LAW, ETHICS AND BUSINESS

DR NORAIN ISMAIL FPTT PPSW 6063 & MPSW 5063 17 MARCH 2013

What do you think?

A friend who is an A-student has offered to write

your paper, which is worth 25% of your grade, for $50. You need the course to graduate because you only have a low C average. You hate writing, do it very poorly, and know others have had good results submitting this students papers as their own. Will you pay the money and submit the paper or submit your own paper and pray for a good result? (http://highered.mcgrawhill.com/sites/dl/free/0073524565/324445/jon2456 5_ch05.pdf)

What will you do?

Suppose you see a person being mugged in the street. How will you behave? Will you act in some way to help even though you risk being hurt? Will you walk away? Perhaps you might adopt a middle-of-the-road approach and not intervene but call the police instead? Does the way you act depend on whether the person being mugged is a fit male, an elderly person, or even a street person? Does it depend on whether there are other people around, so you can tell yourself, Oh well, someone else will help or call the police. I dont need to? (http://highered.mcgrawhill.com/sites/dl/free/0073524565/324445/jon24565_c h05.pdf)

OBJECTIVES
Connection between ethics and business

Connection between law and morality

Differences of morals and ethics Theories of ethics Issues of ethics in corporations

ETHICS
What is ethics? * derived from Greek words ethos which means character; and ethikos which means practice and customs. * custom, habit, character or disposition. * a system of moral principles that affect how people make decisions and lead their lives. * set standards of good and bad as opposed to right and wrong.

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The principles of conduct governing an individual

or a group (Websters Dictionary) the science of moral (Oxford English Dictionary)

 Ethics cover the following:

How to live a good life Our rights and responsibilities The language of right and wrong Moral decisions what is good and bad

Our concepts of ethics have been influenced from

religion, philosophies and cultures Thus ethics could mean a set of moral principles or values that governs the conduct of an individual or a group

Ethical behaviour
What is accepted as good and right in the context

of the governing moral code. What is lawful conduct is not always ethical conduct.
Legal behaviour is not necessarily ethical behaviour

(the law may permit something that would ethically wrong) Personal values help determine individual ethical behaviour
ethical codes statements about the norms and

beliefs of an individual
Norms are the standard of behavior

Beliefs are the standard of thoughts

Ethics and Ethical Behaviour

Ethics provides us with a moral map, a framework

that can be used to find our way through difficult issues

Ethics affect the way human beings behave

Factors influencing the formation of individual

ethics
Family influence Peer influence Life experience Personal values and morals Situational factors

Sources of ethics
Ethics are a system of moral principles and a

branch of philosophy which defines what is good for individuals and society Philosophers suggest the source of ethics:
God and religion

Human conscience and intuition

A rational moral cost-benefit analysis of actions and

their effects The example of good human beings A desire for the best for people in each unique situation Political power

Classification of ethical theories

Ethical theories to distinguish right actions from

wrong actions
Consequentialism Egoism Utilitarian

Non-consequentialism/Deontology Kants ethics Kohlbergs theoery

Virtue ethics

Consequentialism
Assess the moral worth of human actions by

looking at its consequences/results and not on the actions themselves. Teaches the people should do whatever produces the greatest amount of good consequences.
If it is Good, the act is Right, and vice versa.

Consequences for whom?

Only for oneself or for everyone affected? The answer depends on the theory applied. Egoism/individualism Utilitarianism

Conseqeuntialism: Egoism
Defines right or acceptable behaviour in terms of

the consequences for the individual Egoist believe that they should make decisions that maximise their own self-interest In an ethical decision-making situation, an egoist will probably choose the alternative that contributes most to his of her self-interest i.e. primary commitment is to ones long-term selfinterests.

Consequentialism: Utilitarianism
Concerned with consequences, but seeks the

greatest amount of good for the greatest number of people. Decisions must result in the greatest total utility i.e. achieve the greatest benefits for all those affected by that decision. In making ethical decisions, utilitarians often conduct a cost-benefit analysis, which considers the cost and benefits to all affected parties i.e any act that can give the most benefit/happiness are the right one Limitation: difficult to estimate the good that result from different actions.

Nonconsequentialism/Deontology
Concerned with the actions themselves and not with the consequences. It is the theory that people are using when they refer to the principle of thing

Nonconsequentialism/Deontology
Concern with the actions themselves and not with

the consequences. Theory that people are using when they refer to the principle of the thing Right and wrong is determined not only by the consequences of the act but many factors Examine every factor relevant to the moral assessment of an action Non-consequentialist:
Kohlbergs theory Kantian ethics

Non-consequentialism: Kohlbergs Theory

3 level of moral:
Pre-conventional (2 levels of moral development) React to punishment Reflect desire to receive a reward

Conventional level (morality stage-accept morality

that learn from others) Post-conventional (2 stages of self accepted moral principles)
Speak and understand morality based on rights of

individual Able to give reason/rational defense of the moral principles that guide our actions

Non-consequentialism: Kantian ethics (duty ethics)

A moral theory that says people owe moral duties

that are based on universal rules i.e if act in a particular manner is suitable to become a universal accepted principle guiding behaviour, then committing that act is ethical
Eg universal accepted principles right of freedom,

right to choose how to live.

This theory would have people behave according

to the categorical imperative Do unto others as you would have them do unto you Based on the premise that people can use reasoning to reach ethical decisions

Kantian ethics
Deontologys universal rules are based on 2

principles:
Consistency all cases are treated alike with no

exceptions Reversibility the actor abide by the rule he/she uses to judge the morality of someone elses conduct
Non-consequentialist believe that conformity to

general moral principles determines ethicalness Limitation: it is hard to reach a consensus as to what the universal rules should be

Virtue Ethics
Look at virtue or moral character, rather than at

ethical duties and rules, or the consequences of actions Particularly concerned with the way individuals live their lives, less concerned in assessing particular actions Develops the idea of good actions by looking at the way virtuous people express their inner goodness in the things that they do i.e. teaches that an action is right only if it is an action that a virtuous person would do in the same circumstances, and that a virtuous person is someone who has a particularly good character

Ethical Theories Compared

Consequentialism Example Mills utilitarianism Deontology Kantian ethics Virtue Theory Aristotles moral theory

Abstract descriptio n

An action is right if it promotes the best consequences

An action is right if it is in accordance with a moral rule or principle

A moral rule is one that is required by rationality

An action is right if it is what a virtuous agent would do in the circumstances

More concrete specificati on

The best consequences are those in which happiness is maximise

A virtuous agent is one who acts virtuously, that is, one who has and exercises the virtues. A virtue is character trait a human being needs to flourish or live well.

Business Ethics
Business ethics involves applying general ethical

principles and standards to business activities, behavior and decisions Ethical principles in business are not different from ethical principles in general
All professions have their codes of exemplary conduct

and abide by their codes to ensure that their professions credibility is intact
Business actions are judged:
By general ethical standards of society
Not by mere permissive standards

It is not study of what is legal but of the application of

moral standards to business decisions

Business objectives vs ethics

Positive business ethics: fairness, integrity, truth

telling, dependability, business plan, values based, disclosure, transparency, accountability etc
Businessman not only to know the law but ethical

decisions as well Why do people get involve in businesss?

Often ethical conflict between making money and

doing what is right

People in business claim they are bound only by

law not by normal norm Business is no concern with ethics Moral is something of a personal matter

Business and moral issues

The moral background of business: business is

not something separate from society or imposed on it; rather, it is integral part of society
It involves all of us in one way or another seller

sells, manufacturer produces and buyer buys

The business of business: the business of

business was, and is, decided by the people of each society. The limits and demands imposed on business by society are frequently moral ones
If bribery is the common practice in a given society,

it is proper to engage in bribery in that society

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Business and the law: business is a social

enterprise whose mandate and limits are set by society. The limits are often moral, but they are also frequently written into law
To abide by the law in practicing discrimination to

act immorally because racial discrimination was immoral before it was made illegal.

The myths of American amoral business

A popular and widespread view among American

business describes how American business and businessman perceive themselves and are perceived by others Business is concerned primarily with profit Business and people in business are not explicitly concerned with ethics (they are not explicitly concerned with ethics (they are not unethical or immoral; rather they are amoral) Business is not expected to be concerned with ethics

Amoral business
Argument: businesses act unethically not because of

a desire to do evil, but simply because they want to make a profit and therefore disregard some of the consequences of their actions.
Many people in and out of the business perceive to

judge a firm by its financial status or by its products than to deal with ethical judgments
How to stop this practice?
Reporting the scandals and associate public reaction to

the report Form popular groups such as environmentalist and consumerist Awareness of business in ethics Form corporate codes of ethical conduct and of ethics

Why ethics decision difficult?

Reasons according to American research:
Managers confront a distinction between facts and

values when making ethical decisions It is often the case that good and evil exist simultaneously Knowledge of consequence is limited The existence of multiple stakeholders exposes managers to conflicting ethical claims Some ethical standards are variable, they may change with time and place

Drivers of unethical strategies and business behaviour

Ethics brief: corporations that conduct social

audits will be more apt to prevent unethical and illegal conduct by managers, employees and agents The view that business of business is business not ethics Overzealous pursuit of persona gain, wealth, and other self-interests Heavy pressures on company managers to meet or beat earnings targets A company culture that places profits and good performance ahead of ethical behaviour

Factors affecting ethical choices

The manager
Level or stage of moral development Learned ethics

The organisation
Systems Explicit rules and policies Reward system Culture Common values Traditions

Ethical dilemmas
An ethical dilemma occurs when choices,

although having potential for personal and/or organisational benefit, may be considered unethical Ethical dilemmas include:
Discrimination
Sexual harassment Conflicts of interest Customer confidence Organisational resources

Guidelines for dealing with ethical dilemmas

Is it legal? Is it right? Is it beneficial? To whom? How much? Is it harmful? To whom? How much? Would you be willing to allow everyone to do what

you are considering? Would you like your family to know? Would you like your decision printed in the newspaper? Have you consulted others who are objective and knowledgeable?

Business and ethics in Islam

Islam propagates the notion of ethics for profits
Since ethics is a crucial element in conducting

business, it is important to ensure that business abides by the dos and donts prescribed by the syariah Islam does not view business only as a worldly affair but has implications and ramifications for the Hereafter A truthful and trustworthy merchant (will be gathered in the Day of Resurrection) with the Prophets, the truthful and the martyrs (Prophets Hadith)
In business dealings, potential clients, customers

and investors take into account am organisations ethics when making business and investment

Johnson & Johnson and the Tylenol Case

In October 1982, Tylenol, the leading pain-killer medicine in the US at the time, faced a tremendous crisis when seven people in Chicago were reported dead after taking extra-strength Tylenol capsules suspected contaminated with 65 milligrams of deadly cyanide into Tylenol capsules, 10,000 more than what is necessary to kill a human. The tampering occurred once the product reached the shelves. They were removed from the shelves, infected with cyanide and returned to the shelves (Mitchell, 1989). In 1982, Tylenol controlled 37 percent of its market with revenue of about $1.2 million. Immediately after cyanide poisonings, its market share was reduced to seven percent (Mitchell, 1989).

Once the connection was made between the Tylenol capsules and the reported deaths, public announcements were made warning people about the consumption of the product. Following one of the J&J guidelines of protecting people first and property second, McNeil Consumer Products, as subsidiary of J&J, conducted an immediate product recall from the entire country which amounted to about 31 million bottles and a loss of more than $100 million dollars. (Lazare, Chicago Sun-Times 2002). Additionally, they halted all advertisement for the product. (http://iml.jou.ufl.edu/projects/fall02/susi/tylenol.ht

Questions:
Was J&J ethically obliged to recall Tylenol

immediately, as it did? Would it have been ethically permissible for it to wait until it was sure about what was happenings, or to recall the product only from the Chicago area until there was evidence of tampering with the product in some other part of the country? What would be your answer?