BUSINESS ETHICS AND CORPORATE SOCIAL RESPONSIBILITY - SESSION 6:

INTRODUCTION TO BUSINESS ETHICS

DR. MICHAEL VERBÜCHELN – DIRECTOR METHODOLOGY DEVELOPMENT | JANUARY 10, 2024

 Overview of sessions and schedule for the course

Group assignment Session 10:

February 02, 2024 Group presentations and Wrap up

Session 9:
Managing Sustainable Business Models
sustainability
January 23 & Session 7: Session 8:
February 02, 2024 From Output Measurement to Impact Management
Impact Valuation

Session 5: Session 6:
Beginning the Corporate Social Irresponsibility Business Ethics
sustainability
transformation
Session 3: Session 4:
January 09 & 10, 2024 Regulatory Landscape and Sustainability and CSR Strategy and
Sustainability Disclosure Target Setting

Fundamental concepts Session 1: Session 2:

January 08, 2024 Introduction to Sustainability Introduction to CSR

January 10, 2024 2

Guiding Questions

1. What does business ethics entail?

2. How can basic ethical theories be used to assess ethical
problems?
3. How can managers increase moral behavior in their companies?

Why should we talk about

and understand ethics in
business settings?

January 10, 2024 3

 Why an Understanding of Business Ethics is
Important

1. The power and influence of business in

society is greater than ever before.
2. Business has the potential to provide a
major positive contribution to our
societies.
3. Business malpractices have the potential
to inflict enormous harm on individuals,
communities, and the environment.
4. Demands being placed on business to be
ethical by its various stakeholders are
becoming more complex and challenging.
5. Few businesspeople have received formal
business ethics education or training.
https://www.cnbctv18.com/business/at-record-3-trillion-apples-market-cap-is-higher-than-
6. Ethical infractions continue to occur. the-gdp-of-uk-india-12025372.htm

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship
and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 4

Business Ethics as an Oxymoron

• Business ethics is often said to be an oxymoron- bringing together two apparently contradictory concepts.
• Business is often seen to be in some way unethical or at best, amoral (outside of our normal moral
considerations).
• However, even if we feel that in many cases, business is lead by the wrong ethics, it is still led by ethics of
some sort.
• Clearly, it makes sense to understand why business decisions are made in this way.

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 5

Business Ethics and the Law

• Definition: „Business ethics is the study of business situations, activities, and decisions where issues of
right and wrong [in a moral sense] are adressed.“
• However, ethics and the law are not equivalent.
• The law is essentially an institutionalization or codification of ethics into specific social rules, regulations, and
proscriptions.

Ethics Law

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University
Press.

January 10, 2024 6

Morality, Ethics, and Ethical Theory

• Morality is concerned with the norms, values, and beliefs embedded in social processes which define right
and wrong for an individual or a community.
• Ethics is concerned with the study of morality and the application of reason to elucidate specific rules
and principles that determine right and wrong for a given situation.
• These rules and principles are called ethical theories.

Potential solution
Morality Ethics Ethical Theory
to ethical problem

Ethics …to produce …that can be

rationalizes ethical theory… applied to any
morality… situation.

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 7

Moral Intuitions and Ethical Theories

• Morality is about avoiding harm and providing benefits.

• Often, we have a „gut-feeling“ about right and wrong.
• These shared moral convictions make living together in groups possible.
• Rationalization of gut-feeling (moral intuitions)= ethical theories.

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 8

 Why We Need Ethical Theories

• Ethical theories are the rules and principles

that determine right and wrong for a given
situation.
• They help to judge difficult ethical problems and
provide a basis for rational discourse about
different moral views of a problem.
• Every day we are confronted with situations in
which we have to decide about right and wrong.
• In business contexts, these decisions may
become far more complex.
• And: decisions need to be justifiable in front
of stakeholders/ the public.

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate
citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 9

Guiding Questions

1. What does business ethics entail?

2. How can basic ethical theories be used to assess ethical
problems?
3. How can managers increase moral behavior in their companies?

January 10, 2024 10

The „Trolley Problem“ by Philippa Foot

Would you turn

the trolley?

“Suppose you are the driver of a trolley. The trolley rounds a bend and there come into view ahead five track workmen who have been repairing the
track (and which cannot escape the track). The breaks of the trolley don’t work but there is a spur of the track leading off to the right to which you could
turn the trolley. On that track, there is only one workman. Is it morally permissible to turn the trolley?”
Foot (1967)

January 10, 2024 11

The „Trolley Problem“ by Philippa Foot

Would you turn

the trolley?

January 10, 2024 12

The „Trolley Problem“ by Philippa Foot

Would you turn

the trolley?

January 10, 2024 13

MIT Moral Machine

http://moralmachine.mit.edu/

January 10, 2024 14

The „Transplant Problem“

“You are a surgeon. You have

five patients who need organs:
two need one lung each, two
need a kidney each, and the
fifth needs a heart. If they do
not get a transplant in time, they
will all die. Now, a healthy
young man comes in for a
check-up. You ask him whether
he would volunteer to give his
organs to the five but he says
no. Would it be morally
permissible for you to operate
anyway?” VS

Would it be morally
permissible to
operate anyway?

January 10, 2024 15

The Trolley Problem versus the Transplant
Problem

• Why is it not morally permissible for the

surgeon to operate while many agree that it is
morally permissible to turn the trolley?
• What are the decisive characteristics of the
situation?

January 10, 2024 16

The Trolley Problem versus the Transplant
Problem

• We can judge whether a decision is right or wrong by regarding its consequences and engaging in a cost-
benefit analysis.
• Some things are just categorically wrong, even if the cost-benefit analysis is positive.
• Sometimes, we have to regard the intrinsic quality of the act.

January 10, 2024 17

Western Modernist Ethical Theories

Western modernist ethical theories are based on philosophical thinking generated in Europe and North America
beginning with the enlightenment in the 18th century.

Motivation/
Action Outcomes
Principles

Also referred Also referred to

to as ”ethics as ”ethics of
of conviction” Non-consequentialist ethics Consequentialist ethics responsibility”
(deontological) (teleological)

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 18

Utilitarianism

• Jeremy Bentham (1748-1832) and John Stuart Mill (1806-1873).

• According to utilitarianism, an action is morally right if it results in the
greatest amount of good for the greatest amount of people affected by
the action.
• „It is the greatest happiness of the greatest number that is the measure of
right and wrong“
• „Greatest Happiness Principle“
• Humans are seen as hedonists whose purpose in life is to maximize
pleasure and to minimize pain.
• Very compatible with the quantitative methodology of economics (~cost-
benefit analysis).

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 19

Applications of Utilitarianism

Suffering of laboratory Life-saving treatments for

animals humans

VS.

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 20

Problems of Utilitarianism

Problems:
• Subjectivity
• Distribution of utility
• Problems of quantification

Criteria for the quantification of utility

• Intensity
• Duration
• Certainty (of occurence)
• Promptness
• Fertility (for other feelings)
• Purity
• Number of affected people

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 21

Western Modernist Ethical Theories

Western modernist ethical theories are based on philosophical thinking generated in Europe and North America
beginning with the enlightenment in the 18th century.

Motivation/
Action Outcomes
Principles

Also referred Also referred to

to as ”ethics as ”ethics of
of conviction” Non-consequentialist ethics Consequentialist ethics responsibility”
(deontological) (teleological)

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 22

Ethics of Duties, Rights, & Justice

• Ethics of rights: start by assigning a right to one party and then advocating a corresponding duty on
another party to protect that right.
• Ethics of duties: begin with assigning of a duty to act in a certain way to an actor.
• Central to many religious perspectives on business ethics.
• Start from a divine revelation: duties to god, god-given rights.
• What is right and wrong has a divine, eternal validity, regardless whether the outcomes are in anybody‘s
self-interest or result in more pleasure and pain.

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 23

 „Golden Rule“

Treat others as you wanted to be treated

yourself!“

• Hinduism: „This is the sum of duty: do not do to

others what would cause pain if done to you.“
• Bhuddism: „Treat not others in ways that you
yourself would find hurtful.“
• Islam: „Not one of you truly believes until you
wish for others what you wish for yourself.“
• Christianity: „In everything do to others as you
would have them do to you.“

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate
citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 24

Kant’s Deontological Ethics

• Right and wrong are not dependent on the characteristics of a situation.

• Morality is a question of certain eternal, abstract, and unchangeable principles – a priori moral
laws – that humans should apply to all moral problems.
• Human beings do not need God, the church or other authorities to identify these principles
(humans as independent moral actors).

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 25

Kant’s Deontological Ethics

• Actions can only be called moral if they are done out of obligation.
• Example: A merchant does not cheat, because he does not want to scare his customers off in
order to take higher profits. So he does not act out of the principle of honesty, but out of a
selfish intention. → the action does not have moral value.

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 26

Kant’s Categorical Imperative

• Categorical imperative should be applied to every moral issue.

• Three parts:
1. Maxim 1: Act only according to that maxim by which you can at the same time will that
it should become a universal law. (generalizability)
2. Maxim 2: 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. (human dignity)
3. Maxim 3: Act only so that the will through its maxims could regard itself at the same
time as universally law-giving. (universality)

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 27

Application: Child Labor Example

Maxim 1: Would we really want companies using child labor to be a general rule?
Maxim 2: Do we see the kids in the example as a means to higher profits or as an end in
themselves?
Maxim 3: Would we want our decision to be headline news?

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 28

Stakeholder Theory

Stakeholder theory is based on Kantian

deontological ethics:
• Treat your stakeholders (employees,
customers, suppliers, local communities)
not as means (of production, sources of
income) but as constituencies with
goals and priorities of their own.
• Companies have a duty to allow these
stakeholders some degree of influence
in the corporation (Evan and Freeman
1993).

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate
citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 29

Problems of Deontological Ethics

1. Complexity: can we expect individual decision-makers to engage in these cognitively complex

reflections?
2. Optimism: is Kant‘s very optimistic idea of human beings realistic?
3. Undervaluing outcomes: should we really ignore the outcomes of our actions?

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 30

Ethical Absolutism, Relativism, and Pluralism

Absolutism: claims that there are eternal, universally applicable moral principles.
Right and wrong are objective qualities that can be rationally determined.

Relativism: claims that morality is context-dependent and subjective. There are no

right and wrongs that can be rationally determined – it simply depends on the person
who makes the decision and the culture in which they are located.

Pluralism: accepts different moral convictions and backgrounds while at the same time
suggesting that a consensus on basic principles and rules in certain social
contexts can and should be reached.

Source: Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

January 10, 2024 31

 At this step, consider the
two approaches that we
have discussed today:
Consequentialist vs. non-
consequentialist.

Source: https://www.scu.edu/ethics/ethics-resources/ethical-decision-making/a-framework-for-ethical-decision-making/

January 10, 2024 32

Group Discussion

In groups, please discuss the following

questions based on the Facebook case and be
prepared to share your thoughts with the entire
class:
• How might Facebook’s actions be perceived
through the prisms of consequentialist and
non-consequentialist ethical theories?
• Based on this, is it ethical for Facebook to mine
its users’ posts for signals that those users are
about to go through a break-up? Is it ethical for
the company to then help its clients target their
ads based on this research?

January 10, 2024 33

Guiding Questions

1. What does business ethics entail?

2. How can basic ethical theories be used to assess ethical
problems?
3. How can managers increase moral behavior in their
companies?

January 10, 2024 34

Self-Image Concerns and Moral Regulation

• Self-image is an important constraint on dishonesty and cheating:

• People strive for a positive self-image.
• People do not cheat if it makes them feel bad about themselves.
• „On the one hand, we want to benefit from cheating and get as much money and glory as possible; on the
other hand, we want to view ourselves as honest, honorable people”

Image credit: Fares Hamouche, unsplash.com

Source: Mazar, N., & Ariely, D. (2006). Dishonesty in everyday life and its policy implications. Journal of Public Policy & Marketing, 25(1), 117-126.

January 10, 2024 35

Moral Licensing and Moral Cleansing

1. Moral licensing: moral act leads to immoral act (moral capital).

2. Moral cleansing: immoral act leads to moral act (compensation).

Moral Moral
licensing cleansing

Zhong, C. B., Liljenquist, K. A., & Cain, D. M. (2009). Moral self-regulation. Psychological perspectives on ethical behavior and decision making, 75-89.

January 10, 2024 36

„Sinning Saints and Saintly Sinners“

• Internal balancing of moral self-worth and cost inherent to certain behaviors.

• Experiment:
• Participants asked to write a self-relevant story containing moral words referring to either positive or
negative traits.
• Then, participants were asked to donate money to a good cause.
• Participants who wrote a story referring to the positive traits donated only one fifth as much as those who
wrote a story referring to the negative traits.

Sachdeva, S., Iliev, R., & Medin, D. L. (2009). Sinning saints and saintly sinners the paradox of moral self-regulation. Psychological science, 20(4), 523-528.

January 10, 2024 37

How CSR May Lead to Irresponsibility

Archival study of 49 Fortune 500 firms:

• Prior CSR is positively associated with subsequent CSI because the
moral credits achieved through CSR enable leaders to engage in
less ethical behavior.
• Leaders’ moral identity symbolization, or the degree to which
being moral is expressed outwardly to the public through actions
and behavior, will moderate the CSR–CSI relationship, such that the
relationship will be stronger when CEOs are high on moral identity
symbolization rather than low on moral identity symbolization.

Source: Ormiston, M. E., & Wong, E. M. (2013). License to ill: The effects of corporate social responsibility and CEO moral identity
on corporate social irresponsibility. Personnel Psychology, 66(4), 861-893.

January 10, 2024 38

„Bad Apples on the Team“

Seeing other people clearly cheating without being punished

enhances the likelihood of one’s own unethical behavior.
• Experiment:
• Matrix task administered to participants; manipulation of possibility
to cheat.
• In the treatment groups, one participant (a hired actor) stands up
after a couple of minutes claiming to have solved all puzzles
correctly and receives payment.
• Result: significantly increased level of cheating in the treatment
groups.

Source Gino, F., Ayal, S., & Ariely, D. (2009). Contagion and differentiation in unethical behavior the effect of one bad apple on the barrel. Psychological science, 20(3), 393-398.

January 10, 2024 39

Do Markets Destroy Morals?

Does the market mechanism erode morals?

Experiment:
Decision task: 10€ versus the life of a mouse.
In a second group, participants were assigned role of buyers and
sellers. Every seller receives a mouse, every buyer 20€. Prices can
be negotiated.

Results:
Without negotiation: 45% took the money (and killed the mouse).
With negotiation: 75% took the money (and killed the mouse),
average price: 6.40€.

Source: Falk, A., & Szech, N. (2013). Morals and markets. Science, 340(6133), 707-711.

January 10, 2024 40

 The Ten Commandments

Experiment: half of the students are asked to recall the ten

commandments, the other half 10 books that they read in high school.
Group „books“: typical cheating
Group „ten commandments“: no cheating whatsoever!

Furthermore:
Recalling the 10 commandments and swearing on the bible even
worked for atheists.
The same effect could be observed by asking students to recall the
school‘s honor code!

→Implications for the effectiveness of codes of conduct.

→Reminders of morality have to be used right at the point where
people are making a decision!

Source: Mazar, N., & Ariely, D. (2006). Dishonesty in everyday life and its policy implications. Journal of Public Policy &
Marketing, 25(1), 117-126.

January 10, 2024 41

The Insurance Statement Experiment

Experiment: 20,000 automobile insurance forms - number of miles reported determines the premium that has
to be paid.
At the bottom of the page: „I promise that the information I am providing is true“ + signature.
For half of the forms, the statement + signature was moved to the top of the page.

Average number of miles in groups:

Signature on the top: 26,100 miles
Signature on the bottom: 23,700 miles

→Signing at the beginning makes ethics salient

→This reduces cheating

Source: Shu, L. L., Mazar, N., Gino, F., Ariely, D., & Bazerman, M. H. (2011). When to Sign on the Dotted Line?: Signing First Makes Ethics Salient and Decreases
Dishonest Self-reports. Harvard Business School.

January 10, 2024 42

THANK YOU
VERY MUCH!

[email protected]