Why Business Needs Ethics

Expectations from a new course

❖ An algebra course- Teach you algebra

❖ A history course-Teach you history

❖ A management course-Teach you principles of management

❖ A business ethics course- Teach you to be ethical

Intellectual Vs. Moral Virtues

What are intellectual virtues?

❖ Someone can learn by reading a book or by taking lessons (For example,
learning how to build a house or play a musical instrument)

What are moral virtues?

❖ Someone acquires through a developmental phase (For example, learning
how to be brave in the face of dangers, or how to control one’s temper)
Moral Virtues
❖ Moral Disposition

❖ Developing moral habits

❖ Can not learn overnight, or by reading a book, or by taking a class

Ethics and Choice
Which moral principle to follow:

❖ Should I lie to save a life?

❖ Does the mother's right to control her own body take precedence over the rights

of the unborn fetus?

Ethics and Choice(Cont’d)
In Business situation:
❖ Retrench the workforce, or keep full employment

❖ The object of a hostile takeover, or Resist the takeover by paying "greenmail"

❖ Should the company load itself up with debt to decrease its attractiveness to a
raider
 Ethics and Choice(Cont’d)
In Business situation:
❖ Retrench the workforce, or keep full employment

❖ The object of a hostile takeover, or Resist the takeover by paying "greenmail"

❖ Should the company load itself up with debt to decrease its attractiveness to a raider
WHY ETHICS IS IMPORTANT

❖ Hobbes’s state of nature

❖ No moral structures for one’s action

❖ No legal system
WHY ETHICS IS IMPORTANT

❖ No Adjudication

❖ Constantly at a risk of losing property and life

❖ life would be "solitary, poor, nasty, brutish, and short

From the State of Nature to Civil Society
Prescriptions of Thomas Hobbes:
❖ A matter of good sense and reason

❖ Pursuing self-interests by accepting some constraints

From the State of Nature to Civil Society (Cont’d)

Prescriptions of Thomas Hobbes:

❖ The use of natural reason (natural here as opposed to supernatural
revelation)

❖ The passions that incline men to peace (are fear of death, desire of
such things as are necessary to commodious living)
From the State of Nature to Civil Society
(Cont’d)
Natural laws drawn from Hobbes's discussion:
❖ We should keep promises and perform contracts to which we have
agreed

❖ We should acknowledge the equality of all

❖ We should not demand of others things we are unwilling to do ourselves

From the State of Nature to Civil Society
(Cont’d)
Natural laws drawn from Hobbes's discussion:
❖ Judges should be impartial

❖ Things that cannot be divided should be shared in common.

❖ People who disagree should submit their disputes to arbitrators.

From the State of Nature to Civil
Society(Cont’d)
❖ Enlightened self-interest

❖ Unrestrained self-interest is not in one’s interest at all

The Limits of Self-Interest

❖ Individuals see their self-interest in conflicting terms

❖ Kurt Baier’s Moral Point of View

A 'higher' point of view for settling moral conflicts
THE ROLE OF THEORY IN ETHICS
Casuistry
❖ Comprehensive sets of rules that guide not only individual conduct but also provide for

the general welfare

Problems of Casuistry
❖ Requires continual growth of rules to cover new situations.

❖ Requires rules for applying rules.

❖ Creates false sense of morality through meeting minimal requirements.

❖ Encourages the search for loopholes.

The Advantages of Ethical Theory
❖ Gives a general principal for guidance

❖ Helps make moral decisions in a variety of circumstances

❖ The morally relevant aspects of our decisions

❖ A moral framework within which to assess our actions

❖ Deals with a wide range of specific cases

 The Advantages of Ethical Theory

❖ For example, a rule such as "treat your customers right if you want your business to succeed

❖ No one theory seems to be adequate to address all the ethical issues

❖ Several moral theories will be required to discuss important issues in business ethics
The Advantages of Ethical Theory (Cont’d)
Some prominent ethical theories
❖ Kant’s ethic of duty
It emphasizes respect for individual and the importance of fairness.
❖ Mill’s utilitarianism
It attempts to ensure the greatest good for the greatest number of persons.
❖ Aristotle’s virtue ethics
It emphasizes a virtuous character for living a happy life.
Each of the theories helps us understand different aspects of moral choices, but
none of them completely captures all the relevant moral features of an action.
Two common outcomes of ethical theories
Develop a vocabulary for discussing ethical choices

❖ All participants in the discussion mean the same thing

❖ Defining terms that are important in the discussion of ethics

 Identification of Morally Relevant Features of an Action

❖ For example, Newtonian mechanics concerns about force, mass, and acceleration to
explain the motion of a body by ignoring such irrelevant considerations as the body's
color or shape.

❖ Likewise, moral theory highlights the morally significant aspects of a specific issue.

❖ A plant closing not only on the balance sheet, but also on the commitments made by
management to the community ( For example, General Motors to close a manufacturing
plant in Flint, Michigan)
 Identification of Morally Relevant Features of an Action

❖ Issues in applied ethics can not be addressed without placing the questions in a
philosophical context:

The first part of this book deals in some detail with 'three principal views on ethics:

❖ The first is the view that the moral worth of an action is determined by its consequences,
popularly known as utilitarianism

In business it has been used as cost-benefits analysis

 Identification of Morally Relevant Features of an Action
❖ The second view places the primary emphasis on the intention and motives of the
individual

▪ Concerns on individual rights and duties

▪ Popularly known as ethics of duty

❖ The third approach is seen by many contemporary philosophers as incorporating the

insights of the first two moral views, referred to as a virtue theory

▪ Emphasizes on moral individual

▪ Focuses on common cultural tradition
 Challenges to Business Ethics

❖ Known as “positivism,” and sometimes referred as logical positivism

▪ only statements that can be empirically tested are meaningful

❖ Challenges from the Rights

▪ The only duty of business is to make profit

According to Adam Smith “it is not from the benevolence of the butcher, the brewer or
the baker that we expect our dinner, but from their regard for their own self-interest.”
 Challenges to Business Ethics

❖ Known as “positivism,” and sometimes referred as logical positivism

▪ only statements that can be empirically tested are meaningful

❖ Challenges from the Rights

▪ The only duty of business is to make profit

According to Adam Smith “it is not from the benevolence of the butcher, the brewer or
the baker that we expect our dinner, but from their regard for their own self-interest.”
Challenges to Business Ethics

“Smith’s notion of ‘self-interest’ is not at all the asocial or antisocial sentiment

that it is usually made out to be. . . . Itis already intrinsically social and doing good
is neither a matter of duty nor compulsion (whether by contract or force) but a
genuine source of pleasure for its own sake.
Challenges to Business Ethics

Milton Friedman, a University of Chicago professor and Nobel laureate (1976),

Friedman’s view is simple:

Keep government out of the marketplace.

Let business do what it will, and the forces of the marketplace will restrain the
greed of unscrupulous entrepreneurs who produce a shabby product at
exaggerated prices
Challenges to Business Ethics

Milton Friedman’s view:

❖ The market will drive out inferior quality and reward excellence

❖ Business has no social responsibility

❖ Business serves society best by attaining its true mission of making profit

❖ The role of the government is to enforce law and contracts

Challenges to Business Ethics

Challenges from the left

Karl Marx’s view on the Industrialized Europe

❖ Long hours, little pay, and lack of job security

Marx’s criticism of the industrialized economies:

❖ Inevitability of the class struggle

❖ The surplus value theory of labor

❖ The alienation of the worker

Challenges to Business Ethics

Karl Marx’s analysis:

Economic substructure
❖ Economic arrangements whereby people produce goods and services

Social superstructure
❖ Social and cultural arrangements of the society including the educational
system, art, and even religion
Challenges to Business Ethics

Karl Marx’s analysis:

❖ For example, in feudal society the economic substructure was based on the
ownership of land, with power centered in the hands of a few individuals and
culminating in the king.

❖ In industrialized societies, primacy shifted from the ownership of land to the

ownership of capital, the means of production.
Challenges to Business Ethics

Karl Marx’s analysis:

❖ Bourgeoisie –The owner of land or capital

❖ Proletariat –The labor force
❖ Surplus value of labor-The inadequate monetary benefits compared to the labor

For example, let's say a worker produces $20 worth of value and receives only $8 in
wages. The $12-dollar difference represents surplus value, which the worker gives up to
the owners.
Challenges to Business Ethics

Karl Marx’s analysis:

For Marx, alienation includes three things: workers are separated from the products
produced by their labor; the capitalist owner converts the surplus value of labor into
more capital, further alienating workers from the fruit of their labor; and workers are
alienated from each other when forced to compete for scarce opportunities to sell their
labor.
Challenges to Business Ethics

Karl Marx’s Errors:

❖ The revolutions he announced did not occur in industrialized countries

❖ Social policy changes that outlawed child labor, imposed a limited work week, set
minimum wages, prevented monopolistic business practices
SOME PHILOSOPHICAL DISTINCTIONS

Truth vs. Validity

Truth: To say that a statement is true is to make the claim that it accurately
depicts reality or a situation.

Validity: It is concerned only with the structure of reasoning.

To take a simple example, all reports from the company's divisions show that sales are
ahead of last month's. Last month we made a profit, so it follows that we will make a
profit this month also.
SOME PHILOSOPHICAL DISTINCTIONS

Truth vs. Validity

Truth: The statement is true is to make the claim that it accurately depicts reality or a
situation.

Validity: It is concerned only with the structure of reasoning.

To take a simple example, all reports from the company's divisions show that sales are
ahead of last month's. Last month we made a profit, so it follows that we will make a
profit this month also.
SOME PHILOSOPHICAL DISTINCTIONS

Truth vs. Validity

In sum, there are three ways our thinking can go wrong: faulty data and correct
reasoning, faulty reasoning and correct data, and faulty data and faulty reasoning.
What we seek are conclusions based on correct reasoning and accurate data, which
philosophers refer to as "sound" reasoning.
SOME PHILOSOPHICAL DISTINCTIONS

Dilemmas
A dilemma occurs when we face two choices, both of which lead to less than desirable
consequences

Way out of dilemmas

To search for a third choice (find a new product line, new sources of funding, improved
sales techniques), or simply refuse to accept one of the options ( come what may, illegal
activity is not acceptable).
SOME PHILOSOPHICAL DISTINCTIONS

Dialectical Tension

Unlike the dilemma, where one faces a forced choice between two equally unattractive
options, dialectical tension exists when one is faced with opposing positions but is not
forced to choose one or the other.

One can recognize the legitimacy of both poles of this tension by refusing to eliminate
one of its poles. For example, the claims of stockholders and employees are not always
in agreement.
SOME PHILOSOPHICAL DISTINCTIONS

Dialectical Tension

One way of responding to this dialectical tension has been through the development of a
"stakeholder" approach, a generic term that refers to all those who have a "stake" in
the well-being of the company: not only employees and stockholders but also the
community, customers, government, even society at large.