CHAPTER 01

INTRODUCTION TO BUSINESS ETHICS

Sources:
1. Velasquez, 2. Shaw

Dr. Md Tapan Mahmud

AIS, FBS, BUP
WHY IS ETHICAL DISCUSSION
ESSENTIAL FOR ACCOUNTING
PROFESSIONALS?

2
CORPORATE SCANDALS: GLOBAL

3
CORPORATE SCANDALS: NATIONAL

4
 LEARNING OBJECTIVES

1. How can we Conceptualize Value-Morality-Ethics?

2. Are there any moral standards/benchmarks?

3. If there is, what are the sources of those standards?

4. How is morality poised in all kinds of decision-making?

5. How do we use moral and non-moral standards in real-life

scenarios?
 LEARNING OBJECTIVES

6. How can we compare/contrast Morality – Law – Religion?

7. What is moral reasoning, and how does it influence judgment-

making?

8. How can we analyze the moral reasoning process?

9. What is the application of ethics in Business?

10. What are the different scopes/areas of business ethics?

11. What are the various arguments for and against business
REAL-LIFE DILEMMA…

7
5 ORDINARILY INJURED VS 1 CRITICALLY INJURED
5 ORDINARILY INJURED VS 1 HEALTHY
PERSON
VALUE – MORALITY – ETHICS

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 VALUE & MORALITY

• Value is impulse regarding right or wrong – individualistic and

inherent/personal

• Morality is mere thought (positive or negative) about a certain

phenomenon – larger in scope and imposed from outside

• The Standards that an individual or a group has about what is

right and wrong or good and evil.

• Moral standards include the norm we have about the kinds of

actions we believe are morally right or wrong as well as the
values we place on the kinds of objects we believe are morally
good and morally bad.

Action: It is wrong to take the assets of the poor. 13

Object: Honesty is a great virtue. (Abstract)

 DEFINITION OF ETHICS

• Ethics is the study of morality.

• Ethics is a kind of investigation that includes both the activity of

investigating as well as the results of that investigation

• Investigation in accordance with the reference to morality

• Addresses questions about morality - good and evil, noble and

ignoble, right and wrong, justice and virtue.

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MORAL & NON-MORAL
STANDARDS

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 MORAL STANDARDS – SOURCES

Sources of Moral Standards:

• Religious Institutions – Church/ Mosque/ Pagoda/ Temple – School
• Television
• Magazine
• Music
• Association (Group)
• Culture
• Early upbringing
• Experience and Critical reflection on those experiences.

 Further experience, Learning, and Intellectual development

may also assist in molding or modifying prior moral standards.

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 NON-MORAL STANDARDS – SOURCES

Non-moral Standards:

• It includes the standards of etiquette by which we judge manners

as good or bad.

• By Standards of Law, we judge lawful rights and wrongs

• By language standards, we judge whether a particular

writing is grammatically right or wrong.

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MORAL VS NON-MORAL STANDARDS – HOW TO DIFFER?

1. Moral standards deal with matters that we think can seriously

injure or seriously benefit human beings.

• Example: Theft, enslavement, Charity, Donation, murder,

child abuse, assault, slander, fraud, etc. (Moral)

• A grammatical mistake on a report (Non-moral)

2. Moral standards are not established or changed by the decision

of particular authorities/bodies.

• Example: The law of a country is made or modified by a

particular body or authority, whereas morality is self-made by an
individual or a particular group. 18
MORAL VS NON-MORAL STANDARDS – HOW TO DIFFER?

3. Moral standards should be preferred over other values, including

self-interest.

• Example: If someone has to make a particular decision by which

his self-interest would be harmed but welfare would be done,
then welfare should be chosen over self-interest.

4. Moral standards are associated with special emotions and a

special vocabulary.

• Example: I would normally feel guilty if I act contrary to

moral standards. I would experience a loss of self-esteem.

• If I take the assets of a poor or do something that has a

negative impact on society, my self-valuation (self-esteem) would
19

be downward sloppy.
MORAL VS NON-MORAL STANDARDS – HOW TO DIFFER?
5. Moral standards are based on a moral point of view, which goes
beyond the personal interest to a “universal” (impartial
consideration) standpoint in which everyone’s interests are
impartially counted as equal.

• Example: When we are in an ethical dilemma to make a mutually

exclusive decision, where me and mass are related, then we
should choose the decision that would not hamper the interest of
mass or would benefit them.

 Exceptional scenario: Sometimes being partial is morally

supported!! In the case of family members.

• Example: Suppose my family and I must escape during a war scene. We

need to pass a river to do so. On the boat, only 6 people can be
accommodated. My family member consists of 4 male and 2 female. 20
I
 MORALITY IN ALL SORTS OF DECISION MAKING

• Whenever we make judgments about the right or wrong way to do

things (literally anything) or judgments about what things (actions)
are good or bad, our judgments are based on standards of some
kind (Moral or Non-moral).

 The irony of fate: We sometimes choose non-moral standards over

our moral standards.

• Example: A recession is going on and the company is going

through constant loss.
• In this situation, the CEO follows the company by-laws and lays off
some of the employees.
• Here, he doesn’t consider the impact of this layoff on the employee
and on his family. Rather, he chose the non-moral standard of by-laws
21
over the moral standard of looking out for the negative consequences
 MORAL STANDARDS - TAKEAWAY

• Deal with matters of serious consequences

• Are based on good reasons and are not based on authority

• Override self-interest

• Are associated with feelings of guilt and shame and with a

special moral vocabulary

• Are based on impartial consideration

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MORALITY V S. LAW

23
 MORALITY & LAW

• Law
• Strict (Can’t be altered)
• Made by a Particular Authority
• Focus is very specific
• Floor level of decision-making reference

• Morality
• Changes according to values, culture, tradition & customs of a
society
• Judged and made by a particular individual or community
• Focus is very broad
• Ceiling of decision making

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 MORALITY & LAW

• An action can be illegal but morally

right:
• Example: In the Second World War, the
German government made a law to kill
the Jews whenever found and also
compelled the Germans to help capture
them. In this context, if a German
family hides a Jewish family, it is illegal
but morally right.

• An action can be legal but morally

wrong:
• Example: Consider that last example. If
the German family helped the German
Military to capture a Jewish family, it
would be legal but not morally right.
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MORALITY & RELIGION

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 MORALITY & RELIGION

• Religion is one of the most important vibrator in the formulation

of a particular community’s belief / believes; but religion is not
the “morality” itself. This point can be clarified with the
following 3 arguments:

1. Although a desire to avoid hell and go to heaven may prompt

some of us to act morally, this is not the only sole or common
reason for which people behave morally.

• We are often motivated to do what is morally right out of

concern for others or just because it is right.
• Atheists generally live life as moral and upright as those of
believers.

2. The moral instructions of the world’s great religions are general

and can be interpreted in different ways in different contexts.
 MORALITY & RELIGION

3. The “Divine Command Theory” postulates that if something is

wrong then the only reason for which this is wrong is that “God
commands us not to do it.”

• God forbids us to steal from others. It doesn’t mean it is

forbidden for just it is a God Almighty’s command; rather it is
forbidden because it (to steal) by itself a bad human behavior
which can hurt other human.

• Most religion holds that human reason is capable of

understanding what is right and wrong.

 So, it is human reason to which you will have to appeal in order

to supportTransparency International:
your ethical principle.Corruption Perception Index (
https://www.transparency.org/en/cpi/2023)
 MORAL REASONING
&
DEALING WITH MORAL
DILEMMAS

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 MORAL REASONING

• The reasoning process by which human behaviors, institutions, or

policies are judged to be in accordance with or in violation or
moral standards.

• It has two essential components:

i. An understanding of what reasonable moral standards

require, prohibit, value or condemn

ii. Evidence or factual information tied to that particular

moral enabling to perform a judgment.
 MORAL REASONING - FLOWCHART

• A society is unjust if it doesn't treat

Mora
l minorities equal to whites.
Stan
dard

• In America 41% of Negros (Afro-

Americans) fall below the poverty line
Fact as compared with 12% of whites.
s

Judg
ment
of
• American society is unjust.
right
or
wron
g
 MORAL REASONING – HOW TO ANALYZE?

1. Moral reasoning must be logical and rigorously examined, and

the moral and factual assumptions should be explicit.

2. The factual evidence must be accurate, relevant and complete.

3. The moral standards involved in moral reasoning must be

consistent with each other and with other standards and belief
the person holds.

• When there prevails an inconsistency between two moral

standards one of the standards has to be modified to be
consistent with the other one.

Ex: Boss Vs People: Your boss has ordered you to market

powdered milk containing melamine. If you don’t do so you
will lose your job – conflict of loyalty!
 MORAL REASONING – HOW TO ANALYZE?
Here you have two conflicting moral standards (Loyalty Conflict also!):

i. You should obey your agent from the point of view of loyal agent
theory and looking after your dependent family member constitutes
your basic duty (Loyalty to boss)
ii. Killing innocent children is a grievous wrong (Loyalty to morality)

Here you can get out of the conflicting situation in the following ways:
iii. Either You choose the standard - caring for the “innocent child” and
leave the job
iv. Or you choose the standard – of being a loyal agent to your boss
and Kill innocent children consciously

Or you may modify either :

1. One of the moral standards or (Hitler’s Army in killing Jews,
Lynching minorities, Eating other tribe members)
 MORAL REASONING - ADDED NOTES

• Ethical Belief or Evidentialism?

• Ethical dilemma: Who should

you believe?

• https://www.youtube.com/watch?v=FB921
D40ibw
 MORAL
REASONING –
REAL LIFE CASE

•https://
www.youtube.com/watch?
v=dJxsiUvccuM
•https://
www.youtube.com/watch?
v=kLTuKM1IPpQ
 MORAL REASONING – HOW TO ANALYZE?

• One must apply the same moral standard in the reasoning

process that he/she applies to another one that is relevantly
similar.

• Example: Price Fixation. (Self Vs Supplier)

• When you and your co. get a chance, you take the
advantage of market situation and fix price to get
abnormal profit.

• Suppose , you have a supplier and once he and his

co. fixed price of your raw materials and grabbed
abnormal profit.

• Then you accused the supplier of being a price fixer.

Here you are having different moral standards in
different situations.
 WHAT WE HAVE NOTED SO FAR…

• Definition of Ethics

• Morality

• Moral Standards

• Morality and Law

• Morality & Religion

• Moral Reasoning

Now to BUSINESS ETHICS…

BUSINESS ETHICS
DEFINITION
SCOPE
ARGUMENTS FOR/AGAINST

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 BUSINESS ETHICS: DEFINITION

• It is a specialized study of moral right & wrong. It concentrates on

moral standards as they apply to business institutions,
organizations and behavior.

• It is a form of applied ethics. It not only includes the analysis of

moral norms and moral values but also attempts to apply the
conclusion of this analysis to that assortment of institutions,
organizations, activities; and pursuits that we call “Business”…

Implement the
Take the Basic outcome of the
Take the conclusion
notion and analysis previous two stages
arising from those
of moral views of into the business
notion and analysis
right and wrong itself and its related
activities.
 BUSINESS ETHICS: AREA / SCOPE

• Business Ethics investigates three different kinds of issues.

Namely:

• Systematic issues

• Corporate issues

• Individual issues
 BUSINESS ETHICS: SYSTEMIC ISSUE

• It raises Ethical questions about the Economic System, Political

System, Legal System, Social System, or Institution within which
the organization operates.

• These include questions about the morality of capitalism, laws,

regulations, industrial structures and social practices within which
a particular country’s business operate.

• How to deal with such issues?

• If a company is trying to deal with systematic issues, such as a
government culture that permits bribery; then the issue must
be dealt with at a systematic level
• It must be dealt with through the coordinated actions of many
social groups.
 BUSINESS ETHICS: CORPORATE ISSUE

• It raises ethical question about a particular organization.

• These include question about the morality of the activities,

policies, practices or organizational structure of an individual
company taken as a whole.

• How to deal with such issues?

• Corporate ethical issues can be solved only through corporate
or company solution.
• If a company has a culture that encourages moral
wrongdoing , for example, then changing that cultures
requires the cooperation of the many different people that
constitute the company.
 BUSINESS ETHICS: INDIVIDUAL ISSUE

• It raises ethical questions about a particular individual or

particular individuals within a company and their behaviors and
decisions.

• How to deal with such an issue?

• Individual ethical issues need to be solved through individual
decisions and, perhaps, individual reform.
 BUSINESS ETHICS: ARGUMENTS AGAINST

• Businesspeople claim that they should single-mindedly pursue

the financial interest of the firm and not sidetrack their energies
or their firm’s resources into “doing good works”.

1. In perfectly competitive free markets, the pursuit of profit will by

itself ensure that the members of the society are served in the
most socially beneficial ways. To be profitable each firm has to
produce only what the members of society want.

• Assumptions / Criticism of this argument:

A. They assume that all industrial markets are perfectly
competitive. Supply and demand create an equilibrium price
level.

• In fact, most industrial markets are not “perfectly

competitive,” and to some extent, they can profit even
 BUSINESS ETHICS: ARGUMENTS AGAINST

• Assumptions / Criticism of the first argument:

B. They assumed each firm takes only those steps that are
based on the welfare of the society.

• Actually, all the profit-making steps are not socially

beneficial.
• Ex: harmful pollution, deceptive advertising, fraud, bribery, tax
evasion, price fixing etc.

C. The argument stated that the business organization

produces products for all the members of the society.

• In fact, business organizations are not always producing

goods that are necessarily meeting the demands of the
poor and disadvantaged.
 BUSINESS ETHICS: ARGUMENTS AGAINST

2. “Loyal Agent’s Argument” – it postulates that:

A. Manager has a duty to serve the employer In whatever

way the manager wants him to serve

B. Employer would want to be served in whatever ways will

advance his or her self-interest.

Hard Fact: The argument is often used to justify a manager’s

unethical or illegal conduct.
 BUSINESS ETHICS: ARGUMENTS AGAINST

3. Many businesspeople think that being ethical means being with

the law of the business. They make ethics and law equivalent to
each other.

• It is true that some laws require behavior that is the same as

the behavior required by our moral standards

• However, this is only true for a few cases.

• (Can you remember the floor and ceiling theory).
 BUSINESS ETHICS: ARGUMENTS FOR

1. Ethics should govern all voluntary human activities and because

business is a voluntary human activity, ethics (business Ethics)
should also govern business.

2. Like any other human activities business activities can’t exist

unless the people involved in the business and its surrounding
community adhere to some minimal ethical standard.

3. Ethical consideration are consistent with business pursuits, in

particular with the pursuit of profit.
• The company that has a history of good ethics normally cuts a
good profitable figure in the long run.
 BUSINESS ETHICS: ARGUMENTS FOR

4. Business interactions with related parties are repetitive and

ongoing.
• If one party acts unethically, the other party will find a way to
respond to that Particular unethical act.

Conclusion: so unethical behavior tends to put costs on business,

whereas ethical activities set the stage for mutually advantageous
interaction with cooperative parties.
 EXTERNALS
• Why should we study ethics and morality?
• https://www.youtube.com/watch?v=9j3PCm1izjI

• What is the difference between ethics, morality, and law?

• https://www.youtube.com/watch?v=Xki2fRA0bY8

• Ethical Dilemmas and Decisions:

• https://www.youtube.com/watch?v=eVM8olnE2O4

• Ethics and Profit:

• https://www.youtube.com/watch?v=njQt_El2G2c

• What makes a company Ethical?

• https://www.youtube.com/watch?v=F6UB5_x6rTU

• The Importance of Business Ethics:

• https://www.youtube.com/watch?v=pHrDUu4Rjtg

• What motivates people to be honest in business?

• https://www.youtube.com/watch?v=Qhomjw2P-V0