INTRODUCTION TO BUSINESS

ETHICS
By
Rafia Ayub
Merck & Company case:
River blindness
A disease faced by 18 million people living in tropical
regions of Africa & Latin America
One of the research scientist discovered that a best-selling
animal drug with some changes might help in curing the
disease.

Company knew even if they succeed in developing the

medicine victims were not be able to afford it.
TC would be $ 100million
 Head of Merck once said,
“when I went to Japan 15 years ago, I was told by Japanese
business people that it was Merck that brought medicine
after world war 2 to eliminate TB which was eating up their
society. We did that. We didn’t make any money. But it’s no
accident that Merck is the largest American pharmaceutical
company in Japan”
A basic problem
Ethical course of action is not always clear to a company’s
manager.
Than????
Managers are answerable toward investors &
shareholders.
If company spend all money on charitable projects that lost
money they’ll claim that company is not justified in investing
their money and hence act unethically
Purpose of course
To provide a deeper knowledge of nature of
ethical principles & concepts, and understanding
of implication of these concepts in ethical
problems encountered in business.
In short
“To provide enough knowledge and
understanding that can make their ethical course
of action clear. “
Nature of Business Ethics
What does ethical means to you?

“The principles of right and wrong that are accepted by an

individual or a social group”
“Study of morality”
Ethics is a kind of investigation that includes activity of
investigating + result of investigation and morality is the
subject matter of that investigation.
Ethics: define as,
“A conception of right & wrong conduct,
serving as a guide to moral behavior”
OR
“The discipline that examines one’s moral
standards or moral standards of society”

Business Ethics can be defined as,

“An application of general ethical ideas to
business behavior is Business Ethics”
Morality
Standards that an individual or a group has about what is
right & wrong, or good & evil
Sources include family, society etc.
Moral Norms: general rules or statements
• “Always tell the truth”
Moral Values: Statements describing objects or features of
objects that have worth.
• “Honesty is good”
Role of Ethics in Business
Thompson & Strickland (1995):
“A strong corporate culture founded on ethical
principles and sound values is a vital driving force
behind continued strategic success.”
Distinguishable characteristics of Moral
Standards from Immoral Standards
5 Characteristics:
Involved with serious injuries or benefits.
Not established by law or legislature.
Should be preferred to other values including self-
interest.
Based on impartial considerations.
Moral standards are associated with special emotions
and a special vocabulary.
Arguments For & Against
Business Ethics
Objections to Bringing Ethics into
Business

Perfectly Competitive Free Markets

Interest of firm
Ethics means obey the law
PRISONER’S DILEMMA
ASSUMPTIONS
Police commissioner tells each prisoner
separately;

If neither admits that the two of them robbed the

store, they will both be kept in jail for 1 year.
If both prisoners confess to robbing the store,
each will get 2 years in jail.
If one keeps quiet while the other confesses,
one who keeps quiet will get 3 years in jail while
the other one will go free.
Prisoner’s Dilemma

Prisoner B
Prisoner B
does not
cooperates with
cooperates with
Prisoner A
Prisoner A

Prisoner A
A gets 1 Year A gets 3 Year
cooperates with
B gets 1 Year B goes free
Prisoner B

Prisoner A
does not A goes free A gets 2 years
cooperates with B gets 3 years B gets 2 years
Prisoner B
Prisoner’s Dilemma: Summary
A situation that gives 2 choices to both parties.
i.e. cooperate or do not cooperate.

If both parties cooperate  both gain

If both parties do not cooperate neither will gain
Any 1 cooperate  1 who does not will gain
Business relationships are repetitive and on-
going:
Employees
Customers
Suppliers
Creditors
Stockholders
Unethical behavior results in retaliation
Why Ethical Problems
Occur in Business
Reasons
Personal Gain & Selfish interest

Competitive Pressure on Profits

Business Goals Vs Personal Values

Cross-Cultural Contradictions
Reason Nature of Typical Attitude
Ethical Problem Approach

Personal Gain & Selfish Interest Vs Egoistic I want it

Others’ Interest Mentality
Selfish interest

Competitive Firm’s Interest Vs Bottom-line We have to beat

Others’ Interest Mentality others at all cost
Pressure on
Profits

Business Goals Boss’s Interest Vs Authoritarian Do as I say or

Subordinates’ Mentality else!!!
Vs Personal Interest
Values

Cross-Cultural Company’s Interest Ethnocentric Foreigner’s have

Vs Diverse Cultural Mentality funny notion of
Contradictions Traditions & Values what is right &
wrong
5 VIEWS OF BUSINESS
ETHICS
5 Views of Business Ethics
Business is business
Act consistently with the law
Good ethics means good business
Conventional morality
Universal morality
MORAL DEVELOPMENT
Stages of Moral Development
Given by Lawrence Kohlberg
Concluded that there is a sequence of 6
identifiable stages that are grouped in 3 levels.
Each level contains 2 stages.
Kohlberg’s 3 Levels of Moral
Development
Level 1: Pre-conventional Stages
Stage 1: Punishment & Obedience Orientation
Stage 2: Instrumental & Relative Orientation
Level 2: Conventional Stages
Stage 3: Interpersonal Concordance Orientation
Stage 4: Law & Order Orientation
Level 3: Post-conventional, autonomous or
principled Stages.
Stage 5: Social Contract Orientation
Stage 6: Universal Ethical Principles Orientation
Stages of Moral Development
Level 1: Pre-conventional Stages
2 stages
Common element: Self-focused
Motivation is self-interest:
“What’s in it for me?”
Level 1: Pre-conventional Stages
Stage 1: Punishment & Obedience Stage
Physical consequences of an act determine goodness
or badness of that act
Person acts to avoid punishment
“The only crime is getting caught.”
Level 1: Pre-Conventional Stages
Stage 2: Instrument & Relativity Stage
Right actions  those that can serve as instrument to
satisfy needs of you own / persons you care
Person uses others as a tool to self-satisfaction
Example: children sharing toys
“You scratch my back and I’ll scratch yours.”
Moral Development
Level 2: Conventional Stages
2 stages
Common element: Group-focused
Group  family, peer group, or nation
Group norms are important: what does the group
expect of me?
Level 2: Conventional Stages
Stage 3: Interpersonal Concordance Orientation
Relevant groups: family, friends, co-workers
Group norms and expectations affect behavior
Person is motivated by a desire to be seen as a good
son or daughter, a good brother or sister, a good friend,
a good co-worker
Example: a friend is moving, do you help?
Level 2: Conventional Stages
Stage 4: Law & Order Stage
Relevant group: society at large
Norms, expectations, and laws of society affects
behavior
Person is motivated by a desire to be seen as a good
citizen
“It’s my duty as a citizen.”
Moral Development
Level 3: Post-conventional, autonomous or
principled Stages.
2 stages
Common element: Universal-focused
Person takes a impartial viewpoint
• Not just what’s best for me
• Not just what groups expect of me
Level 3: Autonomous Morality
Stage 5: Social Contract Orientation
Social Contract: The rules members of a society agree
to follow to govern relationships within the society
• How are the rules of society decided?
• Example: the King makes up the rules
• Example: Democracy—majority rules

Person is motivated by a desire to maintain the social

contract
“I’m satisfied even though I lost the vote.”
Level 3: Autonomous Morality
Stage 6: Universal Ethical Principles Orientation
Person develops a set of comprehensive, coherent, and
consistent moral principles
Right action  moral principles chosen
Person follows the moral principles even if it means
self-sacrifice
Moral Development
Individuals go through stages of moral
development
Different individuals may develop at different
rates
Can’t skip stages
Can go backwards
Different individuals may end up in different
stages
Moral Development
Implications for managers:
May have employees at different stages
What motivates ethical behavior for one employee may
not motivate ethical behavior for another employee
ASSIGNMENT 1
How do you motivate an employee to act ethically
if the employee is in:
Stage 1 (Punishment & Obedience)?
Stage 2 (Instrument & Relativity)?
Stage 3 (Interpersonal Concordance)?
Stage 4 (Law & Order)?
Stage 5 (Social Contract)?
Stage 6 (Universal Ethical Principles)?