Business Ethics

Notes on Business EthicsPrepared by Mr. R. Vijayagopal MCom, LL.B, MBA

Member of faculty of Management StudiesFor first year MBA students

Chapter 1

EthicsIntroductionEthics is the science of morals. It is analysis and investigation of the moral standards prevailing in any society, what is impact and implications, how far is it worthy of holding. It involves judging behaviours, actions and decisions from the point of view of morality, whether some thing is right or wrong, good or bad. It’s concern is not just the investigation but refining and modifying the standards based on the results of the analysis.The word ‘Ethics’ originated from the Greek word ‘ethos’ which refers to character.

Moral standardsThey are the standards that a society or group cherishes or holds regarding right and wrong and good and evil. The words ‘right’, ‘proper’ and ‘just’ express the societies and individual’s beliefs about behaviour towards others that is felt to be fair and equitable. We believe that there are right and wrong ways to behave towards others, proper and improper actions, just and unjust decisions.Such notions become absorbed by individuals during the childhoods become internalised as one grows and becomes subject critical thinking and evaluation during adulthood as one learns and experiences varied situations in life.Such convictions regarding right and wrong differ from individual to individual, from organisation to organisation and from groups to groups, but there is something shared in common by every one belonging to a society or culture. They are known as the moral standards prevailing in the society.Every society tends to evolve its moral standards as it originates. The moral standards held by a society become refined and modified with the passage of time as it advances in educational, technological, economic, political, social and cultural spheres and of late, due to international influences.

Ethics and other behavioural sciencesEthics is a normative science. It differs from other social sciences dealing with moral standards as a part of their analysis of human behaviour, such as Anthropology, Psychology and Sociology. They only describe the behaviour patterns and formulate theories regarding human origins, structures and cultures, on the basis of that. They do not analyse how far such behaviours or standards are right or wrong. An Anthropologist may, for example, analyse the behaviour patterns and standards of people living in a society with the object of developing theories regarding their origin, social structure and culture. An Ethical analyst on the other hand analyses behaviour to analyse whether it is right or wrong and to evolve which are right and good for the society. An Anthropologists concern may be, ‘Do Americans believe bribery is wrong?’

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Ethicist’s concern is, ‘Is bribery wrong?’

Norms, Beliefs and valuesEvery individual, group and society cherishes certain norms, beliefs and values. They constitute the moral standards held by the person, group or society.

NormsNorms are the criteria of behaviour. That is, the ways in which an individual expects all people to act when faced with a given situation.Asiatic students use to bow slightly when addressing their professors. The bow is their norm of behaviour. The European professor gets annoyed by such act as it is outside the scope of his norm of behaviour in such situation. The extent of both the bow and the annoyance gets reduced with the passage of time.

BeliefsThe ways in which individuals expect others to think. I believe in participative democracy. I expect others to recognise its worth and expect others to recognise it worth ad accept it as a form of government.Example:- I believe, one should not involve in any undesirable action or overt behaviour towards others. Asiatic students believe in hierarchical society with definite gradations between older faculty and younger students.Those who are holding norms against assault and robbery, believe in the worth of human beings and preservation of human liberty.Norms against burying toxic wastes in leaking drums is associated with the belief about the benefits of clean environment and the adverse effects of chemical pollution on individual health.

ValuesRankings or priorities a person establishes for his norms and beliefs. What one considers as important, he holds in high esteem. What one holds in high esteem, another person may give least importance. Generally, there will not be even little accommodation or compromise in this matter. Each person attributes much importance to his own rankings of norms and beliefs regarding how people should act or think.

Necessity to compromiseWe are living in a pluralistic society with numerous cultures and traditions- in a secular culture.We have to live and accommodate with the fact that norm, beliefs and values differ from individual to individual. Every one has to have readiness to put up with the standards and practices of others so long as it does not interfere with the environments of peaceful social living and order.

Subjective and Objective Ethical StandardsNorms, beliefs and values of one, are his means of judging whether an act of his which affect others is right or wrong. They are based on the personal valuation or rankings of norms and beliefs.


Example:- One attributes more value to the norm of non-aggressive behaviour towards others and less value to the belief regarding keeping the environment clean. If the one finds somebody hitting at the head of another and snatching away his valet, he will feel very bad about it. If he finds some one, draining motor oil down the street he will not take it as some thing so serious.Judgements based on moral standards are subjective. They vary from individual to individual, depending on the emotional preferences of each, among a range of possible norms and beliefs.Normative philosophy considers the possibility of developing objective moral standards, rationally derived a single fundamental norm or absolute belief.Example: Greatest good for the greatest number of persons.Ethics is the study of moral standards – the process of examining the moral standards of a person or society to determine whether these standards are reasonable or unreasonable to apply to concrete situations or issues.The ultimate aim is to develop a body of moral standards that everyone feels reasonable to hold and justifiable to apply to specific situations and issues – objective moral standards acceptable to every one in the society.

Moral Development and Moral ReasoningA person starts doing ethics when he or she turns to look at the moral standards absorbed in the course of his life and begins to ask whether these standards are reasonable or unreasonable and what these standards imply for the situations and issues. He starts asking questions to himself like, do they make sense and should I continue to believe them. This involves two aspects.1. The person has developed ability to critically evaluate the moral standards absorbed in the course of his life. The process through which one develops such ability is called as Moral Development. 2. The reasoning process through which the standards are evaluated is known as Moral Reasoning.

Moral DevelopmentIt is generally believed that values are formed during childhood and they do not change after that. But researches have shown that as an individual matures, his values change in deep and profound ways.Like identifiable stages of physical growth, ability to deal with moral issues also develop in identifiable stages.

1. Children:- are told what is right and what ,wrong. Childs adherence to moral standards is based upon self absorbed avoidance of pain.

2. As one matures into adolescence, these conventional moral standards are gradually internalised.Adherence to moral standards now is based on living up to the expectations of family, friends and surrounding society.We do what is right because it is what the group to which we belong expects.

3. As a rational and experienced adult we begin to evaluate the standards and their consequences – to critically reflect on the conventional standards

bequeathed to us by family, peers, culture or religion – and revise them wherever we feel they are inadequate, inconsistent or unreasonable. We begin in short to do ethics.


Lawrence Kolberg, Psychologist has pioneered research for 20 years and identified six stages in the development of man’s ability to deal with moral issues which he grouped into three levels.

Level 1. Pre conventional stageChild is able to respond to rules and social expectations and to apply the labels – good, bad, right, wrong etc. It is all externally imposed.It is interpreted in terms of pleasant and painful consequences of actions or in terms of physical power of those who set the rules.If asked, Is stealing wrong? Why? A five year old boy may answer, “ Because mummy will punish me if I steel.” The primary motivation is self-centred. The child has no ability to identify with others or with consequences on a larger perspective.Stage 1 Pre conventional :- Physical consequences of an act wholly determine its goodness or badness.Stage 2 Instrument and relative orientation:- Right actions become the instruments for satisfying the child’s needs or the needs of those for whom the child cares.Child now becomes aware that others have needs and desires similar to his or her own and begins to defer them to get them do what he or she wants.

Level 2. Conventional stagesMaintaining expectations of ones own family, peer group, immediate social group like religion or community or the nation. Instead of merely confirming to the expectations of one’s own the individual at this stage exhibits loyalty to the group and its norms. He starts looking upon right and wrong from the point of view of others, but one can take up only familiar views- points of view of people who belong to his own social groups- family, peers, organisational or social class. If an adolescent is asked why something is wrong, he will answer, because my family/ peers/ cultural or religious group or organisation members believe so.Stage 3. Interpersonal concordance orientation:- Good behaviour at this stage is living up to the expectations of those for whom one feels loyalty, affection and trust, like family and friends – to maintain one’s own role as a god son/daughter/friend etc.Stage 4:- Law and order orientation:- Right and wrong at this stage is determined by the loyalty to one’s own larger social group, community or nation. One at this stage identifies himself with larger social system that defines individual’s roles and obligations. Laws are upheld.

Level 4. Post conventional/ Autonomous or Principles stage.The individual no longer simply accepts the norms and values of the group. The person questions the laws and values that society has adopted and redefines them in terms of self chosen moral principles that can be justified in rational termsIf asked why something is right or wrong, the person will respond, ’fair to every one’, ‘in terms of justice or human rights or societies overall welfare’.Stage 5:- Social contact orientation.One becomes aware that people hold a variety of conflicting personal views and opinions and emphasises fair ways of reaching consensus by agreement, contract and due process. One believes that all norms and values are relative and apart from this democratic consensus, all should be tolerated.Stage 6:- Universal ethical principles orientation


Right action comes to be defined in terms of moral principles chosen because of their logical comprehensiveness, universality and consistency.These ethical principles are not concrete like ‘ten Commandments’ but abstract general principles dealing with justice. Society’s welfare, equality of human rights respect for dignity of individuals and idea that persons are not ends in themselves and must be treated as such.Kolberg’s theory is useful to understand how our moral capacities develop and reveals how one can become sophisticated and critical in use and understanding of moral standards the one holds.Although people generally progress through the stages in the same sequence, not every one progresses through all the stages. Many people remain stuck at one of the early stages throughout their life.For those who remain struck at pre conventional level, right or wrong continues to be defined in terms of avoiding punishment and doing what powerful authority figures say.For those who are struck at conventional level right or wrong continues to be defined in terms of conventional norms of their social groups or the laws of the society or philosophy to which he belongs.Those who reach post conventional stage takes critical look at the standards they have been raised to hold and right or wrong is defined in terms of moral principles they have chosen for themselves as more reasonable and adequate.Those who are at the post conventional levels are the transformers and those who lead the change for good.They have ability to look upon things from a wider and better perspective.They have better ways of justifying their decisions. They can appeal to the human rationality.Criticisms:-1. Kolberg claims; higher stages are more preferable than lower stages. Kolberg

does not prove that standards at higher levels are better. That needs further analysis.

2. Carol Gilligan argues: Kolberg failed to take into account the pattern of moral thinking of women. He correctly defines the stages through which men assess moral standards as they grow up. According to him the female approach is different. For women, morality is not a matter of adhering to impartial and impersonal rules, but it is a matter of caring and being ‘responsible’ for others with whom one is involved in personal relationships.

Moral reasoningIt is the process through which the moral standards are critically evaluated. The reasoning process through one judges whether some behaviour is right or wrong, whether some action is proper or improper and whether some decision is just or unjust.There are various criteria that ethicians use to evaluate the adequacy of moral reasoning.

1. Moral reasoning must be logical.2. The factual evidence cited in support of person’s judgement must be accurate,

relevant and complete. 3. The moral standards involved in a person’s moral reasoning must be

consistent. They must be consistent with each other and with the other standards and beliefs the person holds. There is another kind of consistency


that is more important in ethical reasoning. I t refers to the requirement that one must be willing to accept the consequences of applying one’s moral standards consistently to all persons in similar circumstances.

Ethical LeadershipAccording to Lawrence Kolberg those who have reached the post conventional level stage 2 that is, those who have universal ethical orientation are the transformers of the society. They lead the changes for good. They are the ethical leaders. A leader is one who can influence the behaviour of others through his acts and deeds, through the models set by him. He shows readiness to sacrifice his interests for the benefit others and to take up their problems as his own, thereby, winning their confidence and worship. He shows readiness to shoulder the responsibilities for whatever happens. They give ears to his views and show readiness to modify their behaviour through the lines propagated by him.A good manager is a good leader. Managing without leadership qualities is just the exercise of legitimate power - the power derived through position. The legitimate power supplemented by the leadership quality of the holders, makes managing very effective and successful.The ethical qualities of a leader in influencing the people are manifested through character, power and teaching.CharacterIt means the enduring masks and etched-in factors in one’s personality, which includes the inborn talents as well as the acquired traits.PowerDerived from the Latin word ‘posse’, power means the capacity to control or direct change. ‘Leader mobilises’, says Burns. Leader must engage followers not simply engage them. Power without morality is no longer power. Leaders serve as models and mentors, not martinets strict disciplinarian).TeachingA moral leader is someone who teaches the followers the difference between right and wrong.Leadership is hard to define, ethical leadership is even harder. We can only recognise as we experience it. If the organisation is to function ethically at all levels, it is essential there should be ethical leadership at the top.

Moral Responsibility and BlameMoral Reasoning is directed at determining whether a person is morally responsible or culpable, for having done something wrong causing injury to someone. Moral responsibility refers to the extent to which the wrong-doe r deserves blame or punishment or should pay restitution for the injury. Moral responsibility is sometimes used to express that a person is to blame for an action.There are two conditions that totally eliminate a person’s moral responsibility for a wrongful act – ignorance and inability. But they do not always excuse.


One exception is where a person deliberately keeps ignorant of a certain matter to escape responsibility.A second exception is when a person negligently fails to take adequate steps to become informed about a matter that is of known importance.A person may be ignorant of either the relevant facts or the relevant moral standards. Inability can be the result of either internal or external circumstances. Inability eliminates moral responsibility completely because the person cannot have moral responsibility to do or to forbear from doing something over which he has no control.In addition to the excusing conditions, there are also several mitigating factors that can lessen the persons moral responsibility. They are:

When a person is uncertain but not unsure about what he or she is doing. Circumstances that make it difficult but not impossible to avoid. And Circumstances that minimise, but not completely remove a person’s

involvement in the act.

Ethical Theories

In ethical theory, the first and most profound division is between the claim hat it is possible to differentiate between right and wrong and the denial of that claim. The former approach is called as cognitivism and the later, as non-cognitivism. Cognitivism holds that there are objective moral truths which can be known, as we know other truths about the world. Non-cognitivism is the belief that objective assessment of moral standards is not possible. They are only subjective.

Classification of ethical theoriesEthical theories can be broadly classified into categories:Teleological theories ( example: Utilitarianism )Deontological theories ( example: Kantianism )Teleology means the doctrine of final consequences of things. Tele means distant or final. Teleologists decide the right and wrong of an action or decision by looking at the final consequences ( the end). Action is considered ethical if the outcome or consequence is good. Deontology is the science of duty. Deontological theorists determine the ethics of an act by looking at the process of decision-making ( the means). They do not consider the consequences of the action for how far it is right or wrong.The further developments in ethical thought can be classified as:

Hybrid theories which is a hybrid of teleological and deontological approaches ( example: Egoism)

Enlightened Egoism and Virtues theory

Utilitarianism: Weighing social costs and benefitsUtilitarianism is a major theory of Ethics belonging to the group of teleological theories. According to the theory action or decision is considered right or wrong through a matching of the benefits and costs it brings to the society. In any situation, the right action or policy is the one that will produce the greatest net benefits or lowest net costs to the society (where all the alternatives produce only costs).


In early 1960s Ford’s position in automobile market was eroded by competition from Japanese compact cars and fuel efficient cars. Ford decided to overcome the situation through introducing Pinto, low-cost, sub compact car for less than $2000. Designing time reduced to 2 years instead of normal 4. Pinto’s style required gas tank placed behind rear axle, making it vulnerable to rear end collision, exposing passengers to trapped burning.A cost-benefit study of any design change proved a cost of $ 137 million, whereas the benefit of preventing losses by of insurance costs was only$ 79.15 million. Ford went ahead with production of unmodified Pinto. In the decade that followed at least 60 persons died in fiery accidents involving Pintos. Subsequently Ford has phased out the model. Here Ford has relied on a cost-benefit approach for judging the morality involved in their decision but they considered only economic costs and benefits such as medical costs and loss of income. But that is not the true spirit of Utilitarian approach. Benefits of an action includes everything that is desirable and good from social point of view (pleasures, health, lives, satisfactions, knowledge and happiness). Costs include everything that is undesirable for the society( pain, sickness, death, dissatisfaction, ignorance and unhappiness). The inclusive term used to refer to the net benefits of any sort produced by an action is utility. Hence, the name utilitarianism.A serious limitation of the utilitarian approach is the difficulty to quantify and measure social costs and benefits.

ConsequentialismUtilitarianism is a broader theory and consequentialism is a particular form of utilitarianism. The approach holds the view that every one ought to act so as to bring about the greatest amount of happiness for the greatest number of people. Consequentialists look at the result of actions to determine the truth or falsity of moral judgements about them.

DeontologyDeontology is the science of duty. It defines an action as right if it respect the moral principles cherished by the society and as wrong if it violates them. Deon is the Greek word for duty.Deontologists hold the view that an action is right not because of some benefit it brings to oneself or even others but because of its nature or the principle which they follow. Example, bribery is wrong by its very nature regardless of its consequences.

Moral RightRight is an individual’s entitlement to something. A person has a right when that person is entitled to act in a certain way or is entitled to have others act in a certain way towards him. Entitlements arising due to provisions of any law are legal rights. Entitlements can also derive from a system of moral standards, though not backed by any law. Right to travel through the public roads may not be stated in any statute. But every one has right to do the same. ‘Right not to be tortured’ is another example. Unlike legal rights, moral rights or human rights have the following characteristics.They are universal. People of all countries all over the world enjoy such rights.They are not limited to any particular jurisdiction.The moral rights have the following features.


1. They are correlated with duties. One has some right, necessarily implies that others have corresponding obligations. My moral right to worship as I choose necessarily implies moral obligation on others not to interfere in my chosen form of worship.

2. Moral rights provide individuals with autonomy and equality in the free pursuit of their interests. My freedom to worship as I choose is not dependant on anyone’s permission.

3. Moral rights provide a basis for justifying one’s actions and for invoking the protection or aid of others. If I have moral right to do something then I have a moral justification for doing it and others have no justification for interfering with me rather they have justification in restraining any person who try to prevent me.

Rights may be negative or positive. Negative rights impose duty on the part of others not to interfere in the exercise or enjoyment of fruits of the right by the right –holder. If I have right to privacy that means every other person including my employer has the duty not to intervene in my private affairs. On the other hand positive rights impose a positive duty on others. For example if I have the right to work and to get adequate income it imposes an obligation on the society and government to provide me with employment and fair remuneration.Moral rights provide the bases for making moral standards that differ substantially from utilitarian standards. They form the basis of deontological theories.

KantianismCategorical imperatives given by Immanuel Kant (1723-1804) are considered as the most important theory of deontology. A goodwill according to Immanuel Kant means actions done for reasons of principle from a sense of duty. Self interest is certainly not a motive but neither kindness, loyalty, sympathy or any other laudable sentiment.How can we know whether an act is done from a sense of duty. Kant says it is done in accordance with what he calls the categorical imperatives, which are stated below.

1. An action is morally right for a person in a certain situation if, and only if, the person’s reason for carrying out the action is a reason that he or she should be willing to have every person act on in any similar situation.

2. An action is morally right for a person if and only if, in performing that action, the person does not use others merely as a means for advancing his or her own interests, but also both respects and develops their capacity to choose freely for themselves.

Kant advocates three rights for human beings through his theories.1. Human beings have clear interest in being helped by being provided with

work, food, clothing, housing and medical care and they need to live on when they cannot provide these for themselves.

2. Human beings have clear interest in being from injury or fraud and in being free to think, associate, speak and live privately as they choose.

3. Human beings have clear interest in preserving the institution of contracts.Kant’s theory is also not without limitations.1.It is criticised as not being precise enough to be useful2.There is disagreement concerning the limits of each of these rights and how they should be balanced against other conflicting rights


Chapter 2

Business EthicsIntroductionBusiness Ethics is moral standards as they apply to business policies and institutions and behaviour.

A society consists of people who have common ends and whose activities are organised by a system of institutions designed to achieve these common ends.We have institutions rendering different patterns of activity- familial, economic, legal, educational etc. Most influential of all these is economic institutions. They serve two ends: production and distribution.

Business concerns are the primary economic institutions producing and distributing goods and services. They combine the scarce resources- land, labour, capital & technology and distributed in the form of salaries, interest to investors and taxes etc.

Most significant kinds of modern business organisations are corporations. Law endows special legal rights and powers to them. Law treats them as immortal fictitious persons who have right to sue and be sued, own and sell property and enter into contracts, all on their own name. As an organisation Stock holders, Directors and employees are linked together by formal bureaucratic system of rules. When the members obey these rules the outcomes are achieved.

How big are the big corporations?The large corporations dominate the economies today.At the beginning of 21st century, General Motors, the worlds largest automobile company, had revenues of $189 billion and employed more than 3,88,000 workers; Wal Mart the world’s largest retailer; had sales of 4165 million and 1,14,000 employees; General Electric, the world’s largest maker of electrical equipments, had sales of $ 111 billion and 3,40,000 employees and IBM, the worlds largest computer company, had revenues of $87.5 million and 3,07,000 employees. Of the world’s 190 nations, only a handful, ( Canada, France, Germany, Italy, Japan, United states, Russia and U.K.) had government budgets larger than any one of these companies’ sales revenues and most of the world’s nations had a fewer number of workers engaged in their auto, retailing, electrical or computer industries About half of Americas combined industrial profits and earnings are in the hands of about 100 such large corporations. The 1,95,000 smaller firms each with assets of not less than $10 million, control only about 10% of nation’s assets and profits. Those 500 corporations account for about 65% of all industrial sales,80% of all industrial profits, 80 % of all industrial assets, and about 75% of all industrial employees. Yet they comprise only 0.2% of the total number of industrial firms operating in the United States.

Need for Business EthicsHaving come to realise:-The extent of influence of business institutions on individual and social life of man;How gigantic the institutions of corporations are;The special status they enjoy in law with a lot of privileges and limited liability to the owners and


The fact that is not in the hands of owners who bear the risk, it needs no further explanation to emphasis the importance of keeping up ethical values in the day to day functioning as well as policy decisions of business undertakings.

DefinitionBusiness Ethics is the study of moral standards and how these apply to the systems and organisations through which modern societies produce goods and services, and to the people who work within these organisations. Business ethics, in other words, is a form of applied ethics. It includes not only the analysis of moral norms and values, but also attempts to apply the conclusions of this analysis to that sort of institutions, technologies, transactions, activities and pursuits that we call business.

Two cases of ethical or unethical corporate conductThe study of the following cases will be helpful in our further inquiry regarding application of ethical values in business.

River Blindness CaseTo begin our investigation into relationship between ethics and business let us see how Merck and Company dealt with the issue of “river blindness”. The US company in the field of Drugs manufacturing has come to understand its own best selling animal drug, Ivermectin might provide low cost simple cure for river blindness, an agonizing disease very common over beds of Africa and Latin America causing impoverished agriculturists of those places to flee away, abandoning large tracts of fertile land or ‘to adjust with the nodules all over body, torturous itching and even blindness’ as inescapable part of life. But developing a human version of the drug needed over $ 100 million. Even if developed, marketing it in the places were the victims inhabited, needed another $300 million. If not administered properly, the effects and the consequent ill will that it may create may endanger its present market for Ivermectin also. Congress was getting ready to pass the new Drugs Bill which will intensify competition in the drug industry by allowing competitors to more quickly copy and market drugs originally developed by other companies. After expensive research for seven years and several clinical trials, company developed the human version of the medicine and approached W.H.O, US Government and the governments of affected countries to buy the drug to protect 80 million people who are at risk. It was all in vain and finally Merck decided to give away the drug free to potential victims. The Chairman Dr. Roy Vagelos and management of the company spent tens of millions of dollars developing a product that they knew had little chance of ever being profitable because they felt that they had an ethical obligation to make its potential benefits available to the people. This is a case of a very large and successful business firm choosing ethics for profit. The comments of Vagelos on the issue suggests, in the long run, there may be no inherent conflict between ethical behaviour and the pursuit of profit. Ethical behaviour creates the kind of goodwill and reputation that expand opportunities for profit. Ethical behaviour is nowadays accepted by big corporations as the best long term business strategy for a company – a view that is gaining ground in the current corporate scenario.


This does not mean that occasions never arise when doing what is ethical will prove costly to the company as has happened in the case of Mercks. But Mr. Vagelos says, “ Over the years, the company has learned, such actions have strategically important long term advantages.” He continues, “ When I first went to Japan 15 years ago, I was told by Japanese people that it was Merck that brought Streptomycin to Japan after World War II to eliminate tuberculosis which was eating up their society. We did that. We didn’t make money. But it is no accident that Merck is the largest American pharmaceutical company in Japan today.”

B.F.Goodrich caseYears ago, B.F.Good rich , manufacturer of vehicle parts won a military contract to design, test and manufacture air brakes for A7D, a new aircraft the Air Force was designing. The contract was potentially lucrative, and the managers were anxious to deliver a brake that “qualified” by successfully passing the brake tests. Vlandivier, a manager was given the task of working with the engineers and preparing the report. Vlandivier has found that the brake linings on the rotors repeatedly “disintegrated” because there simply was not enough surface area on the disks to stop the aircraft without generating the excessive heat that caused the linings to fail”. His superiors told him, “Regardless of what the brake does on tests we are going to qualify it.” Vlandivier explained to his superiors, “The only way such a report could be written was to falsify the test data”. But the superiors forced him to give qualified report.Vlandivier was put in an ethical dilemma were his personal standards of morality has come in conflict with obligation to obey the orders of superiors.He decided to give qualified report. He commented later, “ My job paid well, it was pleasant and challenging, and the future looked reasonably bright. My wife and I had bought a home….. If I refused to take part in the fraud, I would have to either resign or be fired. The report would be written by any one some way, but I would have the satisfaction of knowing I had had no part in the matter.”

Three kinds of IssuesThere are three kinds of issues that business ethics investigates.Systematic, Corporate and Individual.Systematic issues are questions raised about economic, political, legal and other social systems within which business operates.This includes questions about the morality of socialism or the shift towards capitalism, the laws ,regulations, industrial structures and social practices within which the Indian business operates etc.

Corporate issues are questions particular to the company; the morality of the activities, policies and practices or the organisational structure which it follows.

Individual issues are questions raised about particular individual or individuals within the company.

In B.F.GoodRich’s case the morality of the government’s contracting system through which BFG was allowed to test the quality of its own break design for A7D and the


morality of the international economic system with which Merck & Co. was forced to deal – are systematic issues.

Morality of BFGs culture or questions about the company’s decision to qualify A7D brake; and the morality of Merck & Company’s decision to invest so many millions of dollars on a project that the company knew would not generate profit are corporate issues.

Whether Vlandivier’s decision to participate in writing a report on the A7D brake which he believed to be false was morally justified and whether it was moral for Mercks’ Chairman Dr. P. Roy Vagelos to allow his researchers to develop a drug that would not probably generate profit; are individual issues.

Do moral standards apply to corporations or only to individuals?Two extremes

1. Rules that tie organisations together allow us to say corporations are acting like individuals in all respects and have intended objectives for what they do. So we can say they are morally responsible for their actions and that their actions are ‘moral’ or ‘immoral’ in exactly the same sense, the human beings are.

2. No sense in holding a corporation morally responsible for its acts or to say that they have moral duties than to criticise a machine for failing to act morally.

A corporation is not a natural person. But law attributes it personality and is entitled to carry out all the rights that an individual has. It exercises it’s powers through human beings holding different positions in its organisation structure. Applying the universally accepted principles of agency, the corporation becomes responsible for the acts f its agents. Hence it morally responsible for the decisions and actions of its human agents. The human agents holding different positions are also responsible to the extent of authority delegated to them by the structure.Hence it can be concluded, the corporation is responsible to keep up moral standards equally with individuals. The individual executives of the corporation also become responsible for their acts within the scope of authority given to them. Neither the corporation nor the executive can seek shelter shouldering his part of responsibility with each other. For the harm done by its agents acting within the scope of his authority to the outside world the corporation itself will be held accountable. The executive concerned will become accountable to the corporation, his superiors in the structure.When the organisation members collectively, but freely and knowingly pursue immoral objectives, it makes perfectly good sense to say that their actions are immoral and that the organisation is ,morally responsible’ for such immoral action.

Corporate ResponsibilityCorporate acts normally are brought about by several actions and omissions of many different people all cooperating together so that their linked actions jointly produce the corporate act. For example:- one team of managers design the car, another team tests it, a third team builds it, still another team encourage people to


buy and gain orders. One group knowingly defrauds the customers, another group, knowingly but silently enjoys the benefit, one group does the wrong thing and another group conceals it.Who is morally responsible for such for such jointly produced acts.Traditional viewWho knowingly and freely did what is necessary to produce the corporate act are each morally responsible. Critics of this traditional view have claimed that hen an organised group acts together, it should be taken as act of the group and consequently, the corporate group and not the individuals who make up the group must be held responsible.Traditionalists, however, reply that although we sometimes attribute acts to corporate groups, the linguistic and legal facts do not change the moral reality. Because individuals are morally responsible for the known and intended consequences of their action, any individual who knowingly and freely joins hands with others intending to bring about a certain corporate act will normally be responsible for the act.More often than not, employees of large corporations cannot be said to have knowingly and freely joined their actions together to bring about a corporate act or to pursue a corporate objective. It follows bureaucratic rules that link their activities together to achieve corporate outcomes of which the employees may not be aware. Every person working in a corporate structure is not responsible for every act he /she helps to bring about. If I know nothing about the fraud and if I am not able to prevent it by reporting it, then I am not responsible for the fraud. The excusing factors of ignorance and inability completely eliminates a persons moral responsibility.

Subordinates responsibilityHow far is a subordinate’s responsibility for unethical actions forced to be performed by him, under directions from the superior? How far is he responsible for unethical actions going on in the undertaking which he comes to know because of the position held in the organisation or even forced to become part of , though it is conscience pricking?BF. Goodrich case provides a good example for the first situation. Mr. Vlandivier is forced to give a positive test report for the air brakes for A7D aircrafts, even though he knew very well that the brakes some technical defect and is unsuitable for the purpose.It is wrong notion that an employee who freely and knowingly does something wrong is absolved of all responsibility when he or she is ‘following orders’. For example, if I am ordered by my superior to murder my competitor and I do so, I can hardly claim latter that I was totally innocent as I was following orders. The fact that my superior ordered me to perform what I knew was an immoral act in no way alters or reduces my moral responsibility. I knew what I was doing and I freely choose to do it. There are limits to the employee’s obligation to obey his or her superior. Employee has no obligation to obey something which is immoral. True, the employer may put significant or other pressure on the employee. Such pressures can mitigate the employee’s responsibility but do not totally eliminate it.

Regarding the second question, it may sometimes result in ‘Whistle Blowing”.

Whistle Blowing


Companies working on unethical ways may put the employees who prefer to keep up better moral standards in an ethical dilemma. Such suppressed state of inability to bring to light such acts hurting one’s feelings may burst out one day. They will blow the whistle leaking out and making public the unjust affairs taking place inside. The term was used in early days to mean government employees who go public with complaints of corruption and mismanagement in government undertakings. Gradually it came to be used in corporate contexts too.

Whistle blowers often pay high price for their dissenting attitude. Retaliation is common and may take many forms.

Whistle blowing may be internal or external. Internal whistle blowing means reporting about the situation only to higher authorities in the organisation whom the whistle blower believes, will register his concerns with assurance of confidentiality. External whistle blowing means reporting to external agencies, media and public interest groups.It is argued that external whistle blowing is wrong as employee is bound by contract to keep up confidentiality. But the contractual obligation is not unlimited. Contracts are void if they force somebody to do something immoral or unethical.

Modern corporations show much alertness to prevent things leaking out. They attempt to keep things within the limits of the walls of the organisation. The corporations have devices like Ombudsman/ Ethical Officer, Suggestion Box system etc.

M.N.Cs and Business EthicsMulti national companies have ethical issues deserving special attention because of their international /global operation, world wide presence.GE headquartered in Newyork, has operations in more than 100 countries and derive one - half of its revenue from outside US. It has metallurgy plant at Prague, software operations in India, product design at Budapest, Tokyo and Paris, manufacturing operations in Mexico. Employees and managers are drawn from different parts of the world.Ethical Issues1. Ability to shift operations from country to another enabling to escape social controls or to violate environmental and labour laws. Governments can confiscate properties and can force to export more and import less to check such tendencies but are found to be not boldly imposed..2.Can transfer resources from one country to another and escape from taxes and fiscal obligations.3. Can transfer technology from developed countries to undeveloped.Manager’s of MNCs are facing the dilemma of choosing between the benefits that both the company and the host country can derive from a product or technology transfer and the risks and hazards that such transfers can produce.4. Because the MNCs operate in different countries and the countries have

varying national standards it is often faced with the quandary of deciding which of these different norms and standards it should implement in its operations. Example:- Should a company head-quartered in a highly


developed country as US operating in a less developed nation as Trinidad? Should pay its worker in Trinidad, wages at US rate or at Trinidad standards ?

5. Safety standards ? Do the same standards apply to MNCs everywhere?

Ethical RelativismDifferent societies have different norms, beliefs and standards. Hence there is no way of deciding whether an action is right or wrong other than asking whether the people of this society or that society believe it as morally right or wrong.There are no prevailing standards that are absolutely true and that apply or should be applied to companies and people of all societies. Something is right for the people or companies in one particular society if it accords with their moral standards and wrong for them if it violates their moral standards.Companies or business men who operate in several different countries who encounters with many different moral standards are advised by the theory of ethical relativism as given below.In moral reasoning, one should always follow the moral standards prevalent in whatever society one finds oneself. “When in Rome do as Romans do”.There are numerous practices that are judged immoral by some societies which other societies have deemed morally acceptable including polygamy, abortion, infanticide, slavery, homo sexuality, racial and sexual discriminations, genocide, patricide and torture of animals.Critics of the theory of ethical relativism do not believe that there are no moral standards that are binding on people everywhere.They argue: -1. There are certain standards that members of any society must accept, if it is to

survive and interact with other societies. Example:- Standard against theft.2. Many apparent moral differences among societies turn out on closer

examination to mask deeper underlying similarities. Example:- For Alaskian Inuit societies it is morally acceptable to abandon their aged outdoors. It is justifiable every where if food supplies run so short that even the survival of younger members and earning members is at peril.

3. Because different people have different moral beliefs about some issues, it does not follow logically that there is no objective truth about that issue nor that all beliefs about the issue are equally acceptable.Between two contradicting beliefs regarding something philosophers can found out that one is right and the other is wrong. Some societies are better informed than others.

4. Most telling criticism is regarding the inherent consequences of ethicalrelativism. We cannot say that slavery in the pre civil war southern societies of US was wrong or the Germans’ treatment of Nazi’s was wrong, if we accept relativism. We have to accept some practices of our society like torturing animals or discriminating women workers, as right. According to relativism, whatever the majority in the society believes about morality is automatically taken as correct.

The only acceptable aspect of ethical relativism is to remind one that ethical standards of different societies are different and one should not simply dismiss or ignore their beliefs and standards while operating in that society or in ones dealings with that society or members of that society.


But relativist is wrong to conclude that all moral standards are equally acceptable and that the only criteria of right and wrong is the moral standards prevalent in the society to which one belongs.

Normative philosophy is in the search for objective ethical standards which are equally applicable for all societies at all times, whether in business or in any other profession or in social life.

UniversalismIt might be questioned whether international variations amongst managers are many more diverse than the differences between mangers in the same single country or the same continent. In India itself, we find diverse religions, varied cultures in businesses. The is sometimes labelled as universalism. According to this school, there is only one fundamental ‘world management culture’ with minor variations in attitudes and values among different managers.

Arguments for & against Business EthicsArguments against

1. Persons involved in business may claim that they should single-mindedly pursue the financial interests of their firm and not side-track their energies or their firms resources into ‘doing good works.’ Three arguments are advanced in support of this view.In perfectly competitive free markets, the pursuit of profit will by itself ensure that the members of the society are served in most socially beneficial ways. This argument rests on certain questionable assumptions. Firstly, are the markets really perfect. Even in cases where perfect competition has scope firms attempt to have their own un-interfered areas through differentiation and branding. Secondly, the argument assumes that steps taken to increase profits will necessarily be socially beneficial, when in fact, several ways of increasing profits do actually injure the society. Examples are deceptive advertising, concealing product hazards, tax evasion etc. Thirdly, wants of the poor and disadvantaged are not actually met in un-interfered market conditions. The market focuses on such situations in serving the richer sections of the society, where they can earn more profits.

2. The ‘loyal agents’ argument is often used to justify managers’ unethical conduct. Whatever the manager does is with the object of protecting the interest of his employees and shareholders though it is unethical. It again relies on certain unquestionable assumptions. Manager is bound by agreement to whatever his employer wants, however, unethical it is. But in fact he is bound to serve only in whatever moral way the employer is to be served. There are limits to managers’ duty to serve his employer set by the legal and social institutions from which the duties arise. Law of agency does not justify the employee doing unethical things for fulfilling the undesirable and unethical goals of the employer.

3. A third objection raised is, to be ethical it is enough for business people to obey law. But it is wrong to see law and ethics as identical. Morality and law do not always coincide.


Arguments in favour of business ethics Ethics should be brought into business. Ethics should govern all voluntarily human activities. Business being a voluntary human activity, ethics should govern business. Any business firm will collapse if its managers and employees come to think that it is morally permissible to steal from, lie to or break their agreements. Secondly, the smooth functioning of business demands the prevalence of a stable society, for the carry out their business dealings. Stability of any society requires that its members adhere to certain minimal standards of ethics. A more persuasive way to argue for ethics is that ethical considerations are consistent with business pursuits, especially with pursuit of profit in the long run. The history of Mercks, Johnson and Johnson, Xerox, Hewlett-Packard, Tatas, Vipro and a number of other corporations stands proof. The well-known ‘prisoner’s dilemma argument’ implies that over the long run and for the most part, it is better to be ethical in business than to be unethical.

Further arguments against business Ethics

1. In perfectly competitive market, pursuit of profit will itself ensure that the members of society are served in the most beneficial ways. But in fact most of the assumptions of this theory do not hold good:-

Most industrial markets are not ‘perfectly competitive’.2. Several ways of profit maximisation by businessmen are socially harmful It assumed whatever the society needs are produced but what is really wanted by large sections of society are ignored. The argument is essentially making a normative judgement ( managers should

devote themselves to the single minded pursuit of profits) on the basis of some assumed but unproved moral standards.3. Loyal agents argument The argument that as a loyal agent of his or her employer, the manager has duty to serve the employer in whatever was will advance the employers self interest. The argument is used to justify the unethical or illegal conduct of managers. It is based on several assumptions.

a. It tries to establish that ethics does not matter, by relying on an unproved standard. ‘Manager should serve the employer in whatever way The employer wants.

b. There are no limits to the manager’s duties to serve the employer, when in fact such limits are express part of the legal and social institutions from which these duties arise. ( agents duties are defined by the law of agency).

c. If a manager agrees to serve a firm, then the agreement automatically justifies whatever the Manager does on behalf of the firm.

3. To be ethical it is enough for business people to obey the laws. Some managers even believe that illegal and unethical are both same. True some laws require behaviour that is the same as the behaviour required by ethics. Example:- laws that prohibit offences like rape, theft and fraud. Some laws have nothing to do with morality. Example;- parking laws, Dress codes, Traffic rules.True moral standards are incorporated through laws.


It is immoral to break laws.

Case for business1. Because ethics should govern all voluntary human activities and because

business is a voluntary human activity, ethics should also govern business. There is nothing that prevents us from applying the same standards of ethics to business that should be applied to the other voluntary human activities.

2. Business cannot exist unless the people involved do not follow minimum ethical standards. Business is a cooperative human activity , the very existence necessitates ethical behaviour.

3. Business will fail if all managers, employees & customers think, it is ethical to steal or to lie or break their agreements with the company. Al businesses require a stable society in which to carry on dealings. For stability, all members should adhere to some minimal standards of ethics.

4. Ethical considerations are consistent with business pursuits, in particular with the pursuit of profit. History of good and consistent profits in the long run has always been associated with history of being ethical. Examples. Merck& Co., Hewlet Packard, Johnson and Johnson, Tatas, Starbucks Coffee.

Well known prisoners dilemma shows that if both the parties cooperate both will be benefited maximum. If one cooperates while the other chooses not to, the who cooperates will suffer loss and the one who does not cooperate gains. But the gain is not perpetual. If the businessman attempts to make profit behaving unethically towards his customers, employers, suppliers and investors, the later will retaliate whenever they come to know and immediately when they find out other better options.Retaliation may be simple as refusing to buy from or to work for or to supply or may be more complex as sabotage, getting others to boycott the unethical party etc.Moral Responsibility and BlameMoral reasoning is sometimes directed at a related but different kind of judgements determiig wheter a person is ‘morally responsible’ or culpable for having done something wrong or for having wrongfully injured some one.A judgement about a person’s moral responsibility for a wrongful injury is a judgement about the extent to which the person deserves ‘blame’ or punishment or should pay restitution for the injury.Eg:- An deliberately injures the health of his employees, we would judge the employer morally responsible for those injuries, we then say, the employer is to ‘blame’ for the injuries.Moral responsibility is sometimes used to mean ‘moral duty, or moral obligation.But, here , used in the sense that the person is to be blamed for the action.Example “ Vlandivier had moral responsibility not to tell lie”,- not in the same sense.But ‘ Vlandivier was responsible for the deaths of five pilots who crashed when tryingtoland the A7D airplane.We use the term to mean blame.A person is morally responsible only for those acts and their foreseen injurious effects:-a. Which the person freely performed or brought about and which was morally wrong for him to do.


b. which the person freely failed to perform or preventand which act was morally wrong on his part.Stefan Golab, 59 years’ old Polish immigrant, who spoke little English, died from Cynide poisoning after working for two months over open vats of fuming cynide for film recovery systems, a company that recovered silver from old film. The company was held morally responsible for maintaining hazardous working conditions knowingly and they failed to warn or protect workers who who could not read warning signs written in English and the skull and born symbol was also scrapped off by wear and tear of cynide drums.Several manufacturers of Asbestos, were recently judged responsible for lung diseases suffered by some of their employees.There are two excusing conditions for moral responsibility – ignorance and inability.If a person was ignorant or unable to avoid, what he or she did, then that person did not act knowingly and freely and cannot be blamed for what he or she did.Asbestos manufacturers, for example, have claimed that they did not know that conditions in their plants would cause lung cancer in their workers. If that is true then it wrong to blame them for the diseases that resulted.Some other manufacturers said, they tried to prevent the occurrence of the disease by trying to make their workers to wear protective masks and clothing , but they were unable to enforce such measures because the workers refused to adhere to them. If they were true, then again they cannot be blamed on the ground of ‘inability’.Ignorance and inability are not excusable1. When the person deliberately keeps ignorant to escape responsibility. Example:- Asbestos manufacturers.2. A person negligently fails to take adequate steps to become informed about a

matter that is of known importance.Besides ignorance and inability that excludes liability there are several other mitigating factors.1. Where a person is uncertain, not altogether unsure about what he is doing.2. Difficult but not impossible to avoid.3. Circumstances that minimise but not completely eliminate a persons

involvement in the actSubordinate’s responsibilityWhen the superior orders the subordinate to do something which both of them is immoral, the superior is also responsible along with the superior.There is an argument that the subordinate in such case is absolved of the responsibility. Only superior will be responsible.But in fact an employee who has freely and knowingly does something wrong cannot be absolved of the responsibility even if he was following the orders. If the subordinate is ordered to kill the competitor can the subordinate do?Whistle blowingSubordinate’ dilemma of his personal values contrasting with the organisational goals. Where a company or the superiors adopt certain devices in the course the pursuit of attaining the organisational goals, which the subordinate does not feel to be unethical and pricking his morality it will create ethical conflicts in him which may burst out in varying forms. Such burst outs are known as whistle blowing. It may be internal or external.


Internal whistle blowing may take forms like absenteeism ,employee turn over. Lack of cooperation and sincerity in work. There is also possibility of reporting the matter to peers, and superiors whom the employee feels will keep up confidentiality. Very often internal whistle blowing will not work out effectively for fear of retaliation especially where the wrong doing is committed at the pressure or permission of superiors at higher levels.External orientation takes the shape of leaking out information to outside public, trade unionists and media. It becomes more easy where there is access to socilly committed media.Efficient management will always be alert to avoid things leaking to external sources. They will maintain the necessary machinery for managing to confine whistle blowing within the four walls of the organisation. An effective organisation will keep up devices for preventing occurrence of such moral conflicts and devices for resolving such issues internally if ever occurs. The devices include Ombudsman or Ethical Officer positions, Grievances collection systems, Ethical committees etc.


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