11/5/2023

Chapter 2

Defining Business
Ethics

McGraw-Hill Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.

A large company was hiring a new CEO. The four leading candidates
worked inside the company so the board decided to ask each candidate a
very basic question. The comptroller was brought in. "How much is 2 plus
2?" "This must be a trick question, but the answer is 4. It will always be 4."
They brought in the head of research and development, an engineer by
training. "How much is 2 plus 2?" "That depends on whether it is a positive
2 or a negative 2. It could be 4, zero or minus 4." They brought in the head
of marketing. "The way I figure it, 2 plus 2 is 22." Finally, they brought in
legal counsel. "How much is 2 plus 2?" they asked. He looked furtively at
each board member. "How much do you want it to be?"
Tom Selleck, Commencement Speech,
Pepperdine University, 2000.

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Learning Outcomes
After studying this chapter, the student
should be able to:
– Define the term business ethics.
– Identify an organization’s stakeholders.
– Discuss the position that business ethics is
an oxymoron.
– Summarize the history of business ethics.
– Identify and propose a resolution for an
ethical dilemma in your work environment.
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1. Defining Business Ethics

• Two Distinct Perspectives:
– A Descriptive summation of the customs,
attitudes, and rules that are observed
within a business. As such, we are simply
documenting what is happening.
– A Normative (or Prescriptive) evaluation of
the degree to which the observed customs,
attitudes, and rules can be said to be
ethical. Here we are more interested in
recommending what should be happening
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Defining Business Ethics

– Business ethics are not a separate set of
moral standards or ethical concepts from
general ethics.
– There are advantages to recognizing the
challenging environment of business.
• Identification of key players impacted by
unethical behavior.
• Identification of situations where personal
values may be placed in conflict with behavioral
standards expected by an employer.
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2. Who are the Stakeholders?

• Stakeholders are those with a share or interest in a
business enterprise.

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Who are the Stakeholders?

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3. An Ethical Crisis: Is Business Ethics an

Oxymoron?

• Corporate Governance
– The system by which business corporations
are directed and controlled.
(corporate Governance (quản trị)- Corporate
management (quản lý))

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An Ethical Crisis: Is Business Ethics an

Oxymoron?
Corporate governance appears to be at the lowest
level in business history:
– Several prominent organizations (e.g., Enron, WorldCom,
Lehman Brothers, and Bear Stearns) have been found to
have hidden the true state of their precarious finances
from their stakeholders.
– Others—Tyco, and Merrill Lynch— have been found to
have senior officers who appeared to regard the
organization’s funds as their personal bank accounts.
– Financial reports are released that are then restated at a
later date.

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An Ethical Crisis: Is Business Ethics an

Oxymoron?
• Products are rushed to market that have to be
recalled due to safety problems at a later date.
• Organizations are being sued for monopolistic
practices, race and gender discrimination, and
environmental contamination.
• CEO salary increases far exceed those of the
employees they lead.
• CEO salaries have increased while shareholder returns
have fallen.
• CEOs continue to receive bonuses while the stocks of
their companies underperform the market average
2-10 and thousands of employees are being laid off.
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved.

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An Ethical Crisis: Is Business Ethics an

Oxymoron?
• Many observers believe that the business world lacks
any sense of ethical behavior and refer to business
ethics as an oxymoron— the combination of two
contradictory terms, such as “deafening silence” or
“jumbo shrimp.”

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An Ethical Crisis: Is Business Ethics an

Oxymoron?
• Code of ethics
– A company’s written standards of ethical
behavior that are designed to guide
managers and employees in making the
decisions and choices they face every day.

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A Code of Ethics
The Ethics Resource Center (ERC) defines
a Code of Ethics as:

"..a central guide to support day-to-day decision making at

work. It clarifies the cornerstones of your organization – its
mission, values and principles – helping your managers,
employees and stakeholders understand how these
cornerstones translate into everyday decisions, behaviors and
actions. While some may believe codes are designed to limit
one’s actions, the best codes are actually structured to liberate
and empower people to make more effective decisions with
greater confidence."

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An Ethical Crisis: Is Business Ethics an

Oxymoron?
A code of ethics can serve dual purpose:
• As a message to the organization’s
stakeholders, the code should represent a clear
corporate commitment to the highest
standards of ethical behavior.
• As an internal document, the code should
represent a clear guide to managers and
employees in making the decisions and choices
they face every day.

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4. History of Business Ethics

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History of Business Ethics

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5. Doing The Right Thing

When an employee observes unethical behavior
(e.g., fraud, theft, incentives paid under the table to suppliers) the
extent of guidance available to them is
typically a series of clichés:
– Consult the Company Code of Ethics
– Do what’s right for the Organizations
Stakeholders
– Do what’s legal
– Do what you think is best
– Do the right thing.
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Resolving Ethical Dilemmas - I

Ethical dilemma: A situation in which there is no
obvious right or wrong decision, but rather a
right or right answer.
Resolution: (1) reorganizing the type of conflict
Truth versus Loyalty: Do you tell the truth or remain loyal to the person
or organization that is asking you not to reveal that truth?
Short-Term versus Long-Term: Does your decision have a short-term
consequence or a longer-term consequence?
Justice versus Mercy: Do you perceive this issue as a question of
dispensing Justice or Mercy?
Individual versus Community: Will your choice impact one individual or
a wider group or community?
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Resolving an Ethical Dilemma - II

Three Resolution Principles:
• ‘Ends-Based’- which decision would provide
the greatest good for the greatest number
of people?
• ‘Rules-Based’- what would happen if
everyone made the same decision as you?
• ‘The Golden Rule’ – ‘do unto others as you
would have them do unto you’.

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6. Justifying Unethical Behavior

1. A belief that the activity is within reasonable ethical and
legal limits – that is, that it is not “really” illegal or immoral.
2. A belief that the activity is in the individual’s or the
corporation’s best interests – that the individual would
somehow be expected to undertake the activity.
3. A belief that the activity is “safe” because it will never be
found out or publicized; the classic crime-and-punishment
issue of discovery.
4. A belief that because the activity helps the company, the
company will condone it and even protect the person who
engages in it.

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Building & Operating an Ethical Business

• Requires a great deal more than simply

doing the right thing
• Must devote time to the development of
a detailed code of ethics that offers
“guidance with traction”
• Offer support to employees when they
are faced with an ethical dilemma
• Creating and maintaining a corporate
culture of trust
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Team Exercises
• You work in the IT department of a large international
company. At your annual performance review, you were
asked about your goals and objectives for the coming year
and you stated that you would like to become MCSE
(Microsoft Certified Systems Engineer) certified. You didn’t
get much of a pay raise for the MCSE course —you’re
attending the training next week. However, after receiving
the poor pay raise, you had polished your resume and
applied for some other positions. You have received an
attractive job offer from another company for more money,
and, in the last interview, your potential new boss
commented that it was a shame you didn’t have your MCSE
certification because that would qualify you for a higher pay
grade.
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Team Exercises 1
• The new company doesn’t have the training budget to put
you through the MCSE training for at least two years. You
tell the interviewer that you will complete the MCSE training
prior to starting the new position in order to qualify for the
higher pay grade. You choose not to qualify that statement
with any additional information on who will be paying for
the training. You successfully gain the MCSE certification
and then give your two weeks’ notice. You start with your
new company at the higher pay grade. Is that ethical?

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Team Exercises 3
• You work for a local nonprofit organization in your city that
is struggling to raise funds for its programs in a very
competitive grant market. Many nonprofits in your city are
chasing grant funds, donations, and volunteer hours for
their respective missions—homelessness, cancer awareness
and treatment, orphaned children, and many more. Your
organization’s mission is to work with HIV/AIDS patients in
your community to provide increased awareness of the
condition for those at risk and also to provide treatment
options for those who have already been diagnosed.

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Team Exercises 3
• Unfortunately, with such a tough financial situation, the
board of directors of the nonprofit organization has
determined that a more focused mission is needed. Rather
than serving both the prevention and treatment goals, the
organization can only do one. The debate at the last board
meeting, which was open to all employees and volunteers,
was very heated. Many felt that the treatment programs
offered immediate relief to those in need, and therefore
represented the best use of funds. Others felt that the
prevention programs needed much more time to be
effective and that the funds were spread over a much
bigger population who might be at risk. A decision has to
be reached. What do you think?
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Team Exercises 4
• You are a senior manager at a pharmaceutical company
that is facing financial difficulties after failing to receive
FDA approval for a new experimental drug for the
treatment of Alzheimer’s disease. After reviewing your test
data, the FDA examiners decided that further testing was
needed. Your company is now in dire financial straits. The
drug has the potential to revolutionize the treatment of
Alzheimer’s, but the testing delay could put you out of
business. The leadership team meets behind closed doors
and decides the only way to keep the company afloat long
enough to bring the new drug to market is to raise the
prices of its existing range of drug products.

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Team Exercises 4
• However, given the financial difficulties your company is
facing, some of those price increases will exceed 1,000
percent. When questions are raised about the size of the
proposed increases, the chief executive officer defends the
move with the following response: “Look, our drugs are still
a cheaper option than surgery, even at these higher prices;
the insurance companies can afford to pick up the tab; and,
worst case scenario, they’ll raise a few premiums to cover
the increase. What choice do we have? We have to bring
this new drug to market if we are going to be a player in
this industry.”

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