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Chapter
2
Business Ethics
Key Points
• Exploration of real-life business ethics issues
• Teleological and deontological approaches to ethical
issues
• Kohlberg’s stages of moral development
• Corporate ethics codes
Business Ethics vs. Old-Fashioned
Greed and Arrogance:
Adelphia—Misuse of corporate funds
Arthur Andersen—Auditing irregularities
Enron—Off-books partnerships to hide debts and losses
Global Crossing—Deceptive accounting
Merrill Lynch—Stock fraud
Tyco—Misuse of corporate funds
WorldCom—Hiding billions in expenses
Xerox—Misstating revenues
Martha Stuart—Insider trading
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Ethical Dilemmas
Career and Family:
Are career and family goals ethically compatible?
$24.98 Round-Trip San Francisco to Paris:
Was UAL ethically obligated to honor the low, low
fares?
Can purchasers honorably take advantage of the ULA
error?
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Ethical Structures
 Religion: Revealed principles and laws provide the
foundation for a moral life.
 Libertarianism: Ethical theory where right and wrong
are measured by ensuring equal opportunity for all to
engage in informed choices about their own welfare.
 Virtue Ethics: The key to good ethics lies in the classic
notion of a good personal character.
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Teleology
Teleological (or consequential) ethical systems are concerned
with the consequences of an act rather than the act itself. It
includes act-utilitarianism, where one’s goal is to identify
the consequences of a particular act to determine whether it
is right or wrong, and rule-utilitarianism, which requires one
to adhere to all the rules of conduct by which society reaps
the greatest value. In sum, the principle to be followed for
utilitarian is the greatest good for the greatest number.
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Deontology
Deontological ethical systems hold that a person renders
ethical decisions if he or she acts based on what is right,
regardless of the consequences of the decision. In this
formalistic view of ethics, what is right is based on the
categorical imperative, which is the notion that every person
should act on only those principles that he or she, as a
rational person, would prescribe as universal laws to be
applied to the whole of humankind.
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America’s Moral Climate—Part I
1. Teens:
Fewer than 1/3 think they will make America a better place.
2. College Students:
95% of 3,000 undergraduate business students polled in 31
universities admit they had cheated in high school or college.
73.6% of new freshman identified being “well off financially”
as a very important objective, whereas 43.1% considered
developing a “meaningful philosophy of life” important.
A record 82.6% said they had done volunteer work during the
past year.
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America’s Moral Climate—Part II
3. Business Practice:
A 2000 KPMG survey of 2,390 employees nationwide found
that 76% had observed what they believed to be illegal and/or
unethical conduct on the job.
 A 1997 survey of over 1,300 American workers found 56%
felt some pressure to act unethically or illegally and 48%
admitted they had done so in the past year to meet job
demands.
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Testing Honesty Around The World
Reader’s Digest intentionally “lost” more then 1,100 wallets
in 117 cities to see how many would be returned. The
wallets contained up to $50 along with a name and phone
number. Some of the results:
44% were not returned.
All wallets in Norway and Denmark were returned.
Nearly 70% were returned in the United States.
Source: Lori Joseph and Marcy E. Mullins, “Testing Honesty around the World,” USA TODAY,
May 1, 2001, p. 1A.
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Kohlberg’s Six Universal Stages
of Moral Development
Stage 1: Obey rules to avoid punishment.
Stage 2: Follow rules only if it is in own interest, but let
others do the same. Conform to secure rewards.
Stage 3: Conform to meet expectations of others. Please
others. Adhere to stereotypical images.
Stage 4: Doing right is one’s duty. Obey the law. Uphold the
social order.
Stage 5: Current laws and values are relative. Laws and duty
are obeyed on rational calculations to serve the greatest
number.
Stage 6: Follow self-chosen universal ethical principles. In
the event of conflicts, principles override laws.
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Gilligan’s Criticism of
Kohlberg’s Stages:
Men tend to take an impersonal, universal view of morality as
contrasted with the feminine “voice” that rises more
commonly from relationships and concern for the specific
needs of others.
Kohlberg’s initial experimental subjects were limited to young
males.
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Managerial Ethics: Part I
In a recent study of 600 workers, “Teams that viewed their
supervisor as ethical showed a positive correlation with the
following outcomes”:
.30 with likelihood to expend extra effort to perform beyond
expectations
.32 with perceived supervisor effectiveness
.35 with job satisfaction.
On the other hand, the perception of unethical leadership was
correlated with negative outcomes:
-.16 with unethical behavior.
-.33 with complaining.
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Managerial Ethics: Part II
If “managers are the ethics teachers of their organizations,”
then:
The Enron debacle has made it crystal clear that a failure of
ethical leadership at the rarefied heights of a corporation—
in the executive suite and boardroom—can destroy a
company.
Source: “Do Your Employees See,” located at http://www.bsr.org/BSRMagazine/INDepth/analysis.cfm
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Corporate Ethics Codes
Address such topics as relations with government, matters of
personal character, product safety, environmental issues,
customer/supplier relations, political contributions, employees’
working conditions, bribery, workplace safety, collective
bargaining, freedom of expression and fair trade.
In 1960, 20% of the world’s population living in the richest
countries had 30 times the income of the poorest 20%. By 1997,
the richest were 74 times richer.
The Ethics Officers Association is exploring the feasibility of
developing a standardized ethics assessment system corporations
could use to measure and earn certification for excellence in
addressing ethics concerns.
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Forestalling Bribery Globally
The Foreign Corrupt Practices Act: The United States’
primary statutory weapon against bribery abroad
The OECD Anti-Bribery Convention: 34 signatory nations
by 2002
Inter-American Convention: 25 North and South American
signatory nations
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Business Crime
The 2002 Sarbanes-Oxley Act significantly increased
penalties for attacking corporate crime by publicly-traded
companies.
Federal sentencing guidelines achieve greater consistency
and predictability in punishment for both white-collar and
street crime.
Whistleblower protection found in the 2002 Sarbanes-Oxley
Act, the Whistleblower Protection Act of 1989, state
whistle-blower protection statutes, and in some court
decisions.
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