Lesson1

Ethics and Business

Ethics maybe:
• A customs or a practice.
• Derived from the Greek word Ethos
• While morals comes from the Latin word Mos
– It means the customary or habitual way of acting or doing things.
• Morality covers these practices and activities that are considered importantly
right and wrong.
Moreover
They observe:
• Moral Conduct – conduct which is meaningful to evaluate or judge morally
• is a conduct that:
1. is voluntary
2. Affect the basic direction of our living

In a wider sense:

• Ethics is an individual matter.

• It is the invariable mode of behavior observed in the deliberate actions of
individuals.
• Ethics requires the individual to determine the character of the consequences of
action by referring to which act is right and which is wrong.

In other words:
• Any human activity is based on moral, ethical, or practical reasons.

THEREFORE:
• Ethics deals with the morality of human acts
• It concerns itself with considerations of “right” and “wrong” conduct in the
affairs of individuals.

• It is the moral obligations and responsibilities of individuals that are acceptable

by a particular society or group.
• Ethical behavior is the behavior that “ought” to prevail in such situation.
MOREOVER:
• Ethics is concerned with the study of human behavior not only to find the truth
of things as that are but also to inquire into the worth or goodness of human
actions and the sincerity of human conduct.
• It challenges society’s governing values system.
• It is concerned with judgment of values.
• Thus it becomes a difficult personal problem because conflict of interest is
involved.
• The issue is one of right versus wrong or good versus bad.

Business Ethics

• This is the study and philosophy of human behavior with emphasis on the
principles of correct conduct in business.
• Such relationship is difficult to determine.

Two major components:

1. Philosophical
2. Managerial

Business must seek to conform to pre-existing philosophy of ethics, while

business practices inculcate some virtues.

THEREFORE:
• Business ethics combines the idealism of the philosophy of ethics and the
realism of management practices in business.
• Most important, business ethics serves as the basis of the individual relationship
of people within a social system.
• Moral values form the subject matter of business ethics.
• It deals with the right and wrong of doing things in business.
– The term right and wrong relate to the means or acts.
– Right is that which it ought to be, otherwise, it is wrong.
• Right is right; if a wrong had been committed, then it must be corrected.
• Business ethics should, therefore, be determined by moral and Political
philosophy.
• Ethics is similar to law since it imposes certain limitations on business.
• The important thing is that, as far as public order is concerned, law is the
beginning of ethical consideration in business.
• It may be used for good and evil.
 Importance of Ethics in Business

• The study of business ethics paves the way for common ground in our
understanding of the fundamental idea of what is good and what is bad in our
human conduct.
• Without Ethics, people, especially businessmen, will set their own moral
standards, moral rules and moral principles.
• This would result to a kind of subjective morality in which case, what is good for
one may be bad for another and vice versa.
• With this paradigm, business people will consider some of their actions good
but unacceptable to others – e.g. cheating the customers may be acceptable for
some businessmen but bad for others. – e.g. Abortion may be correct for one
person but evil for another person.
• Ethics as a science does not only evaluate the morality of our human conduct
but also provides us with a common understanding of the universal, objective,
and irreversible moral principles that govern our human conduct and guide our
moral decision.
• Business ethics opens a novel way of resolving moral issues and ethical
dilemmas in business and in the corporate world.
• The study of business ethics will prepare and equip managers for a more
effective way of managing people and organization.
• Because there are many norms of human behavior, business ethics provides the
manager a framework to establish the proper relationships of his people and to
base his decision.
• Proper relationships are very important if harmony is to be maintained in the
organization.
• Thus the manager’s ability to get along with others in the organization is a very
important asset.
• In this undertaking, business ethics servers as his guide in his managerial
decision-‐making.
The Businessman’s Myths about Business Ethics
1. Ethics is a personal affair and not a public debatable matter
2. Ethics and business do not mix
3. Ethics in business is relative
4. Good business means good
5. Business is a war
 Relationship between Ethics and Business

• Ethics plays an important role in business.

• Without morality, business will be a chaotic human activity.
• The concern of Ethics is to discover that there are unwritten laws, written in the
hearts of men that should govern our human conduct where positive laws may be
absent, and in some cases, not very clear.

The following arguments justify the significant role that Ethics plays in the world
of business:
1. Business is an integral part of human society.
– Therefore, the action of individuals and institutions in business must be
subjected to moral rules and moral evaluation.
2. What is legal may not necessarily be moral.
– People tend to confuse legality with morality.
– An action may be legal but not necessarily moral – e.g. capital
punishment (death by lethal injection)
• For some, this is legal but in truth, this is immoral.
– Ethics provide us with a clear distinction between morality and legality.
3. Laws are insufficient.
– They cannot regulate all aspects of our human behavior.
– Laws are sometimes absent or unclear in some areas of our human
conduct.
– Ethics is the unwritten law, written in the heart of men.
– In the absence of the law, ethics dictates the correct conduct to follow.
4. In today’s technocrat-oriented business education, the trend is to train
managers to maximize profits and to quantify the operation of business.
– Managers and business leaders must also be prepared to respond to
complex situations bearing ethical consequences.
– Thus, business ethics must be part of the curriculum in business courses.
5. “The enterprise is an organ of society and its actions have a decisive impact
on the social scene”
– According to Peter Drucker:
– He simply reminds people that a business corporation is not just created
to make profits but to consider its moral and social obligations to the
stakeholders.
 – Business should not just look after their own interest but also the interest
of the common good.

Moral Reasoning in Business

• The essence of studying business ethics is to provide managers and decision
makers with a framework for the resolution of moral issues and problems
affecting business activities and the organization.
• Moral reasoning – Is a process in which ethical issues and problems are
benchmarked against a moral standard so that moral judgment is made possible.

Framework for Moral Reasoning

Ethical issues /problems


REALITY
CHECK

Moral
Norms,
Moral
Standards,
Company
Policy,
Ethical
Principle

Moral
Judgment

Characteristics of a Good Moral Standard

A Good Moral Standard:

1. One that looks, at the issues as something that is very serious, e.g., murder,
graft and corruption, stealing.
2. Must be grounded on good moral arguments. – A good argument is an
argument that always tells the truth.
 – A solid moral argument leaves no room for loopholes and
counterarguments.
3. Should be objective and not subjective.
– It should be universally accepted and should apply to all.
– What is good for one person should be at the same time, good for
everybody.
4. When violated, brings about feelings of
– Guilt
– Shame and
– Remorse of conscience

Characteristics of a Good Moral Judgment

1. Must be logical.
– The decision maker must arrive at an informed, resolution of the issue
base logical reasoning.
2. Must be based on facts and solid evidence.
– The information used in the process of moral reasoning must not come
from weak sources like, hearsay and rumors.
3. Must be based on sound and defensible moral principles.
– A weak ethical principle is open to a lot of criticism.

The Morality of Profit-Motive

• People go into business for a number of reasons:
– Personal satisfaction
– To earn a livelihood
– Want to serve the society through good and services they offer the customers
• The most common is to make a profit.
– Business as an activity is unthinkable without the profit motive.
• Traditionally, business people have looked at the profit motive as the most
important aspect in business.
• According to Milton Friedman:
– “The only responsibility of business is to make profit so long as it stays within
the rules of the game, which is to say, engage in open and free competition
without deception or fraud.”
• But on the other hand, a famous management guru disagrees
• According to Peter Drucker:
– “There are other factors that the businessman must consider in doing business,
such as: customer satisfaction, fair treatment the employees, and respect for the
environment”

IS PROFIT-‐MOTIVE IN BUSINESS GOOD OR BAD? IS IT MORAL OR IMMORAL?

The Good Side of Profit-Motive:

1. It motivates people to do something meaningful.
– It gives human life a goal to pursue and something to live for
2. It promotes ingenuity and cleverness in running a business.
– Business leader and entrepreneurs have to struggle to overcome obstacles in
order to achieve success.
3. It makes people productive.
– Because of their desire for money business have become productive and some
of their products have been useful and have enhance human life
4. It generates potential capital for the business.
– Profit is potential capital, something that can be invested to establish new
business.
– Profit also results in more jobs and more goods and services for the public.

The Bad Side of Profit-Motive:

1. It promotes rivalry among competitors.
– Result into a “dog-eat-dog”
– Where success is achieved by competing with others and pushing them down in
order that one’s own business might succeed.
2. It makes people focus only on making money.
– That is to sell as many goods as possible without considering whether or not
these products satisfy the needs and wants of consumers and end users.
3. It turns the businessman from being a reflective and a questioning person
because it focuses his attention on the practical activity of making money.
4. It promotes self-interest rather than the common good.
– Depletion of natural resources
– Toxic waste being thrown into the rivers
– Pollution of the environment
– Disregard for the next generation to come.

Ethical Consideration of Profit- Motive in Business

 I
• Earning profit is a good and valid activity in business.
• Commercial activities will be absurd without the profit-‐motive.
• However, an ethical discernment is required for the business:
– Is my profit fair enough for me and my
customers?
– Did I consider some factors in making profit?
(cost of goods sold, inventories, projected profit margin)

II
• Making excessive profit is totally wrong.
• It leads to greed, avarice, and manipulation of the customers.

III
• Profit is not the “be-all and the end-all” of doing business.
• There are other factors to be considered in business such as:
– customer satisfaction,
– respect for environment,
– enhancement of the quality of life, and
– the preservation of the society

IV
• The teaching of the Catholic Church do not totally condemn, profit as part of
business activity.
• It does not prohibit the producer from enriching himself provided:
– one respects the laws of God,
– does not prejudice the rights of others and
– works according to faith and right reason