• MERCK CASE

When asked why the company invested so much money and effort into
researching, developing, manufacturing, and distributing a drug that
makes no money, Dr. Roy Vagelos, CEO of the company, replied that
once the company suspected that one of its animal drugs might cure a
severe human disease that was ravaging people, the only ethical
choice was to develop it. Moreover, people in the Third World “will
remember” that Merck helped them, he commented, and will respond
favorably to the company in the future. Over the years, the company
had learned that such actions have strategically important long-term
advantages. “When I first went to Japan 15 years ago, I was told
by Japanese business people that it was Merck that brought
streptomycin to Japan after World War II to eliminate
tuberculosis which was eating up their society. We did that. We
didn’t make any money. But it’s no accident that Merck is the
largest American pharmaceutical company in Japan today.”

• Business ethics is a contradiction in terms—an “oxymoron”—because

there is an inherent conflict between ethics and the self-interested
pursuit of profit.

• Vagelos’s comments at the end of the case suggest: in the long run,
there may be no inherent conflict between ethical behavior and the
pursuit of profit. Contrarily, his comments suggest that ethical behavior
creates the kind of goodwill and reputation that expand a
company’s opportunities for profit.

• This book takes the view that ethical behavior is the best long-term
business strategy for a company—a view that has become increasingly
accepted during the last few years.

• Vagelos notes he would be “spending a considerable amount of

company money” in a way that would not “make stockholders happy”
and that would put his own career at “some risk.” Don’t the managers
of a company have a duty toward investors and shareholders to invest
their funds in a profitable manner? Indeed, if a company spent all of its
funds on charitable projects that lost money, wouldn’t it soon be out of
business? Then, wouldn’t its shareholders be justified in claiming that
the company’s managers had spent their money unethically? And
should Vagelos have risked his career, with the implications this had for
his family? Is it so clear, then, that Vagelos had an ethical obligation to
invest in an unprofitable drug? What reasons can be given for his belief
 that Merck had an obligation to develop the drug? Can any good
reasons be given for the claim that Merck had no such obligation?

We will study in this course

(1) the nature of business ethics and some of the issues it raises,

(2) moral reasoning and moral decision-making, and

(3) moral responsibility

• ETHICS
Dictionary definition, the term ethics: “the principles of conduct
governing an individual or a group.” For us a more important meaning
of ethics according to the dictionary: Ethics is “the study of
morality.”

• Morality

• Moral Standards

• Nonmoral Standards

• Six Characteristics of Moral Standards

Ethics The discipline that examines/studies one’s moral standards or the

moral standards of a society to evaluate their reasonableness and their
implications for one’s life.

• The sociologist asks, “Do Americans believe that bribery is wrong?”

whereas the ethicist asks, “Is bribery wrong?

• The ethicist, then, is concerned with developing reasonable

normative claims and theories, whereas an anthropological or
sociological study of morality aims at providing descriptive
characterizations of people’s beliefs.

BUSINESS ETHICS

• Business Ethics A specialized study of moral right and wrong that

concentrates on moral standards as they apply to business institutions,
organizations, and behavior.

• Objections to Business Ethics

• Arguments Supporting Ethics in Business

• Business Ethics and Corporate Social Responsibility

 • Corporate Social Responsibility Is a Business’s Societal Obligations

• ‘Shareholder view’ of economist Milton Friedman says a manager’s

only responsibility is to legally and ethically make as much money as
possible for shareholders (the ‘owners’ of the company).

• ‘Stakeholder view’ of Edward Freeman and David Reed, says managers

should give all stakeholders a fair share of the benefits a business
produces.

A stakeholder is “any identifiable group or individual who can affect the

achievement of an organization’s objectives or who is affected by the
achievement of an organization’s objectives.” In other words, a stakeholder
is anyone the corporation can harm, benefit, or influence, as well as anyone
that can harm, benefit, or influence the corporation. A stakeholder, in short,
is anyone who has a “stake” in what the company does.

ETHICAL ISSUES IN BUSINESS

• Technology and Business Ethics

• International Issues in Business Ethics

❑ Globalization and Business Ethics

❑ Differences Among Nations

• Business and Ethical Relativism

MORAL REASONING

• Kohlberg’s Three Levels of Moral Development

Lawrence Kohlberg, a psychologist, developed a theory of moral

development that explains how individuals progress in their ability to
reason ethically. He divided moral development into three levels, each
with two stages.

1️⃣ Preconventional Level (Self-Interest Driven)

🔹 Focus: Personal consequences (reward & punishment)

🔹 Common in: Young children, but also seen in adults who act out of
self-interest
Stage 1: Obedience and Punishment Orientation

Right and wrong are determined by fear of punishment.

Example: "I won’t steal because I don’t want to go to jail."

Stage 2: Self-Interest Orientation (Instrumental Exchange)

Morality is based on what benefits oneself.

Example: "I’ll help my friend if they help me in return."

2️⃣ Conventional Level (Social Approval Driven)

🔹 Focus: Conforming to societal norms and laws

🔹 Common in: Most adolescents and adults

Stage 3: Interpersonal Relationships (Good Boy/Nice Girl)

Moral behavior is about pleasing others and gaining approval.

Example: "I’ll be honest so my friends respect me."

Stage 4: Maintaining Social Order (Law & Order Orientation)

Right and wrong are based on following rules and laws.

Example: "Stealing is wrong because laws must be followed."

3️⃣ Postconventional Level (Principle-Driven)

🔹 Focus: Ethical principles and personal conscience

🔹 Common in: A smaller percentage of adults, those with strong moral

principles

Stage 5: Social Contract and Individual Rights

 Laws are important, but should be questioned if they are unfair.

Example: "Laws should protect human rights, and unjust laws should
be changed."

Stage 6: Universal Ethical Principles (Moral Autonomy)

Right and wrong are based on deep ethical principles like justice,
equality, and human dignity.

Example: Martin Luther King Jr. broke unjust segregation laws for moral
justice.

Kohlberg’s Theory in Business Ethics

🔹 Preconventional Level: A company bribes officials to avoid penalties.

🔹 Conventional Level: A company follows environmental laws to

maintain a good reputation.

🔹 Postconventional Level: A company fights against unfair labor

practices, even if it's costly.

💡 Key Takeaway: Ethical business leaders aim for Stage 5 or 6, making

decisions based on justice and human rights, not just laws or profits.

• Gilligan’s Theory of “Female” Moral Development

Carol Gilligan, a psychologist, developed a theory of moral

development in response to Kohlberg’s theory, which she believed was
biased toward a male perspective. She argued that men and women
approach moral reasoning differently:

Men emphasize justice, rules, and rights (Kohlberg’s approach).

Women emphasize care, relationships, and responsibility for others.

Gilligan proposed that women’s moral development follows three

stages focused on an ethic of care rather than just justice.

Gilligan’s Three Stages of Moral Development

1️⃣ Preconventional Level: Self-Care (Individual Survival)

🔹 Moral decisions are based on self-interest and survival.

🔹 Women focus on protecting themselves from harm.

🔹 Example: "I must take care of myself first, or I won’t survive."

2️⃣ Conventional Level: Self-Sacrifice and Care for Others

🔹 Morality is based on helping and pleasing others.

🔹 Women often ignore their own needs to care for others.

🔹 Example: "A good mother sacrifices for her children, even if it means
suffering herself."

💡 Challenge: Women in this stage may feel guilty for prioritizing

themselves.

3️⃣ Postconventional Level: Balancing Self and Others (Ethic of Care)

🔹 Women recognize that their own needs matter too.

🔹 Moral reasoning balances caring for oneself and caring for others.

🔹 Example: "I must take care of myself so I can properly take care of
others."

💡 Key Idea: True morality is not just sacrificing for others, but finding a
balance between self-care and care for others.

Gilligan vs. Kohlberg: Key Differences

Kohlberg (Male Perspective) Gilligan (Female Perspective)

Justice-based morality Care-based morality

Focus on laws, rights, fairness Focus on relationships and

compassion
 Independence is key Connection and responsibility are key

Abstract reasoning Context-based reasoning

Application in Business Ethics

🔹 Kohlberg’s Approach: A company follows laws and policies to ensure

fairness.

🔹 Gilligan’s Approach: A company fosters a caring work environment

and values employee well-being.

💡 Example: A manager using Kohlberg’s justice approach might fire an

underperforming employee based on rules. A manager using Gilligan’s
care approach might first understand the employee’s struggles and
offer support.

• Moral Reasoning Involves

• The moral standards: by which we evaluate things

Moral reasoning is based on ethical principles such as honesty,

fairness, justice, and respect.

🔹 Example: "Lying is wrong because honesty is an important moral

value."

• Factual Information: about what is being evaluated

A good moral decision requires a clear understanding of the situation

and all relevant details.

🔹 Example: A business deciding whether to recall a defective product

needs full information about safety risks and costs.

• A moral judgment: about what is being evaluated

The conclusion or decision based on that reasoning.

🔹 Example:

A company discovers a product defect that could harm customers.

 Moral reasoning: The company analyzes safety risks, costs, laws, and
ethical duties.

Moral judgment: The company decides to recall the product (or not).

• Moral Behavior and Its Impediments

Self-Interest (Egoism)

🔹 People may prioritize personal gain over ethical principles.

🔹 Example: A company falsifies financial reports to boost stock prices

and executive bonuses.

2️⃣ Pressure from Authority

🔹 People may obey unethical orders from superiors out of fear or

loyalty.

🔹 Example: Employees at Volkswagen manipulated emissions tests

under management pressure.

3️⃣ Groupthink

🔹 A group’s desire for harmony can suppress ethical concerns.

🔹 Example: Employees at Enron ignored unethical practices because

everyone else did.

4️⃣ Cultural and Social Influences

🔹 Social norms may justify unethical behavior (e.g., bribery in some

industries).

🔹 Example: A company engages in child labor because it’s “normal” in

the region.

5️⃣ Rationalization

🔹 People justify unethical behavior with excuses.

🔹 Example: “Everyone cheats on taxes, so it’s fine if I do.”

 6️⃣ Time Pressure and Stress

🔹 Quick decisions can lead to poor ethical choices.

🔹 Example: A doctor prescribes a harmful drug without reviewing all

the risks due to workload.

7️⃣ Lack of Ethical Awareness

🔹 People may not even recognize an issue as an ethical problem.

🔹 Example: A business pays workers unfair wages but sees it as “just

business.”

8️⃣ Fear of Consequences

🔹 Whistleblowers or employees may avoid speaking up due to job loss

or retaliation.

🔹 Example: Employees at WorldCom hesitated to report fraud, fearing

termination.

• Four Steps Leading to Ethical Behavior

• Recognizing a situation is an ethical situation :

⮚ Requires framing it as one that requires ethical reasoning

⮚ Situation is likely to be seen as ethical when it involves serious harm

that is concentrated, likely, proximate, imminent, and potentially
violates our moral standards

⮚ Obstacles to recognizing a situation is ethical include: euphemistic

labelling(neutral words), justifying our actions, advantageous
comparisons(comparing to something worse), displacement of
responsibility(placing blame on authority), diffusion of
responsibility(group), distorting the harm(downplaying), and
dehumanization(saying others are inferior), and attribution of
blame(blaming the victim).

• Judging what the ethical course of action is

 Once an ethical issue is recognized, the next step is evaluating the
options using moral reasoning.

🔹 Consider Different Ethical Theories:

✔ Utilitarianism: What benefits the most people?

✔ Deontology: What is the duty-based ethical obligation?

✔ Virtue Ethics: What would a person of strong character do?

🔹 Example:

A manager discovers that the company has misled customers about a

product’s safety.

Utilitarian view: A recall is costly, but it protects many people.

Deontological view: Honesty is a duty, so the company must reveal the

truth.

Virtue ethics view: A good company values integrity, so corrective

action is necessary.

• Deciding to do the ethical course of action

After making a moral judgment, an ethical decision must be made.

🔹 Key Considerations:

What is the best ethical choice given the circumstances?

Are there long-term consequences to consider?

Will this decision uphold the company’s values?

🔹 Example:

A tech company discovers a data breach.

 Unethical choice: Hide it to avoid damage to reputation.

Ethical choice: Inform customers and take responsibility.

• Carrying out the decision

The final step is to implement the ethical decision and take

responsibility for the outcome.

🔹 Challenges:

Company pressure may push for unethical choices.

Fear of backlash can stop individuals from speaking up.

Financial concerns can influence decision-making.

🔹 Example:

A whistleblower at a company reports fraud despite personal risks,

ensuring ethical behavior is upheld.

• Moral Responsibility and Blame

Moral Responsibility and Blame

Moral responsibility and blame are key concepts in ethics, focusing on who
is accountable for actions and their consequences.

1️⃣ Moral Responsibility

Moral responsibility refers to the obligation of individuals or

organizations to act ethically and be held accountable for their actions. It
applies when a person has:

✔ Free will – They made a voluntary choice.

✔ Awareness – They understood the moral implications.
✔ Causation – Their actions directly led to the outcome.

🔹 Example:
  A company knowingly sells defective products that harm customers.
The executives are morally responsible because they had control
over the decision.

 A doctor saves a patient's life through a difficult surgery. The doctor is

morally responsible for the good outcome.

💡 Moral responsibility can be for both good and bad actions.

2️⃣ Moral Blame

Moral blame occurs when someone is held accountable for wrongdoing

because they failed to meet moral standards.

✔ They acted knowingly and willingly.

✔ They had the ability to do the right thing but didn’t.
✔ They caused harm, directly or indirectly.

🔹 Example:

 A CEO engages in fraud and blames the financial department. The CEO
still carries moral blame because they authorized the fraud.

 A manager ignores workplace harassment, allowing it to continue.

They are morally blameworthy for their inaction.

💡 Blame focuses on negative actions or negligence.