Ethics and the Conduct of Business
Eighth edition
Chapter 1
Ethics in the World of Business
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Modules
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Learning Objectives
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Introduction: Ethics in the World of Business
Ethical issues and making sound business decisions to solve those problems
Case study – Merck and marketing of Vioxx
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1.1: Business Decision Making
Objective: Identify ethical issues created by diverse business situations and relationships and the level of decision making required to address them
1.1.1: Nature of Business
Distinguishing features of business
1.1.2: Levels of Decision Making
Three levels of decision making
Ethical displacement
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1.1.1: Nature of Business
Point 1- Distinguishing features of business
Business economics
Business organization
1.1.2: Levels of Decision Making
Point 1- Three levels of decision making
The individual
The organization
The business system
Point 2- Ethical displacement
Displacing ethical dilemmas to a higher level to solve the dilemma
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Table 1.1: Levels of Decision Making in Business
| Level | Type of Problem | Relevant Question |
| The Individual | The problem confronts an individual and requires that person to make a decision about his or her own response. | What do I do? |
| The Organization | The problem requires that the individual decision maker act on behalf of the organization to resolve the situation and possibly bring about some organizational change. | What do we as an organization do? |
| The Business System | The problem results from accepted business practices or from features of the economic system which cannot be effectively addressed by any single individual or organization. | What do we as a society do? |
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The individual
The organization
The business system
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1.2: Ethics Economics and Law
Objective: Recognize the role of ethics in the conduct of business, with respect to economic principles and the law
1.2.1: Ethics and Economics
Justification of market system
Conditions for free markets
Fairness in free market
1.2.2: Ethics and Law
Law and ethics are two different areas
Law exemplifies business ethics
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1.2.1: Ethics and Economics
Point 1- Justification of market system
Adam Smith’s argument
Factors influencing distribution of goods
Point 2- Conditions for free markets
Government’s role in ensuring conditions for free market
Point 3- Fairness in free market
Ethics influence people’s economic behavior
Importance of fairness in business
Economics supporting public policies should be guided by noneconomic values
1.2.2: Ethics and Law
Point 1- Law and ethics are two different areas
Law is public
Ethics is private
Law should be observed by all
Ethics is optional
Point 2- Law exemplifies business ethics
Ethics are enacted by lawmakers
Something legal is ethical
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Table 1.2: Acting Ethically and Legally
| Argument | Implication |
| 1. The law cannot regulate all aspects of business activity. | Not everything that is legal is moral.Not everything that is immoral is illegal. |
| 2. The law is often slow to develop in new areas of concern. | Businesses should not wait to “do the right thing” until forced to act by law. |
| 3. The law often employs moral concepts that are not precisely defined. | To abide by the law, business leaders need to understand key moral concepts well enough to use their own judgment when making decisions. |
| 4. The law itself is unsettled on whether some course of action is legal. | The courts are often guided by moral considerations in making a decision. Where there is doubt about what the law is, morality is a good predictor. |
| 5. An exclusive reliance on law alone and failure to act responsibly can result in legislation and litigation. | Self-regulation and observing ethical standards can prevent unnecessary lawsuits and new laws that may interfere with business. |
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Acting ethically and legally
Arguments
Implications
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1.3 Ethics and Management
Objective: Distinguish between ethical management and the management of ethics, and each of the three main roles of a manager
1.3.1: Ethical Management and Management of Ethics
Ethical management
Internal environment
1.3.2: Ethics and the Manager's Role
Role
Obligations of a role
Justifications for role obligations
Economic actors
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1.3.1: Ethical Management and Management of Ethics
Point 1- Ethical Management
Important for both individual success and organizational effectiveness
Ethical misconduct has ended careers
Ethical dilemmas result from misconduct by others
Point 2- Internal environment
Policy on conflict of interest or the values expressed by a company’s mission statement involves ethics
Effective organizational functioning depends on acceptance, perception of fairness, commitment
1.3.2: Ethics and the Manager's Role
Point 1- Role
Role is a structured set of relationships with accompanying rights and obligations
In occupying a role, a person assumes certain rights and role-specific obligations
A good purchasing agent makes purchasing decisions that are best for the organization
Point 2- Obligations of a role
A person occupying a role assumes obligations over and above those of everyday life
Conflicts arise between role and other obligations
Point 3- Justifications for role obligations
Must consider a wide range of interests
Roles are created in order to serve society better as a whole
A well-designed system of roles, rights, and obligations benefits everyone
Point 4- Economic actors
Required to make sound economic or business decisions that enable the firm to succeed
Expected to consider economic factors
Measure of success is profitability
Ethical issues are intertwined with business considerations
Soundness of decision making depends on recognition and resolution of ethical issues
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1.4 Ethics in Organizations
Objective: Analyze how ethical business conduct is challenged by decision making on individual and organizational levels
1.4.1: Individual Decision Making
Individual decision making
Rationalizations
1.4.2: Organizational Decision Making
Features that contribute to mistakes in decision making
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1.4.1: Individual Decision Making
Point 1- Individual decision making
Lack of strong guidance
Individuals persuade themselves that certain action is not wrong under the circumstance
Biases
Heuristics
Examples of biases and heuristics
Point 2- Rationalizations
“No harm no foul”
“I deserve this”
“It’s for a good cause”
“If I don’t do this, someone else will”
1.4.2: Organizational Decision Making
Point 1- Features that contribute to mistakes in decision making
Making decisions over time and not at once
Multiple decisions lead to an unstoppable course of action
Diffusion of information
Fragmentation of responsibility
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Conclusion: Ethics in the World of Business
Ethical issues are unavoidable
Ethical decision making is important for the success of a business
Economics and law are not the complete guide for decision making
Misconduct can be corrected by changing the decision-making process.
Case studies
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