struggling.
o Example: Many tech companies outsource work to
developing nations where wages are lower, keeping
major profits in the U.S. and Europe.

Resolving Cross-Cultural Ethical

3.
Differences
Since ethical standards vary across countries, businesses must
balance universal moral principles with local cultural
values.
Theories to Address Cultural Ethical Differences
1. Moral Relativism
o Definition: Ethics depend on cultural context—what
is right in one country may be wrong in another.
o Example: In some countries, gift-giving in business
is seen as hospitality, but in others, it is considered
bribery.
2. Integrative Social Contracts Theory (ISCT)
o Hypernorms: Universal ethical standards accepted
worldwide (e.g., honesty, fairness, human rights).
o Microsocial Norms: Ethical rules that vary by
culture and community.
o Example: Fair wages are a hypernorm, but
acceptable tipping practices in restaurants are
microsocial norms that differ across countries.

Conclusion
Ethical issues in international business arise due to
technology, globalization, and cultural diversity.
Companies must act responsibly by:
✅ Protecting privacy and data security
✅ Ensuring fair wages and working conditions
✅ Minimizing environmental harm
✅ Respecting cultural differences while following universal
ethical principles
By balancing profitability with ethical responsibility,
businesses can succeed globally while maintaining
fairness and integrity.

Kohlberg’s Three Levels of Moral Development

Lawrence Kohlberg's theory explains how people develop

moral reasoning through three levels, each with two stages.

1. Pre-Conventional Level (Self-Interest & Rewards)

At this stage, moral reasoning is based on avoiding
punishment and seeking personal gain.
Stages:
1️⃣ Punishment & Obedience Orientation
 Right and wrong are determined by consequences
(fear of punishment).
 Example: A child does not steal because they might be
punished.
2️⃣ Instrumental & Relative Orientation
 Moral decisions are based on personal benefit (“What’s
in it for me?”).
 Example: A worker follows company rules only to get a
promotion.
2. Conventional Level (Social Expectations & Laws)
People follow societal norms and obey laws because they
believe it’s the right thing to do.
Stages:
3️⃣ Interpersonal Concordance Orientation
 Desire for approval from others (good boy/good girl
attitude).
 Example: A student helps a friend to be seen as kind
and helpful.
4️⃣ Law & Order Orientation
 People respect laws and authority because they
maintain social order.
 Example: A citizen follows traffic laws even when no
police are watching.

3. Post-Conventional Level (Higher Moral Principles)

People go beyond societal rules and follow universal ethical
principles.
Stages:
5️⃣ Social Contract Orientation
 Right and wrong are based on justice, fairness, and
individual rights.
 Example: A whistleblower exposes corruption, even at
personal risk.
6️⃣ Universal Principles Orientation
 Highest level of morality: decisions are based on
ethical principles that apply to all people.
 Example: Mahatma Gandhi and Martin Luther King Jr.
fought for human rights even against existing laws.