2. Business Ethics Unit i

BUSINESS ETHICS AND CORPORATE GOVERNANCE

Unit I

Notes prepared by Prof. P. Madhusoodanan Pillai

”Ethics consists of the standards of behavior that our society accepts.”

Ethics is the discipline that examines one’s moral standards or the moral standards of society- It asks how these standards apply to our lives and whether these standards are reasonable or unreasonable?- good or bad reasons!

A person starts to do ethics when he or she takes the moral standards absorbed from family, the society, the religion, from friends, coworkers and asks: What do these standards imply for the situations in which I find myself?. Do these standards really make sense?

Case.1

The River Blindness of Merck & Company!

River Blindness is an agonising disease that affects more than 20million people in Africa and Latin America caused by a tiny parasitic worm that is passed from person to person by the bite of the black fly, which breeds in river waters. The tiny worms burrow under a person’s skin, where they grow as long as 2 feet curled up inside ugly round nodules half an inch to an inch diameter. Inside the nodules the worm reproducing by releasing millions of microscopic offspring called microfilaria causing intense itching that sometimes insist the victim to commit suicide. Eventually, the microfilaria invade the eyes and blind the victim!. In 1979, Dr . William Campbell, a research scientist working for Merck and Company, discovered evidence that the animal drug Ivermectin, might kill the parasite that cause river blindness. He requested the Chairman, Dr.P.Roy Vagelos, to allow them to develop a human version of the drug.

1. The cost for new project required $100million

2. If side effects the sales of Ivermectin $300 million

3. Risky

4. If cheap version available, might have been smuggled for animal use

5. Merck and Company had world wide sales $2billion a year

6. Merck and Company managers were reluctant! After 7 years of research Merck and Company succeeded in developing a human version of Ivermectin.

7. Nobody was able to buy the miraculous pills

8. Merck approached to WHO

9. US govt. No response, free to all, but no

10.Merck financed an International Committee

11. In 1996, the committee with Voluntary associations provide the drug to many millions

12.When asked why the company had invested?

13.Dr.Roy replied it as ethical choice!!!

14.15 years back Merck brought streptomycin to Japan after II world war

15.Business culture and ethics linked with profit

16.The term ethics has a variety of meanings

17.Personal ethics

18.Group ethics

19.Work ethics

20.Professional ethics

21.Social ethics

22.Accounting ethic

23.Ethics is the study of morality

24.Morality as the standards that an individual or a group has about what is right and wrong, or good and evil

25.Human values and human benefits

Ethics is the study of moral standards, moral judgements based on those standards

Business ethics is a form of applied ethics that examines ethical principles and moral or ethical problems that arise in a business environment.

In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethicism) is increasing.

Business ethics can be both a normative and a descriptive discipline.

Case 2 - The Tylenol Crisis

On September 30th 1982, James Burke, the CEO of Johnson & Johnson received the words that several deaths in the Chicago area might be linked to one of the company’s products. Reports showed that 7 people died from taking cyanide-laced capsules of Extra-strength Tylenol. Tylenol was the non-aspirin pain reliever that captured 35% of $1billion analgesic market –over three times more than the nearest competitor.

The death happened in one area- and that only a few capsules in each of the bottles contained cyanide- suggested that someone who took advantage of the ease with which capsules can be used to kill.

James Burke and his staff concluded that the company was not responsible for cyanide contamination.

1. But the Tylenol death repeated in many other areas.

2. Sales of Tylenol capsules dropped

3. It affected the brand name of Johnson & Johnson

4. The other competitors took advantage

5. The public recognised that Johnson & Johnson was a victim of senseless crime.

6. The managers of Johnson & Johnson faced ethical issues

7. It lead to ethical decision making

8. Decisions based on moral point of view

9. Johnson & Johnson immediately cleared all bottles of Extra-strength Tylenol capsules from the stores

10.The company called the press and media and the public by giving a warning to all physicians all over the world that Tylenol was temporarily suspended.

11. Impartial decisions- new packages

12.An integrated approach: economic; legal and moral

GROWING IMPORTANCE OF BUSINESS ETHICS

Ethics is a set of values and principles that we strongly believe and follow.

It is learning what is right or wrong, and then doing the right thing.

The concept of business ethics has come to mean various things to various people, but generally it's coming to know what it right or wrong in the workplace and

doing what's right -- this is in regard to effects of products/services and in relationships with stakeholders.

After a host of scams such as Enron, World.com etc, business ethics has assumed a lot of importance. Since everyone - be it an investor, customer or public view an organization with suspicion it is very important that the organization portrays an ethical image.

1. Managerial Mischief – it includes illegal, unethical, or questionable practices of individual managers or organizations, as well as the causes of such behaviors and remedies to eradicate them.

2. Moral Mazes /path- it includes the numerous ethical problems that managers must deal with on a daily basis, such as potential conflicts of interest, wrongful use of resources, mismanagement of contracts and agreements, etc

Origin of Business Ethics

Business ethics has come to be considered a management discipline, especially since the birth of the social responsibility movement in the 1960s. An increasing number of people asserted that because businesses were making a profit from using our country's resources, these businesses owed it to our country to work to improve society. Many researchers, business schools and managers have recognized this broader constituency, and in their planning and operations have replaced the word "stockholder" with "stakeholder," meaning to include employees, customers, suppliers and the wider community.

 Today 90% of business schools teach business ethics. Ethics in the workplace can be managed through use of codes of ethics, codes of conduct, roles of ethicists and ethics committees, policies and procedures, procedures to resolve ethical dilemmas, ethics training, etc.

BENEFITS/IMPORTANCE OF BUSINESS ETHICS

1. Attention to business ethics has substantially improved society

2. Ethics programs help maintain a moral course in turbulent times

3. Ethics programs cultivate strong teamwork and productivity as they align employee behaviors with those top priority ethical values preferred by leaders of the organization.

4. Ethics programs support employee growth and meaning. Attention to ethics in the workplace helps employees face reality, both good and bad -- in the organization and themselves. Employees feel full confidence they can admit and deal with whatever comes their way

Government agencies including tax authorities develop trust in the organisation and are reluctant to file cases against such company

Such organisations get support in difficult times.

Legal compliance improves and hence penalties and fines are avoided.

Ethics and Values

Ethics is the study of the moral relationships with others.

Companies do not operate in a vacuum but rather are plunged in a universe of relationships with multiple stakeholders.

With the globalization the scenario in which companies operate has become even more complex, given the emergence of global groups of stakeholders.

The need for a company to behave “ethically” is described in terms of a company’s need to interact productively with its stakeholders. Business Ethics means conducting all aspects of business and dealing with all stakeholders in an ethical manner…

Morality

Principles or rules of moral conduct that people use to decide what is right or wrong

Morality is concerned with the social practices defining right and wrong.

Ethical theory and moral philosophies provide guidelines for justification of right or wrong actions when settling human conflict.

No one moral philosophy is accepted by every one Rules of prudence promote self-interest, doing what is prudent for oneself.

Rules of morality promote the interest of other people.

Morality and prudence should generally work hand-in-hand if a business is to succeed.

Public's agency for translating morality into explicit social guidelines and practices and for stipulating punishments for offenses

Managers will evaluate the moral dimensions of a decision before making it. The moral yardsticks used to evaluate a decision consist of the moral standards of a society’s culture. Business ethics involve the use of moral standards when making decisions.

Moral standards consist of specific moral norms and general moral principle moral norms prohibit certain types of behaviour such as lying, stealing and killing.

moral principles provide more general guidelines for behavior and are applicable to decision

Morality and Law – I

Societies can pass laws that prohibit people from doing things that are morally acceptable.

Societies can pass laws that require people to do things that are morally unacceptable.

Something that is immoral is not necessarily illegal, and something that is illegal is not necessarily immoral.

“The law is not the repository of our moral standards and values, even when the law is directly concerned with moral problems.”

Morality and Legality II

“A law-abiding person is not necessarily morally sensitive or virtuous, and from the fact that an act is legally acceptable it does not follow that this act is morally acceptable.”

Legal rights derive from political institutions and must be distinguished from moral rights since they do not have to be based on moral rights to be grounded or understood.

Moral rights exist independently of, and form a basis for criticizing and justifying, legal rights.

Morality v. Law

Statutory law v. case law

– Statutory laws are Central / state statutes and their accompanying administrative regulations.

– Case laws are judge-made laws that establish influential precedents that provide material for reflection on both legal and moral questions.

Morality and ethics begin where the law is unclear or not defined!

Consciences:

Vary from person to person and time to time.

Are altered by circumstance, religious belief, life experiences, and training.

Are not consistent from day to day

Moral justification must then be based on a source external to conscience itself.

Approaches to the Study of Morality

Descriptive approach - provides a factual description and explanation of moral behavior and beliefs, as performed by Anthropologists, Sociologists, and Historians.

– Referred to as the scientific study of ethics.

Conceptual approach - analyzes meanings of central terms in ethics such as right, obligation, justice, good, virtue, and responsibility.

Prescriptive approach - attempts to formulate and defend basic moral norms or standards by determining what ought to be done versus what is being done.

Referred to as normative ethics

Relativism An ethical theory that claims right and wrong is subjectively determined by each culture

What is good is socially accepted and what is bad is socially unacceptable in a given culture.

There is no such thing as universal truth in ethics, there are only the various cultural codes and nothing more.

An argument against relativism:

– There are some basic moral principles that all societies will have in common, because those rules are necessary for society to exist.

Egoism A moral theory that contends all choices either involve or should involve self-promotion as their sole objective

Psychological Egoism

Everyone is always motivated to act in his or her own perceived self-interest.

A main argument against psychological egoism is that there may be no purely altruistic moral motivation to help other people unless there is personal gain.

Ethical Egoism

The only valid standard of conduct is the obligation to promote one's own well being above everyone else's.

Ethical egoists believe that people should not be their brother’s keeper, because people do not completely understand the true needs of others.

It’s every man for him in this world!

Business Ethics as Competitive Advantage for Companies in the Globalization Era

• Globalization has brought about greater involvement with ethical considerations and most importantly achieving competitive advantage through business ethics.

• Globalization and business ethics are linked as they affect a company’s ability to commit to its shareholders, in particular to external investors, and preserve the trust needed for further investment and growth.

“Ethics of Scandal” Versus “Ethics of Strategy”

• It is increasingly important for companies to deal with ethics as a corporate strategy that, if uniquely implemented, could achieve competitive advantage for the company rather than waiting to react to possible ethical issues of importance to the targeted stakeholders.

• It is the necessity of being ethically proactive company rather than being ethically reactive company.

Business Ethics as Competitive Advantage

As the speed of comparable tangible assets acquisition accelerates and the pace of imitation quickens, firms that want to sustain distinctive global competitive advantages need to protect, exploit and enhance their unique intangible assets, particularly integrity (building firms of integrity is the hidden logic of business ethics).

• “Behavior that is trusting, trustworthy, and cooperative, not opportunistic, will give the firm a competitive advantage.”

• Sustainable global competitive advantage occurs when a company implements a value-creating strategy which other companies are unable to imitate.

• For example, a company with superior business leadership skills in enhancing integrity capacity increases its reputation capital with multiple stakeholders and positions itself for competitive advantage…

• Business ethics as competitive advantage involves effective building of relationships with a company’s stakeholders based on its integrity that maintains such relationships.

• An integrity approach to business can yield strengthened competitiveness: it facilitates the delivery of quality products in an honest, reliable way. This

approach can enhance work life by making the workplace more fun and challenging. It can improve relationships with stakeholders and can instill a more positive mindset that fosters creativity and innovations among the stakeholders.

• The purpose of ethics is to enhance our lives and our relationships both inside and outside of the organization The metaphor of a game sees competition in business as an exciting game, in which each competitor strives to achieve excellence, satisfy customers, and succeed as a result.

• The motive in this type of game is not to drive out the competition, but to work hard, play by the rules of the game, and do one’s best in order to succeed

Business Ethics And Normative Philosophy

Managers will evaluate the moral dimensions of a decision before making it.

The moral yardsticks used to evaluate a decision consist of the moral standards of a society’s culture.

Business ethics involve the use of moral standards when making decisions.

Moral standards consist of specific moral norms and general moral principle moral norms prohibit certain types of behaviour such as lying, stealing and killing. Moral principles provide more general guidelines for behavior and are applicable to decision

Theories of Business Ethics

1. Integrative Social Contracts Theory

It is a normative theory of business ethics and it allows for moral diversity among various cultures while maintaining certain universal norms.

A social contract is an informal agreement regarding behavioural norms that are developed from shared goals beliefs and attitudes of groups of people. Corporations enhance the welfare of society through the satisfaction of consumer and interest of workers by leveraging corporations· special advantages.

This is the moral foundation; Social Contract also serves as a tool to measure the performance of productive organisations. When such organisations fulfill the terms of the contract, they are morally justified. When they do not, they should be condemned. Hyper norms are universal and impose certain conditions on all business, when they do not, they should be condemned.

Hyper- norms are universal and impose certain conditions on all business activity. The macro-social contract functions at the global level provided specific conditions under which micro- -social contracts may be developed. Micro-social contracts are

community contracts developed to guide business activity. The essential elements of Social Contracts Theory are shown:

HYPER NORMS

1. Personal freedom

2. Physical security

3. Political participation

4 . Informed consent

5. Ownership of property

6. Right to subsistence

7. Equal dignity to all humans.

Macro Social Contract

1. Moral free space

2. Free consent with right to exist

3. Compatible with hyper norms

4. Priority levels.

Micro Social Contract

Individual Norms

1. Do not lie in negotiations

2. Honour all contracts

3. Give job preference to natives

4. Give contract preference to local suppliers

5. Provide a safe work place

Application of hyper norms

Hype norms are universal norms that are equally applicable to all persons worldwide.

Hyper norms provide the basis for evaluating all other norms. They stand for the basic principles that are fundamental to human existence, e.g. human rights,

Ownership of property, right to live etc

Macro-social contract provides global norms (hyper norms)

Micro-social contracts provide community norms.

2. MORAL REASONING THEORIES

Moral reasoning deals with determining rightness of the acts. It tells about what individuals or institutions ought to do. Moral theories deal with two components:

I. Theory of value or theory of good: It decides about what is good or valuable. Though it does not make this explicit, it focuses on properties that we want to be realised in our actions. These properties may be compliance with law of nature. Human freedom’, social solidarity or a combination of one or more of them.

2. Theory of the right: It does not tell about which properties are valuable tells about what individuals and institutions should do by responding to valuable properties.

Based on the above, there are two kinds of moral theories:

I. Consequentialist or teleological theories

2. Non-consequentialist or non-teleological/deontological Theories

While teleology is the ethics of ends and consequences, deontology is the ethics of duty and obligations.

3. Teleological Theories

Teleological ethics deals with consequentialism. It is associated with utilitarianism, ethical egoism and other goal based approaches to consequentialism.

These theories emphasis on goals and ends in determining moral quality of conduct and character. It refers to the rightness of actions or moral ‘values of character. It uses ends and goals to justify virtues and actions.

“Teleological theories hold that rightness or wrongness of action is always determined by its tendency to produce certain consequences which are intrinsically good or bad”. To assert that right actions are those that have the best consequences. They give priority to ‘good’ over ‘right’. According to them, all actions that maximize the good are right actions. What is good is independent of what is right.

Teleological theories provide different views on what is good that should be promoted. According to egoistic theories, good is the good of the person who is

acting. According to universalistic theories, Good is the good of all those who are affected by an action. Utilitarianism or universalistic is the best known teleological theory. Jeremy Bentham, Johan Stuart Mill and Henry Sedgwick were the famous utilitarianists who asserted that actions should be judged on the basis of the amount of pleasure they produce on all those who are affected by those action

Features of Teleological Theories

I. It gives priority to what is ‘good’ over what is ‘right’. Good is the purpose or goal of human actions. Human actions should bring greatest happiness for greatest number of people.

2. All actions that contribute to ‘good’ are moral actions. An action that brings happiness for the greatest number of people, is a right action

3. Results or consequences determine the rightness; or wrongness of moral actions.

One of the important teleological theories is that of consequentialism.

Consequentialism, thus, focuses on best consequences of our actions for all concerned. It holds that makes an action right or wrong is its consequences only. This theory became popular in the 18th century.

Forms of Consequentialism (Consequential Theories)

1. Theory of ethical egoism: In this form of consequentialism,the desired is the long-term self-interest 0f f the individual. It claims that whi1e making a moral decision one should consider the long term self –interest of the decision. Short-term Short-tenn self.interest, if any, should be sacrificed for sake of long-term self-interest. · An action is morally right if the consequences of that action are more favourable than unfavourable. Only to the agent performing that action.

2. Utilitarianism: In this form of consequentialism, the desired end is not long-term self-interest of the individual but, it is greatest happiness to the greatest number. Any action that brings greatest happiness to the greatest number of people is a desirable action and should be performed. Advocates of this thinking are Jeremy Bentham and John Stuart Mill.

4. Utilitarian Theories of Business Ethics a. Bentham’s Approach

Bentham advocates adopting an action that brings happiness or pleasure to the community rather than an individual. He judges pleasure by quantity.

One action is better than the other if, it brings more happiness or pleasure than the other. He says that pleasure can be measured by its intensity, duration, certainty or uncertainty.

In determining whether an action is moral or not, the ‘intention of the doer’ and ‘consciousness of consequences’ need to be taken into account. Consequences can be both primary and secondary. For example, non payment of tax by ‘A’ resulting in loss to the State revenue is primary consequence of A’s action. If this leads to nonpayment of tax by others also causing mere harm to State exchequer, A’s action is assumed to have secondary consequences which are, in fact, doing more harm to State exchequer.

Limitations of Bentham’s Approach

Bentham’s theory has the following limitations:

1. All actions are not followed by pleasures. A soldier’s action to join army is because of his ideals and not pleasant consequences.

2. He, more or less talks of quantitative pleasures. Many qualitative factors that affect moral actions are not taken into account

b. Mill’s Approach to Utilitarianism

J.S. Mill, a political thinker, published his work ‘Utilitarianism’ in 1863,

1. He said that pleasures differ in quantity as well as quality. Some pleasures are more desirable than others. Man should pursue those actions whose pleasures are noble and dignified. He said, “It is better to be a human being dissatisfied than a pig satisfied.”

He views morality as internal and not external. Morality regards pleasures and pains of others and not just one’s own self. It is the desire to be in unity with others.

The principle of utility as outlined by John Stuart Mill is that one is obligated morally to produce the greatest good for the greatest number. Mill identified the good with utility. In calculating whether an action is right or wrong one needs to project the total consequences for good or ill and determine the actions in which it is optimised according to situation.

5. Deontology Theory of Ethics

Deontology is a theory of ethics advocated by

Philosophers such as Kant, Ross and John Rawls

This theory considers actions to be right or wrong regardless of their consequences.

Actions that have moral values are right; whether or not they are good. If telling lies is morally wrong; it remains wrong even if it brings happiness to same people.

Actions are, thus, right or wrong depending on whether they are morally right or wrong, Irrespective of their consequences. What is ‘right’ has priority over what is ‘good’.

Deontology is derived from the Greek word ‘deon’, which means obligation or duty. It stresses on what is obligatory and what one ought to do, whether or not it is good to do so.

Speaking truth may not bring good to some but, one must speak the truth as it is the moral duty of each good to some but, one must speak the truth.

There are two approaches to deontology:

1. Act deontology- For example: ‘In this not break my promise’ is an obligation that represents act deontology.

2. Rule deontology- It claims that obligations and moral duties can be generalised. For example, ‘we must always keep our promises’ is all obligation that represents rule deontology. These values, actions or duties are fundamental and do not depend upon circumstances of particular situations. Actions are performed according to to rules and not circumstances. Kant.

Kant says That result and consequences should not guide our actions. Our actions should follow the moral law.

According to Ross, we should all follow our moral duties regardless of their consequences. One moral principle can be sacrificed only for another moral principle:

Johan Ra.wls says that fairness is prior to goodness. Fairness of society’s rules is more important than consequences of their rules.

Deontology at a Glance

1. Rightness or wrongness of an action is determined by its morality and not its consequences.

2 Prominent thinkers are Kant, - Ross and Rawls

3. They give priority to ‘right’ over. Good’.

4. Right action may not necessarily maxi miss the good.

5. Right actions may, or may not , bring happiness.

6. They are the theories of ethics duty and obligation.

Teleological Theories at a glance

Rightness or wrongness of an action is determined by its consequences. Prominent thinkers are Bentham and J.S. Mill

– They give priority to ‘good’ over ‘right’.

– Right action is that which maximises the good.

Right actions bring happiness to individuals performing the action (egoist theory) or happiness to greatest number of people (utili1arianism) .

– They are the theories of ethics that deal with goals and end results of actions.

6. Rights & Duties Theories of Business Ethics

The outcome of a specific decision is irrelevant and what matters is whether the decision is ethical. The rules provide the guide to ethical decision-making. Unlike rule utilitarianism, these rules are based on reason, not consequences. Rights & Duties (Non-consequentialist) principles are either Rights Principles or Justice Principles.

1. Rights Principles

Rights principles grant a person certain moral or human rights by virtue of being a human being. These rights are closely associated with duties. It is one’s duty not to violate the rights of others just as ‘it’ is the duty of others not to violate his rights.

The development of moral rights is generally attributed to Immanuel Kant (1724-1804),

He argues that an action is morally right only if you would be willing to have everyone act the same way in a similar situation.

Kant’s second principle ·states, ‘Act so that you treat humanity, whether in your own person, or in that of another, always as an end and never as a means only. People should never be treated only as a means to an end but as ends themselves. Thus when using people to accomplish your purpose, you have a duty to respect them as human beings’.

Kant considered this categorical imperative to be a moral law. It is an unconditional law to all · To Kant, they ‘are absolute duties and a moral act is performed out of duty only.

Gerald Cavanaugh has cited six rights that are basic to business activity. These include:

1. Life and safety,

2. Truthfulness,

3. Privacy,

4. Freedom of conscience,

5. Free speech,

6. Private property

Prima Facie Duty

A prima facie duty: A duty that is always to be acted on unless it conflicts with an equal or stronger duty on a particular occasion. Thus, “A prima facie duty is always right or binding all other things being equal.”

“Many ethicists regard principles, duties, and rights not as unbending standards but rather as strong prima facie moral standards that may be validly overridden in circumstances of competition with other moral claims.”

“Prima facie duties reflect the complexity of the moral life, in which a hierarchy of rules and principles is impossible. The problem of how to weight different moral principles remains unresolved, as does the best set of moral principles to form the framework of bioethics.

Two Basic Rights

A positive right: A right to receive something.

The right to well-being is a positive right. To honor a positive right “someone has to provide something.” For instance, providing health care when the well-being of a person is affected by illness or injury.

A negative right : A right not to be interfered with.

The right to liberty is a negative right, the right not to have one’s freedom interfered with. It is negative because “no one has to do anything to honor it.” Thus one has the negative right to refuse treatment, and forcing treatment on someone who declines it would be to violate his or her autonomy.

Liberty-limiting Principle

It is false that the right to autonomy (freedom, liberty) is so fundamental that nothing can restrict it or interfere with it. Four principles that limit liberty are:

1. The harm principle: “A person’s liberty is justifiably restricted to prevent harm to others caused by that person.”

2. The principle of paternalism: “A person’s liberty is justifiably restricted to prevent harm to self caused by that person.”

3. The principle of legal morals: “A person’s liberty is justifiably restricted to prevent that person’s immoral behavior.”

4. The offense principle: “A person’s liberty is justifiably restricted to prevent offense to others caused by that person.”

The first limitation of liberty “is universally accepted.” the other three are “highly controversial.”

Paternalism

Paternalism: Treating a person the way that a parent (father) treats his or her child.

Paternalism: The intentional limitation of one person’s autonomy by another. This limitation is done to benefit the person whose freedom is being limited.

“The essence of paternalism is an overriding of a person’s autonomy on grounds of providing that person with a benefit - in medicine, a medical benefit.”

Paternalism is attacked by those who emphasize the importance of patient autonomy, and it is defended by others in situations where the patient would benefit from intervention

The Theories of Justice

Associated with issues of rights, fairness, and Quality

A just act respects your rights. A just act treats you fairly. Principles of justice may be divided into three types-

Distributive justice

Retributive justice and compensatory justice

Distributive Justice

Society has many benefits and burdens that must be distributed among its members · Benefits include income, wealth, jobs, education and leisure. Burdens include work, taxes and social and civic obligations. The allocation of benefits and burdens raises questions of distributive justice. Allocation can be made on the basis of:

(a) 1. Equal shares to each person,

(b) 2. Based on need,

(c) 3) Based on effort,

(d) 4. Based on merit,

(e) 5. Based on social contribution.

Most proponents agree that equals should be treated equally and unequal should be treated unequally in proportion to the degree of their inequality. This inequality must be based on relative differences among the parties. This concept is referred to as the formal principle of justice

(b) Retributive Justice

Retributive justice is concerned with retribution or punishment for wrongdoing.

The questions are when it just to punish someone is and what should be the nature punishment.

According to Aristotle, a person is morally responsible · for his actions unless he has been forced to take.

That action or is ignorant of the act’s negative consequences.

A person should not be held responsible If he is unable to halt the wrongdoing due to personal inadequacy or powerful external forces. Just punishment must also fit the crime.

The severity of punishment should be in proportion to the magnitude of the crime.

c) Compensatory Justice:

Compensatory justice is concerned with compensating the party injured by the wrongful act.

Most people agree that the injured party should be returned to the condition that existed before the injury.

This includes necessary medical treatment and services and goods that are needed to rectify the injury.

The compensation should be equal to the loss suffered by the injured party.

However, problems occur when it is not possible to provide complete compensation, for example, a life lost cannot be restored.

Theories of Rights

– Right: a person’s just claim or entitlement

– Focuses on the person’s actions or the actions of others toward the person

Legal rights: defined by a system of laws

Moral rights: based on ethical standards

– Purpose: let a person freely pursue certain actions without interference from others

Features

Respect the rights of others Lets people act as equals

Moral justification of a person’s action

Examples:

Legal right: right to a fair trial in the United States

Moral right: right to due process within an organization

Rejects view of assessing the results of actions

Expresses moral rights from individual's view, not societies. Does not look to the number of people who benefit from limiting another person's rights

– Example: right to free speech in the United States stands even if a person expresses a dissenting view

– Types of rights

Negative rights: do not interfere with another person’s rights

Positive rights: A person has a duty to help others pursue their rights

Egoism

– Self-centered form of ethics

– Two forms of ethical egoism: individual and universal

– Individual ethical egoism

Judges actions only by their effects on one’s interests

Usually rejected by moral philosophers as a defensible basis of ethics

– Universal ethical egoism

Can include the interests of others when assessing one’s actions

Still self-centered: pursuing pleasure and avoiding pain

“Enlightened self-interest.” Considers the interests of others because the person wants others to do the same toward him or her

– Objections raised by moral philosophers

Does not resolve conflicts in people’s interests

One party would always have the pursuit of his or her interests blocked

A moral theory that contends all choices either involve or should involve self-promotion as their sole objective

Psychological Egoism

Everyone is always motivated to act in his or her own perceived self-interest.

A main argument against psychological egoism is that there may be no purely altruistic moral motivation to help other people unless there is personal gain.

Ethical Egoism

The only valid standard of conduct is the obligation to promote one's own well being above everyone else's.

Ethical egoists believe that people should not be their brother’s keeper, because people do not completely understand the true needs of others.

It’s every man for him in this world!

Is There a Universal Ethical Standard?

Are you comfortable with a world with your standards?

Christian principle: the Golden Rule

“Do unto others as you would have them do unto you.” Luke 6:29-38

“Thou shalt love thy neighbor as thyself.”

Taught in All Cultures

Judaism: What you hate, do not do to anyone.

Islam: No one of you is a believer until he loves for his brother what he loves for himself.

Hinduism: Do good things to others are holy and hurting others is sin.

Sikhism: Treat others as you would be treated yourself.

Buddhism: Hurt not others with that which pains thyself.

Confucius: What you do not want done to yourself, do not do to others.

Aristotle: We should behave to our friends as we wish our friends to behave to us.

Plato: May I do to others as I would that they should do unto me.

Treat people the way you want them to treat you

Societal Costs of Unethical Behavior

1. Law enforcement and other security personnel

2. Physical protection (locks, electronic security, fences, vaults, etc.)

3. A substantial portion of attorney and court system costs

4. Some welfare costs

5. Costs of collecting taxes

6. Wasted/misused investment funds

7. A substantial portion of accounting/auditing costs

8. A large fraction of costs for regulators and examiners

9. Some marketing/advertising costs

10.Costs for institutions like better business bureaus, consumer protection agencies

11.Some costs of bankruptcy

Lack of investment from outside investors, tourists

Business Costs of Unethical Behavior

1. Loss of physical assets

2. Increased costs of security

3. Loss of customers—especially those who value ethics

4. Loss of employees—especially the more ethical

5. Loss of reputation

6. Increased legal costs

7. Higher costs of debt

8. Loss of investor confidence (lower stock price, difficulty in raising funds, problems with lenders)

9. Regulatory intrusion

10.Costs of bankruptcy

Ethical Issues Relating to Business

Honesty —communication and behavior consistent with facts

– Disclosure of information

– Promises/commitments

– Laws and professional standards

– Representation of others like shareholders (applies to board members)

Unfair competition

– Refrain from bribes and excessive gifts (that sway judgment)

– Avoid quid pro quo transaction

– Comply with “anti-trust” laws (these relate to pricing, monopolistic practices)

Just compensation

– Respect intellectual property (product piracy)

– Treat employees fairly

Respecting rights of others

– Treat others with fairness and respect regardless of age, religion, ethnic group, sex, economic status, etc., especially children, women, and subordinates

Respect the community you operate in by paying fair share of

Why Ethical Behavior Adds Value?

Better information

– Trust from investors

– Lower costs for audits, controls, investigations

– Better allocation of resources

– Customers will be more loyal (RC Willey example)

– Lower costs from suppliers (automotive company example)

– Attracting and retaining better employees

Fair competition

– Lowers cost of business in economy

– Leads to better decision-making (do what’s best for firm, not one individual)

– Improves competitive nature of a country’s economy

Just compensation

– Creates a more vibrant, entrepreneurial economy

– Attracts and retains better employees

Rights of others

– Draws upon talents of wider set of individuals

– Develops long-term respect from the community (Godfrey study)

– Maintains the environment for long-term value to all (Costa Rica)

It’s the right thing to do!

Why Is Dishonesty Increasing?

Bad Modeling/Lack of Good Modeling

– Makes up our news— more explicit than ever

– Focus of TV/movies

– Dishonest “leaders”

– Sports, business, entertainment “heroes”

– Good models are rare

Lack of Positive Labeling

– Home….average family spends 10 hours less time together a week than 20 years ago

– Vocabulary of kindergarten children

– Schools

– Churches

Confession of Fraudulent Executive

Even when put in jail, I didn’t feel like a “criminal.” I somehow felt we were different and I started noticing every white collar guy I did talk to began every sentence with: “all I did was.”

Once you’re in jail and you start feeling the animosity the other prisoners have toward white-collar guys, where they say to you, “you’re no different than us,” “you’re just a thief,” “you use other words.”

Even the word “embezzlement” is a nice word…they said “you’re a thief, you lie to people and take their money, that’s what I do to” and that hit me like a ton of bricks.