WWEK-1-5_CM_MDL_SEM2_ENT5 (1) PDF - Business Ethics

ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) ENT5 – SOCIAL ENTREPRENEUR PRELIMINARY PERIOD (Valor, 2005, Teehankee, 2005; Rothman and Scot, 2004; Maximiano, 2003; De...

ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) ENT5 – SOCIAL ENTREPRENEUR PRELIMINARY PERIOD (Valor, 2005, Teehankee, 2005; Rothman and Scot, 2004; Maximiano, 2003; De George, 1999; Carrol, 1999) What is Business Ethics? (week 1-2 What is the role of ethics in management? Business ethics is a form of applied ethics that examines ethical rules, theories, Business ethics covers a myriad of both practical and moral problems that arise and principles in a business context. It includes the correct understanding of any out of specific functional areas of management. moral duties or obligations (orthodoxy) that apply to persons who are engaged in Ethical management in the workplace commerce (orthopraxis). Business ethics is a normative discipline, whereby particular ethical standards are advocated and then applied. It makes specific Ethical management is the foundation of CSR in the workplace, which covers judgments about what is right or wrong, which is to say, it teaches what ought to unethical issues arising from the employer-employee relationship, such as the be done and what ought not to be done (De George, 1999). Business ethics in this rights and obligations justly owed between them. Preventing discrimination book is also known as ethical management. issues in the workplace include the practice of affirmative action and fighting sexual harassment, child labor, and other discriminatory practices on the bases Business ethics pushes the practitioner to study and evaluate how he/she makes of age, gender, race, religion, and physical attractiveness. In this area, moral business decisions in accordance with moral concepts and judgments. He/She asks challenges affecting the privacy of the employer, the practice of whistle the questions: Is it true? Or is it deceitful? Is it fair? Or is it unjust? Does it cause blowing, and working conditions and occupational safety may take place and bodily or emotional ham to others? Is it the right thing to do? Ethical questions the moral leader and practitioners should be able to face those challenges range from practical, narrowly defined issues, such as a company’s obligation to be squarely. honest with its customers, to broader social and philosophical questions, such as a company's responsibility to preserve the environment and protect employee Ethical management regarding intellectual property nights nights. This may consider the issues regarding bioprospecting (considered ethical) and Managers are caught in a balancing act between the ideal and the practical, such biopiracy (considered unethical), copyright, patent, and trademark as the need to produce a reasonable profit for the shareholders and at the same infringement, business intelligence, employee trading, and industrial time to maintain integrity by paying correct taxes to the government. Although espionage. there are some exceptions, it appears that those who choose to conduct business in an ethical manner will, in the long run, perform better than those who do not 1  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) Ethical management in sales, advertising, and marketing How is business ethics linked with CSR? Business ethics and social responsibility deal with the issues on pricing and As a discipline, business ethics is one branch of professional and applied ethics. price fixing, moral dimension of the anti-trust or anti-cartel law, bait and switch, The growth of this discipline can be seen in its inclusion in serious CSR discussions viral marketing, pyramid scandal, and sex in advertising. Cases may include and debate, and vice versa. More scholarly articles on corporate citizenship Benetton. (another term for CSR) are published in the Journal of Business Ethics, and an increasing number of scholarly articles on business ethics are published in the Ethical management in production Journal of Corporate Citizenship. It appears that the research direction for the new millennium regarding business ethics (on the personal level) embraces the This area of business ethics deals with the duties of a company to ensure that integrative approach to the social performance on the corporate level (Gritfin, products and production processes do not cause harm. The stakeholders 2000). involved are the consumers, the public, and almost always the environment. Discussions may include moral relations between business and the Should there be a CSR department? environment and ethics problems arising out of new technologies such as mobile-phone radiation and genetically modified food. Well-known cases on It is advantageous if a company has a CSR department, which should not be this area include Ford Pinto, Bhopal disaster, and the use of asbestos. headed by a lawyer. It should not be headed by a lawyer because ethical management is beyond legal and regulatory compliance. It requires the Ethical management in finance, accounting, and auditing involvement of everyone. Because it is primarily social, CSR includes code of conduct, corporate citizenship, employee volunteerism, resource sharing and The best cases are Enron and WorldCom, where the issues comprise executive management, social investment, and sustainable development. CSR is interested in compensation, (criminal) manipulation of the financial markets, bribery, broadening participation in social development efforts by getting more people to facilitation payments, fraud, and false reporting. Its practical CSR application is participate in poverty-alleviation programs and community involvement. I believe corporate governance, accountability, and value-based management that the more people are engaged in ethical management, the better. 2  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) Ethical management is a tool towards corporate excellence. While others are behaviors. CSR is part of the work ethics of a corporation, and preferably contented with the minimal requirements of the moral norms and code of conduct, itis interwoven into the way a corporation thinks and does its business. In the goal of both business ethics and CSR is the moral excellence of all players in the other words, corporate social responsibility is business ethics concretized business. The goal of business ethics is personal excellence and that of CSR is and reflected in corporate values. corporate excellence. Excellence is an open-ended goal, which means a personal and corporate decision to enter the room for improvement and become better In his propounded concept of the stakeholder theory, Philips (2003) directly links organizational ethics, or business ethics, with CSR via the citizens of the world (Maximiano, 2003, De George, 1999). stakeholder theory. The Center for Corporate Citizenship at Boston College (2003) speaks of corporate citizenship as “continuing commitment by BUSINESS ETHICS AND CSR COMPARED business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as What do authors/experts say about business ethics and CSR? wells of the local community and society at large.” Business ethics and CSR have evolved, with tons of volumes written about Meanwhile, for Griffin (2000), the moral reasoning in business ethics may them. Even immediately after the Second World war, Herbert Simon, in his be considered a foundation of doing CSR. Business ethics is related to CSR book Administrative Behavior (1945), noted that businesses have been at the very least as the moral basis of the corporate citizenship, that is, affected by the growing public interest. According to him, leaders are business leaders are engaged in CSR practice because they believe they are increasingly becoming involved with responsibilities toward the ethically accountable to society. In other words, business ethics is the community beyond the legal limits imposed on them' (Simon, 1945), hence, theory while CSR is the practice. CSP beyond regulatory and legal compliance. Peter Drucker (1993), in his book The Practice of Management (first published 1954), was among the first authors to explicitly address the Are both ethical management and CSR about firm conviction? “social responsibilities of business.” Whereas Simon (1945) gave far more Yes, business ethics is about firm conviction. Corporate involvement is not attention to the moral ethical dimensions of individual behavior in about feelings since ethical standards are not just emotional or organizations, Drucker concentrated more on CSR. sentimental issues. Emotions are important, and no one denies that. But we cannot rely on them too much because they are changeable, fleeting, and almost always capricious. Like a marshmallow, emotion is good and Brenner (1992) observes that a corporate ethics program is made up of sweet but unreliable in tough decision making. values policies, and activities that impact the propriety of organizational 3  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) On the reverse, ethics is a fixed standard, objective, permanent, and specifically from the point of view of his relationship with God, with himself, grounded on the strongest convictions about what is right and wrong. his family, and fellowmen (employees, customers, suppliers, partners, etc), Similarly, corporate social responsibly constitutes a firm decision, and a and the environment. solid conviction. It necessarily refers to the myriads of the extraordinary and ordinary decisions and practices, which men and women of goodwill It is my belief that, in the ethico-philosophical sense, man is not enough in make, and the lasting values for which they stand (Maximiano, 2003) himself to attain his full development, and that he needs God, others, society, and nature to attain his goal. The human person is a microcosmic What are the common philosophical links? specie, a businessman or a consumer, but also a social being that “has been elevated to the supernatural order”, emphatically pronounced by Pope Between business and total human advancement-corporate interest and John XXIII (cited in Maximiano, 2003) personal growth-there are, in fact, profound links, which include links of an (1) anthropological order (Anthropos, human level). It is because the The best approach to doing business is the wholesome approach. What person who works for or manages business is not just an abstract being or seems to be unavoidable is to relate ne core of business activities with mere intelligent being but a human person with dignity who is subject to ethics and social responsibility, which pertains principally to the socio political, moral, and economic issues. The social nature of man shows metaphysical, spiritual, and value system in us. This is unavoidable by there is interdependence between his personal betterment and the reason of the multidimensional sides of our being human. The fact is that improvement of society. we are not walking bellies alone, we are not only physical. There are other things in the human person besides the material, financial bottom line, Man, by his very nature stands completely in need of in interpersonal scoreboard, Key result areas, and the belly. cooperation, synergy, and participation in society, a person for others and with others He is the beginning, the subject, and object of socio-business Corporate citizenship advances its conviction that business should be at organization and activities, including corporate citizenship. the service of the human person, and not human person at the service of business, that ethics is above technology and spirit above matter (Libertatis What is the link in the theologico-philosophical order? conscieritiae, 72). The other link between business and total human development is in the theologico-philosophical order (theo, divine-spiritual level). One cannot dissociate the divine plan or creation and the plan of redemption from the day-Ho-day business ventures. CSR contemplates and discusses the human person, not so much on his financial and material aspect, but more 4  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) How did business ethics and CSR evolve? Corporations practice CSR and ethical management differently according to how enlightened they have become. CSR and ethical management are Responsibility Societal Expectation Examples evolving continuously, following several phases or periods of realization. Economic Required Be profitable. Maximize First phase-Company sees profit and only profit. No enterprise sales, minimize costs, goes into business to be altruistic or philanthropic; otherwise, itis etc. a nonprofit organization. The overriding concern at this initial stage is profit maximization. Legal Required Obey laws and Second phase-Company complies with laws and regulations, which regulations. is the minimum requirement of being a corporate citizen. Ethical Expected Do what is right, fair, Third phase-Company conforms to ethical requirements to build and just. its image, as it reassesses and safeguards its reputational value. Pepsi Cola in Myanmar, HP, and The Gap in El Salvador established Discretionary Desired/Expected Be a good corporate their ethical departments and changed their corporate behaviors (Philanthropic) citizen. to enhance their corporate images. Ultimate phase-Company institutionalizes CSR and ethical Table 1: Four Part Definition of CSR management because it is the right thing to do. It is noblesse obliges. The enterprise truly becomes socially responsible and relegate profit motive to secondary objective. Archie Carloll (1999) calls it the Four-Part Definition of CSR. 5  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) activities of a company produce positive effects to many stakeholders, ETHICAL MANAGEMENT OF PROFIT such as the community, environment, and other externalities. What is profit? What are some of the nuances of profits? In its rude and original concept "profit” comes from Latin pro-, meaning It might be well to discuss the other nuances of profits, such as retained forward and facere, which means to make." That is, to make progress, to profits, profits as dividends, and economic value added. advance, to move forward, making things better. Activities or endeavors that make things better for the parties involved and for the whole system Retained profits refer to income from the previous period that, depending are profitable." Using up a resource is not profitable for the system unless on strategies adopted by management, can be reinvested in the existing more than what was already there is generated at the same time business or, if the company decides, reinvested in other businesses to (Maximiano, 2007) pursue a diversification strategy. The orientation of its shareholders and various stakeholders has a bearing on the reinvestment activities of the Economists define profits as the difference, a 'residual between the value firm. Rates of return, markets, and sales are some factors that can drive of output and other costs. These costs take the form of payments for labor the effort to reinvest profits. (wages), property (rent), capital (interest) or payments for raw material purchases. Furthermore, the profit relationship is reflected in a linear Profits as dividends are those distributed to owners (shareholders or relationship: Profit = value of output minus (wages + rent + interest) minus stockholders) to consume or reinvest as the owners see fit. The prospect raw materials and other purchases. In our present-day parlance, profit is of receiving cash dividends is a principal reason for investing in the stocks always measured in terms of money equivalent (Philippine peso, US dollar, of a corporation. An increase or decrease in the rate of dividends has a etc). corresponding effect in the market price of the company's stock. Profits are seldom evaluated in terms of social cost, which is at times hard Economic value added, meanwhile, is an after-tax profit that exceeds the to measure. It is logical to think, however, that profits may increase when average cost of capital in doing business. Economic value added is the business does not bear costs of its effects on environment and community, after-tax profit minus the annual cost of capital, which is a way of measure made possible through the externalized social cost of production. On the that considers the total cost of an operational capital. Capital is money tied other hand, profits can decrease when social costs such as effluents and up in heavy equipment, real estate, and working capital (mainly cash, other waste matters released into the community by manufacturing inventories, and receivables). The cost of capital includes interest on processes, for example, are unabated. By the same token, profits can borrowings. increase (by way of improved reputation =reputational value) when the 6  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) What is shareholder value? transactions, financial reporting, taxable events to determine the proper tax liability, and in litigation. This kind of valuation is also known VBM. Shareholder value (SV) may refer to the primary goal of business, which is to enrich or add value to its shareholders (owners) by paying dividends. Is VBM different from VBL? This happens when the stock price increases. Shareholder value also refers to the result of a planned action by management when the returns to Present management literature is crammed with scholarly articles on VBM shareholders outperform certain benchmarks such as the cost of capital that appear to recognize three definitions (Weaver &Weston, 2003). The concept. In this book, shareholders value maximization is equal to profit first definition is focused on maximizing shareholder value (material value). maximization. With emphasis on cash flow and growth potentials, VBM ensures that corporations are managed effectively to produce the highest shareholder The idea that shareholders' money should be used to earn a higher return value. than they could earn themselves by investing in time deposit or risk-free bonds. The term was introduced by Alfred Rappaport in his 1986 book The second definition deals with semi-material values, as it aims to provide Creating Shareholder Value. consistency in the following factors: corporate mission, business philosophy, corporate strategy to achieve the corporate purpose, and In the next question I shall compare other values, such as freedom, family, corporate governance (which determines the corporate mission and honesty social responsibility, which are spiritual or intangible, with regulates the activities of the corporation). shareholder value, which is material, monetary, or tangible. The third definition is focused on personal values, particularly moral values, What is VBM? and therefore nonmaterial values. In this study, value-based leadership (VBL) is embedded in the third definition of VBM. To achieve shareholders value maximization, business needs value-based management (VBM). The first and second definitions tend towards creating value or how the company generate maximum future value, which is equal to strategy, and In finance, valuation is the process of estimating the market value of a towards measuring value or what is known as valuation. Today, the core of financial asset or liability. Valuations can be done on assets (e.g, the strategy for corporate Philippines and the corporate world is to restore Investments in marketable securities such as stocks, business enterprises, investors’ confidence. To do this, businesses are urged to put into practice or intangible assets such as patents and trademarks) or on liabilities (e.g., both VBM and VBL, that is, to manage corporations for long-term bonds issued by a company). Valuations are required in many contexts shareholder value in accordance with the first and second definition-as including investment analysis, capital budgeting, merger-and-acquisition well as lead them based on nonmaterial values. There is an increasing 7  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) public expectation that boardroom culture, corporate laws, accounting American economist and Nobel laureate Milton Friedman opine that, in a and auditing methodologies, and executive compensation are all tree enterprise the manager or the corporate executive is an employee of integrated into this paradigm (Weaver and Weston, 2003). the shareholders, who are the legal owners of the business. It is my belief that the personal nonmaterial values of the manager matter Those who run business have a direct responsibility to their employers. so much in creating and maximizing shareholders value. These values That responsibility is to conduct the business in accordance with owner’s basically include demonstrating and communicating the importance of collective desire to create SV and maximize profit as much as possible while both “doing things right, and doing the right thing," a managerial decision- conforming to the basic rules of the society (Friedman, 1970). making style otherwise known as VBL (Maximiano, 2006) The corporate executive is also a person in his/her own right. As a person, What do critics say about shareholder value maximization? he/she may have many other responsibilities that he/she recognizes or assumes voluntarily: to his/her family, his/her conscience, his/her church, The sole concentration on SV has been widely criticized. While SV might be his/her clubs, his/her city, his/her country. He/She may feel impelled by best for the owners of a corporation, in a bigger picture other stakeholder these responsibilities to devote part of his/her income to causes he/she like environment, employees, consumers, community, and government regards as worthy, to refuse to work for corporations, even to leave his/her play a higher role. They affect and are affected by business operations; job, for example, to join his/her country's armed forces. hence, they have values. Some of these responsibilities may be referred to as "social It can happen that, while a management decision maximizes SV for the responsibilities." But in these respects, he/she is acting as a principal, not owners, it is detrimental to global and social welfare. Some management an agent, he/she is spending his/her own money, time, or energy, not the decisions may also threaten the long-term health of a company, for money of his/her employers or the time or energy he/she has contracted instance, by emphasizing dividends and returning cash to shareholders to devote to their purposes. lf these are “social responsibilities”, they are rather than investment. This occurred in the case of Enron. the social responsibilities of individuals, not of business (Friedman, 1970). From Capitalism and Freedom, Friedman (1982) presents the classical view.” there is one, and only one social responsibility of business-to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. What do you mean by the Friedmanian approach to business? 8  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) What happens when profit maximization is accompanied by the driving force The pursuit of profit is a legitimate exercise, provided, of course, that it is called greed? obtained in just and fair means. Profit is good 'so long as it stays within the rules of the game, which is to say engages in open and free competition The disregard of moral values and social responsibility in doing business without deception or fraud" (Friedman, 1970). usually leads to the undesirable. The 2001 case of Enron and Andersen speaks for itself. However, profits are not an end per se, for they must be compatible with other social needs. Companies must acknowledge that the interests of Taken from its ethico-theological context, greed connotes insatiability, stakeholders (in addition to those of the shareholders) are of intrinsic value materialism, avarice-vices that are morally unacceptable. From the motion and managers should behave accordingly. picture Wall Street, quote the stirring speech of a wicked CEO named Gordon Gekko, played by Michael Douglas, about the corporate definition Profits, held by economists as returns for risk-taking behavior, are not the of greed: sole entitlement of owners. Other stakeholders are entitled to business profits. Even if returns were paid to each factor of production, we should “Greed, for lack of a better word, is good. Greed is right because it works. remember that business operates neither in vacuum nor isolation. Greed clarifies and captures the essence of the evolutionary spirit. Greed Therefore, business must take into consideration its many stakeholders will not only save our paper company but will also save another that affect or are affected by its operations. malfunctioning corporation called USA." What is the Stakeholder theory? It is a situation of a vice becoming a virtue, an evil turning nice, wicked attitude transforming into an acceptable behavior. What happens then? The present concept of CSR has been substantially and fundamentally From reel to real crime in the streets took a backseat to white-collar crime linked to the development of the stakeholder theory, which is originally on Wall Street, as indictments exposed major scandals and brought both propounded by Edward Freeman, and developed by such researchers and public and private figures before the courts. A web of illegal stock-trading authors like Phillips (2003), Berman, et al. (1900 Clarkson (1995), and Jones schemes in civil and criminal charges produces corporate scandals, which (1995), inter alias. involve not just rank-and-file staff but also top executives. Stakeholders include all internal, external, and environmental constituents of a business. Other stakeholders, such as employees, consumers, community, and environment may place demands upon the firm. Is the pursuit of profit legitimate? Accordingly, the firm must address these demands or else face negative confrontations from those stakeholders (non-shareholder groups), who 9  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) have the capacity to diminish shareholder value through boycotts, lawsuits, The national economy is geared towards a more equitable distribution of and protests, among others. From a stakeholder theory perspective, CSR Is opportunities, income, and wealth; and a sustained increase in the amount of assessed in terms of a company meeting the demands of its multiple goods and services produced by the nation for the benefit of the people. An stakeholders (Freeman, 1984). expanding productivity is the key to raising the quality of life for all, especially the underprivileged. Is the shareholder one among the many stakeholders of business? The primary focus of the stakeholder theory is that firms have a moral responsibility to consider the interests of stakeholders, rather than just stockholders (shareholders or shareowners). Of significance, Clarkson (1995) made an in-depth analysis of 70 field studies of corporate social performance or CSP between 1983 and 1993, an evaluation which was pegged on a framework based on the management's relationship with stakeholders. In this study, the stakeholder theory places shareholders as one of the multiple stakeholder Mini-Paper Reaction groups, a proposed working idea that management should consider in its decision-making processes. 1. Students surf the Internet for actual cases of an unethical business practice of an Asian company The shareholder is just one among the many stakeholders of a business. 2. Each student submits a written story, one full page, on how certain managers in Teehankee (2005) supplies the answer. big businesses have fallen prey to the temptation of profit maximization and The corporation is a legal form authorized by the government to became greedy for material possessions. Each student submits newspaper promote the common good. clippings or printed Internet pages to substantiate the story. It has tremendous powers to amass capital and to affect the employment and lives of people. Therefore, it is duty-bound to honor its social commitment as part of its license to exist. BUSINESS ETHICS IS NOT UTILITARIANISM 10  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) WEEK 3-52 Is it a cost-benefit analysis? The military checkpoints in October 2005 in Manila, one-hour no-fly zone, What is utilitarianism? security measures, sniffing dogs, traffic rerouting, not to mention the eviction of a hundred families in front of Batasan Complex--all in the name Utilitarianism focuses on the result is of an action rather than the motive of the age-old Filipino hospitality, a warm mabuhay to the visiting US behind the action. This principle requires that we consider not only the president (touted as the most powerful leader on earth) may be direct and immediate consequences of our actions but also all foreseeable considered as down-to-earth applications of the utilitarian principle. consequences (future costs and benefits) as well as any significant indirect effects. Since it entails a benefit-cost analysis, utilitarianism seeks to By its nature, utilitarianism demands a kind of cost-benefit analysis, which establish two things, namely. is a matter of determining who is benefited and who gets hurt. In many ways, the utilitarian principle is a very attractive theory, and its charm (1) the greatest good (or the relative level of benefits in the future); appeals to both business and government strategists. and When the government decided to evict the squatters for a facelift them (2) the greatest number to whom it will be distributed (or the during the George Bush visit it may be said that utilitarianism was in the scope of the population) agenda of a roundtable discussion the government planning. Those According to the utilitarian principle, an action is ethically right when the planners were thinking of the greatest benefits for the least cost. That is total of benefits (hence greatest good) produced by that act is greater than also how most businesses are managed. But the ethical question is this: ls the total of benefits produced by any other act the agent could have it always the correct principle to base our decision on? performed in its place. An action is right if it produces the greatest good or Of course, the utilitarian principle works in practice. However, like any the most usefulness for all persons affected by the (including the agent other types of principles in moral reasoning, utilitarianism seems, to some performing the act). Utilitarianism holds that in the final analysis only extent, not absolute and therefore restricted and limited. It appears that action is right, that one action whose net benefits are greatest by we cannot always invoke its theory and remain ethical. comparison to the benefits of all other possible options. 11  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) What about the long-term benefits? In the application of the utilitarian principle, therefore, itis p0ssible that those who have more in life would benefit more and those with less would The utilitarian principle tends to put more emphasis on short-term versus Iong- benefit less, a possible situation that defeats the purpose of utilitarianists. term benefits. Itis a kind of myopia or shortsightedness that occurs in decision making. Advocates of the utilitarian principle may, for instance, choose the benefit of employment opportunities (short-term) during the construction and eventual operations of a cement plant over the What about human rights? benefit of a good environment (long-term) brought about by the absence of health The utilitarian principle seems inadequate when it is applied to situations hazards during cement production. that involve the basic rights of others. Is the government ethically correct in demolishing some shanties to pave the way 1or the beautification project of the city in favor of the US president's visit? Similarly, is the government ethically correct to drive away some indigenous tribes to give Is it good for the disadvantaged members of society? way for the construction of a dam? In the distribution of benefits, we assume that the poor (the less privileged While some would see beautification, and cleaning of the city and the of our society in general) must receive preferential option. Business and construction of a dam as benefits, others however may see the same as an government ought to take measures to advance the cause of the neediest unjust and unfair pragmatic decision on the part of the government and members of our society such as the orphans, widows, sick, and disabled, hence as social costs. Inspired by the utilitarian principle, those projects to prevent the widening of the gap between the rich and the poor. may lead to a violation of the basic nights of others (poor living in shanties According to the utilitarian principle, the correct action, decision, or and indigenous tribes). judgment is the one that will produce the greatest net benefits at the A more ethically sound principle is that the greater benefits for some lowest net costs for the greatest number of people. Sad to say, this cannot justify any form of violation of others basic rights. What do we do principle has no eyes to see and no brains to know who those are who have when two principles (those of justice and utilitarianism) collide head-on? less in life, those who are disadvantaged and less gifted., Like a horse with Ethics holds that all principles to be applied must always and everywhere binders, utilitarianism is automatically focused on the majority regardless coincide with the respect for the basic human rights of all men, women, of socioeconomic status. and children. In other words, ethics must adhere to the higher principle of the respect for human rights which should be above any utilitarian 12  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) consideration (Brady, 1985). If no human right is disrespected, then go to BUSINESS ETHICS IS NOT RELATIVISM a utilitarian decision. Is it hard to differentiate the cultural values from the moral values? Is the utilitarian approach to a problem the most ethical? Guanxi, as a cultural value, is good. It is the abuse of guanxi that lead to If we follow the maxim "Do whatever produces the greatest good for the corruption and unethical practices. Therefore, firms doing business in greatest number,” then we must approve the death of a dozen babies in China should practice what the Chinese do (guanxi as a cultural value), but medical experimentation because the result might be a 'wonder drug' that not what is unethical (which is the abuse of guanxi). could save millions of other babies in the future. This case can manifest the weakness of the principle. A key factor is the distinction between cultural values and moral values. Hence, it is paramount to know that not all cultural values are moral values. If we maintain the theory of utilitarianism, we will then condone the killing Cultural values (like guanxi) are territorial and people-oriented, and of other innocent passengers in wiping out a few hijackers (comparable to businesses with operations across the globe is encouraged to respect those what is in the mind of the generals in the movie Air Force One). Similarly, cultural values. But cultural values are not always moral values. in strict logic, the utilitarian principle in endorse the absolute exclusion from the Philippines of all Libyans, Iraqis, Lebanese, Indonesians, and Moral values are those things everyone holds valuable like justice, honesty, Iranians because a few of them might be de facto international terrorists. truthfulness, equal opportunity, humane treatment, and responsible But is this way of reasoning moral? management (Maximiano, 2006). Moral values, unlike cultural values, are meritorious acts esteemed or recognized by all (not only by certain people It may happen that, when the utilitarian principle is applied, several basic or segment of society) and everywhere (that is, outside any territorial rights and freedom of others are restricted or disregarded. In those cases, boundaries). the utilitarian consideration cannot simply override the basic right to life, the right to be treated equally, right to privacy, to practice religion, and others. Business and the government are duty-bound to solemnly respect What are the four notions that comprise relativism? human dignity and basic human rights. Human dignity is the most central issue in ethical decision making. The broader philosophical concept of relativism includes four narrower notions, such as: (1) Ethical relativism-says that morality depends on a social construct 13  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) (2) Situation ethics-teaches that right or wrong is based on a United States alone there are some very divisive issues” (cited in situation Maximiano, 2007). (3) Cognitive relativism -says that truth itself has no objective Pitta, et al. (1999) observes that the potential for ethical conflict increases standard as more and more US companies enter China and transact business. Implied in the same observation is the existence of two standards: the US (4) Cultural relativism-explains that certain cultural practices are and the Chinese ethico-moral standards. It seems that from the studies of acceptable depending on cultural contexts. Pitta, et al., there exist not one but a plurality of ethico-moral standards. It appears that these four different notions of relativism pervade today's globalizing society. Because of the unsophisticated character and convenience of this doctrine, much like utilitarianism, ethical relativism has Is the theory of ethical relativism popular among practitioners today? become very popular among business practitioners and politicians. relativism professes that all beliefs are equally valid, and that the truth is In substance, the following propositions are embedded in the doctrine of relative depending on the situation, level of modernization, environment, ethical relativism and situation ethics, which make it popular among and individual preference (Kediern and Crawlord, 2004). practitioners, namely: (1) the pluralism of ethico-moral standards What is ethical relativism? (2) the application of democratic processes to ethics Ethical relativism advocates that an act, behavior, or decision is morally (3) the individual decision's dependence on varying historico- right for a group of people of a culture/situation if those people believe cultural situations that it is right, and wrong if they think it is wrong. The moral reasoning based on relativism presumes that absolute values do not exist. Because Ethical relativism today enjoys high publicity and extensive popularity by diverse groups of people have different ethical standards, relativism reason of its convenience. It is presented as a position positively defined suggests there is no such thing as objective truth, and that universal moral by tolerance, dialogue, and freedom of expression-a position that is standard is just a coincidence. suddenly limited if the existence of one valid moral truth for all were affirmed and upheld. William B. Lytton, former vice president of Lockheed Martin Corp, made this commentary: "There is no universal consensus on morality. In the 14  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) What happens when we accept relative significance of values? As we recognize that the cultural relativism, democratic processes, and the pluralism of opinions may be good in politics and international public If the moral standards or norms formulated by some respectable traditions relations, we cannot readily accept their applicability to ethics. Contrary to of ethics over the centuries -principally but not limited to the Judeao- what the proponents of situation ethics and ethical relativism hold, we Christian, Islamic, Hindu, Buddhist, and Confucian moral traditions-are maintain that our action and decision cannot be dependent on varying ignored, those who ignore them are more likely to tall prey into many historical and cultural situations. errors. History has proven this constantly and consistently. For example, no entrepreneur can do legitimate business if she/he ignores the Ten Commandments, particularly the laws that say “You shall not steal or Why is objectivity the first characteristic of global moral values? cheat," or "You shall not bear false witness against your neighbor or tell a We hold in principle that international moral values should have three lie." ln any case, no particular kind of cheating in business in a particular interrelated characteristics: objectivity, universality, and permanence. The situation can ever be excused All kinds of cheating and all business basis of the characteristics is the person or the human nature itself, a decisions and practices that justify the disregard of fairness, justice, and philosophical assertion will now explain. human dignity-are simply wrong and therefore unacceptable (Maximiano, 2007). First, a moral value is objective. The opposite of objective is subjective, and subjective in this paper means that the goodness or wrongness of the act As Marco Landi, president of Tl Asia, has put it: "The question of ethics depends on the perceiving subject or agent. cannot be separated from any other aspect of our business. This concept of ethical behavior remains constant regardless of the culture. Indeed, business ethics is global. Its fundamental concerns are applicable to all people who do business anywhere in the world regardless of the culture Why is universal validity the second characteristic? (cited in Maximiano, 2007). Secondly, a moral value is always universally valid. Jakubowski (2002) examines the extent to which similarities and differences exist in the codes of professional conduct of certified accountants across the United States, Are moral values global? Taiwan, South Korea, Malaysia, Canada, Australia, India, and Hong Kong. These eight countries exemplify some of the diversity in economic, political, Business ethics is born with global values, and when firms decide to do legal, and cultural environments in which public accountants do their international business it follows that they cannot do away with professional practice. international moral values. 15  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) The results of the study reveal that commonalities exist on some ethical What changes in each person is the individual behavior or cultural attitude, standards, an indication that some rules are indeed "culture free.” but not human nature itself? And if human nature itself is its basis, the Mohammed Ahmed, Chung, and Eichenseher confirm this indication in a ethico-moral standard to be followed should always be universally valid. similar study (2003). There is working assumption in lam s study of corporate governance in Why is permanence the third characteristic? China (2002) that 'corruption, stock market manipulation, tax cheating, fraudulent dealing, and all manners of plundering of stale assets are Thirdly, a moral value is permanent. I would assume that the subjective generally considered morally wrong. It means the ethical standard used to perceptions among Taiwanese, Australian, Israeli, and American university measure those practices is applicable to all people and in all places hence students about moral standards in Lin's study (1999) will not remain for universally valid. long. Is respect for the environment and human rights a "globally recognized ethical Because they are subjective, they are temporary. These individual principle"? perceptions will change, depending on other sociocultural factors (Redfern and Crawford, 2004). On the contrary, a moral value is always valid Wu (2001), in a randomly sampled study of 1,496 Taiwanese enterprises in because the ultimate basis is the same human nature, radically unaffected mainland China, Vietnam, and Indonesia, discovers that business with the passing at time. Again, invoking the philosophico-normative practitioners in these countries are inclined to respect the environment approach, what changes as tempus fugit (time flies) is the individual and human rights, which he calls globally recognized ethical principle. This behavior and cultural attitude but not human nature itself. he confirms in his 2002 study. Even when there are people who refuse to accept its objectivity, For this reason, amoral value is cross-cultural, global, international, beyond universality, and permanency, it does not mean that amoral value is not boundaries, and beyond history. Again, the groundwork is the human objective, universal, and permanent nature, which is identical to all men, women and children and does not change with place or personal circumstances. No matter how different people of different cultures behave, the humanness in them is essentially the same. This is the philosophico-normative approach to the issue. Why should business accept a universal standard? 16  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) International business ethics holds that there is a universal standard for all would also be the normal and acceptable way of doing things. But all the explanation is unambiguous and straightforward. If we, as members of bribery and under-the-table arrangements are conducted in secret, as a global and globalizing community, are to survive and maintain much as possible with all external evidence out of sight. Then bribery is not interpersonal, inter-communitarian and cross-cultural relationships, we culture but bad practice. As itis crucial that a bad practice is not confused should accept a universal ethico-moral standard (Georges, 1999). with culture, that corruption is not confused with guanxi, it is equally crucial to respect culture and appreciate local traditions without sacrificing If global corporations, formerly known as TNCs want to interact, values. communicate, and coexist in peace in any given market, then individual and corporate entities must accept that false advertising, child labor, job discrimination, sexual harassment, issuance of bounce cheques, BUSINESS ETHICS I SBEYOND LEGAL COMPLIANCE misrepresentation, rice cartel, and technology piracy-and "corruption, stock market manipulation, tax cheating, fraudulent dealing, and all What is law? manners of plundering of state assets (lam, 2002)-are immoral and Philosophers and lawyers have traditionally defined law as the ordinance unacceptable. of reason promulgated by someone in authority for the common good (Aquinas, 194/). More than a counsel, a recommendation or a suggestion, Are bad practices the same as cultural values? a law is an ordinance, a rule, a command. Because of these intrinsic features, the law is obligatory. As part of the larger guanxi network, gift-giving is an expected behavior, a behavior that shows respect to another person and therefore strengthens Since it is an ordinance of reason imposed by a competent authority, say interpersonal relationships. While guanxi is a cultural value acceptable in an executive order of the president of the Philippines, a court order, or a the Chinese market, its abuse can lead to unethical practices such as mandate of the Labor Code, it must be both reasonable and binding. dishonesty, bribery, and big-time corruption. Everyone must agree that it The law by nature is both persuasive and coercive. Because it is reason able, is bad practice to bribe or corrupt public officials, as it is equally a bad it is persuasive. Thus, the ignorance of the law is not an excuse. And practice for giant firms to organize a cartel, and "squeeze small-time because itis imposed, it is coercive. One can get arrested, be fined, or players out and bar their entry into fair competition. perhaps imprisoned in violation of an ordinance. For the law to be effective Corollary to this, bad practices should not be confused with culture. If and compelling, it must be promulgated, broadcasted, disseminated, or bribery, for example and for the sake of argument, were really an published for everyone to know. accepted-and lawful part old national culture, openness and transparency 17  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) And finally, the law is for the common good and not for the good of any Civil disobedience is a rare exception to the rule. The rule is that individual or of a few. For our purpose, when I talk about the law, I mean we are morally obligated to obey all laws (when these laws are just the civil-criminal law of a particular state and not the natural law in general and fair). or the ecclesiastical law of any sectarian religion or the Ten Commandments. 3) The precepts of a law must be physically and morally possible. Obviously, the congress or the city council cannot impose something that is What are the important features of a law? impossible to do or accomplish like the suspension of the law of gravity or the stoppage of the economic law of supply and demand. In the State of An ordinance must have certain features or characteristics to qualify as a California, smoking was completely banned in all restaurants, bars, and law: clubs effective January 1, 1998. But after a while, the lawmakers (1). lt must be morally acceptable. A law cannot impose a crime or what is themselves admitted that the law seemed impossible to physically enforce. criminal in nature. It cannot urge you to do anything illegal or immoral. 4) It must be ordained for the common good. Always for the sake of public Common sense says that an ordinance which encourages you to order and common interest, the state has the juridical right to impose cheat on clients, evade correct taxes, discriminate on women, specific laws. But a law cunningly crafted for the welfare of a chosen few practice child labor or unfair competition are morally unacceptable or the privileged is not binding that kind of law loses its moral authority and therefore could not and should not become a law. What is the difference between ethics and law? What the law should impose are universal values that are morally Both ethics and law pertain to rules of actions (human behavior and acceptable to all. This is, in fact another, indirect argument in favor conduct), but they are not the same. While civil law is limited only to the of the universal character of human values, and therefore of the ordinance of reason, which have promulgated by someone in authority, existence of a global business ethics. ethics is broader in scope since it relates aspects of human behavior, 2) lt must be just. Unjust law does not oblige. For this reason, one may including our external actions and internal dispositions. disobey a law that encourages apartheid, sexual or religious discrimination, While the law must always be supported by external evidence, the business dictatorship or monopoly, priority given to foreign investment evidence of ethics is the internal conscience. The law is concerned with over human rights or any other forms of injustice. hard evidence, sworn affidavits and testimonies, or with someone who The justified act of directly disobeying an unjust law, according to may have witnessed the act. Ethics goes beyond what is observed by the some authors is civil disobedience. 18  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) senses. It penetrates the conscience, it probes the inner recesses of one's (2) The legal is the minimum requirement of ethics. Another possibility is soul (Rothman and Scot, 2004; Seglin, 2003). when what is demanded by ethics goes over and beyond what is legal, that is, when the legal is the minimum requirement of ethics. In Congress, the Civil law is always imposed by those in authority, while ethics is self- chairman of the House of the Representative (HOR) committee on ethics imposed and therefore voluntary. While civil laws are almost always found once said that the decision of the ethics body is based not purely on legal in written form and published for everyone's knowledge, ethics per se is grounds. Ethics is beyond the law he insisted. written in our conscience and it speaks to the heart. Although it is good to know that most business organizations today have their respective code of (3) The legal is not acceptable to ethics. The third possibility occurs when ethics in written form. the ethical may resist what is asked by the law. In extreme cases, the law (any kind of presidential decree, statutory law, court order, or regulation When we get into cases, it is my intention to scrutinize in detail the of the local government) may be wrong and, for this reason we can apply difference between the law and ethics. I hope to demonstrate in several the principle, which says that an unjust law does not oblige. This possibility concrete cases where the law ends, and ethics begin. It has happened in can happen, though very seldom, because we are in a democracy, which several instances where terrible conflicts have risen between ethics and means here are many possible solutions to a problem and the solution law, particularly when the law allows the practice of something immoral, proposed by the state/government may not always be the most adequate as in the legalization of abortion, euthanasia, prostitution, or divorce. and just. For the time being, nevertheless, it is enough to stress that all citizens and If this possibility occurs, the ethical can resist what is required by law. The people of goodwill do follow the general ethical obligation to obey the law practice is otherwise known as civil disobedience. As author Rushworth if it does not clearly require unjust action, practice, and behavior. Kidder puts it in a historical perspective: Obeying the law, then, is not What are the three points of convergence between ethics and law? enough to earn the 'ethical label (cited in Maximiano,2003). Ethics and law can converge on three possible points. Administrative decisions and practices may somehow involve one of the following possibilities: (1) Coincidence. What is ethical coincides with what is legal. Proceeding further, we shall see this is generally the most frequent possibility which does not yield so many problems in business ethics. 19  ASIAN INSTITUTE OF COMPUTER STUDIES (AICS) Discuss the following. 1. It seems that the utilitarian theory is still relevant today provide incidents and experiences that you heard or read in the newspaper to prove this. 2. Explain why utilitarianism is problematic in terms of the measurement results. 3. Justify why the theory of ethical relativism is popular among academics and business practitioners. Students will be asked to interview professionals regarding how they notice that 4. Differentiate international business ethics from ethical relativism. noncompliance with law and regulation is increasingly rampant in the profession. Students write an evaluation report regarding their findings and conclusions. 5. In your own words, substantiate what you understand by “objectivity as the first characteristic of global moral values.” 6. Explain what you mean by universal validity and permanence of values. 7. How do you distinguish between bad practices and cultural values. Give your own examples. 8. Rationalize why it is not enough to comply with or follow the law 9. What is the difference between ethics and law? 20