Business Ethics
Dr Jan Brzozowski
Theories of Ethics
Why do we need theory of ethics?
Ethical egoism vs. altruism
Aristotle: virtue ethics
Kant: deontological theory
JS Mill: consequentialist theory
Justice and right-based theories
Why do we need theory of ethics in business?
A practical tool to facilitate decision-making in business organizations?/instrument to help
managers to formulate decisions?
or
A tool that can justify the decision already taken/explain the decisions that managers make?
Better understanding of what ethics and moral claims are
or
betterment of our ethical behaviour (helping to see which ethically right choices are preferable
over ethically wrong ones)?
So, theories of ethics are not made for theoretical purpose only…
„There is nothing more practical than a good theory” (Kurt Levin, founder of social psychology
and studies on organization development)
Ethical theories development is not a purely intelectual study. It has profound influence on how
managers act.
Theories of ethics might:
 Provide fundamental ethical values that will become a starting point for ethical decision
making

Provide an analytical framework of crucial ethical terms and concepts that will inform
manager on one’s prospective ethical choices

Provide set of norms&standards that will function as the grounding of manager’s ethical
decisions (can be used in writing a company’s ethical code)
Business Ethics
Dr Jan Brzozowski
Ethical egoism vs. altruism
Ethical egoism: what is right is simply what is in my own interests. Ethical altruism: I do care for
others (stakeholders) also.
Are people altruistic? Case study: the behavioral economics’ experiments on altruism
Ethical egoism
Doing the right thing: what is in my own interest?

Long-term vs. Short-term intersts: the case of subprime bonds and Global Financial Crisis

Thinking in short-term interests only might lead to a company’s bankruptcy
Rational egoism: we are still self-oriented, but take the long-term implications into the account
while taking decisions

Business is intrinsically social in nature

Our relations with stakeholders do matter

Cheating a client may be beneficial for a while, but when we start loosing clients our
lond-term performance is affected

Our company has to survive in a hostile&competitive environment

Therefore, we have to look beyond our most immediate narrow interests

We can remain egoist but our long-term interests require some degree of social
responsiveness

We have to care for our: shareholders, suppliers, clients, employees – it will pay off
Business Ethics
Dr Jan Brzozowski
virtue ethics

We should not focus on trying to understand the rightness or wrongness of the individual
action

Instead, it makes sense to first consider the broader term: the idea of good life

the good life concept is connected with virtues: the features of personality which lead a
person to live good life, such as: honesty, integrity, kindeness, fairness, prudence
Aristotle
 Being virtuous represented a particular way of living your life

A person living a good life avoided extremes

There is a right pattern of behaviour: based on moderation, finding the mean between
extremes
The idea of good life in business
 A kind of management style shown in action by someone whose virtues are evindent in
their work behaviour and choices

Promotion of specific virtues in a business organization

This theory is useful for developing the strategy of the company, personal development
of workers. But does not help much when individual is faced with the immediate
dillemas
deontological theory

Immanuel Kant: one should focus on what humans can be fully responsible for: our
motives and intentions

The ethical choice of a human being can be expressed in universalizable terms

Which ideas/actions can be made universal?

Lying cannot be universalizable: if everybody lied then the whole practice of human
communication would break down

The keeping of promise is universalizable: it it (theoretically) possible for everyone to
keep their promises; even the practice of keeping the promises would be strenghtened
Business Ethics
Dr Jan Brzozowski
by a promise-keeping behaviour (while lying would undermine the communication
process)
Cathegorical imperative

A behaviour that is right in absolute sense

An imperative applied to a rational actor no matter what the circumstances and
individual’s particular needs

Provides a practical and straightforward test of whether something is ethically
acceptable or not
Example

You are a senior manager at a company that is going throug troubled times

The financial situation is very bad, and you would have to lay off 1000 people

However, your company is applying for a major contract that might save those jobs and
secure the economic situation for a while

Unfortunatelly, this requires you to give bribe

What should you do? Giving a bribe is a bad thing, but saving jobs of 1000 persons is a
good thing…
Kant and his cathegorical imperative bring a straightforward explanation:

Should I give a bribe in this situation? – it is a wrong question

The right question to ask is: is the acceptance of bribes is a motive that can be applied by
anyone in any context?

Taking an giving bribes as a principle of action in business?

Trust in business would quickly break down

In all the transactions it would be assumed that negotiators act only in their personal
interest only and not in the interest of the business

Business activity would cease to be viable
Business Ethics
Dr Jan Brzozowski
Limits of deontological reasoning?

The assumption of universality is broken: as many enterpreneurs cheat or lie, my
cathegorical imperative of being honest and to say the truth would lead to lower profits

Should we ALWAYS tell the truth? Let’s say that we have learned that our main
customer’s husband has an affair with one of our managers…

Threat of going from absolutism to fanaticism: Let’s assume you have estabilished a rule
that the company equippment cannot be used for private purposes. Then you see your
best employee using skype to call family and say that he is going home
consequentialist theory
Ethics of action should be evaluated by the consequences it carries
Of course, we evaluate the potential consequences, accessing the probability that a given action
might bring
Case #1
Imagine that you are a CEO of a major pharmaceutical company. Your researchers have just
discovered a drug that cures AIDS. However, there’s side effect: there is a tiny possibility ca. 2%
that a patient might get leukemia after taking your product
What you should do?
Case #2
Barings Bank collapse: Financial trader Nick Leeson has played with his client’s money, investing
in very risky instrument. Moreover, the client were not aware of this fact. He failed, lost all the
rescources and the Bank went bankrupt. Actually, many financial traders did the same thing at
that time. But they were luckier than Nick was. Even if their behavior was wrong, the EFFECTS do
matter; the act of Lesson is much worse because of the consequences.
Business Ethics
Dr Jan Brzozowski
Utilitarianism – John Stuart Mill
An action is right if it promotes the greatest good for the greatest number of people
For instance: if you are a CEO of a major company in which the ownership is greatly fragmented,
you have more power to decide how to use the company profits. There are 3 options:

Pay big bonuses for You and the members of the Board

Pay higher divident for all the shareholders

Increase the financing of your R&D department
Shortcomings of such approach? The end justifies the means: in utilitarian paradigm, giving
bribes to gain a contract – if efficient – is automatically justified. Sacrifices for the greater good:
promoting good for the great number of people might also harm a minority. Examples: someone
has to stay at work on summer to mantain the company’s operations while the majority goes on
holiday; closing one manufacturing plant and dismissing hundreds of workers may save the
company and thousands of jobs.
Justice and right-based theories
Politically focused perspective on ethical choices. They place emphasis on long-term, social
outcomes of business choices. Emphasis less on individual choices than on broader trends in
decisions.
Ethics of (human) rights
Negative rights: those that release an individual from restrictions (eg. Right to be free of
religious persecution)
Positive rights: indicate benefits that an individual can expect from society and government (eg.
security, healthcare)
Implications for business

The companies have to respect the human rights in the country in which they operate

Respecting human rights of: employees, clients, suppliers and other stakeholders
Business Ethics
Dr Jan Brzozowski
They should support local governments in securing basic human rights. For instance, in a
developing country where the healthcare is not provided, offering free healthcare to the
employees and their families is a big contribution towards the fullfilments of their human rights
But what to do in case when the human rights are violated by government? Should the
companies enable the security institutions to monitor the internet activity of their employees at
work? Should their be involved in the policy of discrimination based on race (apartheid in SA) or
sexuality (Uganda)?
Justice
Fair and right application of laws, moral codes and rules
Fair=individuals get what they deserve
Equal= all get comparable share of social benefits and goods
Justice refers to

Processes: tell us how the laws and organizational rules operate; how we ensure that all
members of the given organization are treated equally. For instance: the complaint of
sexual harrasment made by a janitor should be inspected with the same serenity and
fairness as in case of the CEO secretary.

Outcomes: how social benefits or financial gains are distributed within company;
distributive justice
distributive justice

European notion of distributive justice: marxist influence

From each according to their abilities and to each according to their needs

Market economies need to incorporate welfare component – so the weakest receive the
support adequate to enable them to participate in the economy

Visible especially in the Scandinavian countries, but also in France (75% tax on the
wealthiest’s income)
Implications for the company
Business Ethics

How the wage grid should look like?

What about the priviledges of the VIPs?

Making sacrifices in the times of recession
Dr Jan Brzozowski