Business Ethics Chapter 3 - Individual Ethics in Business PDF

Business Ethics. A Path to Excellence for Business Students 3. C Chapter 3 Individual Ethics in Business In Chapter 3, Individual Ethics in Business, we will be introduced to responsibility and ethical issues in business. We will learn: The meaning of responsibility in...

Business Ethics. A Path to Excellence for Business Students 3. C Chapter 3 Individual Ethics in Business In Chapter 3, Individual Ethics in Business, we will be introduced to responsibility and ethical issues in business. We will learn: The meaning of responsibility in business; The kind of actions that individuals can perform within organizations; and The different ethical issues that can arise in business. 3.1 What makes a dilemma? A case study In this chapter, we will learn about the dilemmas that a person faces when working in business. Have you ever experienced a dilemma? A dilemma happens when you have alternative possible choices in front of you and it is hard to decide what is the best decision to make in a particular context. Try to think about a dilemmatic situation that happened to you in your life, then read the case below. 3.1.1 Sam’s dilemma Sam is a new hire of an accounting company in Dublin. She has been working in the company for the last three months, and she finds the environment very friendly. However, last month, one of her supervisors, Sarah, was suddenly fired because she was found responsible for the falsification of financial statements of one of the company’s clients. Sam was in disbelief when this event happened, as Sarah at least apparently was a very honest person. She did not have a chance to talk to Sarah. They did not even have time to get to know each other better, so that Sam could call her and ask how she was feeling. One day, Sam needed to go and see John, Sarah’s boss. While making her way toward his office, Sam overhears a conversation that John is having on the phone. From what Sam could hear, it seems that Sarah was not really aware of what she was doing, because it was John himself who gave her the data she worked on. Sam was shocked. Who was on the phone with John? Was Sarah fired unjustly? Why did she not resist this unfair decision? 3.1.2 Your thoughts o If you were Sam, what would you do? Marta Rocchi, 2023 40  Business Ethics. A Path to Excellence for Business Students o Knowing that what happened to your supervisor was not exactly what you were told, would you be responsible for her unjust firing if you do not say anything? 3.2 What is responsibility in business? In the previous paragraph, we learned about the story of Sam, Sarah and John which highlights the very difficult subject of individual responsibility in business. Responsibility is sometimes not obvious to detect: Who has enough information to be considered responsible? What are the real intentions of the person who is acting? In this paragraph, we will explore the meaning of the term “responsibility,” which can be applied to the business context. The term responsibility has its roots in the Latin word ‘respondere’ (to respond). It is usually associated with human actions or behaviours that happen freely (therefore, are under our control) and assumes our capability of being answerable for these free actions. The concept of responsibility has two main assumptions: o The existence of someone else to whom we are responsible (this also could be ourselves); o The freedom of action, as only those who are free and in control of their actions, can be responsible for them. 3.2.1 Where does this concept of responsibility come from? Professor Daryl Koehn (2019) offers an analysis of the meaning of responsibility in our current Fourth Industrial Revolution era. She revises the meaning of responsibility in the Anglo-American culture, finding out how much it has been influenced by both analytical philosophy and the legal tradition of the West. Due to these influences, responsibility is perceived “in two primary ways – as duty fulfilment and as causal, intentional agency” (Koehn, 2019, p. 1). o We can understand responsibility as duty fulfilment looking at those who do what they are supposed to as a mere fulfilment of a duty. We can see that the same applies to companies when they identify their purpose as fulfilling the obligations they have towards the shareholders and other agents interested in their activity. o In relation to responsibility understood as intentional agency, it is easy to understand it in the context of criminal law. Someone is judged as fully responsible for an action that caused harm to someone or something when this person had the intention to cause that harm. Professor Koehn also describes other ideas of responsibility, outside of the context of the Anglo-American culture. She mentions the concept of responsibility as understood Marta Rocchi, 2023 41  Business Ethics. A Path to Excellence for Business Students by the philosopher Hans Jonas, who from the ancient Greek culture takes the idea that “being responsible means honouring a prospective duty to care for humankind” (Koehn, 2019, p. 3). This means that the concept of responsibility goes beyond the roles that we can assume in our everyday life and it is strictly related to the fact of being human. Another thinker that Professor Koehn takes into account is Hannah Arendt, whose concept of responsibility resembles a “communicative act. We are responsible when we offer to ourselves and to others an account of our actions and speech and when we attempt to respond to their concerns and objections” (Koehn, 2019, p. 3). Having examined these four different conceptions of responsibility, Koehn suggests looking at Plato’s conception of responsibility, especially in our age where Artificial Intelligence-based systems are making us rethink human moral agency. In a world where automation can substitute processes and even decisions, who would be ultimately responsible for a wrongdoing or for harming someone? For this reason, Professor Koehn suggests to look at responsibility as Plato presents it through Socrates, construing “responsibility as acting from a particular form of self-knowledge and self-awareness” (Koehn, 2019, p. 6). The definition of responsibility provided at the beginning of this paragraph echoes these last ways of understanding responsibility, not relegating it only to the fulfilment of a duty or to the correct performance of a role. This is the meaning of responsibility that we are taking into consideration throughout this module. We link the concept of responsibility not only to what we do or to our role but extend it to the fact that we are human beings and we need to “respond” to someone else for the way we act and make decisions. 3.3 Modifiers of responsibility Are we always responsible to the same degree for our actions? What determines if we are responsible or not for our acts? In this paragraph, we are going to learn about the modifiers of responsibility (Melé, 2019). Can we argue that someone is responsible if this person does not know what kind of effects their actions have? Can we argue that a person is responsible if they act when they are under a physical or psychological pressure that alters their consent? We will examine two modifiers of responsibility: lack of knowledge and lack of consent. Knowledge and consent are two factors that determine our moral responsibility. A lack of one of them (or of both) modifies individual responsibility. If an action is performed without the full knowledge or consent, we could argue that the responsibility is partial or even absent. 3.3.1 Lack of full knowledge Marta Rocchi, 2023 42  Business Ethics. A Path to Excellence for Business Students We can be in a situation where we act, but we do not have all the necessary knowledge to actually make a decision or perform an action. When we lack knowledge, we are ignorant. There are three types of ignorance (this classification is taken from Melé 2019, p. 63): o Invincible ignorance. Someone has invincible ignorance when his or her awareness of the current circumstances of his or her actions cannot be overcome in an easy way. Actions performed in real invincible ignorance are not the responsibility of the agent. For example, if you are working for a company which is deceiving its clients and you are not aware of what your bosses are really doing, you are not directly responsible for what they are doing – unless you can easily find out what is happening. You are only unconsciously supporting their plans. NB: sometimes it is not hard to win over ignorance, but some people prefer to stay in ignorance rather than assume their responsibilities in fighting what is not just. o Surmountable ignorance. It is the state of those who can easily acquire information that would improve their actions, but due to laziness or negligence, they do not do it. Actions performed in surmountable ignorance are ascribable to the agent. o Intentional ignorance. Someone acts “as if” he or she does not know something that is really relevant, just for the purpose of protecting an interest or a position. This kind of ignorance is morally the worst possible, because it is a form of purposeful deception. 3.3.2 Lack of full consent There are situations in which there is a lack of consent for the will to perform an action. There are many and different cases of lack of full consent, due to factors such as (Melé 2019, p. 62-65): o Mental illness o Physical coercion o Psychological coercion (harder to demonstrate, but heavily widespread) o Strong emotions o Intellectual fear o Habits o Sociological factors 3.4 Actions and responsibility In this paragraph, we will learn how actions are classified according to their different categories. According to Melé 2019, we can classify our actions according to different Marta Rocchi, 2023 43  Business Ethics. A Path to Excellence for Business Students categories, depending on whether we are performing an action, or we deliberately decide not to perform it (omission). We can also classify those actions that we perform through inducing others to perform them or cooperating with someone else’s direct action. Figure 3.1: Classifying Our Actions Copyright: Marta Rocchi, 2020 Design: DCU IDEAS Lab, 2020 You see a pickpocket who steals a wallet from someone on a crowded bus. You, as a witness, can decide to raise the alarm or say nothing. By raising the alarm, you choose to act and your decision to stay quiet, assuming that acting is due and possible, represents a failure to act (an omission). When raising the alarm, you can try to get other bypassers involved – how are you going to do that? How will you make them act? This situation helps to illustrate how our own actions can be categorised. o Actions are transformative interventions on reality and they bring about some consequences. o Omissions represent our failure to act, but they also have consequences. The actions performed in relation to others are called induction and cooperation. These types of actions are particularly important in the business context: Marta Rocchi, 2023 44  Business Ethics. A Path to Excellence for Business Students o Induction takes place when we ask someone else to act in a specific way. Giving an order, persuading or suggesting are examples of induction. o On the other side of induction, we have cooperation. It occurs when we help someone to do something. Recalling the previous example, you can try to induce a bypasser to help you to catch the pickpocket (induction) and the person can agree to help you (cooperation) or not (an omission, if for this person it is possible and safe to intervene). In light of this distinction, we can categorise different forms of individual responsibility, as the following highlights. Figure 3.2: Forms of Individual Responsibility Source: Melé (2019) Business Ethics in Action. P. 68. Red Globe Press. Design: DCU IDEAS Lab, 2020 Inducing other people’s actions 3.4.1 Reflect Who do you think you are cooperating with when you buy a product produced by children in another country? You are cooperating with the company helping the CEO make a profit. However, have you ever considered that you are also cooperating with the company’s policies which agree to use child labour? 3.5 Responsibility in action: Milgram's Experiment The Milgram Experiment is a classical way to explain the mechanisms enacted in us when we are asked by someone else to do something. The original purpose of Milgram’s experiment was to study how people obey authority. We will use it to explain how, by obeying authority, people also feel that they are delegating the responsibility of their actions to someone else. The idea for the experiment is taken from one of the saddest and shameful periods of the history of humanity. Watch the video to get further details about this. Marta Rocchi, 2023 45  Business Ethics. A Path to Excellence for Business Students NB: Before watching this video, please consider that it contains content that can be distressing for you, so please bear this in mind. It is not necessary to watch it in order to understand the experiment. Video Do you think that the people involved in the Milgram’s experiment are responsible for their cruelty of wilfully injuring an innocent and defenceless person? 3.6 The person in the business organization Now that we have defined the concept of responsibility, linking it to the different kinds of actions that we can perform, we need to look at how a person acts in business and what are the issues that this person can encounter. We can have issues involving small amounts of money or other resources (e.g., is it just to use your workplace printer to print a personal document?) or issues involving bigger sums of money and other people’s interests (e.g., you realize that someone is systematically and unjustly favouring a person in their team, therefore this person gets paid more than the others). Read the case titled An Ethical Dilemma from Ferrell et al., (2019, p. 56) to get a flavour for the kinds of ethical issues that can happen in business. After reading the case, reflect using these questions: o Describe what is the nub of the problem that Jayla is facing. o Describe the options that Jayla has and what you think would be the best one? o What are the values that Jayla should take into account in your opinion, in order to make a decision in this situation? 3.7 Ethical issues in business In this last section of this chapter, we will learn about the most frequent ethical issues in business as classified by Melé (2019) and Ferrell, Fraedrich and Ferrell (2019). The most frequent ethical issues in business are classified as follows: Misappropriation o Misuse of company resources. o Misuse of company time. o Misappropriation of intellectual property. o Counterfeit. o Violation, theft or not authorized disclosure of trade secrets. Fraud Conflicts of Interest Tax Evasion and Tax Avoidance We will discuss these ethical issues in greater detail in the next few paragraphs. 3.7.1 Misappropriation Marta Rocchi, 2023 46  Business Ethics. A Path to Excellence for Business Students Misappropriation comprises many different kinds of possible behaviour, all directed to gain the ownership of something without the permission of the owner. In general, misappropriation defines those behaviours that are essentially theft. Committing a theft means to violate someone else’s private property, without the permission of the owner. We are now going to analyse different forms of misappropriation. 3.7.1.1 Misuse of company resources Companies make available a set of resources for their employees that are free to use, in order to perform their job in the best way possible. However, employees can intentionally decide to use the available resources for purposes that are not related to their job. For example, misappropriating very small items like office stationery, or misappropriating the company’s money, such as claiming expenses for something not strictly related to the job. The following is an example of misuse of corporate resources: please read Sticky Fingers in the Supply Closet, published in The New York Times, about people who tend to shoplift in their company’s stationery room. 3.7.1.2 Misuse of company time Every company pays for their employees’ time through salary at the end of the month. In return, the employees give their time and skills to help the company achieve its purpose. What happens if the employees do not honour their contracts and use the time that they should be working doing other activities? The following is a list of ethical issues related to using company time for personal purposes: o Using time to internet surf for personal purposes or on social media. Check out the article on How using social media can get you fired; o Excessively extended breaks; o Time clock theft – asking someone else to sign you in or out when you are not at work. 3.7.1.3 Intellectual property, Counterfeit, and Trade secrets Have you ever watched a movie on a website without paying any subscription? Have you ever bought a bag or a shirt which was aesthetically identical to one of your very expensive favourite brand, but in a cheaper version and maybe sold in a “nonconventional” (i.e., illegal, not authorized) shop? Marta Rocchi, 2023 47  Business Ethics. A Path to Excellence for Business Students If you happened to be in one of these situations, you have been in violation of someone else’s property, copyright (in the case of the movie) or intellectual property of a brand or a designer (in the case of the bag or shirt). These forms of business crimes are committed on a regular basis in different countries in the world, and sometimes are hard to prosecute. Let’s take a closer look at these situations. Intellectual property Intellectual property includes copyrights, patents, trademarks, and digital copyrights. Infringing intellectual property means to use as yours something that is protected by copyright, a patent or a trademark in an unauthorized way. As Ferrell, Fraedrich and Ferrell (2019) report, one of the most dangerous consequences of infringement of intellectual property was detected in the pharmaceutical industry: if the company who is violating the intellectual property of a formula for a drug fails to provide it exactly as the original version, great harm can be caused to final consumers. Espionage is one of the ways in which infringement of intellectual property can happen. Counterfeit Counterfeit consists of the reproduction of a good without the permission of the owner of the trademark or patent. The fashion industry is particularly affected by this form of misappropriation, especially highly positioned fashion brands. Trade secrets Misappropriation can happen when someone working in a company shares confidential information with another company, usually a competitor. Working in a company provides access to data and information which other people do not have a reason or a right to have access to. What distinguishes the information related to a trade secret from information which is not classified as a trade secret, is that a trade secret gives the owner a competitive advantage. Melé rightly defines a trade secret as “any formula, pattern, design, instrument, process or compliance of information used in a business and not known to people outside the firm that provides a benefit to the holder or an advantage over competitors and customers” (Melé, 2019, p. 113). 3.7.2 Fraud In this paragraph, we will learn about another frequent ethical issue in business, i.e. fraud. Fraud happens “when individuals engage in intentional deceptive practices to advance their own interests over those of the organization’s or some other group” (Ferrell et al., 2019, p. 71). Marta Rocchi, 2023 48  Business Ethics. A Path to Excellence for Business Students With fraud, there is a component of intentionality, in the sense that whoever is committing the fraud knows that he or she is engaging in a behaviour that will lead to an “unjust gain” (Melé, 2019, p. 113). Ultimately, fraud is a form of theft, which is performed through deception. There are many possible forms of fraud in business because there are many occasions – at different stages of the production of a good or a service – where the trust of the stakeholders of a company can be betrayed. The definition provided above shows that individuals are at the centre of a fraud. Conversely, it is often an entire branch of a company that is collectively involved in a fraudulent activity. 3.7.2.1 Examples of fraud Here are two examples of possible corporate fraud. Enron The first example concerns accounting fraud. One of the most frequent frauds that can happen in the business context is an accounting fraud. An accounting fraud takes place when a company decides to “cook the books,” usually in order to show that it is healthier and wealthier than it actually is. Accounting frauds are a clear form of deception, because shareholders, potential future shareholders and stakeholders base their decisions on the information that a company provides (or the accounting firm that the company hires). One of the biggest accounting scandals that ever happened in the history of business relates to the Enron Corporation. In order to understand what happened with Enron, watch the trailer of the movie Enron: The Smartest Guys in Room. Now, read about the Enron scandal story as told by the CNN at this link. Watch the entire movie “Enron: The Smartest Guys in the Room” is highly recommended. It reflects how the story unfolded and what the reactions of the different people involved in the story were. For an exhaustive description of the Enron story please refer to Windsor (2008). Volkswagen The second example concerns the quality of goods that a company provides, i.e. the Volkswagen scandal which happened in 2015. Read about the scandal. You can also watch a video about the scandal. After reading the article and watching the video on the Volkswagen scandal, think about the following questions: Marta Rocchi, 2023 49  Business Ethics. A Path to Excellence for Business Students o Do you think that some individuals were responsible for the Volkswagen scandal or, was the company responsible as a whole? o What about those people working in Volkswagen who were genuinely not aware of what was happening? Were they responsible too? 3.7.3 Conflicts of interest In this paragraph, we will explore another frequent ethical issue in business i.e., conflicts of interest. Have you ever heard of controversial situations that made you think that something is not really fair in a business setting? What about someone hiring a close relative to work in the same organization, or someone who chooses a friend’s company to be the main provider of a good or a service for a business – even if it is not the best option for that business! These are just two examples of conflicts of interests and common cases that big companies tend to avoid by setting strict internal standards – especially for the hiring process and for the selection of company providers. As Melé (2019) clearly states, “a conflict of interest is understood as a situation in which the private interests and the official responsibilities of a person in a position of trust are in conflict or when someone who ought to be serving people has competing interests” (Melé, 2019, p. 114). In order to illustrate how a conflict of interest works, please read the following two case studies and answer the questions for learners in the comments section below. 3.7.3.1 Case Study 1: Managing a personal association with a school contractor The following case is taken from: Conflict of interest Quick Guide, Human Resources Education and Training, Victoria State Government https://education.vic.gov.au/hrweb/Documents/Conflict-of-Interest-COI-Quick-Guide- and-Case-Studies.pdf “Alice has recently been appointed as the business manager at a local secondary school. One of Alice’s responsibilities in her new role is to manage the school’s cleaning contract. Alice’s daughter is at university and in a long term relationship with Daniel. Daniel’s father runs a small cleaning company, which has been contracted to clean the secondary school for the last two years. Alice was unaware that Daniel’s father’s company had the current school cleaning contract until she started in her new role. There have been several complaints about the cleanliness of the staff and student toilets. Alice has also observed that the kitchen has not been cleaned on several occasions and that generally, the cleaning is not of the same standard as in previous schools that she has worked in. The contract is due to be reviewed for renewal.” Marta Rocchi, 2023 50  Business Ethics. A Path to Excellence for Business Students Question: What should Alice do in order to be transparent and avoid a conflict of interest? 3.7.3.2 Case Study 2: Employment of a family member The following case is taken from: Conflict of interest Quick Guide, Human Resources Education and Training, Victoria State Government https://education.vic.gov.au/hrweb/Documents/Conflict-of-Interest-COI-Quick-Guide- and-Case-Studies.pdf “A primary school identifies the need for an education support officer to assist in a classroom two days a week. The principal’s daughter is studying early childhood development and is looking for part-time work. The principal works with the assistant principal to determine a position description for the education support officer, including the time fraction and duties. He does not mention that his daughter could be a potential applicant. When the role is advertised and his daughter applies, the principal reports his conflict of interest (COI) to the leadership team and removes himself from the selection panel. When the panel recommends his daughter as the preferred candidate, the principal asks the Regional Director to confirm the panel’s recommendation. The principal’s daughter accepts the offer of the role.” Question: What are the problems of the situation described? Do you think that the principal disclosed the conflict of interest at the right time? 3.7.4 Tax evasion and tax avoidance A lot has been written in business ethics about the way companies deal with taxes. In this paragraph, we will examine two areas related to tax payment by companies: tax evasion and tax avoidance. Given that this is a business ethics course, we are interested in the ethical aspects related to these two different situations. The following is a brief description of each. Tax evasion Tax evasion means to intentionally avoid the payment of taxes that a company is supposed to pay. From an ethical point of view, tax evasion is clearly wrong and it is a way of stealing money from the entity to whom the taxes are due. Moreover, tax evasion is defined in this way because it is illegal, so the authorities can prosecute companies and individuals evading taxes. Marta Rocchi, 2023 51  Business Ethics. A Path to Excellence for Business Students Tax avoidance Tax avoidance differs from tax evasion insofar as those who avoid paying some taxes do so respecting legal limits. The morality of tax avoidance is discussed in different ways, depending on the perspective that the authors adopt. Prebble and Prebble (2010), for example, describe tax avoidance as “Contriving transactions and structures that reduce tax in ways that are contrary to the policy or spirit of the legislation” (Prebble & Prebble, 2010, p. 696). From their definition, it seems that the spirit of law is not respected, while the law itself is. These authors conclude that “The fact that conduct is not illegal does not necessarily mean that it is also moral”, then arguing that “Judges are correct when they note that there is a legal dissimilarity between the evasion and avoidance, but the factual similarities between the two are of much greater moral significance than the legal difference; from the perspective of morality we should look at the two phenomena as being just one phenomenon” (Prebble & Prebble, 2010, p. 744). Another perspective is offered by de Colle and Bennett (2014), who refer to the work of Prebble and Prebble (2010) but try to draw a line between when tax avoidance is considered morally acceptable and when it is not. De Colle and Bennett (2014) present four arguments in favour of tax avoidance and nine ethical issues. 3.8 Review of Chapter 3 On completion of Chapter 3 we now know how to: o Define the meaning of responsibility in business; o List the kinds of actions that individuals can perform within an organization; o Describe different ethical misbehaviours that can arise in business. Marta Rocchi, 2023 52