Chapter 1

Understanding
Ethics

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 Learning Outcomes
• Define ethics.
• Explain the role of values in ethical decision making.
• Understand opposing ethical theories and their limitations.
• Discuss ethical relativism.
• Explain an ethical dilemma and apply a process to resolve it.

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 3

The Basic Concepts in Business Ethics

• Values: Enduring beliefs and ideals that are socially

enforced (trust and integrity).

• Morals: Personal philosophies that define right and

wrong.

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 4

The Basic Concepts in Business Ethics

Right or Wrong?
• Honesty
• Selfishness
• Responsibility
• Greed
• Fairness
• Dishonesty (Lying, deceiving, manipulating)
• ...

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 5

The Basic Concepts in Business Ethics

Shaped by cultural, religious, and societal influences, and

they govern personal behavior and decision-making.

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 6

The Basic Concepts in Business Ethics

Value: Honesty
Morale Principle: Always tell the truth and avoid deceit in all
aspects of life.

Value: Respect for Others

Moral Principle: Treat others with dignity, fairness, and
consideration.
Value: Fairness
Moral Principle: Treat everyone equally and justly, without
favoritism or discrimination.

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 7

The Basic Concepts in Business Ethics

• Business ethics: Organizational principles, values, and

norms that may originate from individuals, organizational
statements, or from the legal system that primarily guide
individual and group behavior in business.

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 8

The Basic Concepts in Business Ethics

Value: Innovation with Impact (Customers)

• This value drives the company to continuously improve its
processes, materials, and designs to benefit athletes and
the environment.

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 9

The Basic Concepts in Business Ethics

Value: Inclusion and Diversity (Workforce)

• This value drives the company to promote a culture where
differences are celebrated and everyone has the
opportunity to contribute to Apple’s success.

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 10

The Basic Concepts in Business Ethics

• Moral dilemma: Two or more morals in conflict with one

another.

• Value dilemma: Two or more beliefs/ideals in conflict with

one another.

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 11

The Basic Concepts in Business Ethics

Example

Value dilemma: (report/not to report?)

• Imagine you’re a manager at a company, and you discover that

a close friend and colleague has been falsifying expense
reports to cover personal expenses. You value honesty and
integrity in the workplace, but you also value loyalty and the
personal relationship you have with your friend?

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 12

The Basic Concepts in Business Ethics

Example of a company with ethical culture:

• Clear Ethical Guidelines

• Leadership by Example
• Ethical Training Programs
• Open Communication
• Accountability and Consequences
• Recognition of Ethical Behavior
• Community Engagement

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 13

Bottom Line for Business Ethics

• Firm survival
• Profitability, revenues, sales
• Stakeholders: customers, employees, channel members
(manufacturers, wholesalers, retailers)
• Contribute to societal goals: community, country, world

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 14

Why Study Business Ethics?

• Identify ethical issues.

• Recognize approaches for resolving ethical issues.
• Cope with conflicts between your own personal values
and those of the organization in which you work.
• Gain knowledge to make more ethical business decisions.

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 15

TABLE 1-1 Observed Misconduct in the U.S. Workforce

Observed misconduct 30%

Abusive behavior 22%

Lying to stakeholders 22%

Conflict of interest 19%

Pressure to compromise standards 22%

Report observed misconduct 76%

Experience retaliation for reporting 53%

Source: Ethics and Compliance Initiative, 2016 Global Business Ethics Survey™: Measuring Risk and Promoting Workplace Integrity
(Arlington, VA: Ethics and Compliance Initiative 2016), 43.

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 Ethical Theories
Virtue ethics: Concept of living one’s life according to a
commitment to the achievement of a clear ideal.
• It emphasizes an individual’s character as the key element of
ethical thinking, rather than rules about the acts themselves or
their consequences.
• In a business context, someone who follows virtue ethics
would ask, "What kind of person should I be?" rather than
just, "What rules should I follow?“

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 Ethical Theories
Virtue ethics
• Scenario:
• in a business context, if a company is deciding whether to lay
off employees to stay financially viable, virtue ethics might
suggest that the decision should be made in accordance with
virtues such as compassion, justice, and responsibility.
However, it doesn't specify exactly what should be done—how
many employees should be laid off, if any, or whether the
company should instead reduce salaries. This lack of
specificity can lead to uncertainty and subjective
interpretations of what the "virtuous" choice is.

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 Ethical Theories
Virtue ethics:

Criticism:
While virtue ethics emphasizes the development of a good
character and virtues like honesty, courage, and wisdom, it does
not provide concrete rules or guidelines for how to act in
specific situations. This can make it difficult to apply in complex
or controversial ethical dilemmas
Societies can place different emphasis on different virtues.

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 Ethical Theories

Utilitarianism (advantage) : Ethical choices that offer the

greatest good for the greatest number of people.

It suggests the best action is the one that maximizes overall

happiness or well-being for the greatest number of people. It is
a form of consequentialism, meaning that the morality of an
action is judged solely by its outcomes or consequences.

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 Ethical Theories
Scenario:
Cost-Benefit Analysis: Utilitarianism is often used in business
decision-making, especially in situations that require weighing
pros and cons. For example, a company might decide to cut jobs
to save money if it believes this will help the company survive
and benefit more employees and shareholders in the long run.
Clear decision-making framework, promotes welfare, flexibility
• Criticism: Idea that the ends justify the means.
• Difficulty in Measuring Happiness:
• Ignores Justice and Rights (minority)

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 Ethical Theories
Universal ethics: Actions that are taken out of duty and
obligation to a purely moral ideal rather than based on the needs
of the situation.
It refers to moral principles that are considered to apply
universally, regardless of culture, context, or individual
situations. It is the idea that there are certain ethical standards
or rules that hold true for all people, at all times, and in all
places.
It is based on the belief that certain actions are inherently right or
wrong, regardless of individual opinions or cultural norms.
• Criticism: Reverse of the weakness in ethics for the greater
good.

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 Ethical Theories
• In business, universal ethics might manifest in policies that
promote fairness, transparency, and respect for human rights
across all operations, no matter the country or culture. For
example:
• Corporate Social Responsibility (CSR): A business might
adopt ethical standards that ensure fair labor practices,
environmental sustainability, and anti-corruption policies,
regardless of where it operates.
• Fair Trade: Ensuring that workers in developing countries are
paid fairly and treated ethically, even if local laws do not
require such standards, is an application of universal ethics in
business.

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 Ethical Theories
• Scenario: Fair Labor Practices in a Multinational
Corporation
• Imagine a multinational company that operates in multiple
countries, including some with weaker labor laws. In certain
regions, local laws allow for long working hours, low wages,
and poor working conditions, but these practices are
considered legal and accepted within those cultures. The
company, however, has adopted universal ethical principles
based on fairness and human dignity, following standards like
the Universal Declaration of Human Rights.

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 Ethical Theories
• Benefits of Universal Ethics in This Scenario:
• Global Reputation, Employee Satisfaction, Risk Management.
• Challenges of Universal Ethics in This Scenario:
• Cultural Resistance, increased cost, potential conflict with
local laws

• Criticism:
• What might be seen as ethically necessary in one society
could conflict with the values and traditions of another.

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 Ethical Relativism
Concept that the traditions of one’s society, one’s personal
opinions, and the circumstances of the present moment define
one’s ethical principles.
Relativism suggests morality is relative to the norms and values
of one’s culture, society, or individual perspective. It contrasts
with the idea of universal ethics, where moral standards apply
equally to everyone, regardless of their context.
Issue: often leads to dilemmas when companies operate in
different cultural environments.
Example:
(local practices/customs vs ethical standards/values)
Develop a universal code of ethics that sets minimum ethical
standards across all countries.

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 Ethical Relativism
• Implies some degree of flexibility as opposed to strict black-
and-white rule.
• Offers the comfort of being a part of the ethical majority in the
community or society.
• Example:
Nike and Labor Practices: A Case of Unsuccessful Ethical
Relativism

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 Ethical Dilemmas
Situation in which there is no obvious right or wrong decision, but
rather a right or right answer.

Occur when the decision one must make requires one to make a
right choice knowing full well that one is:

• Leaving an equally right choice undone.

• Likely to suffer something bad as a result of that choice.
• Contradicting a personal ethical principle in making that
choice.
• Abandoning an ethical value of one’s community or society in
making that choice.

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 Resolving Ethical Dilemmas
Sleep-test ethics.
• Ethics of intuition.
• Individuals should rely on their personal insights, feelings,
and instincts when facing a difficult problem.
Process for solving an ethical problem.
• Analyze the consequences.
• Analyze the actions.
• Make a decision.

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 Resolving Ethical Dilemmas
Arthur Dobrin’s questions.
• What are the facts?
• What can one guess about the facts one doesn’t know?
• What do the facts mean?
• What does the problem look like through the eyes of the
people involved?
• What will happen if one chooses one thing rather than
another?
• What does one’s feelings tell oneself?
• What will one think of oneself if one decides one thing or
another?
• Can one explain and justify one’s decision to others?
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 Resolving Ethical Dilemmas
Application of Arthur Dobrin’s model is based on the following
key assumptions:

• Sufficient time is there for the degree of contemplation that

such questions require.
• Enough information is available to answer the questions.
• Dilemma presents alternative resolutions for one to select
from.

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 Ethical Reasoning
• Looking at the information available while resolving an
ethical dilemma.
• Drawing conclusions based on that information in relation to
one’s own ethical standards.

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 32

Role-Play Activity:
"The Dilemma of Honesty”
Ethics Definition:
• Ethics refers to the principles and values that
guide individuals and organizations in determining
what is right and wrong.

• Objective: To explore the ethical challenges

related to honesty and the potential consequences
of different actions.

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 33

Role-Play Activity:
"The Dilemma of Honesty”
• Scenario: You are an employee at a company
where you discover that a close colleague has
been exaggerating their work hours on their time
sheet to receive extra pay. You are friends with this
colleague, and you know that they are struggling
financially. You also know that this behavior is
against company policy and could lead to serious
consequences if discovered by management.

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 Role-Play Activity: 34

"The Dilemma of Honesty”

• Roles:

1. Employee (You): The person who has discovered the issue.

2. Colleague: The person who has been exaggerating their work

hours.

3. Manager: The person responsible for overseeing the team and

ensuring company policies are followed.

4. HR Representative: A neutral party responsible for addressing

ethical concerns and company policy violations.

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 Role-Play Activity: 35

"The Dilemma of Honesty”

• Instructions:

1. Employee: Decide how you will handle the situation. Will you
confront your colleague, report the issue to management, or
choose another course of action?

2. Colleague: Respond to the Employee’s actions. Will you admit

to the wrongdoing, defend your actions, or try to justify them
based on your financial situation?

3. Manager: Respond to the situation if the Employee reports it to

you. Consider the company policies, the potential impact on the
team, and the ethical implications.
• HR Representative: Facilitate a discussion on the ethical issues
at play, considering the perspectives of all parties involved

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 Role-Play Activity: 36

"The Dilemma of Honesty”

• Debrief: After the role-play, discuss the following questions:

 What were the ethical dilemmas faced by each character?

 How did the different choices reflect ethical or unethical

behavior?

 What are the possible long-term consequences of each decision

for the individuals and the organization?

 How could the situation have been handled differently to promote

ethical behavior?

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 37

Activity 1
Scenario:
You’re volunteering for a nonprofit organization that
provides critical services to the community. You
discover that one of the board members is involved
in unethical practices, such as misappropriating
funds meant for the organization. You value the
mission of the organization and the good it does for
the community, but you also value transparency and
accountability.

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 38

Activity 1
 Ethical dilemma?
 How did the different choices reflect ethical or
unethical behavior?
 What are the possible long-term consequences of
each decision?
 How could the situation have been handled
differently to promote ethical behavior?

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 39

Activity 2
Scenario:
• You work for a company with a strong ethical
culture and a clear code of conduct. Recently, a
senior executive has been pressuring employees
to overlook minor compliance issues to meet
ambitious targets. This behavior is contrary to the
company’s ethical standards and code of conduct,
which emphasize integrity and adherence to
regulations.

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 40

Activity 2
 Ethical dilemma?
 How did the different choices reflect ethical or
unethical behavior?
 What are the possible long-term consequences of
each decision?
 How could the situation have been handled
differently to promote ethical behavior?

© 2019 Cengage. All rights reserved.