Business Ethics

Concepts & Cases

Manuel G. Velasquez
 Chapter Eight

Ethics and the Employee

Three models of the business
organization
 The rational structure model, by its emphasis on formal
relations of command and division of labor, highlights issues
regarding empolyee-firm and firm-employee duties.
 The political model with its focus on competing coalitions and
informal exercises of power, highlights issues regarding abuses
of power and related employee rights.
 The caring organization model, with its focus on nonpower
relations of cooperation, challenges authoritarian and
competition-based assumptions about how business
organizations do and should work.
 The Rational Model of a Business Organization

• Formal hierarchies identified in the organizational

chart are the firm’s fundamental realities.
• Organizations seek to coordinate the activities of
members so as to achieve their goals with
maximum efficiency.
• Information rises from the bottom of the
organization to the top.
• Contracts obligate the employee to loyally pursue
the organization’s goals and the employer to
provide a just wage and just working conditions.
The Employee's Obligations to the Firm
• Main Duty: to work towards the goal of the firm
▫ obedience to superiors
▫ avoidance of activities which might be harmful to these
goals, such as"white collar crime" = illegal pursuit of
activities harmful to these goals; mismanagement of
funds; malingering, absenteeism, etc.
• Law of Agency: "agents" = employees; "principals" =
employers
▫ specifies the legal duties of employees toward their
"principles," or employer.
▫ The employee must pursue the firm's goals and do
nothing that conflict with them while working for the
firm.
CONFLICT OF INTEREST
 A conflict of interest exists when an employee or officer in in
company is engaged, for the company in carrying out a task in
which the employee has a private interest possibly contrary to the
interests of the company substantial enough that it reasonably
might affect the employee's judgment
 When conflicts of interest involve a financial relationship, it is
sometimes called an objective conflict of interest.
 When it involves an emotional tie or other kind of relationship, it is
sometimes called a subjective conflict of interest.
 Examples
• Financial: a corporate officer involved in deciding on bids from
subcontractors when he or she holds stock in one of the bidding
companies
• Non financial: a personnel officer involved in hiring decisions
involving close relatives
TYPES OF CONFLICT OF INTERESTS
• Conflicts of interest may be actual or potential.
• A potential conflict of interest occurs when an employee
has an interest that could influence what he does for his
company if the employee were performing a certain task
for his company, but he has not yet been given the task.
• That would be called a potential conflict of interest.
• If that employee is actually given the task to perform
under the same conditions, an actual conflict of interest
would exist.
• An apparent conflict of interest would exist if an
employee has no actual conflict of interest but other
people might view the situation and wrongly believe that
there is an actual conflict of interest.
 Avoiding or Eliminating a Conflict of
Interest
• Removing oneself from the task in which the
conflict of interest arises.
• Eliminating the interest that creates the conflict
of interest.
• Eliminating or changing the obligation of serving
the employer’s interests and remaining free of
any incentive to serve another interest while
serving the employer.
 Commercial bribes &
Commercial extortion
Commercial bribes and extortion are
obviously unethical and create clear conflicts of
interest.
• Commercial bribes – a consideration given or offered to an
employee by a person outside the firm with the understanding that,
when the employee transacts business for the firm, the employees
will deal favourably with that person or that person’s firm.
▫ example: a supplier who offers a purchasing agent a
"kick back" for placing orders with them rather than
competitors.
• Commercial extortion – Occurs when an employee demands a
consideration from persons outside the firm as a condition for
dealing favourably with those persons.
▫ purchasing agent who demands a "kick back" from suppliers as a
condition for placing orders with them rather than competitors.
• Commercial gifts: considerations given or offered to an employee by
a person outside the firm with no understanding that the employee
will deal favorably with them.
▫ Moral issue: the fine line between a gift and a bribe.
 Ethics of Accepting Gifts
(Vincent Barry)

Factors to be considered when evaluating the morality

of accepting a gift:
1. What is the value of the gift?
2. What is the purpose of the gift?
3. What are the circumstances under which the gift
was given?
4. What is the position of the recipient?
5. What is the accepted business practice in the area?
6. What is the company's policy?
7. What is the law?
 Employee Theft
• Employees have a contractual agreement to accept only
specific benefits in return for their services and to use the
firm's resources for the good of the firm.
• Any other use of company resources and any other
appropriation of benefits by the employee counts as
theft.
• Though theft is often petty (such as the stealing of office
supplies or the padding of expense accounts), it extends
to white-collar crimes such as embezzlement, larceny,
fraud, and forgery.
Computer and Information Theft
 the unauthorized examination, use, or copying
of computer information or programs – is held
to be theft notwithstanding the intangible
nature of the property taken.
 Example: Copying a company's software or
data, or using a company computer for
personal business (unless explicitly allowed).
 Theft of information also includes digitized
programs, music, movies, e-books, etc. as well
as proprietary formulas or other data.
 TRADE SECRETS
• Propriety information or "trade secrets" is
information that the company owns
• concerning its activities, which it explicitly
indicates that it does not want others to have.
• Sharing such information is also unethical.
• Example the formula for Coca Cola nature.
• Skills acquired through working for the firm,
however, are considered parts of the employee's
person and not property of the employer, and do
not count as trade secrets.
INSIDER TRADING
 Buying or selling stock in a corporation on the
basis of "inside" information about the company
 "inside information" refers to proprietary
information about a company, not available to
those outside the company, which would have a
material or significant impact on the price of the
company’s stock if known.
 The Ethics of Insider Trading
• Insider trading is said to be unethical because it is theft of
information that gives the insider an unfair advantage.
• It has been defended because :
(a) it ensures stock prices reflect the true value of the stock
(b) it harms no one
(c) having an advantage over others in the stock market is not wrong
in itself and is common among experts
• These defenses have been criticized because:
(a) the information the insider uses is not his or hers and so is stolen
(b) trading on inside information has harmful effects on the stock
market and increases the costs of buying and selling stocks
(c) the advantage of the inside trader is not like the advantage of an
expert because it is based on theft.
 The Firm's Duties to the
Employee
 A firm's main moral duty to its employees is to provide them
with a fair wage and fair working conditions.
 Setting a fair wage is both important and difficult balancing the
employer’s interest in minimizing costs and the workers’ interest
in providing a decent living for themselves and their families.
 What's a fair wage? employees want higher wages while
employers want to minimize production costs (including labor)
 Fair Wages
Fair wages depend on:

1. What is the going wage in the industry and the area?

2. What are the firm's capabilities?
3. What is the nature of the job including its risks, skill
requirements and demands?
4. What are the minimum wage laws?
5. What are the other salaries in the firm?
6. Were wage negotiations fair?
7. What are the local costs of living?
Working Conditions: Health and Safety
• Issues regarding the fairness of working conditions arise,
principally, concerning health and safety, and job
satisfaction.
• Statistics show that workplace injuries are frequent and
often serious.
• Unavoidable risks incurred in some occupations are
acceptable so long as workers are well compensated for
accepting these risks, and freely and knowingly accept
them in exchange.
• Morally problematic cases arise when workers incur
risks unknowingly because they lack the time or
expertise to judge the hazards of a job they accept; where
risks are unknown; or where workers accept known risks
out of desperation due to uncompetitive labor markets.
 Employer Guidelines
• Risk in the workplace is an unavoidable part of
many occupations.
• So if employers take the following precautions, the
employer can be said to have acted ethically:
1. Takes reasonably adequate measures to inform
him or herself of his and his or her workers about
workplace risks and eliminates workplace risk.
2. Fully compensates and insures workers for
assuming risks that cannot be eliminated.
3. The workers freely and knowingly accept those
remaining risk in exchange for the added
compensation.
 Establishing Fair Working Conditions
• Eliminating risks when cost is reasonable, studying
potential risks of a job, informing workers of known
risks, compensating workers for injuries.
– Providing compensation for job risks similar to risk
premiums paid in other jobs.
– Providing adequate medical and disability benefits.
– Working with other firms to collect information
about job risks.
Moral Responsibility for Working Conditions

• Employer is morally responsible for bad

working conditions if the employer:
▫ Can and should improve conditions
▫ Knows about the conditions
▫ Is not prevented from changing conditions
ORGANZATIONAL POLITIC
The processes in which individuals or groups within an
organization use nonformally sanctioned power tactics to
advance their own aims.

Because organizational politics aim to advance the interests

of an individual or group, political individuals tend to be
covert, which means that they can easily become deceptive
or manipulative.
 POLITICAL ORGANIZATION
• The political model of the organization focuses on real – both official and
unofficial – power and authority relations.
• Organizations are conceived of as systems of competing power coalitions
with formal and informal lines of influence and communication radiating
from each.
• The fundamental organizational reality, on this conception, is power,.
• The principal moral issues arising on the political model, consequently,
concern the moral limits on the exercise of power within organizations:
employee rights issues concern the moral limits on the power superiors
acquire and exercise over subordinates; office politics issues concern the
moral limits on the power of employees acquire and exercise over one
another.
• If power is the main organizational reality, then the primary ethical
problems in an organization are connected with acquiring and exercising
power.
 2 Main Questions:
1. What are the moral limits to the power managers
acquire and exercise over their
subordinates?
2. What are the moral limits to the power employees
acquire and exercise on each other?

With regard to employee rights, a comparison may

be drawn between the defining features of political
or governmental authority and of corporate
management.
 Similarity Argument
• Similarities between the power of management and government
imply employees should have rights similar to citizens’ rights.
▫ A company’s management is a centralized decision-making
body that exercises power, like a government.
▫ Managements wield power and authority over employees, like
governments wield over citizens.
– Management has the power to distribute income, status, and
freedom among the corporation’s constituencies, like
government does with respect to citizens.
– Management shares in the monopoly on power that
government possesses.
– Since management’s power over employees is so similar to
government’s power over citizens, employees should have
rights that protect them from managers’ power, just as citizens’
rights protect them from government power.
 Replies and Counter-Replies to Similarity
Argument
• Power of government is based on consent and so is unlike
the power of managers which is based on ownership of the
company, but supporters of similarity argument respond
that today power of managers does not come from owners.
• Unlike government, the power of management is limited by
unions, but supporters of similarity argument respond that
most workers today are not unionized.
• While it is hard for citizens to escape the power of a
government, it is easy for employees to escape the power of
managers by changing jobs, but supporters of similarity
argument respond that changing jobs is not always so easy.
 Freedom of Conscience
• Employees may discover, in the course of doing their job, that a
corporation is doing something wrong or injurious to society commonly
insiders are the first to become aware of matters of potential moral
concern, e.g., defective products, polluting practices, unsafe working
conditions & illegal activities.
• Bringing the matter to the attention of supervisors may be ineffective or
ruled out: supervisors might not want to know to avoid complicity, or
already know and be be complicit.
• On the other hand, if the employee goes public with the information, this
is legally considered just cause for termination as a breech of the
employee's duties of loyalty and confidentiality to the firm.
• Often employers will put the matter on the employees record and attempt
to see to it that they are "black-balled" throughout the industry.
• Many argue that this situation is in violation of individuals' rights of
conscience, i.e., their right to adhere to their moral and religious
convictions without being forced to cooperate in activities they believe
are wrong.
Whistleblowing
The attempt by an employee to disclose wrongdoing in
an organization, can take two forms.
It is internal if it is reported only to management within
the organization.
If it is reported to others (such as governmental
agencies or the media), then it is external.
Argument against external whistleblowing
• Employee has a contractual obligation to be loyal
to their employers and keep inside information
confidential external whistleblowing is a
violation of that obligation so, external
whistleblowing is always wrong.
• Defenders of whistleblowing reply that
contractual obligations are not unqualified and,
in particular, that contracts requiring parties to
do something illegal or immoral are void.
Whistle blowing is morally justified
• External whistleblowing is morally permissible and may even be
obligatory if it is necessary to prevent a wrong one morally ought
to prevent or to bring about a good one morally ought to bring
about; provided:
1. there is clear, substantiated, and reasonably comprehensive
evidence of harmful activity or wrongdoing;
2. that reasonable attempts at internal whistleblowing have failed;
3. that it is reasonably sure that the external whistleblowing will
stop the activity; and
4. that the wrong or harm the whistleblowing will prevent
outweighs the harm it will cause to parties such as stockholders,
superiors, and fellow employees.
 Additional conditions
• Whistleblowing is a moral obligation for a
person when (1)–(4) hold, and, in addition:
▫ the person has a special duty to prevent the
wrong or is the only person who will or can
prevent the wrong
▫ the wrong involves an extremely serious harm
to society’s welfare, or extremely serious
injustice, or extremely serious violation of
rights.
ORGANIZATIONAL POLITIC
Organizational politics is defined as the process by which
individuals or groups within an organization use non-
formally sanctioned tactics (political tactics) to advance their
own aims. (Such aims are not necessarily in conflict with the
best interests of the organization.) Because organizational
politics aim to advance the interests of an individual or
group, political individuals tend to be covert, which means
that they can easily become deceptive or manipulative
 POLITICAL TACTICS
1. Blaming or attacking others.
2. Controlling information.
3. Developing a base of support for one's ideas.
4. Image building.
5. Ingratiation.
6. Associating with the influential.
7. Forming power coalitions and developing
strong allies.
8. Creating obligations.
 Characteristics of the Caring Model of
Organization
• The primary goal of the organization is not profit, but
caring for those individuals who make up the
organization and with whom the organization interacts.
• The characteristics of a caring model of the
organization would be focused entirely:
▫ Caring is focused entirely on persons, not on “profit” or
“quality.”
▫ Caring is undertaken as an end in itself not as a means to
productivity.
▫ Caring is essentially personal.
▫ Caring is growth-enhancing for the cared-for.
Problems for the Caring Organization

• Caring too much for others which can lead to

“burnout” when the needs of others are given too
much weight compared to the needs of the self.
• Not caring enough for others because fatigue, self-
interest, or disinterest leads us to ignore their
needs.
• The organization systematically drives out caring
with layoffs, bureaucracy, managerial styles that
see employees as disposable, or rewards that
encourage competitiveness and discourage caring.