AN INTRODUCTION TO
BUSINESS ETHICS
CHAPTER ONE: WHY STUDY
ETHICS?
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This chapter seeks to
• Identify reasons why the study of ethics is important
• Explain the nature and meaning of business ethics
• Explain the difference between ethical values and other
values
• Clarify the difference between ethics and the law
• Describe the distinction between ethics and ethos
• Introduce the distinction between personal morality,
virtues and social ethics
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Discussion Case: Madoff
• Madoff pleads guilty to 11 counts of financial
fraud and theft in March 2009
• Is sentenced to 150 years in prison
• A Ponzi scheme is a fraud that attracts investors
with a promise of high returns
• The perpetrator benefits either by disappearing
with the money or living a wealthy lifestyle by
skimming
• Many would say this is a complete failure of
government regulations
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Discussion Questions
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• Identify what ethical issues and questions are involved
in the Madoff case.
• Identify all the people you think may have been
harmed, and how they were harmed, by the Madoff
fraud.
• Do you think that a scandal such as this is the result
mostly of unethical individuals, or are there
organizational issues that allowed, encouraged, or
were responsible for the harms? To what degree was
this case mostly a failure of individuals, or
organizational structure, or of government?
• Can you imagine anything that would have prevented
the Madoff fraud?
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Why study Business Ethics?
• Is it an oxymoron like “jumbo-shrimp”?
• Is it a discipline of sentimentality and
personal opinion?
• Who’s to say what is right and what is
wrong?
• Is there a place for ethics in business?
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The questions today are less about
why or should ethics be a part of
business, than about which ethics
should guide business decisions
and how ethics can be integrated
within business.
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Context: Who was harmed by the
collapse of Enron?
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Stockholders
Employees
Consumers in California
Suppliers
Enron’s accounting firm, Arthur Anderson
The Houston, TX community
Families of employees, investors and
suppliers
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Reasons to be concerned with
Ethics
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• The Law: In 2002, Congress passed the
Sarbanes-Oxley Act
• Financial risks
• Reputation and competitive advantage
• Consumer boycotts
• Efficiency and effectiveness
• Employee trust, loyalty, commitment and
initiative
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What do managers think?
• 2003: Deloitte polled 5000 directors of the top
4000 publicly traded companies and reported
that 98 percent believed ethics and compliance
programs are essential to corporate governance.
• 80% of those surveyed had developed codes of
ethics beyond those required by SarbanesOxley
• 90% included statements concerning the
company’s obligation to its stakeholders.
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The need to study Business Ethics
• If business managers see the need to
focus on ethical behavior, so should
business students
• Preparation for career in contemporary
business
• Consumers are affected by decisions
made by businesses
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Values and Ethics: Doing Good and
Doing Well
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• Built to Last: Successful Habits of
Visionary Companies by James Collins
and Jerry Porras
– Key finding: Exceptional and enduring
companies place great emphasis on a set
of core values
– These core values are essential and
enduring tenets defining the company, and
not to be compromised for financial gain.
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Companies cited by Collins & Porras
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IBM
Johnson & Johnson
Hewlett Packard
Procter and Gamble
Wal-Mart
Merck
Motorola
Sony
General Electric
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What are values?
• Those beliefs or standards that incline
us to act or to choose in one way rather
than another
• A company’s core values are those
beliefs and principles that provide the
ultimate guide in the company’s
decision-making.
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Corporate Culture
• Another way of saying a corporation
has a set of identifiable values.
• But there is no “right” set of core
values.
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Values vs. Ethical Values
• What are the ends that our core values
serve?
• Financial values serve monetary ends.
• Religious values serve spiritual ends.
• Aesthetic values serve the end of
Beauty.
• What ends are served by ethics?
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Elements of Ethical Values
• Ethical values serve the ends of human wellbeing.
• The well-being promoted by ethical values is
not personal and selfish well-being.
• No one person’s well-being is to be counted
as more worthy or valuable than any other’s.
• Ethical values promote human well-being in
an impartial way.
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Disagreements about Ethics
• People disagree about what ethics
commits us to and what ends are
served by ethical values.
• Ethical values can conflict, and may
result in serious illness and death to
others.
• So how do you decide if a company is
an ethical company?
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Malden Mills
• December 11, 1995 – A fire destroys most of
Malden Mills, the manufacturer of Polartec.
• The last major textile manufacturer in town
with 2,400 employees; community life’s
blood
• Malden Mills provides fabric to L.L. Bean,
Land’s End, J. Crew and Eddie Bauer
• Aaron Feuerstein, the owner pledged to
rebuild the plant, keep jobs in the community
and pay his employees until work resumes.
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Malden Mills continued…
• Factory was rebuilt and reopened in
one year.
• Employees came back to work.
• The community seemed to recover.
• Malden Mills filed for bankruptcy
protection.
• Eventually controlled by creditors.
• Remaining employees voted to
authorize a strike in December 2004.
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The Nature & Goals of Business
Ethics
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• Business ethics refers to those values,
standards and principles that operate
within business.
• Business ethics is also an academic
discipline that studies those standards,
values and principles while seeking to
articulate and defend the ones that
ought or should operate in business.
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But…
• There is a growing body of literature in
business ethics about the right ways to
teach and learn business ethics.
• There are a set of principles, standards,
concepts, and values common to
business ethics.
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Ethical Judgment vs. Behavior
• From the time of Aristotle we have
noticed a discontinuity between
judging some act as right and behaving
rightly.
• Knowing what is right is different from
doing what is right.
• People vary in strength of character
and motivation and fortitude.
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The Goals of Business Ethics
• To treat students as active learners
• To engage students in an active process of
thinking and questioning
• To allow students to think for themselves
• To deal with the mess of relativistic
conclusions
The unexamined life is not worth living
(Socrates).
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Reasoning and Business Ethics
• The process of ethical reasoning must
be emphasized.
• Reasoning is distinct from answers.
• Begin with an accurate and fair account
of the facts from all “sides”.
• Be objective and open-minded.
• Analyze each issue fully and rigorously.
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Business Ethics and the Law
• Compliance with the law will prove
insufficient for ethically responsible
businesses.
• The Law is rife with ambiguity. Many
acts are not illegal until a court rules
that they are.
• Court cases demonstrate that you
cannot always rely on the law to decide
what is right or wrong.
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Whether we examine ethical
questions explicitly or not, they are
answered by each of us every day in
the course of our lives.
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Ethics and Ethos
• The word “ethics” is derived from the
Greek ethos, meaning “customary” or
“conventional.”
• To be ethical in the sense of ethos is to
conform to what is typically done, to
obey the conventions and rules of
one’s society and religion.
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Philosophical Ethics
• Denies that simple conformity and
obedience are the best guides to living
• Rejects authority as the source of
ethics
• Defends the use of reason as the
foundation of ethics
• Seeks a reasoned analysis of custom
and a reasoned defense of how we
ought to live
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Philosophical Ethics
• Distinguishes what people do value
from what people should value
• Requires we stand back, abstract
ourselves from what is typically done
and reflect upon whether or not what is
done, should be done.
• The difference between what is valued
and what ought to be valued is the
difference between ethos and ethics.
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Business Ethics
• A branch of philosophical ethics
• Reflect: In what ways do the practices
and decisions made within business
promote or undermine human wellbeing?
• How ought we to live?
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Morality, Virtues and Social Ethics
• Morality: How should I live my life?
How should I act? What should I do?
What kind of person should I become?
• Virtues: character traits that constitute
a life worth living
• Social Ethics: How ought society be
structured? How ought we live
together?
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Business institutions are human
creations
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• Humans can not avoid responsibility for
something they have created or contributed
to.
• Business institutions have a tremendous
influence on human lives and the quality of
human life.
• As business people we face particular
business decisions about our corporations,
but as citizens we have to decide whether or
not to regulate those businesses for the
public good.
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Ethical perspectives
• Managerial ethics: What should a
business manager do in various
situations?
• The types of questions asked will vary
from perspective to perspective.
• All decisions faced by business
managers, from finance to marketing to
ethics and human resources, exist in a
social and legal context.
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Reflections on the chapter
• A wide range of people can be adversely
affected by the decision made within
contemporary business.
• There are many roles to play within the
economic system to insure integrity of that
system and to prevent fraud and abuse.
• Business operates within a social context
and has duties to a wide range of people
beyond those people who own a company’s
stock.
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Review Questions
• Describe several reasons why ethics is
relevant to business? Can a “good
business” be an unethical business?
• What are values? What is the difference
between ethical values and other types
of values? What is the difference
between “value” when used as a verb,
and “value” when used as a noun?
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Review Questions continued
• What is the difference between “ethics”
and “ethos”?
• How is descriptive business ethics
different from normative business
ethics?
• This chapter introduced a distinction
between morality, virtues, and social
ethics. How would you describe each?
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Review Questions continued
• How would you answer someone who
asked: Why should I study ethics if I
want to be an accountant?
• Other than business managers and
owners, which other constituencies
might have a stake in business
decisions?
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