Ethics and Business Notes PDF

PRELIMS Module 1: Ethics and Business COM5026 Practical reasoning focuses on what we should do, and how we should act and behave. It takes 20 years to build a reputation and five minutes to Theoreti...

PRELIMS Module 1: Ethics and Business COM5026 Practical reasoning focuses on what we should do, and how we should act and behave. It takes 20 years to build a reputation and five minutes to Theoretical reasoning is aimed at establishing truth and ruin it. If you think about that you’ll do things differently. what one should believe. -​ Warren Buffett According to most western philosophers, humans are rational and should believe only Business Ethics that which is reasonable, and act only in ways At its most basic level, ethics is concerned with how we that are reasonable. should act and how we should live our lives. Theoretical reasoning is the pursuit of truth, the Business ethics examines responsibilities we owe to highest standard for what we should believe. ourselves and to each other. How should I act within business? How Should “We” Live? How should a business act? If defining “we" individually: Ethics is based on our What responsibilities do I have as a businessperson? value structures: What responsibilities does a business have to Defined by our moral systems; employees, to customers, and to society? and, sometimes referred to as morality. Sometimes referred to as "personal integrity.“ Levels of Ethical Decision Making Morality is distinguished from questions of social Business ethics involves making decisions at the justice, which addresses issues of how communities individual, at the organizational, and at a broader social and social organizations should be structured. and governmental level. If morals refer to the underlying values on which As individuals, each person interacts with businesses decisions are based, ethics refers to the application of as customers, as employees, and as citizens of the those morals to the decisions themselves. countries in which they operate. If defining "We" collectively: Refers to how we live Organizational culture and corporate leadership have together in a community. important roles to play in decision making. This area is sometimes referred to as social ethics. Individual businesses' and industries' decisions are Here, we judge companies from a social perspective; influenced by social, economic, and political for their corporate social responsibility. environments. Managerial decisions involve the following aspects of ethics: Goals of Business Ethics Personal integrity. ​ Developing the knowledge base and skills Social responsibilities. needed to identify ethical issues. Legal and political environments. ​ Understanding how and why people behave unethically. Business Ethics as Personal Integrity and Social ​ Deciding how one should act, what one should Responsibility do, and the type of person one should be as an Ethics involves asking an important question—how individual. should we live? ​ Creating ethical organizations. Philosophers emphasize that ethics are normative, ​ Thinking through the social, economic, and dealing with our reasoning about how we should act. political policies that we should support as Social sciences also examine human decision making citizens. and actions. But these sciences are descriptive rather than Ethics and Business normative. They provide an account of how and why Never go into business purely to make money. If that’s people do act the way they do – they describe. your motive, you are better off doing nothing. As a normative discipline, ethics seeks an account of -​ Richard Branson how and why people should act a certain way, rather than how they do act Business Ethics as Ethical Decision Making Ethical decision making and deliberation will result in Business Ethics as Personal Integrity and Social more responsible behavior. Responsibility One perspective believes that ethics is no Distinguishing ethics from other practical decisions more than personal opinion and feelings. faced within business involves two One perspective is that ethics can offer clear, approaches. absolute, and unambiguous truths. Social-scientific approach: Examines the situation and The authors’ approach finds a middle ground. The the decision by exploring the factors that led to one fundamental assumption is that a process of rational decision rather than another or by asking why the decision making can and will result in behavior that is manager acted in the way that they did. more reasonable, accountable, and ethical. Normative approach steps back from the facts to ask: Teaching ethics must challenge students to think for What should I do? themselves. What rights and responsibilities are involved? What good will come from this situation? Business Ethics as a Type of Reasoning Am I being fair, just, virtuous, kind, loyal, Practical reasoning involves reasoning about what one trustworthy? ought to do. Ethics is a part of practical reason 1 Business Ethics as Personal Integrity and Social Utilitarian position is that happiness is the ultimate Responsibility good, the only thing that is and can be valued for its own Ethics is a normative discipline as it deals with norms. sake. Norms: Those standards of appropriate and Utilitarianism’s fundamental insight is that outcomes proper (or "normal") behavior. matter, and so we should decide what to do by Norms establish the guidelines or standards for considering the consequences of our actions. determining what we should do, how we should In that sense, utilitarianism has been called a act, and what type of person we should be. consequentialist approach to ethics and social policy. Normative disciplines presuppose some We should act in ways that produce better underlying values. consequences than the alternatives. Those beliefs that incline us to act or choose one What is meant by better consequences? course of action rather than another are values. Better consequences are those that promote Ethical values serve well-being in impartial human well-being: the happiness, health, dignity, rather than personal or selfish ways. integrity, freedom, and respect of all the people affected. Distinction Between Values and Ethics Values are the underlying beliefs that cause us to act or Fast facts: Child labor to decide one way rather than another. Child labor, by definition, is a violation of child Many different types of values can be recognized. protection and human rights. Individuals have their own personal values and Approximately 160 million children have been forced institutions also have values—shown in the company’s into child labor since 2020. Of these children, 63 million culture. were girls, and 97 million were boys. And nearly half of An individual’s or a corporation’s set of values those young laborers — 79 million children — worked may lead to either ethical or unethical results. under hazardous conditions. One way to distinguish values is in terms of the ends or 1 in 3 children in child labor are out of school. goals they serve. Approximately 70% (112 million) of child laborers work Ethical values serve the ends of human well-being. in agriculture like farming and livestock herding. Those properties of life that contribute to Sub-Saharan Africa has the highest number of child human well-being and a life well lived. laborers at 86.6 million children, followed by Central and Southern Asia with 26.3 million. Module 2: Philosophical Ethics and Business June 12 marks the United Nations–sanctioned World Day Against Child Labour, a time to reflect on young The unexamined life is not worth living. workers deprived of their childhood, education, and a -​ Socrates rightful future. Ethical Frameworks Utilitarianism and Business Ethical frameworks that have proven influential in the The free market is decidedly utilitarian. development of business ethics and that have a So, utilitarianism has a strong impact on business and practical relevance in evaluating ethical issues in business ethics. modern business. How to achieve the goal of maximizing the overall Utilitarianism is an ethical tradition that directs us to good? decide based on overall consequences of our acts. Two answers prove especially relevant in business and The principle-based framework directs us to act on the business ethics. basis of moral principles such as respecting human Some utilitarians agree with Adam Smith, rights. claiming that free and competitive markets are Virtue ethics tells us to consider the moral character of the best means for attaining the goal. individuals and how various character traits can Policy experts in predicting human action are contribute to, or obstruct, a happy and meaningful familiar with the specifics of how society works, human life. and they therefore are in a position to determine which policy will maximize the overall good. It’s better to hang out with people better than you. Pick The dispute between the "market" and the out associates whose behavior is better than yours and "administrative" versions of utilitarianism you’ll drift in that direction. characterize many disputes in business ethics. -​ Warren Buffett Egoism is also a consequentialist theory, but it focuses exclusively on the happiness of the Utilitarianism: Ethical Consequences individual making the decision. Utilitarianism is commonly identified with the rule of producing "the greatest good for the greatest number." “market" and the "administrative" versions of As a social philosophy, utilitarianism opposes policies utilitarianism that aim to benefit only a small social, economic, or political minority. Challenges to Utilitarian Ethics Utilitarians tend to be very pragmatic thinkers, and no Problems concern the need to count, measure, act is ever absolutely right or wrong in all cases in every compare, and quantify consequences. situation. Utilitarians determine both ethical and unethical acts by Utilitarian reasoning usually acknowledges some their consequences—so the end justifies the means. support for competing available alternatives. This seems to deny one of the earliest ethical principles that the end does not always justify the means. 2  We have certain duties or responsibilities that we ought to obey even when doing so does not produce a net Legal rights place certain issues outside the realm of the increase in overall happiness. employment contract. Utilitarian reasons contributes to ethical decision by Such legal rights set the basic legal framework within requiring that we consider the consequences of our which business operates. actions. Human rights lie outside the bargaining that occurs Important to remember that utilitarian reasoning does between employers and employees. not exhaust the range of ethical concerns. Responsible ethical decision making also involves Challenges to an Ethics of Rights and Duties duties, principles, and personal integrity. There are two big challenges to understanding diversity Principles are those ethical rules that put what we of rights. value into action. There is disagreement about what rights truly are basic human rights. An Ethics of Principles and Rights It is unclear how to apply this approach to practical Some decisions should be a matter of principle, not situations, especially in cases where rights appear to consequences—the ends do not always justify the conflict. means. Critics charge that unless there is a specific person or Which principles should be followed? institution that has a duty to provide the goods identified When does a principle outweigh producing good as “rights,” talk of rights amounts to little more than a consequences? wish list of things that people want. The ethical framework that will prove crucial for business ethics begins with the insight that we should Virtue Ethics: Integrity and Character make some ethical decisions as a matter of principle Virtues are those character traits that would constitute rather than consequences. parts of a good and meaningful human life. Principles create ethical duties that bind us to act or The best place to see the ethics of virtue is in the goal decide in certain ways. of every good parent who hopes to raise happy and One approach to ethics that emphasizes duties, decent children. obligations, and principles is referred to as deontology. To understand how virtue ethics differs from utilitarian What principles or rules should guide our decisions? and principle-based frameworks, consider egoism. Legal rules. There is a gap between self-interest and altruism. Organizational rules. Ethics requires us to act for the well-being of others at Role-based rules. times, something egoism claims is not possible. Professional rules. An ethics of virtue shifts the focus from questions of Ethical duties should be categorical imperatives rather what a person should do, to a focus on who that person than hypothetical. is. A categorical imperative is an overriding principle of A person’s character is not independent of that ethics. person’s identity. Character: Those dispositions, relationships, Human Rights and Duties attitudes, values, and beliefs that popularly Human rights protect individual dignity. might be called a "personality." Rights imply that some acts and some decisions are This shift changes the nature of justification in ethics. "off-limits." Ethical controversies often involve a conflict between Our moral duty is to respect the human rights of others. self-interest and ethical values. Humans are said to have a fundamental human right of How much we act for the well-being of others depends autonomy, or "self-rule." on our character. Virtue ethics recognizes that human beings act Human Rights and Legal Rights according to who they are, according to their character. What is the difference between human rights and legal Given that character plays a key role in our behavior rights? and given that our character can be shaped by Using employee rights as an example, there are three controllable factors, virtue ethics seeks to understand kinds of employee rights common in business. how those traits are formed and which traits are First, there are those legal rights granted to conducive to and which ones undermine a meaningful, employees on the basis of legislation or judicial worthwhile, and satisfying life. rulings. Virtue ethics offer us a more fully textured Minimum wage and equal opportunity understanding of life within business. are some examples. Virtue ethics reminds us to examine how character Second, employees have rights to those goods traits are formed and conditioned. that they are entitled to on the basis of Many individual moral dilemmas arise when tension contractual agreements with the employer. between who we seek to be and the type of person Health care, pension, and paid business expects us to be. holidays are examples. Virtue ethics should lead us to ask questions about the Finally, employees have rights grounded in choices we make and how those choices affect our moral entitlements to which employees have a character. claim independently of any particular legal or First, note that each decision you make has a subtle contractual factors. but meaningful impact on subsequent decisions. Examples include the right not to be This suggests a reciprocal relationship bullied, right not to be lied to, and the between character and action. right not to be sexually harassed. 3  Our character affects how we act, but how we act ends up affecting our character. The second way in which our choices affect character is through the people we choose to associate with and the organizations we choose to become part of. This has important implications for the companies we choose to work for. The organizational culture that we become part of will inevitably change who we are, so choose carefully. Module 3 Defining the specific culture within an organization is not The Corporate Culture—Impact and Implications an easy task because it is partially based on each employee’s perception of the culture. Culture eats strategy for breakfast. Perception may actually impact the culture in a circular -​ Peter Drucker way. In addition, culture is present in and can be determined What is Corporate Culture? by exploring: The ethical decision-making model emphasizes the Tempo of work. individual responsibility for the decisions made. The organization’s approach to humor. But personal decision making does not exist in a Methods of problem solving. vacuum. The competitive environment. Decision making within a firm is influenced, limited, Incentives. shaped, and, sometimes, determined by the corporate Individual autonomy. culture of the firm. Hierarchical structure. This chapter explores some of the major issues surrounding the development, influence, and Culture and Ethics management of a corporate culture. If attended to, a strong ethical culture can deter It also explores the role of business leaders in stakeholder damage and improve bottom-line creating, enhancing, and preserving cultures sustainability. that support ethical behavior. If ignored, the culture could destroy long-term sustainability in both financial performance and Even in this age of decentralized corporations, there employee retention. remains a sense of culture in organizations. Responsibility for creating and sustaining ethical This is especially true in small local firms, but just as corporate cultures rests on business leaders. true of major global corporations. While true that individuals can shape an organization, it Culture: A shared pattern of beliefs, expectations, and is equally true that organizations shape individuals. meanings that influences and guides the thinking and The person you become, your attitudes, behaviors of the members of a particular group. values, expectations, mindset, and habits, will An organization’s culture refers to communal be significantly determined by the culture of the expectations, norms, beliefs, and values that guide organization in which you work. behavior within the organization. If you join a firm with a culture that supports values, Compliance and Values-Based Cultures you are uncomfortable with—there will be conflicts. Compliance-based culture emphasizes adherence to No culture is static—cultures change; but modifying rules as the primary responsibility of ethics. culture is a bit like moving an iceberg. A compliance culture is only as strong and precise as The iceberg is always moving, and if ignored, the rules. the iceberg will continue to float along on When rules don’t apply, a values-based culture relies the current. on the personal integrity of its workforce. Strong leaders—from within or at the top—can Values-based cultures: A corporate culture in which have a significant impact on a culture. conformity to a statement of values and principles rather A firm's culture can be its sustaining value: than simple obedience to laws and regulations is the Offering direction and stability during challenging times. prevailing model for ethical behavior Can prevent a firm from responding to challenges in A values-based culture reinforces a set of values rather creative and timely ways. than rules. The stability a culture provides can be a benefit at one time and a barrier to success at another time. Some corporate cultures are defined from the top-down, others are developed by the employees themselves. 4  subordinates to take the initiative and to solve problems for themselves. Ethically appropriate methods of leadership are central to becoming an ethical leader. The other element involves the end or objective toward which the leader leads. In the business context, productivity, efficiency, and profitability are minimal goals for sustainability. Beyond the goal of profitability, other socially responsible goals might be necessary before making a conclusion that a leader is fully ethical. Compliance and Values-Based Cultures Building a Values-Based Corporate Culture Compliance-oriented goals may include meeting legal Culture is built and maintained through leadership, and regulatory requirements, minimizing risks of litigation integration, assessment, and monitoring. and indictment, and improving accountability One of the key manifestations of ethical leadership is mechanisms. the communication of values for the organization. The goals of a more evolved and inclusive ethics But do codes make a difference? program may entail: Before impacting the culture through a code of conduct Maintaining brand and reputation. or statement of values, a firm must determine its Recruiting and retaining desirable workers. mission. Unifying a firm’s global operation. The code has the potential to both enhance Creating a better working environment. reputation and provide guidance for internal Doing the right thing as well as doing things right. decision making. This creates a built-in risk management Ethical Leadership and Corporate Culture system. Corporate leadership has a primary responsibility to The mission should be inspiring. steward corporate culture. Establishing the core tenets (especially through a Stakeholders are guided by the "tone at the top"; there participatory process), lays down the law for all future must be a consistent tone throughout the firm. decisions. One 2013 study found that senior leaders are more The mission statement or corporate credo articulates likely than lower-level employees to break the rules and the fundamental principles that should guide all 60 percent of reported misconduct is attributed to decisions, without abridgment. managers. From a universalist perspective, many decisions might Beyond personal behavior, leadership sets the tone be made with the end in mind, but none should ever through other mechanisms. breach the underlying mission as an ultimate dictate. "Budgeting is all about value" is a long-standing management credo. Developing the Mission and Code When ethics officers were first introduced in Critical to ask what the company stands for. the early 1990s, the extent of the financial Why does the firm exist? What are its purposes? support they received indicated their relevance Development of guiding principles through articulation and influence. of a clear vision. Creating a shared company culture is a key Identify clear steps as to how a cultural shift will occur responsibility of its leaders, if they wish to between the stakeholders and organizations. prioritize ethics in their respective companies. To have an effective code that will impact culture there Leaders should be perceived as must be a belief that this culture is possible and people-oriented, as well as engaging in visible achievable. ethical action. While businesses have codes of conduct, industries Executives who are "quietly ethical" and/or professions might also publish codes of conduct. within the top management team, are These codes of conduct apply to firms or people who not perceived as ethical leaders by the do business in those arenas. distant employees. The impact of ethical leadership is significant. Ethics Code Guidelines The Ethics Resource Center provides the following Effective Leadership and Ethical, Effective guidelines for writing an ethics code: Leadership Be clear about the objectives the code is intended to How do the effective leader and the ethical, effective accomplish. leader differ? Get support and ideas for the code from all levels of the Not every effective leader is an ethical leader. organization. One key difference is the means used to Be aware of the latest developments in the laws and motivate others and achieve one's goals. regulations that affect your industry. Some of the discussions on leadership suggest Write as simply and clearly as possible. Avoid legal that ethical leadership is determined by the jargon and empty generalities. methods used in leading Respond to real-life questions and situations. Transformative or transactional leaders Provide resources for further information and guidance. employ methods that empower In all its forms, make it user-friendly because ultimately a code fails if it is not used. 5  Effective monitoring system may include significantly Cultural Integration positive objectives. Integration can take different forms, depending both on How to better allocate resources. the organizational culture and the ultimate goals of the Determine whether a program is keeping pace with process. organizational growth. One of the most decisive elements of integration is Whether all of the program’s positive results are being communication. accurately measured and reported and the firm’s Communication of culture must be incorporated into the compensation structure is adequately rewarding ethical firm’s vocabulary, habits, and attitudes to become an behavior. essential element in the corporate life, decision making, Whether the “tone at the top” is being shared effectively and determination of success. How do you detect a "toxic" culture? A clear sign is a lack of values for the organization. Cultural Integration Warning signs can occur in the various component Effective integration processes should have incentives areas of the organization. in the right place to encourage ethical decision making If the manner in which a firm manages and and checked whether it is evaluated during a worker’s communicates its financial environment is disastrous. performance review. How to measure the impact of efforts to change a How does communication about ethical matters occur? culture? Reporting ethically suspect behavior is a difficult thing Determine if employee perceptions have changed. to do. External audits provide information, as does hotline Nobody likes a "tattletale" and those who report may be data. retaliated against. Any employee feedback should be gathered and analyzed for input regarding the culture. Whistle-blowing. A practice in which an individual within an organization Sources of Culture reports organizational wrongdoing to the public or to Leadership (and maintenance) of the control others in position of authority. environment. It is a classic issue in business ethics. Through high-level commitment and management It can have extremely negative connotations, responsibility, leaders set the standard and the tone. depending on the culture and environment where it Control activities, information, and communication. occurs. Statements, policies, operating procedures, Vocabulary has an impact, and a change of language communications and training. could inspire workers to feel a sense of empowerment Constant/consistent integration into business practices. from their contribution to the corporate culture. Review, assessment, ongoing monitoring. It occurs internally and externally. Monitoring, evaluation, historical accountability. Reporting to external groups can be harmful. Internal mechanisms for reporting wrongdoing are preferable. Internal reporting mechanisms must be effective. They must allow confidentiality, if not anonymity. They must strive to protect the rights of the accused party. Company norms and culture can encourage internal reporting. Many firms have created ethics’ ombudspersons and internal or external reporting helplines. One challenge with reporting systems is they do not make the values of the organization clear. What is or is not accepted within the company’s culture. Firms ensure a successful reporting scheme by ensure the following methods are followed: Leaders should model the act of reporting wrongdoing. Leaders can explain the decision-making process that led to their conclusion. Crisis management teams are often unsuccessful, but running drills or rehearsals of challenging events is a valuable exercise that can be followed. Allow sufficient time for reflection in order to reach responsible decisions might encourage consideration of appropriate implications. Consistently and continuously communicate values and expectations to all stakeholders. Assessing and Monitoring the Corporate Culture Monitoring and an ongoing ethics audit allows the discovery of silent vulnerabilities which could pose later challenges. 6