Notes on Business Ethics

Prepared by Mr. R. Vijayagopal MCom, LL.B, MBA

Member of faculty of Management Studies
For first year MBA students

Chapter 1

Ethics
Introduction
Ethics is the science of morals. It is analysis and investigation of the moral standards
prevailing in any society, what is impact and implications, how far is it worthy of
holding. It involves judging behaviours, actions and decisions from the point of view
of morality, whether some thing is right or wrong, good or bad. It’s concern is not just
the investigation but refining and modifying the standards based on the results of the
analysis.
The word ‘Ethics’ originated from the Greek word ‘ethos’ which refers to character.

Moral standards
They are the standards that a society or group cherishes or holds regarding right and
wrong and good and evil.
The words ‘right’, ‘proper’ and ‘just’ express the societies and individual’s beliefs
about behaviour towards others that is felt to be fair and equitable. We believe that
there are right and wrong ways to behave towards others, proper and improper
actions, just and unjust decisions.
Such notions become absorbed by individuals during the childhoods become
internalised as one grows and becomes subject critical thinking and evaluation during
adulthood as one learns and experiences varied situations in life.
Such convictions regarding right and wrong differ from individual to individual, from
organisation to organisation and from groups to groups, but there is something shared
in common by every one belonging to a society or culture. They are known as the
moral standards prevailing in the society.
Every society tends to evolve its moral standards as it originates. The moral standards
held by a society become refined and modified with the passage of time as it advances
in educational, technological, economic, political, social and cultural spheres and of
late, due to international influences.

Ethics and other behavioural sciences

Ethics is a normative science. It differs from other social sciences dealing with moral
standards as a part of their analysis of human behaviour, such as Anthropology,
Psychology and Sociology. They only describe the behaviour patterns and formulate
theories regarding human origins, structures and cultures, on the basis of that. They do
not analyse how far such behaviours or standards are right or wrong. An
Anthropologist may, for example, analyse the behaviour patterns and standards of
people living in a society with the object of developing theories regarding their origin,
social structure and culture.
An Ethical analyst on the other hand analyses behaviour to analyse whether it is right
or wrong and to evolve which are right and good for the society.
An Anthropologists concern may be, ‘Do Americans believe bribery is wrong?’

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Ethicist’s concern is, ‘Is bribery wrong?’

Norms, Beliefs and values

Every individual, group and society cherishes certain norms, beliefs and values. They
constitute the moral standards held by the person, group or society.

Norms
Norms are the criteria of behaviour. That is, the ways in which an individual expects
all people to act when faced with a given situation.
Asiatic students use to bow slightly when addressing their professors. The bow is their
norm of behaviour. The European professor gets annoyed by such act as it is outside
the scope of his norm of behaviour in such situation. The extent of both the bow and
the annoyance gets reduced with the passage of time.

Beliefs
The ways in which individuals expect others to think. I believe in participative
democracy. I expect others to recognise its worth and expect others to recognise it
worth ad accept it as a form of government.
Example:- I believe, one should not involve in any undesirable action or overt
behaviour towards others. Asiatic students believe in hierarchical society with definite
gradations between older faculty and younger students.
Those who are holding norms against assault and robbery, believe in the worth of
human beings and preservation of human liberty.
Norms against burying toxic wastes in leaking drums is associated with the belief
about the benefits of clean environment and the adverse effects of chemical pollution
on individual health.

Values
Rankings or priorities a person establishes for his norms and beliefs. What one
considers as important, he holds in high esteem. What one holds in high esteem,
another person may give least importance. Generally, there will not be even little
accommodation or compromise in this matter. Each person attributes much
importance to his own rankings of norms and beliefs regarding how people should act
or think.

Necessity to compromise
We are living in a pluralistic society with numerous cultures and traditions- in a
secular culture.
We have to live and accommodate with the fact that norm, beliefs and values differ
from individual to individual. Every one has to have readiness to put up with the
standards and practices of others so long as it does not interfere with the environments
of peaceful social living and order.

Subjective and Objective Ethical Standards

Norms, beliefs and values of one, are his means of judging whether an act of his
which affect others is right or wrong. They are based on the personal valuation or
rankings of norms and beliefs.

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Example:- One attributes more value to the norm of non-aggressive behaviour
towards others and less value to the belief regarding keeping the environment clean. If
the one finds somebody hitting at the head of another and snatching away his valet, he
will feel very bad about it.
If he finds some one, draining motor oil down the street he will not take it as some
thing so serious.
Judgements based on moral standards are subjective. They vary from individual to
individual, depending on the emotional preferences of each, among a range of
possible norms and beliefs.
Normative philosophy considers the possibility of developing objective moral
standards, rationally derived a single fundamental norm or absolute belief.
Example: Greatest good for the greatest number of persons.
Ethics is the study of moral standards – the process of examining the moral standards
of a person or society to determine whether these standards are reasonable or
unreasonable to apply to concrete situations or issues.
The ultimate aim is to develop a body of moral standards that everyone feels
reasonable to hold and justifiable to apply to specific situations and issues – objective
moral standards acceptable to every one in the society.

Moral Development and Moral Reasoning

A person starts doing ethics when he or she turns to look at the moral standards
absorbed in the course of his life and begins to ask whether these standards are
reasonable or unreasonable and what these standards imply for the situations and
issues. He starts asking questions to himself like, do they make sense and should I
continue to believe them. This involves two aspects.
1. The person has developed ability to critically evaluate the moral standards absorbed
in the course of his life. The process through which one develops such ability is called
as Moral Development.
2. The reasoning process through which the standards are evaluated is known as
Moral Reasoning.

Moral Development
It is generally believed that values are formed during childhood and they do not
change after that. But researches have shown that as an individual matures, his values
change in deep and profound ways.
Like identifiable stages of physical growth, ability to deal with moral issues also
develop in identifiable stages.
1. Children:- are told what is right and what ,wrong. Childs adherence to moral
standards is based upon self absorbed avoidance of pain.
2. As one matures into adolescence, these conventional moral standards are
gradually internalised.
Adherence to moral standards now is based on living up to the expectations of
family, friends and surrounding society.
We do what is right because it is what the group to which we belong expects.
3. As a rational and experienced adult we begin to evaluate the standards and
their consequences – to critically reflect on the conventional standards
bequeathed to us by family, peers, culture or religion – and revise them
wherever we feel they are inadequate, inconsistent or unreasonable. We begin
in short to do ethics.

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 Lawrence Kolberg, Psychologist has pioneered research for 20 years and
identified six stages in the development of man’s ability to deal with moral issues
which he grouped into three levels.

Level 1. Pre conventional stage

Child is able to respond to rules and social expectations and to apply the labels –
good, bad, right, wrong etc. It is all externally imposed.
It is interpreted in terms of pleasant and painful consequences of actions or in
terms of physical power of those who set the rules.
If asked, Is stealing wrong? Why? A five year old boy may answer, “ Because
mummy will punish me if I steel.” The primary motivation is self-centred. The
child has no ability to identify with others or with consequences on a larger
perspective.
Stage 1 Pre conventional :- Physical consequences of an act wholly determine its
goodness or badness.
Stage 2 Instrument and relative orientation:- Right actions become the instruments
for satisfying the child’s needs or the needs of those for whom the child cares.
Child now becomes aware that others have needs and desires similar to his or her
own and begins to defer them to get them do what he or she wants.

Level 2. Conventional stages

Maintaining expectations of ones own family, peer group, immediate social group
like religion or community or the nation. Instead of merely confirming to the
expectations of one’s own the individual at this stage exhibits loyalty to the group
and its norms. He starts looking upon right and wrong from the point of view of
others, but one can take up only familiar views- points of view of people who
belong to his own social groups- family, peers, organisational or social class. If an
adolescent is asked why something is wrong, he will answer, because my family/
peers/ cultural or religious group or organisation members believe so.
Stage 3. Interpersonal concordance orientation:- Good behaviour at this stage is
living up to the expectations of those for whom one feels loyalty, affection and
trust, like family and friends – to maintain one’s own role as a god
son/daughter/friend etc.
Stage 4:- Law and order orientation:- Right and wrong at this stage is determined
by the loyalty to one’s own larger social group, community or nation. One at this
stage identifies himself with larger social system that defines individual’s roles
and obligations. Laws are upheld.

Level 4. Post conventional/ Autonomous or Principles stage.

The individual no longer simply accepts the norms and values of the group. The
person questions the laws and values that society has adopted and redefines them
in terms of self chosen moral principles that can be justified in rational terms
If asked why something is right or wrong, the person will respond, ’fair to every
one’, ‘in terms of justice or human rights or societies overall welfare’.
Stage 5:- Social contact orientation.
One becomes aware that people hold a variety of conflicting personal views and
opinions and emphasises fair ways of reaching consensus by agreement, contract
and due process. One believes that all norms and values are relative and apart
from this democratic consensus, all should be tolerated.
Stage 6:- Universal ethical principles orientation

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 Right action comes to be defined in terms of moral principles chosen because of
their logical comprehensiveness, universality and consistency.
These ethical principles are not concrete like ‘ten Commandments’ but abstract
general principles dealing with justice. Society’s welfare, equality of human rights
respect for dignity of individuals and idea that persons are not ends in themselves
and must be treated as such.
Kolberg’s theory is useful to understand how our moral capacities develop and
reveals how one can become sophisticated and critical in use and understanding of
moral standards the one holds.
Although people generally progress through the stages in the same sequence, not
every one progresses through all the stages. Many people remain stuck at one of
the early stages throughout their life.
For those who remain struck at pre conventional level, right or wrong continues to
be defined in terms of avoiding punishment and doing what powerful authority
figures say.
For those who are struck at conventional level right or wrong continues to be
defined in terms of conventional norms of their social groups or the laws of the
society or philosophy to which he belongs.
Those who reach post conventional stage takes critical look at the standards they
have been raised to hold and right or wrong is defined in terms of moral principles
they have chosen for themselves as more reasonable and adequate.
Those who are at the post conventional levels are the transformers and those who
lead the change for good.
They have ability to look upon things from a wider and better perspective.
They have better ways of justifying their decisions. They can appeal to the human
rationality.
Criticisms:-
1. Kolberg claims; higher stages are more preferable than lower stages. Kolberg
does not prove that standards at higher levels are better. That needs further
analysis.
2. Carol Gilligan argues: Kolberg failed to take into account the pattern of moral
thinking of women. He correctly defines the stages through which men assess
moral standards as they grow up. According to him the female approach is
different. For women, morality is not a matter of adhering to impartial and
impersonal rules, but it is a matter of caring and being ‘responsible’ for others
with whom one is involved in personal relationships.

Moral reasoning
It is the process through which the moral standards are critically evaluated. The
reasoning process through one judges whether some behaviour is right or wrong,
whether some action is proper or improper and whether some decision is just or
unjust.
There are various criteria that ethicians use to evaluate the adequacy of moral
reasoning.
1. Moral reasoning must be logical.
2. The factual evidence cited in support of person’s judgement must be accurate,
relevant and complete.
3. The moral standards involved in a person’s moral reasoning must be
consistent. They must be consistent with each other and with the other
standards and beliefs the person holds. There is another kind of consistency

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 that is more important in ethical reasoning. I t refers to the requirement that
one must be willing to accept the consequences of applying one’s moral
standards consistently to all persons in similar circumstances.

Ethical Leadership
According to Lawrence Kolberg those who have reached the post conventional level
stage 2 that is, those who have universal ethical orientation are the transformers of the
society. They lead the changes for good. They are the ethical leaders.
A leader is one who can influence the behaviour of others through his acts and deeds,
through the models set by him. He shows readiness to sacrifice his interests for the
benefit others and to take up their problems as his own, thereby, winning their
confidence and worship. He shows readiness to shoulder the responsibilities for
whatever happens. They give ears to his views and show readiness to modify their
behaviour through the lines propagated by him.
A good manager is a good leader. Managing without leadership qualities is just the
exercise of legitimate power - the power derived through position. The legitimate
power supplemented by the leadership quality of the holders, makes managing very
effective and successful.
The ethical qualities of a leader in influencing the people are manifested through
character, power and teaching.
Character
It means the enduring masks and etched-in factors in one’s personality, which
includes the inborn talents as well as the acquired traits.
Power
Derived from the Latin word ‘posse’, power means the capacity to control or direct
change. ‘Leader mobilises’, says Burns. Leader must engage followers not simply
engage them.
Power without morality is no longer power. Leaders serve as models and mentors, not
martinets strict disciplinarian).
Teaching
A moral leader is someone who teaches the followers the difference between right and
wrong.
Leadership is hard to define, ethical leadership is even harder. We can only recognise
as we experience it. If the organisation is to function ethically at all levels, it is
essential there should be ethical leadership at the top.

Moral Responsibility and Blame

Moral Reasoning is directed at determining whether a person is morally responsible or
culpable, for having done something wrong causing injury to someone. Moral
responsibility refers to the extent to which the wrong-doe r deserves blame or
punishment or should pay restitution for the injury. Moral responsibility is sometimes
used to express that a person is to blame for an action.
There are two conditions that totally eliminate a person’s moral responsibility for a
wrongful act – ignorance and inability. But they do not always excuse.

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One exception is where a person deliberately keeps ignorant of a certain matter to
escape responsibility.
A second exception is when a person negligently fails to take adequate steps to
become informed about a matter that is of known importance.
A person may be ignorant of either the relevant facts or the relevant moral standards.
Inability can be the result of either internal or external circumstances. Inability
eliminates moral responsibility completely because the person cannot have moral
responsibility to do or to forbear from doing something over which he has no control.
In addition to the excusing conditions, there are also several mitigating factors that
can lessen the persons moral responsibility. They are:
 When a person is uncertain but not unsure about what he or she is doing.
 Circumstances that make it difficult but not impossible to avoid. And
 Circumstances that minimise, but not completely remove a person’s
involvement in the act.

Ethical Theories
In ethical theory, the first and most profound division is between the claim hat it is
possible to differentiate between right and wrong and the denial of that claim. The
former approach is called as cognitivism and the later, as non-cognitivism.
Cognitivism holds that there are objective moral truths which can be known, as we
know other truths about the world. Non-cognitivism is the belief that objective
assessment of moral standards is not possible. They are only subjective.

Classification of ethical theories

Ethical theories can be broadly classified into categories:
Teleological theories ( example: Utilitarianism )
Deontological theories ( example: Kantianism )
Teleology means the doctrine of final consequences of things. Tele means distant or
final. Teleologists decide the right and wrong of an action or decision by looking at
the final consequences ( the end). Action is considered ethical if the outcome or
consequence is good.
Deontology is the science of duty. Deontological theorists determine the ethics of an
act by looking at the process of decision-making ( the means). They do not consider
the consequences of the action for how far it is right or wrong.
The further developments in ethical thought can be classified as:
 Hybrid theories which is a hybrid of teleological and deontological approaches
( example: Egoism)
 Enlightened Egoism and
 Virtues theory

Utilitarianism: Weighing social costs and benefits

Utilitarianism is a major theory of Ethics belonging to the group of teleological
theories. According to the theory action or decision is considered right or wrong
through a matching of the benefits and costs it brings to the society. In any situation,
the right action or policy is the one that will produce the greatest net benefits or
lowest net costs to the society (where all the alternatives produce only costs).

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In early 1960s Ford’s position in automobile market was eroded by competition from
Japanese compact cars and fuel efficient cars. Ford decided to overcome the situation
through introducing Pinto, low-cost, sub compact car for less than $2000. Designing
time reduced to 2 years instead of normal 4. Pinto’s style required gas tank placed
behind rear axle, making it vulnerable to rear end collision, exposing passengers to
trapped burning.
A cost-benefit study of any design change proved a cost of $ 137 million, whereas the
benefit of preventing losses by of insurance costs was only$ 79.15 million. Ford went
ahead with production of unmodified Pinto. In the decade that followed at least 60
persons died in fiery accidents involving Pintos. Subsequently Ford has phased out
the model.
Here Ford has relied on a cost-benefit approach for judging the morality involved in
their decision but they considered only economic costs and benefits such as medical
costs and loss of income. But that is not the true spirit of Utilitarian approach.
Benefits of an action includes everything that is desirable and good from social point
of view (pleasures, health, lives, satisfactions, knowledge and happiness). Costs
include everything that is undesirable for the society( pain, sickness, death,
dissatisfaction, ignorance and unhappiness). The inclusive term used to refer to the net
benefits of any sort produced by an action is utility. Hence, the name utilitarianism.
A serious limitation of the utilitarian approach is the difficulty to quantify and
measure social costs and benefits.

Consequentialism
Utilitarianism is a broader theory and consequentialism is a particular form of
utilitarianism. The approach holds the view that every one ought to act so as to bring
about the greatest amount of happiness for the greatest number of people.
Consequentialists look at the result of actions to determine the truth or falsity of moral
judgements about them.

Deontology
Deontology is the science of duty. It defines an action as right if it respect the moral
principles cherished by the society and as wrong if it violates them. Deon is the Greek
word for duty.
Deontologists hold the view that an action is right not because of some benefit it
brings to oneself or even others but because of its nature or the principle which they
follow. Example, bribery is wrong by its very nature regardless of its consequences.

Moral Right
Right is an individual’s entitlement to something. A person has a right when that
person is entitled to act in a certain way or is entitled to have others act in a certain
way towards him. Entitlements arising due to provisions of any law are legal rights.
Entitlements can also derive from a system of moral standards, though not backed by
any law. Right to travel through the public roads may not be stated in any statute. But
every one has right to do the same. ‘Right not to be tortured’ is another example.
Unlike legal rights, moral rights or human rights have the following characteristics.
They are universal. People of all countries all over the world enjoy such rights.
They are not limited to any particular jurisdiction.
The moral rights have the following features.

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 1. They are correlated with duties. One has some right, necessarily implies that
others have corresponding obligations. My moral right to worship as I choose
necessarily implies moral obligation on others not to interfere in my chosen
form of worship.
2. Moral rights provide individuals with autonomy and equality in the free
pursuit of their interests. My freedom to worship as I choose is not dependant
on anyone’s permission.
3. Moral rights provide a basis for justifying one’s actions and for invoking the
protection or aid of others. If I have moral right to do something then I have a
moral justification for doing it and others have no justification for interfering
with me rather they have justification in restraining any person who try to
prevent me.
Rights may be negative or positive. Negative rights impose duty on the part of others
not to interfere in the exercise or enjoyment of fruits of the right by the right –holder.
If I have right to privacy that means every other person including my employer has
the duty not to intervene in my private affairs. On the other hand positive rights
impose a positive duty on others. For example if I have the right to work and to get
adequate income it imposes an obligation on the society and government to provide
me with employment and fair remuneration.
Moral rights provide the bases for making moral standards that differ substantially
from utilitarian standards. They form the basis of deontological theories.

Kantianism
Categorical imperatives given by Immanuel Kant (1723-1804) are considered as the
most important theory of deontology. A goodwill according to Immanuel Kant means
actions done for reasons of principle from a sense of duty. Self interest is certainly not
a motive but neither kindness, loyalty, sympathy or any other laudable sentiment.
How can we know whether an act is done from a sense of duty. Kant says it is done in
accordance with what he calls the categorical imperatives, which are stated below.
1. An action is morally right for a person in a certain situation if, and only if, the
person’s reason for carrying out the action is a reason that he or she should be
willing to have every person act on in any similar situation.
2. An action is morally right for a person if and only if, in performing that action,
the person does not use others merely as a means for advancing his or her own
interests, but also both respects and develops their capacity to choose freely
for themselves.
Kant advocates three rights for human beings through his theories.
1. Human beings have clear interest in being helped by being provided with
work, food, clothing, housing and medical care and they need to live on when
they cannot provide these for themselves.
2. Human beings have clear interest in being from injury or fraud and in being
free to think, associate, speak and live privately as they choose.
3. Human beings have clear interest in preserving the institution of contracts.
Kant’s theory is also not without limitations.
1.It is criticised as not being precise enough to be useful
2.There is disagreement concerning the limits of each of these rights and how they
should be balanced against other conflicting rights

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 Chapter 2

Business Ethics
Introduction
Business Ethics is moral standards as they apply to business policies and institutions
and behaviour.

A society consists of people who have common ends and whose activities are
organised by a system of institutions designed to achieve these common ends.
We have institutions rendering different patterns of activity- familial, economic, legal,
educational etc. Most influential of all these is economic institutions. They serve two
ends: production and distribution.

Business concerns are the primary economic institutions producing and distributing
goods and services. They combine the scarce resources- land, labour, capital &
technology and distributed in the form of salaries, interest to investors and taxes etc.

Most significant kinds of modern business organisations are corporations. Law

endows special legal rights and powers to them. Law treats them as immortal
fictitious persons who have right to sue and be sued, own and sell property and enter
into contracts, all on their own name. As an organisation Stock holders, Directors and
employees are linked together by formal bureaucratic system of rules. When the
members obey these rules the outcomes are achieved.

How big are the big corporations?

The large corporations dominate the economies today.
At the beginning of 21st century, General Motors, the worlds largest automobile
company, had revenues of $189 billion and employed more than 3,88,000 workers;
Wal Mart the world’s largest retailer; had sales of 4165 million and 1,14,000
employees; General Electric, the world’s largest maker of electrical equipments, had
sales of $ 111 billion and 3,40,000 employees and IBM, the worlds largest computer
company, had revenues of $87.5 million and 3,07,000 employees. Of the world’s 190
nations, only a handful, ( Canada, France, Germany, Italy, Japan, United states,
Russia and U.K.) had government budgets larger than any one of these companies’
sales revenues and most of the world’s nations had a fewer number of workers
engaged in their auto, retailing, electrical or computer industries About half of
Americas combined industrial profits and earnings are in the hands of about 100 such
large corporations. The 1,95,000 smaller firms each with assets of not less than $10
million, control only about 10% of nation’s assets and profits. Those 500 corporations
account for about 65% of all industrial sales,80% of all industrial profits, 80 % of all
industrial assets, and about 75% of all industrial employees. Yet they comprise only
0.2% of the total number of industrial firms operating in the United States.

Need for Business Ethics

Having come to realise:-
The extent of influence of business institutions on individual and social life of man;
How gigantic the institutions of corporations are;
The special status they enjoy in law with a lot of privileges and limited liability to the
owners and

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The fact that is not in the hands of owners who bear the risk, it needs no further
explanation to emphasis the importance of keeping up ethical values in the day to day
functioning as well as policy decisions of business undertakings.

Definition
Business Ethics is the study of moral standards and how these apply to the systems
and organisations through which modern societies produce goods and services, and to
the people who work within these organisations. Business ethics, in other words, is
a form of applied ethics. It includes not only the analysis of moral norms and
values, but also attempts to apply the conclusions of this analysis to that sort of
institutions, technologies, transactions, activities and pursuits that we call
business.

Two cases of ethical or unethical corporate conduct

The study of the following cases will be helpful in our further inquiry regarding
application of ethical values in business.

River Blindness Case

To begin our investigation into relationship between ethics and business let us see
how Merck and Company dealt with the issue of “river blindness”. The US company
in the field of Drugs manufacturing has come to understand its own best selling
animal drug, Ivermectin might provide low cost simple cure for river blindness, an
agonizing disease very common over beds of Africa and Latin America causing
impoverished agriculturists of those places to flee away, abandoning large tracts of
fertile land or ‘to adjust with the nodules all over body, torturous itching and even
blindness’ as inescapable part of life.
But developing a human version of the drug needed over $ 100 million. Even if
developed, marketing it in the places were the victims inhabited, needed another $300
million. If not administered properly, the effects and the consequent ill will that it may
create may endanger its present market for Ivermectin also. Congress was getting
ready to pass the new Drugs Bill which will intensify competition in the drug industry
by allowing competitors to more quickly copy and market drugs originally developed
by other companies. After expensive research for seven years and several clinical
trials, company developed the human version of the medicine and approached W.H.O,
US Government and the governments of affected countries to buy the drug to protect
80 million people who are at risk. It was all in vain and finally Merck decided to give
away the drug free to potential victims. The Chairman Dr. Roy Vagelos and
management of the company spent tens of millions of dollars developing a product
that they knew had little chance of ever being profitable because they felt that they
had an ethical obligation to make its potential benefits available to the people. This is
a case of a very large and successful business firm choosing ethics for profit.
The comments of Vagelos on the issue suggests, in the long run, there may be no
inherent conflict between ethical behaviour and the pursuit of profit. Ethical
behaviour creates the kind of goodwill and reputation that expand opportunities for
profit.
Ethical behaviour is nowadays accepted by big corporations as the best long term
business strategy for a company – a view that is gaining ground in the current
corporate scenario.

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This does not mean that occasions never arise when doing what is ethical will prove
costly to the company as has happened in the case of Mercks. But Mr. Vagelos says,
“ Over the years, the company has learned, such actions have strategically important
long term advantages.” He continues, “ When I first went to Japan 15 years ago, I was
told by Japanese people that it was Merck that brought Streptomycin to Japan after
World War II to eliminate tuberculosis which was eating up their society. We did
that. We didn’t make money. But it is no accident that Merck is the largest American
pharmaceutical company in Japan today.”

B.F.Goodrich case
Years ago, B.F.Good rich , manufacturer of vehicle parts won a military contract to
design, test and manufacture air brakes for A7D, a new aircraft the Air Force was
designing. The contract was potentially lucrative, and the managers were anxious to
deliver a brake that “qualified” by successfully passing the brake tests. Vlandivier, a
manager was given the task of working with the engineers and preparing the report.
Vlandivier has found that the brake linings on the rotors repeatedly “disintegrated”
because there simply was not enough surface area on the disks to stop the aircraft
without generating the excessive heat that caused the linings to fail”. His superiors
told him, “Regardless of what the brake does on tests we are going to qualify it.”
Vlandivier explained to his superiors, “The only way such a report could be written
was to falsify the test data”. But the superiors forced him to give qualified report.
Vlandivier was put in an ethical dilemma were his personal standards of morality has
come in conflict with obligation to obey the orders of superiors.
He decided to give qualified report. He commented later, “ My job paid well, it was
pleasant and challenging, and the future looked reasonably bright. My wife and I had
bought a home….. If I refused to take part in the fraud, I would have to either resign
or be fired. The report would be written by any one some way, but I would have the
satisfaction of knowing I had had no part in the matter.”

Three kinds of Issues

There are three kinds of issues that business ethics investigates.
Systematic,
Corporate and
Individual.
Systematic issues are questions raised about economic, political, legal and other social
systems within which business operates.
This includes questions about the morality of socialism or the shift towards
capitalism, the laws ,regulations, industrial structures and social practices within
which the Indian business operates etc.

Corporate issues are questions particular to the company; the morality of the
activities, policies and practices or the organisational structure which it follows.

Individual issues are questions raised about particular individual or individuals within
the company.

In B.F.GoodRich’s case the morality of the government’s contracting system through

which BFG was allowed to test the quality of its own break design for A7D and the

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morality of the international economic system with which Merck & Co. was forced to
deal – are systematic issues.

Morality of BFGs culture or questions about the company’s decision to qualify A7D
brake; and the morality of Merck & Company’s decision to invest so many millions of
dollars on a project that the company knew would not generate profit are corporate
issues.

Whether Vlandivier’s decision to participate in writing a report on the A7D brake

which he believed to be false was morally justified and whether it was moral for
Mercks’ Chairman Dr. P. Roy Vagelos to allow his researchers to develop a drug that
would not probably generate profit; are individual issues.

Do moral standards apply to corporations or only to individuals?

Two extremes
1. Rules that tie organisations together allow us to say corporations are acting
like individuals in all respects and have intended objectives for what they do.
So we can say they are morally responsible for their actions and that their
actions are ‘moral’ or ‘immoral’ in exactly the same sense, the human beings
are.
2. No sense in holding a corporation morally responsible for its acts or to say that
they have moral duties than to criticise a machine for failing to act morally.
A corporation is not a natural person. But law attributes it personality and is
entitled to carry out all the rights that an individual has. It exercises it’s powers
through human beings holding different positions in its organisation structure.
Applying the universally accepted principles of agency, the corporation becomes
responsible for the acts f its agents. Hence it morally responsible for the decisions
and actions of its human agents. The human agents holding different positions are
also responsible to the extent of authority delegated to them by the structure.
Hence it can be concluded, the corporation is responsible to keep up moral
standards equally with individuals. The individual executives of the corporation
also become responsible for their acts within the scope of authority given to them.
Neither the corporation nor the executive can seek shelter shouldering his part of
responsibility with each other. For the harm done by its agents acting within the
scope of his authority to the outside world the corporation itself will be held
accountable. The executive concerned will become accountable to the corporation,
his superiors in the structure.
When the organisation members collectively, but freely and knowingly pursue
immoral objectives, it makes perfectly good sense to say that their actions are
immoral and that the organisation is ,morally responsible’ for such immoral
action.

Corporate Responsibility
Corporate acts normally are brought about by several actions and omissions of
many different people all cooperating together so that their linked actions jointly
produce the corporate act. For example:- one team of managers design the car,
another team tests it, a third team builds it, still another team encourage people to

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 buy and gain orders. One group knowingly defrauds the customers, another group,
knowingly but silently enjoys the benefit, one group does the wrong thing and
another group conceals it.
Who is morally responsible for such for such jointly produced acts.
Traditional view
Who knowingly and freely did what is necessary to produce the corporate act are
each morally responsible.
Critics of this traditional view have claimed that hen an organised group acts
together, it should be taken as act of the group and consequently, the corporate
group and not the individuals who make up the group must be held responsible.
Traditionalists, however, reply that although we sometimes attribute acts to
corporate groups, the linguistic and legal facts do not change the moral reality.
Because individuals are morally responsible for the known and intended
consequences of their action, any individual who knowingly and freely joins
hands with others intending to bring about a certain corporate act will normally be
responsible for the act.
More often than not, employees of large corporations cannot be said to have
knowingly and freely joined their actions together to bring about a corporate act or
to pursue a corporate objective. It follows bureaucratic rules that link their
activities together to achieve corporate outcomes of which the employees may not
be aware. Every person working in a corporate structure is not responsible for
every act he /she helps to bring about. If I know nothing about the fraud and if I
am not able to prevent it by reporting it, then I am not responsible for the fraud.
The excusing factors of ignorance and inability completely eliminates a persons
moral responsibility.

Subordinates responsibility
How far is a subordinate’s responsibility for unethical actions forced to be
performed by him, under directions from the superior? How far is he responsible
for unethical actions going on in the undertaking which he comes to know because
of the position held in the organisation or even forced to become part of , though it
is conscience pricking?
BF. Goodrich case provides a good example for the first situation. Mr. Vlandivier
is forced to give a positive test report for the air brakes for A7D aircrafts, even
though he knew very well that the brakes some technical defect and is unsuitable
for the purpose.
It is wrong notion that an employee who freely and knowingly does something
wrong is absolved of all responsibility when he or she is ‘following orders’. For
example, if I am ordered by my superior to murder my competitor and I do so, I
can hardly claim latter that I was totally innocent as I was following orders. The
fact that my superior ordered me to perform what I knew was an immoral act in no
way alters or reduces my moral responsibility. I knew what I was doing and I
freely choose to do it. There are limits to the employee’s obligation to obey his or
her superior. Employee has no obligation to obey something which is immoral.
True, the employer may put significant or other pressure on the employee. Such
pressures can mitigate the employee’s responsibility but do not totally eliminate it.

Regarding the second question, it may sometimes result in ‘Whistle Blowing”.

Whistle Blowing

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 Companies working on unethical ways may put the employees who prefer to keep
up better moral standards in an ethical dilemma. Such suppressed state of inability
to bring to light such acts hurting one’s feelings may burst out one day. They will
blow the whistle leaking out and making public the unjust affairs taking place
inside. The term was used in early days to mean government employees who go
public with complaints of corruption and mismanagement in government
undertakings. Gradually it came to be used in corporate contexts too.

Whistle blowers often pay high price for their dissenting attitude. Retaliation is
common and may take many forms.

Whistle blowing may be internal or external. Internal whistle blowing means

reporting about the situation only to higher authorities in the organisation whom
the whistle blower believes, will register his concerns with assurance of
confidentiality. External whistle blowing means reporting to external agencies,
media and public interest groups.
It is argued that external whistle blowing is wrong as employee is bound by
contract to keep up confidentiality. But the contractual obligation is not unlimited.
Contracts are void if they force somebody to do something immoral or unethical.

Modern corporations show much alertness to prevent things leaking out. They
attempt to keep things within the limits of the walls of the organisation. The
corporations have devices like Ombudsman/ Ethical Officer, Suggestion Box
system etc.

M.N.Cs and Business Ethics

Multi national companies have ethical issues deserving special attention because
of their international /global operation, world wide presence.
GE headquartered in Newyork, has operations in more than 100 countries and
derive one - half of its revenue from outside US. It has metallurgy plant at Prague,
software operations in India, product design at Budapest, Tokyo and Paris,
manufacturing operations in Mexico. Employees and managers are drawn from
different parts of the world.
Ethical Issues
1. Ability to shift operations from country to another enabling to escape social
controls or to violate environmental and labour laws.
Governments can confiscate properties and can force to export more and import
less to check such tendencies but are found to be not boldly imposed..
2.Can transfer resources from one country to another and escape from taxes and
fiscal obligations.
3. Can transfer technology from developed countries to undeveloped.
Manager’s of MNCs are facing the dilemma of choosing between the benefits that
both the company and the host country can derive from a product or technology
transfer and the risks and hazards that such transfers can produce.
4. Because the MNCs operate in different countries and the countries have
varying national standards it is often faced with the quandary of deciding
which of these different norms and standards it should implement in its
operations. Example:- Should a company head-quartered in a highly

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 developed country as US operating in a less developed nation as Trinidad?
Should pay its worker in Trinidad, wages at US rate or at Trinidad standards ?
5. Safety standards ? Do the same standards apply to MNCs everywhere?

Ethical Relativism
Different societies have different norms, beliefs and standards. Hence there is no
way of deciding whether an action is right or wrong other than asking whether the
people of this society or that society believe it as morally right or wrong.
There are no prevailing standards that are absolutely true and that apply or should
be applied to companies and people of all societies. Something is right for the
people or companies in one particular society if it accords with their moral
standards and wrong for them if it violates their moral standards.
Companies or business men who operate in several different countries who
encounters with many different moral standards are advised by the theory of
ethical relativism as given below.
In moral reasoning, one should always follow the moral standards prevalent in
whatever society one finds oneself. “When in Rome do as Romans do”.
There are numerous practices that are judged immoral by some societies which
other societies have deemed morally acceptable including polygamy, abortion,
infanticide, slavery, homo sexuality, racial and sexual discriminations, genocide,
patricide and torture of animals.
Critics of the theory of ethical relativism do not believe that there are no moral
standards that are binding on people everywhere.
They argue: -
1. There are certain standards that members of any society must accept, if it is to
survive and interact with other societies. Example:- Standard against theft.
2. Many apparent moral differences among societies turn out on closer
examination to mask deeper underlying similarities. Example:- For Alaskian
Inuit societies it is morally acceptable to abandon their aged outdoors. It is
justifiable every where if food supplies run so short that even the survival of
younger members and earning members is at peril.
3. Because different people have different moral beliefs about some issues, it
does not follow logically that there is no objective truth about that issue nor
that all beliefs about the issue are equally acceptable.Between two
contradicting beliefs regarding something philosophers can found out that one
is right and the other is wrong. Some societies are better informed than others.
4. Most telling criticism is regarding the inherent consequences of ethical
relativism. We cannot say that slavery in the pre civil war southern societies of
US was wrong or the Germans’ treatment of Nazi’s was wrong, if we accept
relativism. We have to accept some practices of our society like torturing
animals or discriminating women workers, as right. According to relativism,
whatever the majority in the society believes about morality is automatically
taken as correct.
The only acceptable aspect of ethical relativism is to remind one that ethical
standards of different societies are different and one should not simply dismiss or
ignore their beliefs and standards while operating in that society or in ones dealings
with that society or members of that society.

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But relativist is wrong to conclude that all moral standards are equally acceptable and
that the only criteria of right and wrong is the moral standards prevalent in the society
to which one belongs.
Normative philosophy is in the search for objective ethical standards which are
equally applicable for all societies at all times, whether in business or in any other
profession or in social life.

Universalism
It might be questioned whether international variations amongst managers are many
more diverse than the differences between mangers in the same single country or the
same continent. In India itself, we find diverse religions, varied cultures in businesses.
The is sometimes labelled as universalism. According to this school, there is only one
fundamental ‘world management culture’ with minor variations in attitudes and
values among different managers.

Arguments for & against Business Ethics

Arguments against
1. Persons involved in business may claim that they should single-mindedly
pursue the financial interests of their firm and not side-track their energies or
their firms resources into ‘doing good works.’ Three arguments are advanced
in support of this view.In perfectly competitive free markets, the pursuit of
profit will by itself ensure that the members of the society are served in most
socially beneficial ways. This argument rests on certain questionable
assumptions. Firstly, are the markets really perfect. Even in cases where
perfect competition has scope firms attempt to have their own un-interfered
areas through differentiation and branding. Secondly, the argument assumes
that steps taken to increase profits will necessarily be socially beneficial, when
in fact, several ways of increasing profits do actually injure the society.
Examples are deceptive advertising, concealing product hazards, tax evasion
etc. Thirdly, wants of the poor and disadvantaged are not actually met in un-
interfered market conditions. The market focuses on such situations in serving
the richer sections of the society, where they can earn more profits.

2. The ‘loyal agents’ argument is often used to justify managers’ unethical

conduct. Whatever the manager does is with the object of protecting the
interest of his employees and shareholders though it is unethical. It again relies
on certain unquestionable assumptions. Manager is bound by agreement to
whatever his employer wants, however, unethical it is. But in fact he is bound
to serve only in whatever moral way the employer is to be served. There are
limits to managers’ duty to serve his employer set by the legal and social
institutions from which the duties arise. Law of agency does not justify the
employee doing unethical things for fulfilling the undesirable and unethical
goals of the employer.

3. A third objection raised is, to be ethical it is enough for business people to

obey law. But it is wrong to see law and ethics as identical. Morality and law
do not always coincide.

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Arguments in favour of business ethics
Ethics should be brought into business. Ethics should govern all voluntarily
human activities. Business being a voluntary human activity, ethics should govern
business. Any business firm will collapse if its managers and employees come to
think that it is morally permissible to steal from, lie to or break their agreements.
Secondly, the smooth functioning of business demands the prevalence of a stable
society, for the carry out their business dealings. Stability of any society requires that
its members adhere to certain minimal standards of ethics.
A more persuasive way to argue for ethics is that ethical considerations are
consistent with business pursuits, especially with pursuit of profit in the long run. The
history of Mercks, Johnson and Johnson, Xerox, Hewlett-Packard, Tatas, Vipro and a
number of other corporations stands proof.
The well-known ‘prisoner’s dilemma argument’ implies that over the long
run and for the most part, it is better to be ethical in business than to be unethical.

Further arguments against business Ethics

1. In perfectly competitive market, pursuit of profit will itself ensure that the
members of society are served in the most beneficial ways. But in fact most of
the assumptions of this theory do not hold good:-
Most industrial markets are not ‘perfectly competitive’.
2. Several ways of profit maximisation by businessmen are socially harmful
It assumed whatever the society needs are produced but what is really wanted
by large sections of society are ignored.
The argument is essentially making a normative judgement ( managers should
devote themselves to the single minded pursuit of profits) on the basis of some
assumed but unproved moral standards.
3. Loyal agents argument
The argument that as a loyal agent of his or her employer, the manager has duty
to serve the employer in whatever was will advance the employers self interest.
The argument is used to justify the unethical or illegal conduct of managers. It is
based on several assumptions.
a. It tries to establish that ethics does not matter, by relying on an
unproved standard. ‘Manager should serve the employer in whatever
way The employer wants.
b. There are no limits to the manager’s duties to serve the employer,
when in fact such limits are express part of the legal and social
institutions from which these duties arise. ( agents duties are defined
by the law of agency).
c. If a manager agrees to serve a firm, then the agreement automatically
justifies whatever the Manager does on behalf of the firm.
3. To be ethical it is enough for business people to obey the laws. Some managers
even believe that illegal and unethical are both same. True some laws require
behaviour that is the same as the behaviour required by ethics. Example:- laws
that prohibit offences like rape, theft and fraud. Some laws have nothing to do
with morality. Example;- parking laws, Dress codes, Traffic rules.
True moral standards are incorporated through laws.

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 It is immoral to break laws.

Case for business

1. Because ethics should govern all voluntary human activities and because
business is a voluntary human activity, ethics should also govern business.
There is nothing that prevents us from applying the same standards of ethics to
business that should be applied to the other voluntary human activities.
2. Business cannot exist unless the people involved do not follow minimum
ethical standards. Business is a cooperative human activity , the very existence
necessitates ethical behaviour.
3. Business will fail if all managers, employees & customers think, it is ethical to
steal or to lie or break their agreements with the company. Al businesses
require a stable society in which to carry on dealings. For stability, all
members should adhere to some minimal standards of ethics.
4. Ethical considerations are consistent with business pursuits, in particular with
the pursuit of profit. History of good and consistent profits in the long run has
always been associated with history of being ethical. Examples. Merck& Co.,
Hewlet Packard, Johnson and Johnson, Tatas, Starbucks Coffee.
Well known prisoners dilemma shows that if both the parties cooperate both will
be benefited maximum. If one cooperates while the other chooses not to, the who
cooperates will suffer loss and the one who does not cooperate gains. But the gain
is not perpetual. If the businessman attempts to make profit behaving unethically
towards his customers, employers, suppliers and investors, the later will retaliate
whenever they come to know and immediately when they find out other better
options.
Retaliation may be simple as refusing to buy from or to work for or to supply or
may be more complex as sabotage, getting others to boycott the unethical party
etc.
Moral Responsibility and Blame
Moral reasoning is sometimes directed at a related but different kind of
judgements determiig wheter a person is ‘morally responsible’ or culpable for
having done something wrong or for having wrongfully injured some one.
A judgement about a person’s moral responsibility for a wrongful injury is a
judgement about the extent to which the person deserves ‘blame’ or punishment or
should pay restitution for the injury.
Eg:- An deliberately injures the health of his employees, we would judge the
employer morally responsible for those injuries, we then say, the employer is to
‘blame’ for the injuries.
Moral responsibility is sometimes used to mean ‘moral duty, or moral obligation.
But, here , used in the sense that the person is to be blamed for the action.
Example “ Vlandivier had moral responsibility not to tell lie”,- not in the same
sense.
But ‘ Vlandivier was responsible for the deaths of five pilots who crashed when
tryingtoland the A7D airplane.
We use the term to mean blame.
A person is morally responsible only for those acts and their foreseen injurious
effects:-
a. Which the person freely performed or brought about and which was morally
wrong for him to do.

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 b. which the person freely failed to perform or preventand which act was morally
wrong on his part.
Stefan Golab, 59 years’ old Polish immigrant, who spoke little English, died from
Cynide poisoning after working for two months over open vats of fuming cynide
for film recovery systems, a company that recovered silver from old film. The
company was held morally responsible for maintaining hazardous working
conditions knowingly and they failed to warn or protect workers who who could
not read warning signs written in English and the skull and born symbol was also
scrapped off by wear and tear of cynide drums.
Several manufacturers of Asbestos, were recently judged responsible for lung
diseases suffered by some of their employees.
There are two excusing conditions for moral responsibility – ignorance and
inability.
If a person was ignorant or unable to avoid, what he or she did, then that person
did not act knowingly and freely and cannot be blamed for what he or she did.
Asbestos manufacturers, for example, have claimed that they did not know that
conditions in their plants would cause lung cancer in their workers. If that is true
then it wrong to blame them for the diseases that resulted.
Some other manufacturers said, they tried to prevent the occurrence of the disease
by trying to make their workers to wear protective masks and clothing , but they
were unable to enforce such measures because the workers refused to adhere to
them. If they were true, then again they cannot be blamed on the ground of
‘inability’.
Ignorance and inability are not excusable
1. When the person deliberately keeps ignorant to escape responsibility.
Example:- Asbestos manufacturers.
2. A person negligently fails to take adequate steps to become informed about a
matter that is of known importance.
Besides ignorance and inability that excludes liability there are several other
mitigating factors.
1. Where a person is uncertain, not altogether unsure about what he is doing.
2. Difficult but not impossible to avoid.
3. Circumstances that minimise but not completely eliminate a persons
involvement in the act
Subordinate’s responsibility
When the superior orders the subordinate to do something which both of them is
immoral, the superior is also responsible along with the superior.
There is an argument that the subordinate in such case is absolved of the
responsibility. Only superior will be responsible.
But in fact an employee who has freely and knowingly does something wrong
cannot be absolved of the responsibility even if he was following the orders. If the
subordinate is ordered to kill the competitor can the subordinate do?
Whistle blowing
Subordinate’ dilemma of his personal values contrasting with the organisational
goals. Where a company or the superiors adopt certain devices in the course the
pursuit of attaining the organisational goals, which the subordinate does not feel to
be unethical and pricking his morality it will create ethical conflicts in him which
may burst out in varying forms. Such burst outs are known as whistle blowing.
It may be internal or external.

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 Internal whistle blowing may take forms like absenteeism ,employee turn over.
Lack of cooperation and sincerity in work. There is also possibility of reporting
the matter to peers, and superiors whom the employee feels will keep up
confidentiality. Very often internal whistle blowing will not work out effectively
for fear of retaliation especially where the wrong doing is committed at the
pressure or permission of superiors at higher levels.
External orientation takes the shape of leaking out information to outside public,
trade unionists and media. It becomes more easy where there is access to socilly
committed media.
Efficient management will always be alert to avoid things leaking to external
sources. They will maintain the necessary machinery for managing to confine
whistle blowing within the four walls of the organisation. An effective
organisation will keep up devices for preventing occurrence of such moral
conflicts and devices for resolving such issues internally if ever occurs. The
devices include Ombudsman or Ethical Officer positions, Grievances collection
systems, Ethical committees etc.

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