Business Ethics chapter 1 Dictionary Definition 1 The

Business Ethics – chapter 1 • Dictionary Definition: 1. The principles of conduct governing an individual or a group (e. g. personal ethics or accounting ethics) 2. “The study of morality” • Standards of what is right and wrong, good and evil (e. g. Case – Goodrich) Prof. Harsha Satramani

Business Ethics – chapter 1 Ethics and Morality are different: • • Ethics – a kind of investigation and includes both the activity of investigating and the results of that investigation. Morality is the subject matter that ethics investigates. Prof. Harsha Satramani

Morality (1) • Case: B. F. Good rich – manufacturer of vehicle parts. • Won a military contract to design, test and manufacture aircraft brakes • Specification of the brake given • Vandivier, was given the responsibility to write a report on the test runs • The brakes did not comply with the specifications • Superiors wanted him to falsify the test data and the reports. • Vandiver agreed to co-operate due to personal and financial commitments Prof. Harsha Satramani

Morality (2) Vandivier’s Beliefs • • The right to tell the truth Wrong to endanger lives of others Integrity is good Dishonesty is bad Moral Standards Prof. Harsha Satramani

Morality (3) Moral Standards • The norms about the kinds of actions believed to be morally right and wrong • Values placed on the kinds of objects believed to be good and bad (e. g. “always tell the truth”, “honesty is good”, “injustice is bad”) • Moral standards come from: – – – Family Friends School T. V. Music Prof. Harsha Satramani

Morality (4) Nonmoral Standards • Moral standards contrasted with standards we hold about things that are not moral • Examples of Nonmoral standards include: – – Standards of etiquette by which we judge manners as good or bad. Standards we call the law by which we judge legal right and wrong. Standards of aesthetics – good or bad art. The athletic standards – how well a game is being played Prof. Harsha Satramani

Morality (5) 5 Characteristics of Moral Standards 1. Involved with serious injuries or benefits. Eg. theft, rape, murder, child abuse, assault, fraud, slander. 2. Not established by law or legislative. Moral standards rest on the adequacy of the reasons that are taken to support and justify them. 3. Should be preferred to other interests. Eg if a person has a moral obligation to do something, then he or she is supposed to do it even if this conflicts with other nonmoral values or self-interest. Eg. Vandivier’s case • • moral values of honesty and respect for lives nonmoral values of keeping his well paid job Prof. Harsha Satramani

Morality (6) 5 Characteristics of Moral Standards 4. 5. Based on impartial considerations: – Does not evaluate the interest of a particular individual or group – “universal” standpoint in which everyone’s interests are impartially counted as equal Associated with special emotions and a special vocabulary – Eg. If you act contrary to a moral standard, you will normally feel guilty, ashamed, remorseful. • You characterize yourself as ‘immoral’ or ‘wrong’ • Feel bad about yourself • Experience loss of self-esteem Prof. Harsha Satramani

Ethics • Ethics is the discipline that examines one’s moral standards or the moral standards of the society. – how these standards apply to our lives – whether the standards are reasonable or unreasonable • Other fields, such as social science, also study ethics – Normative Study: attempts to reach normative conclusions – Descriptive Study: attempts to describe or explain the world without reaching conclusions. Prof. Harsha Satramani

Ethics - Meaning • Greek word ETHIKOS • Means CHARACTER • Study of Behaviour • Study of values Ø Ethics is the study of Behaviour Ø What is Good and What is Wrong Ø Branch of Philosophy Ø Science of morals Ethics, or moral philosophy, ask basic questions about the good life, about what is better and worse, about whethere is any objective right and wrong, and about how we know it if there is. Prof. Harsha Satramani

Ethics and Morality Prof. Harsha Satramani

Both terms having blurred difference used interchangeably. Morality Ethics • Concerned with the norms, values, and beliefs embedded in social processes which define right and wrong for an individual or a community. • Ethics is concerned with the study of morality and the application of reason to elucidate specific rules & principles that determine right and wrong for a given situation. NOTE : Specific rules & principles that determine right and wrong for a given situation are. Satramani called ethical theories Prof. Harsha

Who came first – egg or chicken? Morality Ethics • Morality Refers to adhering to certain moral standards or conduct of behaviour by people or individuals – taught or established in a society as part of natural feature of reality for good, harmonious and fair living. • Ethicality of actions and decisions, on the other hand, would refer to the degree of goodness, rightness and fairness of such standards and conduct (i. e morality) exhibited by an organization or individuals running the org. Prof. Harsha Satramani

Morals – Individual Ethics – dependent on morals Morals – governs behavior (good/bad) Ethics – governs human conduct Morals – good or evil Ethics – Right or wrong Morals – based on values & norms (individual) Ethics - based on Moral standards (individual/general) Prof. Harsha Satramani

Moral Development & Moral Reasoning What is it? • Moral Development – As people mature they change their values in very deep and profound ways. – Children’s adherence to moral standards is based on a selfabsorbed avoidance of pain. – As we mature into adolescents, the moral standards are gradually internalized. – Adherence to moral standards are based on living up to the expectation of family, friends and society. Prof. Harsha Satramani

Moral Development (1) What are the six basic stages of moral development? • Psychologists Lawrence Kohlberg concluded that there is a sequence of six identifiable stages in the development of persons ability to deal with moral issues. • Kohlberg grouped these stages of moral development into three levels, each containing two stages. Prof. Harsha Satramani

Stages of Moral Development KOHL BERG’S THEORY OF MORAL DEVELOPMENT Prof. Harsha Satramani

• A. PREMORAL OR PRECONVENTIONAL STAGES: FOCUS: Self AGES: Up to 10 -13 years of age, most prisoners Behavior motivated by anticipation of pleasure or pain. STAGE 1: PUNISHMENT AND OBEDIENCE: Might Makes Right [an individual’s moral judgement is motivated by the need to avoid punishment from those who create the rules. ] • The immediate physical consequences of an action determine its goodness or badness. • people behave according to socially acceptable norms because they are told to do so by some authority figure (e. g. , parent or teacher). • This obedience is compelled by the threat or application of punishment. • The atrocities carried out by soldiers during the holocaust who were simply "carrying out orders" under threat of punishment, illustrate that adults as well as children may function at stage one level. • "Might makes right. " QUESTIONS: What must I do to avoid punishment? What can I do to force my will upon others? Prof. Harsha Satramani

• A. PREMORAL OR PRECONVENTIONAL STAGES: FOCUS: Self AGES: Up to 10 -13 years of age, most prisoners Behaviour motivated by anticipation of pleasure or pain. STAGE 2: INSTRUMENTAL EXCHANGE: The Egoist [an individual’s judgement is motivated by a need to satisfy their own desires. ] • The second stage of this level is characterized by a view that right behavior means acting in one's own best interests. • "You scratch my back, I'll scratch yours. " • Justice is: "Do unto others as they do unto you. “ • Individual does what is necessary, makes concessions only as necessary to satisfy his own desires. • Right action consists of what instrumentally satisfies one's own needs. • People are valued in terms of their utility. QUESTIONS: What's in it for me? What must I do to avoid pain, gain pleasure? Prof. Harsha Satramani

B. CONVENTIONAL MORALITY: FOCUS: Significant Others, "Tyranny of the They" (They say…. ) AGES: Beginning in middle school, up to middle age - most people end up here Acceptance of the rules and standards of one's group. STAGE 3: INTERPERSONAL (TRIBAL) CONFORMITY: Good Boy/Good Girl [a child’s moral intentions are motivated by the need to fit in, fill the stereotypical role required of them and please other people. ] • • • Right is conformity to the stereotypical behavioural, values expectations of one's society or peers. characterized by an attitude which seeks to do what will gain the approval of others. Individual acts to gain approval of others. Good behaviour is that which pleases or helps others within the group. Forgiveness is preferable to revenge. Many religious people end up here. QUESTION: What must I do to be seen as a good boy/girl (socially acceptable)? Prof. Harsha Satramani

B. CONVENTIONAL MORALITY: FOCUS: Significant Others, "Tyranny of the They" (They say…. ) AGES: Beginning in middle school, up to middle age - most people end up here Acceptance of the rules and standards of one's group. STAGE 4: LAW AND ORDER (SOCIETAL CONFORMITY): The Good Citizen [an individual’s moral judgement is a desire to avoid criticism, respect authority, and maintain social order] • • Respect for fixed rules, laws and properly constituted authority. one oriented to abiding by the law and responding to the obligations of duty. Defence of the given social and institutional order for its own sake. Responsibility toward the welfare of others in the society. "Justice" normally refers to criminal justice. Justice demands that the wrongdoer be punished, that he "pay his debt to society, " and that law abiders be rewarded. Right behavior consists of maintaining the social order for its own sake. For most adults, this is the highest stage they will attain. QUESTION: What if everyone did that? Prof. Harsha Satramani

C. POSTCONVENTIONAL OR PRINCIPLED MORALITY: FOCUS: Justice, Dignity for all life, Common Good AGES: Few reach this stage, most not prior to middle age STAGE 5: PRIOR RIGHTS AND SOCIAL CONTRACT: The Philosopher/King • Moral action in a specific situation is not defined by reference to a checklist of rules, but from logical application of universal, abstract, moral principles. • Individuals have natural or inalienable rights and liberties that are prior to society and must be protected by society. • Laws are challenged by questions of justice. QUESTIONS: What is the just thing to do given all the circumstances? What will bring the most good to the largest number of people? Prof. Harsha Satramani

C. POSTCONVENTIONAL OR PRINCIPLED MORALITY: FOCUS: Justice, Dignity for all life, Common Good AGES: Few reach this stage, most not prior to middle age STAGE 6: UNIVERSAL ETHICAL PRINCIPLES: The Prophet/Messiah • • • An individual who reaches this stage acts out of universal principles based upon the equality and worth of all living beings. Having rights means more than individual liberties. It means that every individual is due consideration of his dignity interests in every situation, those interests being of equal importance with one's own. This is the "Golden Rule" model. A list of rules inscribed in stone is no longer necessary. At this level, God is understood to say what is right because it is right; His sayings are not right, just because it is God who said them. Stage 6 individuals are rare, often value their principles more than their own life, often seen as incarnating the highest human potential. Thus they are often martyred by those of lower stages shamed by seeing realized human potential compared with their own partially realized levels of development. (Stoning the prophets, killing the messenger). Examples: Mohandas Gandhi, Jesus of Nazareth, Gautamo Buddha, Martin Luther King, Jr. , Dag QUESTIONS: What will foster life in its fullest for all living beings? What is justice for all? Prof. Harsha Satramani

MORAL REASONING FOR ETHICS • Moral reasoning tries to logically place or project facts and figures that help one to judge human behaviour, institutional activities, policies, programmes, etc. as to whether they are in accordance to, or in violation of, acceptable moral standards. • Distinct features of Moral or ethical reasoning: – identifying what constitutes ‘moral standards’; – examining facts and figures concerning the policy, behaviour and actions under the specific situation; and – arriving at a moral judgment on the basis of rightness or wrongness of policy, behaviour or actions. Prof. Harsha Satramani

Cont… • To decide if an action or policy is ethical, one has to exercise moral reasoning by examining the factual information with regard to morality of the action or policy by analyzing: a) b) c) d) the utility of the decision, rights and duties of the individuals concerned with the decision; if justice is being meted out by the decision; the amount of care being shown to those who are related and valued in the subject matter; and the consistency of the decision with the past and present. Prof. Harsha Satramani

MORAL RESPONSIBILITY • ‘Moral responsibility’ means owning responsibility for doing something knowingly and deliberately that had caused harm or injury to others. • Establishing moral responsibility has the connotation of law or rules, in addition to its ethical implications. • If any one under the circumstances acted out of (a) ignorance or (b) inability, he or she may be excused of moral responsibility. • However, one cannot deliberately stay ignorant and claim innocence for a wrongdoing – be it as a person or company. Prof. Harsha Satramani

A tentative flow sheet for Ethical Judgement Prof. Harsha Satramani

Ethics • Ethical behavior is values driven. • What is considered ethical varies among moral reasoning approaches. • What is considered ethical can vary across cultures. • Ethical dilemmas arise as tests of personal ethics and values. • People have tendencies to rationalize unethical behaviors. Prof. Harsha Satramani

Nature Of Ethics • Deals with human beings only. • A set of systematic knowledge about moral behaviour and conduct. • Dealing with moral judgement. • Normative Science – idea concerned with judgements of “what ought to be”, but not with factual judgements. Prof. Harsha Satramani

Nature Of Ethics Standards of Behaviour tells us how to behave Not same as Feelings-Personal Ethics is not religion but it is advocated by religion • Ethics is not law but law contains ethics • Vary from society to society • • Prof. Harsha Satramani

ØAction as per standards-Ethical ØNot as per standards –Un Ethical ØActions which are law ful may not be ethical ØEg. , Drinking alcohol Prof. Harsha Satramani

Law and Ethics • The law is an expression of the ethical beliefs of our society. • Law and ethics are not the same thing. The question, “Is an act legal? ” is different from the question, “Is an act ethical? ” The law cannot codify all ethical requirements. • Therefore, an action might be unethical, yet not necessarily illegal. For example, it might be unethical to lie to your family, but it is not necessary illegal. Prof. Harsha Satramani

• Similarly, just because an act is illegal does not necessarily mean it is immoral. • Should an individual obey the law even if it would be unethical to do so? Under theory of civil disobedience espoused by Martin Luther King, Mahatma Ghandi and others, an immoral law deserves to be disobeyed. • Can you think of any examples of acts that would be illegal, yet arguably ethical? Prof. Harsha Satramani

Prof. Harsha Satramani

SOURCES OF ETHICS Prof. Harsha Satramani

Sources of Ethics • Genetic Inheritance – The qualities of goodness is a product of genetic traits strengthened over time by the evolutionary process. • Philosophical systems – The quality of pleasure to be derived from an act was the essential measure of its goodness as per the Epicureans. – The Stoics like the puritans and many contemporary Americans advocated a discussed hardworking, thrifty lifestyle. – Different philosophies have been instrumental in our society’s moral development. Prof. Harsha Satramani

Sources of Ethics • Religious Morality – Clearly a primary focus in shaping our societal ethics through a rule exemplified by the golden rule and ten commandments. • Golden rule – Äct in a way you would expect others to act towards you’… ‘’when in Rome, do as the Romans do’ – Morality can exist without religion, whereas religion cannot usually exist without morality. – Believers in a religious morality will often claim that the actions they are prescribed will help to bring about that supernatural goal. Prof. Harsha Satramani

Sources of Ethics • Religious Morality – Different religion, different moral codes. • Jain - excess fortune should made available for worthy cause • Hindu – Rich hindus donate lot of wealth • Islam – wealth should be given to the poor – International business; diverse religions – Economic clusters; no easy solution in ethical dilemmas in IB in dealing with ethnic minorities within a culture. • Wearing a turban instead of helmet by sikh cannot be insisted by a british supervisor • Seeking planning permission in India should a Westerner resort to giving bribes to officials, especially when most other business people do? Prof. Harsha Satramani

Sources of Ethics • The legal system – Law is an ever-changing approximation of current perception of right and wrong. Laws represent a rough approximation of society’s ethical standards. • Cultural experience – John Steiner refers to the rules, customs and standards transmitted from generation to generation as guidelines for appropriate conduct. – Individual values are shaped in large measure by the norms of the society. Prof. Harsha Satramani

Sources of Ethics • Codes of Conduct • Steiner and Steiner identified three primary categories of codes: – Company codes : these are generally brief – highly generalised, expressed broad expectations about fit conduct. – Company Operating Policies: Contains an ethical dimension, express policies as to gifts, customer complaints, hiring and other decisions serve as guide to conduct and as a shield by which the employee can protect against unethical advances from those outside the firm. Prof. Harsha Satramani

Sources of Ethics • Codes of Conduct • Steiner and Steiner identified three primary categories of codes: – Code of Ethics: specifies the ethical rules of operation – Developing codes of conduct & ethics -. docx file Prof. Harsha Satramani

WAYS OF THINKING • The field of ethics is usually broken down into three different ways of thinking about ethics: descriptive, normative and analytic. Prof. Harsha Satramani

DESCRIPTIVE ETHICS • The category of descriptive ethics is the easiest to understand - it simply involves describing how people behave and/or what sorts of moral standards they claim to follow. Prof. Harsha Satramani

Descriptive ethics (non-normative) • analysis of role of ethics in the social world • analysis of human "worldviews, " narratives, customs, rites, and so on; the cultural carriers of moral notions and claims » heavily dependent on the social science Prof. Harsha Satramani

CONT… In short, descriptive ethics asks these two questions: • 1. What do people claim as their moral norms? 2. How do people actually behave when it comes to moral problems? Here are some examples of statements from Descriptive Ethics: 1. Most Indian think that racism is wrong. 2. Among certain cultures, there is no stigma attached to homosexuality. 3. Stanley Milgram's study found a great discrepancy between what people claimed and what they actually did. Prof. Harsha Satramani

NORMATIVE ETHICS • The category of normative ethics is also relatively easy to understand - it involves creating or evaluating moral standards. Thus, it is an attempt to figure out what people should do or whether their current moral behavior is reasonable. Prof. Harsha Satramani

CONT… • In short, normative ethics addresses questions like the following: • What should be our moral obligations? What is Right and what is Wrong? What should be our moral values? What is Good and what is Evil? Here are some examples of statements from Normative Ethics: • 1. Do unto others as you would have them do unto you. (Golden Rule) 2. That which God wills is the Good. Prof. Harsha Satramani

METAEHICS • Metaethics involves reasoning about the presuppositions behind the moral systems developed under the category of normative ethics. • Whenever a moral system is created, it is based upon certain premises about reality, human nature, values, etc. Metaethics is all about questioning the validity of those premises and arguing that perhaps we don't really know what we are talking about after all. Prof. Harsha Satramani

CONT… Analytic ethics asks quite a lot of questions, including: • How are moral judgments even possible? Why be moral at all? • Do moral values exist objectively or only subjectively? • Are moral values relative to something, like culture or individuals? • Can morality exist independently of religion? Do people have a free will which would make moral judgments possible? Prof. Harsha Satramani

“Metathics” (non-normative) • analysis of concepts such as "ought" "right" and "wrong", "good" and "bad", duty, responsibility, etc. • analysis about how people come to, reason about, and justify their normative ethics. » heavily dependent on Analytic Philosophy Prof. Harsha Satramani

Business Ethics (1) • A specialized study of right and wrong applied to business policies, institutions and behaviors • How moral standards apply to social systems and organizations that produce and distribute goods and services. Prof. Harsha Satramani

What Is Business Ethics? • Business ethics involves applying general ethical principles and standards to business activities, behavior and decisions • Ethical principles in business are not different from ethical principles in general • Business actions are judged – By general ethical standards of society Prof. Harsha Satramani

What is Business Ethics? • Business ethics is the application of general ethical ideas to business behavior. • It is based on the principle of integrity and fairness and concentrates on the benefits to the stakeholders, both internal and external. Stakeholder includes those individuals and groups without which the organization does not have an existence. It includes shareholders, creditors, employees, customers, dealers, vendors, government and the society. Prof. Harsha Satramani

What is not Business Ethics? 1. Ethics is different from religion. 2. Ethics is not synonymous to law. 3. Ethical standards are different from cultural traits. 4. Ethics is different from feelings. 5. Ethics is not a science in the strictest sense of the term. 6. Ethics is not just a collection of values. Prof. Harsha Satramani

Arguments For & Against Business Ethics (1) Objections to Bringing Ethics into Business • The pursuit of profit will ensure maximum social benefit – members of society will benefit most if managers do not impose their own values on a business • A manager’s most important obligation is to the company – this argument justify a manager’s unethical or illegal conduct • Business ethics is limited to obeying the law – Laws and morality do not always coincide – Laws do not involve serious matters – Nothing to do with morality Prof. Harsha Satramani

Arguments For & Against Business Ethics Arguments Supporting Ethics in Business • Ethics applies to all human activities – No reason to exempt business activity from ethical scrutiny • Business cannot survive without ethics – business activities cannot exist unless the people involved in the business and its surrounding community adhere to some minimal standards of ethics • Eg. Lying, theft, cheating, distrust, conflict of self-interest • Ethics is consistent with profit seeking – Companies where a history of good ethics has existed side by side : Intel, Timberland, HP, Cisco System, Levi Straus, P&G, Starbucks Coffee Prof. Harsha Satramani

Importance… (Why B’Ethics)? Business ethics is that aspects of corporate governance that has to do with the moral values of managers encouraging them to be transparent in business dealings. Good business ethical practices are the backbone of every forward thinking business. Prof. Harsha Satramani

Raise the goodwill Business ethics bring much goodwill to a company that will in the long run translate into tangible benefits. Profitability The first direct benefits of ethical business operation is ‘profitability’. A company that is based on sound business value is more likely to be profitable than a company operating on corrupt practices. Prof. Harsha Satramani

Going Concern is assured being profitable will ensured that the company be around for at least the next twelve months. It is the desire of every business entity to be in the market for a longer time. Ethical business practice is the way to go if you and your business truly value going concern. Competitive Edge Quality saves money is a popular belief in accounting, business and investment. You will save the cost of reworking defects borne out of using poor equipment and employment of sharp practices. Prof. Harsha Satramani

Quality of the Product Good business ethics policy will definitely reflect on the quality of your product, because you have the satisfaction of your customer at hand while you were producing your product. Prof. Harsha Satramani

Role of business ethics Be sure you are right, Then go ahead. Davy(David) Crockett 1786 -1736 Prof. Harsha Satramani

Stop business malpractices Some unscrupulous businessmen do business malpractices by indulging in unfair trade practices like black-marketing, artificial high pricing, adulteration, cheating in weights and measures, selling of duplicate and harmful products, hoarding, etc. These business malpractices are harmful to the consumers. Business ethics help to stop these business malpractices. Prof. Harsha Satramani

Improve customers’ confidence Business ethics are needed to improve the customers' confidence about the quality, quantity, price, etc. of the products. The customers have more trust and confidence in the businessmen who follow ethical rules. They feel that such businessmen will not cheat them. Prof. Harsha Satramani

Survival of business Business ethics are mandatory for the survival of business. The businessmen who do not follow it will have short-term success, but they will fail in the long run. This is because they can cheat a consumer only once. After that, the consumer will not buy goods from that businessman. Prof. Harsha Satramani

Safeguarding consumers' rights The consumer has many rights such as right to health and safety, right to be informed, right to choose, right to be heard, right to redress, etc. But many businessmen do not respect and protect these rights. Business ethics are must to safeguard these rights of the consumers. Prof. Harsha Satramani

Protecting employees and shareholders Business ethics are required to protect the interest of employees, shareholders, competitors, dealers, suppliers, etc. It protects them from exploitation through unfair trade practices. Prof. Harsha Satramani

Why should Businesses act Ethically? The reasons for an organization to be ethical include: • To protect its own interest, • To protect the interests of the business community as a whole so that the public will have trust in it, • To keep its commitment to society to act ethically, and • To meet stakeholder expectations. • To prevent harm to the general public, • To build trust with key stakeholder groups, • To protect themselves from abuse from unethical employees and competitors, • To protect their own reputations, • To protect their own employees, and • To create an environment in which workers can act in ways consistent with their values. Prof. Harsha Satramani

ETHICAL THEORIES Prof. Harsha Satramani

Ethical Theories in Business • Ethics is a normative study, i. e. , an investigation that attempts to reach normative conclusions. • Ethical theories in business include: • Consequentialist normative theory: Normative themes— egoism, utilitarianism, Kantian ethics. • Non-consequentialist normative theory: Nonconsequentialist normative themes—duties, moral rights, and prima facie principles Prof. Harsha Satramani

Classification of Normative Theories Consequentialist Non-consequentialist (Deontological – Duty-based) Egoism Utilitarianism Prof. Harsha Satramani Kantian ethics