Business ethics is the study of business situations,
activities, and decisions where issues of right and wrong are
addressed.
It is worth stressing that by ‘right’ and ‘wrong’ we mean
morally right and wrong, as opposed to, for example,
What is commercially, strategically, or financially right or wrong.
Moreover, by ‘business’ ethics, we do not mean only
Business commercial businesses, but also government organizations,
pressure groups, not-for-profit businesses, charities, and
Ethics? other organizations. For example, questions of how to
manage employees fairly, or what constitutes deception in
advertising, are equally important for organizations such as
Wikimedia, Seoul National University, or the German
Christian Democrat Party as they are for Facebook, Samsung,
or Deutsche Bank.
Ethics and the law
Ethics
grey
area
Law
• The law might be said to be a definition of the minimum acceptable standards of behavior.
However, the law does not explicitly cover every possible ethical issue in business—or for that
matter outside of business. For example, just as there is no law preventing you from being
unfaithful to your significant other (although this is perceived by many to be unethical), so there
is no law in many countries preventing businesses from testing their products on animals,
selling landmines to oppressive regimes, or preventing their employees from joining a union—
again, issues that many feel very strongly about.
• Similarly, it is possible to think of issues that are covered by the law but which are not really
about ethics. For example, the law prescribes whether we should drive on the right or the left
side of the road. Although this prevents chaos on the roads, the decision about which side we
should drive on is not an ethical decision as such.
WHY IS BUSINESS ETHICS IMPORTANT?
• Business has huge power within society. Business affects almost every aspect of our lives and can even have a major impact on the
democratic process of government. Evidence suggests that many members of the public are uneasy with such developments. For
instance, one poll revealed that a large majority of the US population believe that powerful groups such as senior politicians (60%),
lobbyists (58%), and advertisers (34%) have very low levels of honesty and ethical standards.’ This raises a host of ethical questions and
suggests we need to find new answers to the question of how we can either restrain this power or ensure that it is used for social good
rather than the exploitation of the less powerful.
• Business has the potential to provide a major contribution to our societies. Whether in terms of producing the products and services that
we want, providing employment, paying taxes, acting as an engine for economic development, or solving complex social problems,
business can be a tremendous force for good. How, or indeed whether, this contribution is actually realized in practice goes to the heart
of the business ethics debate. European research suggests 49% of people think the contribution of business to society is overall negative.
So while there is potential for a positive contribution, business has some reputational challenges to overcome or perhaps needs seriously
to reflect on the quality of the contribution made.
• Business malpractice has the potential to inflict enormous harm on individuals, communities, and the
environment. When the Rana Plaza building collapsed in Bangladesh in 2013, more than 1,000
garment workers stitching clothes for suppliers of Western retailers died, having been forced to
return to work after the building was evacuated and declared unsafe (Reinecke and Donaghey 2015).
Most ethical issues are not as extreme as the risk of death, but business does impinge on the health
and welfare of individuals, the security of communities, and the natural environment.
• Employees face significant pressure to compromise ethical standards. For example, a survey of 600
accountants in 23 European countries found that the majority (64%) had been put under pressure to
act unethically during their professional career, with about third admitting to succumbing to the
pressure.’ Studying business ethics provides us with a way of looking at the reasons behind such
infractions, and the ways in which such problems might be dealt with by managers, regulators, and
others interested in improving ethical practice.
Defining morality,
ethics, values and
ethical theory
• Morality is 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 and principles
that determine right and wrong for any given situation.
• These rules and principles are called ethical theories.
• Values, on the other hand, are the beliefs or ideals that are
important to someone, often influencing their actions and
choices. Common values might include loyalty, freedom,
equality, or respect.
The relationship between morality, ethics and ethical
theory
Ethics … to
rationalize produce …that can
s morality ethical be applied
… theory … to any Potential
Morality Ethics Ethical situation. solutions to
theory ethical
problems
Utilitarianism
• According to utilitarianism, an action is morally right if it results in the
greatest amount of good for the greatest number of people affected by
the action
• Also called the ‘greatest happiness principle’
• Based on cost-benefit analysis
Problems with Utilitarianism
• Subjectivity
• This has led to refinement of theory
• Act utilitarianism
• Rule utilitarianism
• Issues around quantification and distribution of utility
Act- and Rule-Utilitarianism
Act utilitarianism
• Looks to single actions and bases the moral judgement on the amount of
pleasure and the amount of pain this single action causes.
Rule utilitarianism
• looks at classes of action and ask whether the underlying principles of an action
produce more pleasure than pain for society in the long run.
Essential characteristics of utilitarianism
Characteristic Description
Consequentialism It is the measurement of the consequences of an
action which determine if it is ethically correct.
Hence utilitarian is a teleological theory.
Hedonism Utility is identified by pleasure and the absence of
pain. Only pleasure is ultimately good, but the
amount of pain can be deducted from the amount
of pleasure to yield the ‘net pleasure’.
Maximalism A right action doesn’t only have some good
consequences, but the greatest possible amount
when bad consequences are also taken into
account.
Universalism Consequences for everyone need to be considered.
• Ethical theories are the rules and
principles that determine right and
wrong for any given situation
Crane and Matten (2010)
What are normative • Normative ethical theories are those
that propose to prescribe the morally
ethical theories? correct way of acting
• As opposed to descriptive ethical
theories which seek to describe how
ethics decisions are actually made in
business
The role of ethical theory
• Two extreme positions (De George 1999)
• Ethical absolutism claims there are eternal, universally applicable moral principles
• Right and wrong are objective qualities, can be rationally determined
• Typically traditional ethical theories
• Ethical relativism claims morality is context-dependent and subjective
• No universal right and wrongs that can be rationally determined; depends on
person making the decision & culture in which they are located
• Typically contemporary ethical theories
Major normative theories
Egoism Utilitarianism Ethics of duties Rights & justice
Contributors Adam Smith Jeremy Bentham Immanuel Kant John Locke
John Stuart Mill John Rawls
Focus Individual desires or Collective welfare Duties Rights
interests
Rules Maximization of Act/rule utilitarianism Categorical Respect for human
desires/self interest imperative beings
Concept of Man as an actor with Man is controlled by Man is a rational Man is a being that is
human limited knowledge and avoidance of pain and moral actor distinguished by
beings objectives gain of pleasure dignity
(“hedonist”)
Type Consequentialist Consequentialist Non-consequentialist Non-consequentialist
Source: Crane and Matten (2010)
Ethical Egoism
• Theory of egoism - an action is morally right if the decision-maker
freely decides an action to pursue either their (short-term) desires or
their (long-term) interests.
• Adam Smith (1793): pursuit of individual interest morally
acceptable as invisible hand of market creates benefit for all
• Relies on free competition and good information
• ‘Enlightened egoism’
• However, markets do not function perfectly
• Anti-globalisation movement
• Sustainability debate
Ethics of duties: Kantianism
➢ Ethical theories that consist of abstract, unchangeable obligations, defined by a set of rationally
deduced a priori moral rules, which should be applied to all relevant ethical problems.
➢ The ethics of duties, also known as deontological ethics, is a moral theory that focuses on duties,
rules, and obligations rather than consequences. This approach argues that certain actions are
inherently right or wrong, regardless of their outcomes.
➢ Kant subsequently developed a theoretical framework through which these principles could be
derived, called the categorical imperative or unconditional moral law, that must be obeyed in all
circumstances. By this, he meant that this theoretical framework should be applied to every moral
issue regardless of who is involved, who profits, and who is harmed by the principles once they
have been applied in specific situations.
➢ Categorical imperative Act only according to that maxim (principle or rule) by which you can at
the same time will that it should become a universal law.
Key formulations of the categorical imperative
Element Thinking Examples and implications
Universal acceptability Accept a moral law only if all Without exception, the same rules apply in all
circumstances. Failure to repay debts is not
rational beings can also embrace universalizable because if it became
it commonplace, no-one would lend money;
lying not universalizable, because if
everybody were allowed to lie, the entire
notion of ‘truth’ would be impossible, and an
organized and stable human civilization
would not be imaginable.
Respect for persons Treat humanity as an end, never Humans deserve respect as autonomous,
rational actors, and this essential human
merely as a means to an end dignity should never be ignored. Businesses
use people as means; they employ them or
pay them to provide us with goods or services.
However, this does not mean we should only
treat them as means to achieve what we want
and just forget about their own needs and
goals in life (e.g. health, personal fulfilment,
education, a good standard of living), and
their expectations to make their own choices.
Moral Absolutism – Some actions are always
right or wrong, regardless of consequences.
Key Focus on Intentions – The morality of an
Features of action is judged by the motivation behind it,
not its results.
Duty- Universal Moral Laws – Moral principles
Based apply to everyone equally and must be
followed consistently.
Ethics Respect for Human Dignity – People should
always be treated as ends in themselves, not
as means to an end.
Differences Between Duty Ethics and Consequentialism
Feature Deontological Ethics (Duties) Consequentialism (Outcomes)
Duties, obligations, universal Consequences, results, overall
Moral Basis
rules good
Key Question "Is this action morally right?" "Does this action lead to the best
outcome?"
Example Lying is always wrong, even if it Lying is acceptable if it prevents
saves a life. harm.
Famous Thinkers Immanuel Kant, John Rawls Jeremy Bentham, John Stuart Mill
Criticism Can be rigid and impractical in Can justify harmful actions if they
extreme cases. have good outcomes.
The ethics of rights and justice
focuses on moral principles that
protect individual freedoms and
Ethics of Rights and ensure fairness in society. These
theories explore how rights are
Justice justified, how justice is distributed,
and how they interact in ethical
decision-making.
Universal & Inalienable – Rights apply to all
individuals and cannot be taken away
arbitrarily.
Key Moral & Legal Rights – Some rights are moral
(based on ethical reasoning), while others are
Features of legal (granted by laws or governments).
Rights Negative Rights: Freedom from interference
(e.g., freedom of speech, right to privacy,
Ethics right to property).
Positive Rights: Entitlement to something
(e.g., right to education, healthcare).
Major Theories of Rights
1. Natural Rights Theory (John Locke)
Rights are inherent to human nature (e.g., life, liberty, property).
Governments exist to protect these rights, and citizens can rebel if rights are violated.
2. Kantian Rights Theory (Immanuel Kant)
People must be treated as ends in themselves, never as mere means.
Rights are grounded in rationality and moral duty.
Justice ethics concerns fairness, equality, and the
proper distribution of benefits and burdens in society.
Types of Justice:
Ethics of
Distributive Justice – Fair allocation of wealth,
resources, and opportunities.
Retributive Justice – Fair punishment for wrong
Justice doing.
Procedural Justice – Fair processes in legal and social
decision-making.
Social Justice – Addressing systemic inequalities and
advocating for marginalized groups.
John Rawls’ Theory of Justice (Justice as
Fairness)
Major
Based on the social contract, justice should be based
on principles everyone would agree to from a "veil of
ignorance" (not knowing their social position).
Theories of Two Principles:
• Equal Basic Rights – Everyone has
Justice fundamental freedoms (e.g., speech, vote).
• Difference Principle – Inequalities are only
just if they benefit the least advantaged.
Virtue ethics is a moral philosophy that
emphasizes character and virtues as the
foundation of ethical behavior. Instead of focusing
Virtue
on rules (as in deontology) or consequences (as in
utilitarianism), virtue ethics asks:
"What kind of person should I be?"
Ethics A virtuous person naturally makes ethical
decisions because they have developed good
moral character.
How Virtue Ethics Differs from Other Ethical
Theories
Ethical Theory Focus Example Situation: Should you
lie to protect a friend?
Virtue Ethics Character & moral virtues A virtuous person values honesty
but also kindness—so they might
tell a partial truth or find another
way to protect the friend without
lying.
Deontology (Duty Ethics) Following moral duties/rules Lying is always wrong, so you
must tell the truth no matter
what.
Utilitarianism Maximizing good outcomes If lying helps more people than it
(Consequentialism) harms, then it is justified.
• The ethics of care is a moral theory
that emphasizes relationships,
empathy, and care as the foundation
of ethical decision-making. It is often
Ethics of contrasted with more abstract, rule-
based ethical theories like deontology
Care or utilitarianism. The ethics of care
focuses on the importance of caring
for others, especially in the context of
interpersonal relationships.
Key Concepts in Ethics of Care
1. Relational Morality:
❑Ethics of care emphasizes that morality is rooted in our relationships with others. It asks how we care for those
who are vulnerable, dependent, or in need of support.
❑It focuses on the emotional connection between individuals and stresses the importance of mutual care and
responsibility.
2. Emphasis on Empathy and Compassion:
➢ Unlike rule-based ethics that prioritize impartiality, the ethics of care values empathy, compassion, and
understanding in our ethical decisions.
➢ Caring for others is viewed as a moral responsibility that arises naturally in relationships, particularly in close,
personal contexts (e.g., family, friendships).
3. Caring vs. Justice:
✓ The ethics of care prioritizes nurturing relationships and caring actions, while traditional ethical theories like
justice ethics (e.g., John Rawls) focus on fairness and equality.
✓ The ethics of care doesn't see justice as the primary moral concern but rather emphasizes responsiveness to the
needs of others.
Value Orientation of a Firm
• The value orientation of a firm refers to the set of ethical principles, values, and
moral commitments that guide its decision-making, behavior, and actions within the
marketplace. This value orientation is shaped by the firm’s leadership, organizational
culture, industry standards, and societal expectations. It influences how the firm
interacts with its stakeholders—employees, customers, suppliers, investors, and the
broader community—by determining the ethical priorities it upholds in business
operations.
• A firm's value orientation is often a key determinant of how it navigates ethical
dilemmas, balances profit with social responsibility and builds trust with its
stakeholders.
1. Profit Maximization
A profit-maximizing orientation focuses primarily
on generating financial returns for shareholders.
Types of In this view, ethical behavior is seen as a means to an
end—businesses follow ethical practices because it
Value can lead to higher profits, better brand reputation, or
avoidance of legal issues.
Orientations Example: A company might ensure it complies with
environmental regulations to avoid costly fines,
rather than out of concern for environmental
sustainability.
2. Stakeholder Orientation
A stakeholder-oriented firm values the interests of
all stakeholders, not just shareholders. This includes
employees, customers, suppliers, communities, and
the environment.
In this approach, the firm is seen as responsible for
balancing the interests of different groups and making
decisions that are ethical, socially responsible, and
sustainable.
Example: A company may invest in fair trade
practices, ensure safe working conditions for
employees, and contribute to community welfare,
even if this doesn’t maximize short-term profit.
3. Corporate Social Responsibility (CSR)
Firms with a strong CSR orientation focus on social
good, environmental sustainability, and ethical
conduct in addition to profits.
They may integrate ethical values into their business
strategy, making it a core part of their identity and
operations. They aim to contribute positively to
society while achieving business success.
Example: A company may actively engage in
environmental initiatives (e.g., reducing carbon
footprint, recycling) and support charitable causes,
even at the cost of higher operational expenses.
Importance 1. Guiding Ethical Decision-Making
of Value 2.
3.
Building Trust and Reputation
Long-Term Success and Sustainability
Orientation 4. Legal Compliance and Risk Management