1. Ethics & Business Paul L. Schumann, Ph.D. © 2003 by Paul L. Schumann. All rights reserved.

2. Outline  Terminology  Ethical Relativism  Moral Development  Role of Ethics in Business  Moral Responsibility in Business

3. Terminology

4. Terminology

5. Terminology

6. Terminology

7. Terminology

8. Terminology

9. Terminology

10. Terminology

11. Terminology

12. Ethical Relativism  Theory of Ethical Relativism: There are no universal moral principles –Different societies have different moral beliefs –No way to judge a society’s moral principles as being right or wrong –Only possible judgment: Does a society live up to its own moral principles?

13. Ethical Relativism Is False  Some moral principles are required if the society is to survive  What appear to be differences in moral principles may only be surface differences  Just because two people have different moral beliefs doesn’t mean they’re both right

14. Ethical Relativism Is False  The theory produces unacceptable conclusions. Examples: –Slavery in the United States –Treatment of Jews in Nazi Germany

15. Ethical Relativism Is False  The theory must be false because it contradicts itself –Consider the following statement: “There are no absolute truths.” Apply the statement to itself—what does it say about itself?Apply the statement to itself—what does it say about itself? –Apply the Theory of Ethical Relativism to itself Is it ethical for someone who believes in ethical relativism to advocate ethical relativism?Is it ethical for someone who believes in ethical relativism to advocate ethical relativism?

16. Ethical Relativism Is False  “A writer who says that there are no truths, or that all truth is ‘merely relative’, is asking you not to believe him. So don’t.” –Roger Scruton, Modern Philosophy: An Introduction and Survey, NY: Allen Lane, 1994.  If there are universal moral principles, how do individual’s learn them?

17. Moral Development  Kohlberg identified a sequence of 6 stages of moral development  The six stages are divided into 3 levels –2 stages in each level –The 2 stages in each level have something in common

18. Moral Development  Level 1: Pre-Conventional Morality –2 stages –Common element: Self-focused –Motivation is self-interest: “What’s in it for me?”

19. Level 1: Pre-Conventional Morality  Stage 1: Punishment & Obedience Stage –Person acts to avoid punishment –Example: children sharing toys –“The only crime is getting caught.”

20. Level 1: Pre-Conventional Morality  Stage 2: Instrument & Relativity Stage –Person uses others as a tool to self-satisfaction –Example: children sharing toys –“You scratch my back and I’ll scratch yours.” –Example: a friend is moving, do you help?

21. Moral Development  Level 2: Conventional Morality –2 stages –Common element: Group-focused –Group norms are important: what does the group expect of me?

22. Level 2: Conventional Morality  Stage 3: Interpersonal Concordance Stage –Relevant groups: family, friends, co-workers –Group norms and expectations affect behavior –Person is motivated by a desire to be seen as a good son or daughter, a good brother or sister, a good friend, a good co-worker –Example: a friend is moving, do you help?

23. Level 2: Conventional Morality  Stage 4: Law & Order Stage –Relevant group: society at large –Norms, expectations, and laws of society affects behavior –Person is motivated by a desire to be seen as a good citizen –“It’s my duty as a citizen.”

24. Moral Development  Level 3: Autonomous (or Principled or Post-Conventional) Morality –2 stages –Common element: Universal-focused –Person takes a impartial viewpoint Not just what’s best for meNot just what’s best for me Not just what groups expect of meNot just what groups expect of me

25. Level 3: Autonomous Morality  Stage 5: Social Contract Stage –Social Contract: The rules members of a society agree to follow to govern relationships within the society How are the rules of society decided?How are the rules of society decided? Example: the King makes up the rulesExample: the King makes up the rules Example: Democracy—majority rulesExample: Democracy—majority rules –Person is motivated by a desire to maintain the social contract –“I’m satisfied even though I lost the vote.”

26. Level 3: Autonomous Morality  Stage 6: Universal Ethical Principles Stage –Person develops a set of comprehensive, coherent, and consistent moral principles –Person follows the moral principles even if it means self-sacrifice

27. Moral Development  Individuals go through stages of moral development  Different individuals may develop at different rates  Can’t skip stages  Can go backwards  Different individuals may end up in different stages

28. Moral Development  Implications for managers: –May have employees at different stages –What motivates ethical behavior for one employee may not motivate ethical behavior for another employee

29. Moral Development  How do you motivate an employee to act ethically if the employee is in: –Stage 1 (Punishment & Obedience)? –Stage 2 (Instrument & Relativity)? –Stage 3 (Interpersonal Concordance)? –Stage 4 (Law & Order)? –Stage 5 (Social Contract)? –Stage 6 (Universal Ethical Principles)?

30. Can Ethics Be Taught?  Yes, moral development can be encouraged  Research concludes (Rest, 1988): –Deliberate educational efforts to teach ethics affects actual, real world, behavior –Dramatic changes in moral reasoning occur into young adulthood (20’s and 30’s) and beyond  But is ethics relevant in business?

31. Role of Ethics in Business  Adam Smith (1790): Why do humans behave in generous and noble ways? It is due to “reason, principle, conscience, the inhabitant of the breast, the man within, the quiet judge and arbiter of our conduct.”

32. Role of Ethics in Business  Peter Drucker (1954): “But what is most important is that management realize that it must consider the impact of every business policy and business action upon society. It has to consider whether the action is likely to promote the public good, to advance the basic beliefs of our society, to contribute to its stability, strength, and harmony.”

33. Role of Ethics in Business  Thompson & Strickland (1995): “A strong corporate culture founded on ethical principles and sound values is a vital driving force behind continued strategic success.”

34. Role of Ethics in Business  Milton Friedman (1970): It is the responsibility of management “to conduct the business in accordance with [the desires of the owners of the business], which generally will be to make as much money as possible, while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom.”

35. Role of Ethics in Business  Business relationships are repetitive and on- going: –Employees –Customers –Suppliers –Creditors –Stockholders  Unethical behavior results in retaliation

36. Moral Responsibility  Who is responsible for unethical conduct in business? 3 Views: –1. The employees who made the unethical decision Corporations don’t make decisions, people doCorporations don’t make decisions, people do Therefore, the people who made the unethical decision should be held responsibleTherefore, the people who made the unethical decision should be held responsible

37. Moral Responsibility  Who is responsible for unethical conduct in business? –2. The corporation Employees’ decisions are made in the context of corporate policies, corporate norms, organizational structure, and corporate cultureEmployees’ decisions are made in the context of corporate policies, corporate norms, organizational structure, and corporate culture Therefore, the corporation as a whole should be held responsibleTherefore, the corporation as a whole should be held responsible –3. Both the corporation and the employees involved

38. Reduce Moral Responsibility?  True ignorance of fact –Not willful ignorance –Not ignorance due to negligence –Not ignorance of ethics  True inability to do anything else