85pts – objective

60pt short answer – explaining concepts/giving examples

3q x 20 pts
25pt in depth short answer
Do you understand concepts well enough to paraphrase and use examples
90pt – creative/critical
3 q x 30 pt – 15pt for content – understanding, 15pt for convincing
Identify key stakeholders, interests, conflicts
Apply ethical theories to analyze article
How well can you identify -- & how convincingly can you apply ethics
Readings & class slides

List of Major Topics (for Test #1 Preparation)

Characterizing Business Ethics/Identifying Ethical Issues in Business
 What is(n't) business ethics?
 Goals of Ethics vs. Economics
o Economic theory holds that consumers/firms should maximize utility.
Consumers want to satisfy their wants and firms want to maximize
profits. By doing so, economic efficiency is achieved for both parties –
firms receive more profit for a lower cost, and consumers receive more
value for a lower price.
o Ethics is about non-economic values like fairness, dignity, etc.

 The Connection Between Ethics and Economics

o Economic arguments for ethics

 Consumer expectations of conduct

 Cost of reputation
 Creation of costs shifted onto other parties
o Ethical arguments embedded in economics

 Consumers and firms should maximize their preferences to

make everyone better off (Market capitalism – pursue own
interests)
 Is ethics even needed when we have the law?
o Law is all we need – ethics relevant only to private life, law already
reflects what is unethical. More precise and enforceable.
o Shortcomings of law – some activities cant be effectively regulated,
takes time to respond to ethical concerns, legislators setting rules
 Defining and Characterizing Ethical Issues
 What is an ethical issue? – an issue that raises a question about what the
morally right action is.
 Levels of Ethical Decision Making – difficult business problems involve ethical
issues at multiple levels that may overlap
 Ethical Displacement – displace the issue to a higher level to resolve it. The
lower level issue must still be resolved.
 Exercise: It's Your Call
 The "Shadow Swiftie Economy"
 "Too Engaging" Video Games
Who (and What) is at Stake? Business Ethics and Stakeholder Analysis
  Stakeholder Fundamentals
 Defining and Categorizing Stakeholders
 Who/what is a stakeholder? – stakeholder is any individual or group inside or
outside a business that has an interest in the way it brings products or
services to market. Businesses must be accountable to stakeholders, but not
all are equally important. Transactions/agreements or beyond (social
contract)
 Four Categories of Stakeholders – enabling – permit function, normative – set
industry norms, functional – perform functions & influence i/o, diffused – less
direct but impactful relationship
 Shareholder vs. Stakeholder Capitalism
o Shareholder capitalism says businesses must follow basic ethical rules
but their sole concern should be to maximize shareholder interests.
o Stakeholder capitalism involves carefully considering all stakeholders
interests, upholding responsibility to not just shareholders. Longterm is
good for business despite temporary returns being affected. GSB
 Decision-Making Through a Stakeholder Lens
 How to Consider Stakeholder Interests
o Descriptive – identify stakeholders, interests, and conflicts

o Instrumental – manage conflicting interests in a way that maximizes

financial outcomes
o Normative - manage conflicts in a way that views each stakeholder as
intrinsically valuable.
 How to Prioritize Conflicting Interests
o Importance/urgency

o Relationship importance

o How does our response affect our ability to compete

o How powerful/influential is the stakeholder

o How invested is the stakeholder in the relationship with us

 Exercise: The Stakes of 100-Hour Workweeks

Key Contexts of Business Ethics: Market Transactions

 (Ethically) Justifying Markets
 Defining Traits of the Market System
o Private Ownership – what is exchanged is privately owned (as are the
FOPs)
o Voluntary Exchange – exchange occurs without coercion or deception

o Profit Motive – exchange occurs to solely promote each parties

interests
 Why Markets Work
o Welfare – opportunity to reality, creating value (solve problem, improve
life)
o Individual choice – transactions advance individual interests
(democratic expression)
o Complex economies – Broad participation leads to specialization

o Synthesis of information – prices reflect all available information

 Market Ethics Principles

o Honoring agreements and contracts

o Not using coercion and fraud

o Not haring others in ways that stem from a violation of duty

o Not exploiting flaws in market conditions

 Ethical Problems with Markets

 Intro to Wrongful Harms
o Some transactions are zero-sum

o Harm is not harmful wrong (failure to fulfill a duty/obligation). Can be

intentional or negligence
o Despite acting in self-interest, obligation to follow market ethics

 Key Examples of Wrongful Harms

o Fraud – material misrepresentation with an intent to deceive that
causes harm to those relying on it
o Breach of contract – transactions are like promises. Contracts are like
explicit and complete agreements that provide recourse for breaches.
In reality, they are often implicit, incomplete, and missing recourse for
breaches
 Economic Problems with Markets
  Conditions for Ideal Markets
o Perfect Competition

o Rational Behavior

o Decisions maximize profit/firm-level efficiency (vs competitive

advantage, which reduces profits)
 Competitive Problems
o Monopolistic/Oligopolistic markets

o Barriers to entry

o Highly differentiated products

o Lack of complete knowledge on options and prices

 Pricing Problems
o Externality – when prices do not reflect all the costs and benefits
associated with producing or consuming a good or service. This
reduces market efficiency.
 Negative – costs of production/consumption not reflected in
price and shifted onto other parties
(overproduction/consumption of harmful g&s)
 Positive – benefits not reflected in the price that other parties
receive for free.
Key Contexts of Business Ethics: Roles and Relationships
 More Than Market Ethics – not all interactions are self-interested
transitions. Roles and relationships that obligate us to act solely in
the interest of someone else (new moral space)
 Agents and Principals
o Agents are individuals or entities with special experience skills
and knowledge
o Principals engage agents to act on their behalf in matters that
require judgement and discretion, exclusively for the
principal’s benefit (shareholders are principals, ceo is an
agent)
o Board ensures the agent acts effectively on behalf of
shareholders
o Service providers are not agents (mundane tasks)

 Fiduciaries – duty to exercise care over property/assets entrusted by

Beneficiaries. Use judgement and discretion to serve beneficiary. All agents
 are fiduciaries, but not viceversa. (bank = non agent fiduciary, RE agent =
agent + fiduciary)
o Fiduciary duty – candor, care, loyalty

 Professionals – specialized, sophisticated technical body of knowledge, ability

and responsibility to exercise significant control over their work, commitment
to public service (e.g physician, nurse, attorney, CPA, architect, social
workers, etc. agent + fiduciary
Ethical Theories: Utilitarianism
 Overview of Ethical Theories – structure and consistency to decision
making, reasons for recommending an action, reasoning vs
preferences, broadly applicable to many situations
 Types of Ethical Theories
o Teleological – consequences drive rightness

o Deontological – duties to act in a certain way because of the nature of

actions
o Virtue Ethics – Less emphasis on action, more on developing good
character
o Rights – entitlements to act or be treated in certain ways (demand, not
favor)
 Act-Utilitarianism: Delta's CrowdStrike Meltdown
 Unpacking Act-Utilitarianism – major flavor of utilitarianism. What makes a
right action right? An action is right if it produces the greatest balance of
pleasure over pain for everyone.
o Produces – look at consequences of an action

o Pleasure alone is what is good. Good & bad = pleasant & painful.
Realizing interests
o Balance – greatest net pleasure

o Everyone must be considered

 Did Delta act correctly?

o Delay – less upfront anger, less compensation needed vs harder to
quickly fix computers, chance of cascading and worse delays, less
reputational damage
o Cancel – easier to fix, less cascading delays, more customer anger,
more compensation, more reputational damage
 Rule-Utilitarianism: The Ethics of Tipping
  Unpacking Rule-Utilitarianism – major flavor pt 2. An action is only right if it
conforms to a set of rules the general acceptance of which would produce
the greatest balance of pleasure over pain for everyone.
 The Rules of Tipping – workers want to maximize income, stable income,
rewards for good work. Customers want to reward employees, not be
expected to pay/asked to pay even in odd places like self checkout or doctors
office. Employers want to retain good workers through competitive earnings
without raising prices (in order to leave demand unaffected)
 Tip – customer recognizes good service, employee is rewarded, employer
saves money
 Customer loses money, tip income is precarious and subject to
discrimination, money is going to employee not business
Ethical Theories: Kantian Ethics
 Kantian Ethics: Overview – ethics should be built on reason and not
the pursuit pleasure. Right actions are right not because of
consequences, rather human reason creates duties to act in a
certain way. Kant’s principles tell us what to do in all circumstances
(universal moral law). Right actions can be contrary to our desires
 What is "Reason"? – reason is the ability to think logically and consistently
and to act based on moral principles which wee only need reason to uncover
and understand
 Using our ability to reason is a key way humans experience freedom
 Universalizability, respect for persons
 Misclassifying Managers and Universalizability
 Fundamentals: Universalizability – every proposed action suggests an
underlying rule guiding us. Could that rule be followed universally, or would
doing so make it logically impossible to do the very action we are trying to
do? NOT whether the consequences are undesirable, but whether everyone
always following the rule would be contradictory.
 Applying the Principle – e.g mislabeling employees as managers. Kant does
not care for utilitarian concerns of the employee/employer. The rule is, to
save on overtime pay and increase staffing flexibility, label employees as
managers.
o If everyone followed this rule, the overtime savings would not exist as
nobody gets overtime and flexibility does not exist as everyone is
required to work as much as needed
o Does not matter if consequences are bad – logical fallacy is the main
point.
  Dating Apps and (Dis)respect for Persons
 Fundamentals: Respect for Persons – Kant sees reason as expressed in terms
of self governance – setting our own goals and acting with purpose to achieve
them, acting freely without constraint. Autonomy must always be respected.
People should not be treated as only a means to an end, dignity must be
upheld. Can treat people as a means as long as they are also respected as an
end.
 Applying the Principle
Ethical Theories: Virtue Ethics
 Virtue Ethics: Goals of Life and Business
 The Goal of Life (according to Virtue Ethics) – happiness, eudaimonia (human
flourishing) which happens when you live a life of virtue. Emphasis on
developing character traits in order to act predictably in various situations.
Constant striving to be better.
 The Goal of Business (according to Virtue Ethics) – promote eudaimonic
prosperity
o Living, not just having

o Better, not just more

o Becoming, not being

o Creating and building, not trading and raiding

o Depth, not just immediacy

o Help us live well

 Does business help us live well? – not industries – destruction of planet,

obesity, student debt, medication and addiction, misinformation
 We have hedonic opulence, not eudaimonic prosperity
 Defining Virtue – traits of character that tell us how someone
habitually acts
 What are virtues? – not intellectual virtues such as knowledge – action is
concerned here. Cannot learn by study – only practicing. Consequences and
nature of action do not determine rightness, instead how do these actions fit
in with the kind of person I want to be?
 Virtue as a "Mean" – Vice is a deficiency or excess, virtue is a mean between
extremes of conduct.

 Character Traits to Flourish in Business