LESSON 1: ETHICS AND BUSINESS

Introduction

Business is part of human society. And since it is part of the complex web
of interaction among institutions and people, its activities must be viewed and examined
from the perspective of morality. Business without ethics threatens the survival of
human society and in some cases, destroys the fiduciary relationship of people. The
study of Business Ethics paves the way for our common understanding of the
fundamental concepts of what is right and wrong in our human conduct and its
implications to business as an important human activity.

Objectives:

Upon the completion of this Lesson, you will be able to:

 Understand the nature of business from the moral perspective

 Rationalize the importance of ethics in business
 Apply the dynamics of moral reasoning as a framework for making
ethical decisions in business
 Examine the morality of profit-motive in business
 Justify the need for ethical propriety in business and the corporate
world

The Nature of Business:

Business is an activity that is part and parcel of human society. Society

will not exist without business. Since business is an integral part of society, its activities
must be examined from the ethical perspective, in the same way that society examines
politics, economics, government, culture and religion from the moral point of view. The
fundamental reason for examining the activities of business from the moral perspective
is for the promotion of the common good, protection of the individual’s interests and the
preservation of the human society in general. Without ethics, business will be a chaotic
human activity because there will be no common understanding and agreement about
what is the right and wrong human conduct.

Business Ethics and Social Responsibility | ABM 2202 1

The Importance of Ethics in Business:

The study of Business Ethics paves the way for a 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 into a kind of subjective
morality, in which case, what is good for one may be bad for another and vice versa.
With this subjective ethical paradigm, business people will consider some of their
actions good but unacceptable to others, e.g. cheating the customers to gain profit may
be acceptable to some businessmen but bad for others. 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 should govern our human
behavior and guide our moral decisions.

The Relationship between Ethics and Business:

Ethics plays an important role in business. Without morality, business will be a
chaotic human activity. Ethics is not a study of positive laws intended to govern and
regulate the actions of people doing business. The concern of ethics as a philosophical
science is to discover that there are unwritten laws, written in the heart of men that
should govern our human conduct where positive laws may be absent, and in some
cases, not very clear.

 Business is an integral part of human society. Therefore, the actions of

individuals and institutions in business must be subjected to moral rules and
moral evaluation.

 In business, as in any other human endeavor, “what is legal may not necessarily
be moral”. People tend to confuse legality with morality. An action may be legal
but not necessary moral, e.g. capital punishment (death by lethal injection). For
some, this is legal but in truth, this is immoral. Ethics provides us with a clear
distinction between morality and legality.

 Ethics is the unwritten law, written in the hearts of men. In the absence of the
law, Ethics will help us discern the correct conduct to follow based on the dictates
of conscience and reason.

 Managers and business leaders must also be prepared to respond to complex

situations bearing ethical consequences.

 Business organizations should not just look after their own interests but also the
interest of the common good.
Moral Reasoning in Business:

The essence of studying Business Ethics is to provide the manager as a

decision maker with a framework for the resolution of moral issues and problems
affecting business activities and the organization itself. Moral reasoning is a process in
which ethical issues and problems are benchmarked against a moral standard so that a
moral judgment is made possible.

Ethical Issues/ Problems

Moral Norm
REALITY CHECK Moral Standard MORAL JUDGMENT
Company Policy
Ethical Principles

SITUATION PROBLEM DECISION RESOLUTION

ANALYSIS ANALYSIS ANALYSIS

Example: -gravity of offense

Graft -frequency of offense
Sexual - harm done
Harassment Theft - number of people affected
Bribery - cost

-company rules/policies - moral

-ethical principles or
-codes of conduct immoral
- legal
-moral norms
or
illegal

The Morality of Profit-Motive:

People go into business for a number of reasons. Some go into business
for personal satisfaction. Others are in business to earn a livelihood. Still others are in
business because they want to serve the society through the goods and services they
offer to the customers. But the most common, if not the most dominant reason why
people go to business, is to make a profit. Business as an activity is unthinkable without
profit as motive. Traditionally, business people have looked at the profit motive as the
most important aspect of business. Peter Drucker, an equally famous management
guru, disagrees with this view and says that, “the primary responsibility of business is to
look for customers and satisfy their needs and wants.” Following this line of thinking,
Drucker is simply hinting that, profit is an important aspect of business, there are other
factors that the businessman must also consider in doing business such as customer
satisfaction, quality products, after sales policies, fair and reasonable pricing, among
others.
 The Assumptions of Profit-Motive:

1. Profit-Motive in business is an ethical issue. Since business is an

integral part of society, its activities, including profit-making, must be
examined from the perspective of morality. However, in business, the
concept of what is a reasonable profit is still a subject of endless
debates. Profit-Motive as an ethical issue within the two important
aspects of our human conduct-freedom and the structures of business.
The element of freedom implies that businessmen have the right to
decide on the amount of profit they want to earn in the process of
selling goods and services to customers. The structure of business, on
the other hand, is a tacit guideline that governs business activity
including profit making.

 The Good and the Bad Sides of Profit-Motive:

A. The Good Side of Profit-Motive:

1. Profit-Motive motivates people to do something meaningful, e.g. it
gives human life a goal to pursue and something to live for.
2. Profit-Motive promotes ingenuity and cleverness in running a business,
e.g. business leaders and entrepreneurs have to struggle hard to
overcome obstacles in order to achieve success.
3. Profit-Motive makes people productive. Because of their desire for
money.
4. Profit-Motive generates potentials capital for the business. Profit is
potential capital, something that can be invested to establish new
businesses.

B. The Bad Side of Profit-Motive:

1. Profit-Motive promotes rivalry among competitors, sometimes the
competitions becomes so stiff that it result into a “dog-eat-dog” world of
business where success is achieved by competing with others and
pushing them down in order that one’s own business.
2. Profit-Motive 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-
user.
3. Profit-Motive turns to businessman from being a reflective and a
questioning person because he focuses his attention only on the
practical activity of making money.
4. Profit-Motive promotes self-interest rather than the common good.
 The Concept of Moral Responsibility:

Man is by nature a being and a creature who is supposed to be responsible and

accountable for his actions. The reason for this is twofold: 1) Man is a rational being.
This means he is capable of moral judgment. Further, this also means that man is a
thinking being, thus, he is aware of his intentions as well as the consequences of his
actions. Man therefore, knows what he is doing because he is rational and a thinking
creature. 2) Man is a free being. This means that he has the capacity to exercise his
choices. This assumes that man is capable of choosing what is a good and a bad action
of him.

The author William H. Shaw, in his book Business Ethics (1999, pp. 163-165),
came up with three meaning of moral responsibility.

 Moral Responsibility refers to holding to people morally accountable for some

past action or actions. This simply means assigning to people blame or
praise for particular actions that they have performed.
 Moral Responsibility also means care, welfare or treatment of others as
derived from the specific social role that one plays in the society. In this
second sense, Moral Responsibility implies a duty to be performed by a
person depending on his role in the society.
 Moral Responsibility likewise refers to one’s capacity for making moral or
rational decisions on his own. According to Shaw, if a person is not morally
responsible in this third sense, he or she cannot be considered morally
responsible in either of the other senses.

Business Ethics Defined:

Business Ethics is the study of what is the right and wrong human behavior and conduct in business.

Business Ethics is a study of the perceptions of people about morality, moral

norms, moral rules and ethical principles as they apply to people and institutions in business.

Business Ethics is the study, evaluation, analysis and questioning of ethical standards, policies, moral norms an
EXPECTATIONS:
At the end of the lesson, you should be able to:
1. Discuss why Ethics is important in business.
2. Explain the phase: “Not all that is legal is moral, but what is moral in worth
legalizing.”
3. Define Business Ethics. What is your own personal definition of Business
Ethics?
4. Explain the phrase: “Ethics is the unwritten law written in the heart of men.”
5. What is your personal view of Profit-Motive?

CASE FOR ASSESSMENT:

Case 1: Ethics vs Profit
A large American company participates in a highly competitive industry. To meet
the competition and achieve profit goals, the company has chosen the decentralized
form of organization. Each manager of a decentralized center is measured on the basis
of profit contribution, market penetration, and return of investment. Failure to meet the
objectives established by corporate management for these measures is not accepted
and usually results in demotion or dismissal of a center manager.
An anonymous survey of managers in the company revealed that they felt
pressured to compromise their personal ethical standards to achieve the corporate
objectives. For example, certain plant locations felt the pressure to reduce quality
control to a level that could not ensure that all unsafe products would be rejected. Also,
sales personnel were encouraged to use questionable sales tactics to obtain orders,
including offering gifts and other incentives to purchasing agents.

The chief executive officer is disturbed by the survey findings, in his opinion, the
company cannot condone such behavior. He concludes that the company should do
something about this problem.

Questions:
1. What are the ethical problems mentioned in this particular case and what are
the probable causes of these problems?
2. Is it all right to do something illegal or unethical to maintain the company’s
image and profitability?
3. If you are the CEO of the company, what would you do and why?