Chapter 2
Defining
Business
Ethics
Instructor: Dr. Tôn Nữ Ngọc Hân
Center for Public Administration
International University
Vietnam National University HCMC
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Learning Outcomes
• Define the term business ethics.
• Identify an organization’s stakeholders.
• Discuss the position that business ethics is an oxymoron.
• Summarize the history of business ethics.
• Identify and propose a resolution for an ethical dilemma in
your work environment.
• Explain how executives and employees seek to justify
unethical behavior.
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Business Ethics
Application of ethical standards to business behavior.
Can be approached from two perspectives.
• Descriptive: Documentation of what is happening.
• Normative (prescriptive): Recommendation of what should happen.
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Stakeholders
Stakeholder: Someone with a share or interest in a business
enterprise.
• Not every stakeholder will be relevant in every business situation.
Concerns in terms of ethical operations.
• Involvement of the stakeholders with the actions of the organization.
• Extent to which they would be impacted by unethical behavior.
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Figure 2.1: Stakeholder Interests
1
Stakeholders
Interest in the Organization
Stockholders or shareholders
• Growth in the value of company stock.
• Dividend income.
Employees
• Stable employment at a fair rate of pay.
• A safe and comfortable working environment.
Customers
• “Fair exchange”—a product or service of
acceptable value and quality for the money spent.
• Safe and reliable products.
Suppliers/vendor partners
• Prompt payment for delivered goods.
• Regular orders with an acceptable profit margin.
Retailers/wholesalers
• Accurate deliveries of quality products on time
and at a reasonable cost.
• Safe and reliable products.
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Figure 2.1: Stakeholder Interests
2
Stakeholders
Interest in the Organization
Federal government
• Tax revenue.
• Operation in compliance with all relevant
legislation.
Creditors
• Principal and interest payments.
• Repayment of debt according to the agreed
schedule.
Community
• Employment of local residents.
• Economic growth.
• Protection of the local environment.
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Figure 2.2: Stakeholder Impact from Unethical
Behavior
1
Stakeholders
Interest in the Organization
Stockholders or shareholders
• False and misleading financial information on
which to base investment decisions.
• Loss of stock value.
• Cancellation of dividends.
Employees
• Loss of employment.
• Not enough money to pay severance packages or
meet pension obligations.
Customers
• Poor service quality (as WorldCom struggled to
combine the different operating and billing
systems of each company it acquired, for
example).
Suppliers/vendor partners
• Delayed payment for delivered goods and
services.
• Unpaid invoices when the company declared
bankruptcy.
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Figure 2.2: Stakeholder Impact from Unethical
Behavior
2
Stakeholders
Interest in the Organization
Federal government
• Loss of tax revenue.
• Failure to comply with all relevant legislation.
Creditors
• Loss of principal and interest payments.
• Failure to repay debt according to the agreed
schedule.
Community
• Unemployment of local residents.
• Economic decline.
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Self-Assessment Report for AUN-QA
Institutional Level – International University
(August, 2018)
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Is Business Ethics an Oxymoron?
Unfair to brand every organization as fundamentally unethical in
its business dealings.
Numerous prominent organizations that were previously held as
models of aggressive business management have later been
proved to be fundamentally flawed in their ethical practices.
• Positive outcome: Increased attention to the need for third-party
guarantees of ethical conduct and active commitments from the rest of
the business world.
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Factors Ensuring Ethical Conduct
• Corporate governance: System by which business
corporations are directed and controlled.
• Code of ethics: Company’s written standards of ethical
behavior that are designed to guide managers and employees
in making the decisions and choices they face every day.
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Dual Function of Code of Ethics
Serves as:
• A message to the organization's stakeholders.
• Represents a commitment to the highest standards of ethical behavior.
• An internal document.
• Represents a guide managers and employees in making the decisions and
choices.
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Figure 2.3: A Brief History of Business Ethics
Decade
Ethical Climate
Major Ethical
Dilemmas
Business Ethics
Developments
1960s
Growing concern over the
power and influence of the
military-industrial complex
leads to social unrest and antiwar protests. Increased
consumer activism and the
development of a more
adversarial relationship
between employees and
management.
• Pollution.
• Profits over
people.
• Civil rights.
• Product safety
• Job security.
• Consumers Bill
of Rights.
• Corporate codes
of conduct.
• Expectations of
equality, social
justice, and
economic
stability.
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1
Figure 2.3: A Brief History of Business Ethics
Decade
Ethical Climate
Major Ethical
Dilemmas
Business Ethics
Developments
1970s
Major scandals draw attention
to unethical conduct. Nixon's
Watergate leads to questions
about ethics in government.
Greater corporate awareness
of public image. Recession
exacerbates unemployment
and labor issues.
• Pollution.
• 1977 Foreign
• Labor issues:
Corrupt
workplace
Practices Act
safety, wage
(FCPA).
equality, forced • Business ethics
labor.
gains credence
• Covering up
as a distinct area
unethical
of academic
conduct to
study.
protect
• 1977 Ethics
corporate image.
Resource Center
(ERC) founded.
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2
Figure 2.3: A Brief History of Business Ethics
Decade
Ethical Climate
Major Ethical
Dilemmas
Business Ethics
Developments
1980s
Aggressive downsizing by
• Savings and Loan • 1986 Defense
corporations redefines the
scandal.
Industry
social contract between
• Bribery and
Initiative on
employers and employees.
corruption in
Business Ethics
Loyalty erodes in the face of a
international
and Conduct (D I
clear message of expendability.
contracts.
I).
Stakeholder model introduced • Waste and fraud • 1986 False
as a construct for business
in government
Claims Act
ethics decisions.
contracting and
amended to
defense
control waste,
spending.
fraud and abuse
in federal
spending.
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3
Figure 2.3: A Brief History of Business Ethics
Decade
Ethical Climate
Major Ethical
Dilemmas
Business Ethics
Developments
1990s
Expansion of the
Internet facilitates
global commerce
and presents new
ethical challenges.
Corporate liability
cases increase.
• Financial fraud.
• Avoidance of
regulations by
opening
manufacturing plants
in developing
countries.
• Corporate liability for
personal damage
(Dow Chemical, Big
Tobacco).
• 1991 Federal Sentencing
Guidelines for
Organizations (FSGO).
• Class-action lawsuits.
• Legal precedent for
Board of Directors’
responsibility for
business ethics.
• Ethical performance
documented in annual
report (Royal Dutch/
Shell International).
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4
Figure 2.3: A Brief History of Business Ethics
Decade
Ethical Climate
Major Ethical
Dilemmas
Business Ethics
Developments
2000s
Increased concerns
that business ethics
was being taught in
business schools but
not practiced in the
marketplace. A series
of financial scandals
(Enron, WorldCom,
HealthSouth)
prompted calls for
increased regulations
and harsher
penalties.
• Cyber crime.
• Falsifying financial
reports.
• Privacy issues (data
mining and identity
protection).
• International
corruption.
• Loss of privacy—
employees versus
employers.
• 2002 Sarbanes-Oxley
Act (SarBox).
• Anti-corruption
efforts grow.
• Emphasis on
corporate social
responsibility (CSR).
• 2010 Dodd-Frank
Wall Street Reform
and Consumer
protection Act.
Source: Adapted from Ethics Resource Center, “Business Ethics Timeline,.” 2002.
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5
VEDAN MAKING WATER-POLLUTION
IN VIETNAM
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Resolving Ethical Dilemmas
Ethical dilemma: Situation in which there is no obvious right or
wrong decision, but rather a right or right answer.
• Can be resolved by recognizing the type of conflict.
• Truth versus loyalty.
• Short term versus long term.
• Justice versus mercy.
• Individual versus community.
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Resolution Principles for Ethical Dilemmas
Ends-based.
• Which decision would provide the greatest good for the greatest number
of people?
Rules-based.
• What would happen if everyone made the same decision as you?
The Golden Rule.
• Do unto others as you would have them do unto you.
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Justifying Unethical Behavior
Belief that the activity is within reasonable ethical and legal limits.
Belief that the activity is in the individual’s or the corporation’s best
interest.
Belief that the activity is safe because it will never be found out or
publicized.
Belief that because the activity helps the company, it will be condoned,
and the perpetrator will be protected.
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