Velasquez
Eighth edition
Chapter 1
Ethics and Business
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Learning Objectives
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1.1 Analyze the basic nature of business ethics
1.2 Emphasize the importance of moral reasoning and moral decision-making in business
ethics
1.3 Examine ethical issues arising from globalization and international business
connections and practices
1.4 Explain the deep foundations and structure of moral reasoning
1.5 Assess the factors that define and refine the concept of moral responsibility
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Introduction: Ethics and Business
• Key Questions to be Explored:
– Definition of ethics.
▪ Study of right and wrong.
▪ Application of ethical theories to business.
– Definition of business ethics.
– Process for preparing to discuss business ethics.
▪ Conceptual frameworks.
▪ Moral principles.
▪ Methods of moral reasoning.
▪ Errors in moral reasoning.
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1.1: The Nature of Business Ethics (1 of 2)
• 1.1: Analyze the basic nature of business ethics
– What is ethics?
▪ Principles of conduct.
▪ Personal rules.
▪ Study of morality.
– Ethics as investigation
▪ It doesn’t simply tell you what is right or wrong, but investigates what these
concepts mean.
• 1.1.1: Merck & Co., Inc.
– What was the ethical dilemma facing Merck & Co., Inc.?
▪ Whether to develop a drug that could help millions of people, but lose money.
▪ Merck chose to develop the drug, which it eventually had to give away.
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1.1: The Nature of Business Ethics (2 of 2)
– What was a further consequence of the river blindness story?
▪ Merck developed programs to help distribute the drug, and to extend the
program to include treatment of a related disease.
• 1.1.2: Clarifying Ethical Issues
– Why should businesses be ethical?
▪ Competitive advantage.
▪ Merck story.
– Why aren’t all businesses ethical?
▪ Some people think it’s better to be unethical if they can get away with it.
▪ Some people don’t know how to make sense of their ethical choices.
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1.2: Moral Reasoning and Moral Decision
Making (1 of 7)
• 1.2: Emphasize the importance of moral reasoning and moral decision-making in
business ethics
– What is morality?
▪ The standards that an individual or a group has about what is right and wrong,
or good and evil.
• 1.2.1: BFGoodrich
– What is the difference between the decision-making process in the Merck case and
the one involving BFGoodrich?
▪ BFGoodrich’s decision-making was based on what would benefit the company.
– What moral standards were reflected in the BFGoodrich employees interviewed
about the case?
▪ One believed that as an engineer, he had an obligation “to do your best, no
matter what it cost.” Another believed that it was wrong to lie and to endanger
the lives of others, and he also believed that integrity is good, and dishonesty
is bad.
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1.2: Moral Reasoning and Moral Decision
Making (2 of 7)
• 1.2.2: Moral and Nonmoral Standards and Norms
– Defining a moral standard:
▪ What we believe is morally good or morally bad.
▪ Norms expressed as rules about our actions.
– The sources of moral standards:
▪ Family, friends, and various societal influences.
▪ Reflection upon our moral standards.
– Examples of nonmoral norms:
▪ Etiquette.
▪ Rules of behavior.
▪ Law.
▪ Language standards.
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1.2: Moral Reasoning and Moral Decision
Making (3 of 7)
– Six characteristics of moral standards:
1. Cover serious matters,
2. Preferred over other values,
3. Are independent of authority,
4. Are universal,
5. Are impartial,
6. Enlist special vocabulary and emotions,
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Table 1.1: Moral versus Nonmoral Norms
Group 1
“Do not harm other people.”
Group 2
“Do not eat with your mouth open.”
“Do not steal what belongs to others.” “Do not chew gum in class.”
“Do not lie to other people.”
“Do not wear socks that do not match.”
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1.2: Moral Reasoning and Moral Decision
Making (4 of 7)
• 1.2.3: Refining the Concept of Ethics
– Ethical standards require good reasons for one to hold them.
– Two ways to approach ethics:
▪ Descriptively.
▪ Prescriptively.
– Which of the following two questions enlists a descriptive approach, and which
enlists a prescriptive approach?
▪ “Do Americans believe that bribery is wrong?” [Descriptive]
▪ “Is bribery wrong?” [Prescriptive]
– Business ethics studies moral standards as applied to business.
– Business ethics issues can be sorted into systemic, corporate, and individual
issues.
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1.2: Moral Reasoning and Moral Decision
Making (5 of 7)
• 1.2.4: Applying Ethical or Moral Concepts to Corporations
– Corporate personhood.
▪ Corporations do not qualify as moral agents. So, they cannot be morally
responsible for what they do.
▪ Corporations are like machines in some ways, and so not responsible for what
they do.
▪ Corporations can be secondarily or derivatively morally responsible for their
actions.
• 1.2.5: Objections to Business Ethics
– Arguments against business ethics:
▪ Free market builds in ethics.
▪ Employee loyalty.
▪ Law.
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1.2: Moral Reasoning and Moral Decision
Making (6 of 7)
– Objections to arguments against business ethics:
▪ There is no “perfectly competitive” condition.
▪ Increasing profits do not necessitate social benefit.
– Not everyone values the same things.
• 1.2.6: The Case for Ethics in Business
– The case for business ethics.
▪ Businesses require ethical employees.
▪ Businesses require an ethical society.
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1.2: Moral Reasoning and Moral Decision
Making (7 of 7)
• 1.2.7: Business Ethics and Corporate Social Responsibility
– Corporate Social Responsibility (CRS)
▪ A corporation’s responsibilities or obligations to society.
▪ Shareholder view (Friedman).
▪ Stakeholder view (Freeman and Reed).
– Two types of arguments in support of stakeholder view:
▪ Instrumental.
▪ Normative.
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1.3: Ethical Issues in International Business
(1 of 3)
• 1.3: Examine ethical issues arising from globalization and international business
connections and practices
– Technology and Globalization
▪ Types of new technologies.
▪ Significant issues in international business and new technologies.
▪ Globalization.
• 1.3.1: Technology and Business Ethics
– Ethical issues raised through technological advancements
▪ Industrial and agricultural revolutions: Labor, fair trade, deception and stock
manipulation.
▪ Information technology: risk, privacy, and property rights.
▪ Nanotechnology and biotechnology: risk and dangerous products.
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1.3: Ethical Issues in International Business
(2 of 3)
• 1.3.2: Globalization and Business Ethics
– Globalization
▪ Largely driven by multinationals.
▪ Benefits to developing countries including jobs, skills, income, technology, a
decrease in poverty, specialization.
▪ Blamed for, e.g., rising inequality, cultural losses, a “race to the bottom,”
introduction of inappropriate technologies into developing countries.
▪ Differences in laws, governments, practices, levels of development, and
cultural understandings raise ethical problems, which suggests ethical
relativism.
▪ Criticisms of ethical relativism:
–Some moral standards are found in all societies.
–Moral differences do not logically imply relativism.
–Relativism has incoherent consequences.
–Societal standards are not above criticism.
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1.3: Ethical Issues in International Business
(3 of 3)
• 1.3.3: Integrative Social Contracts Theory
– Integrative social contracts theory:
▪ Hypernorms should apply to people in all societies.
▪ Microsocial norms apply only in specific societies and differ from one society to
another.
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1.4: Foundations of Moral Reasoning (1 of
4)
• 1.4: Explain the deep foundations and structure of moral reasoning
– Key goals:
▪ Examination of moral standards and the reasoning process by which such
standards are applied to issues.
▪ Description of the development of one’s critical capacities over one’s lifetime.
▪ Description of reasoning processes used to evaluate moral standards.
• 1.4.1: Moral Development
– Kohlberg’s stages of moral development:
▪ Preconventional Orientations
–Punishment and Obedience.
–Instrumental and Relative.
▪ Conventional Orientation
–Interpersonal Concordance.
–Law and Order.
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1.4: Foundations of Moral Reasoning (2 of
4)
▪ Postconventional Orientation
–Social Contract.
–Universal Moral Principles.
– Criticisms of Kohlberg’s view:
▪ Feminist and care ethics critiques.
• 1.4.2: The Structure of Moral Reasoning
– Moral reasoning involves:
▪ Moral standards for evaluation. (Be logical.)
▪ Information about what is being evaluated. (Rely on evidence or information
that is accurate, relevant, and complete.)
▪ Moral judgment about what is being evaluated. (Be consistent.)
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1.4: Foundations of Moral Reasoning (3 of
4)
• 1.4.3: Steps to Ethical Behavior
– Steps to ethical behavior:
▪ Awareness.
▪ Judgment.
▪ Decision.
▪ Action.
– Recognizing a situation as ethical:
▪ Requires framing it as one that requires ethical reasoning.
▪ Involves serious harm that is concentrated, likely, proximate, imminent, and
potentially violates our moral standards.
– Obstacles to recognizing a situation is ethical include:
▪ Euphemistic labeling, rationalizing our actions, diminishing comparisons,
displacement of responsibility, diffusion of responsibility, disregarding or
distorting the harm, dehumanizing the victim, and redirecting blame.
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1.4: Foundations of Moral Reasoning (4 of
4)
– Judging the ethical course of action.
▪ Avoid three forms of biased theories
▪ Organization.
– Judging the ethical course of action often depends on:
▪ The ethical climate of the organization.
▪ The ethical culture of the organization.
– Acting on a decision depends on:
▪ Ego strength.
▪ Loss of control.
▪ Response to authority.
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Figure 1.2: The Four Steps Leading to
Ethical Behavior
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1.5: Moral Responsibility and Blame (1 of 3)
• 1.5: Assess the factors that define and refine the concept of moral responsibility
– Clarity about what’s involved in moral reasoning:
▪ Responsibility.
▪ Accuracy.
▪ Appropriate emotions.
▪ Accountability.
• 1.5.1 When is a Person Morally Responsible?
– Criteria for moral responsibility for injuries or wrongs:
▪ Causality.
▪ Knowledge.
▪ Freedom.
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1.5: Moral Responsibility and Blame (2 of 3)
• 1.5.2: Mitigating Factors
– Moral responsibility is mitigated by:
▪ Minimal contribution.
▪ Uncertainty.
▪ Difficulty.
– Moral responsibility is not mitigated by:
▪ The cooperation of others.
▪ Following orders.
• 1.5.3: Moral Responsibility: Essential Points
– Essential points of responsibility
▪ Causation.
▪ Knowledge.
▪ Freedom.
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1.5: Moral Responsibility and Blame (3 of 3)
– Mitigation of moral responsibility
▪ Minimal contribution to the act.
▪ Uncertainty.
▪ Coercion or threat.
▪ Seriousness of the wrong.
• 1.5.4: Responsibility for Corporate Actions
– Corporate moral responsibility
▪ Individual
▪ Corporation
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Case Study 1.1: Slavery in the Chocolate
Industry
– Child slavery in Ivory Coast to farm cocoa beans.
– U.S. chocolate companies purchase the cocoa beans from Ivory Coast, knowing
that slavery is involved.
• Pressure Leads to Action
– Pressure from U.S. legislators led to chocolate companies committing to reforms.
• Far from Achieving Goals
– As of 2010, no progress on a certification system reached conclusion.
• Mixed Responses
– Some cocoa is now certified “slave-free,” but most cocoa from Ivory Coast is not.
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Case Study 1.2: Aaron Beam and the
HealthSouth Fraud (1 of 2)
– Aaron Beam and Richard Scrushy founded HealthSound in 1984.
– The company’s profitability was misrepresented.
– In 1986, the company went public.
– Beam and Scrushy became very wealthy.
• Hiding a Shortfall to Appear Profitable
– From 1986-1996, HealthSound grew to be a $3 billion Fortune 500 company.
– Over the next near, the company’s quarterly earnings repeatedly fell short of Wall
Street analysts’ expectations.
– The company continued to falsify earnings reports.
– Beam retired in 1997.
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Case Study 1.2: Aaron Beam and the
HealthSouth Fraud (2 of 2)
• Investigation and Outcome
– The FBI began investigating HealthSound in 2003.
– Scrushy was not convicted of wrongdoing in the HealthSound case, but was later
convicted of bribery in an unrelated case and was sentenced to seven years in
prison.
– Scrushy lost a $2.8 billion civil lawsuit brought by HealthSound shareholders.
– Beam blamed Scrushy for much of what happened at HealthSound.
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Summary: Ethics and Business
– Definition of ethics.
– Definition of business ethics.
– Objections to studying business ethics.
– Moral reasoning.
– Key requirements of ethical behavior.
– Actions and agents.
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