2. Copyright © 2008 McGraw-Hill Ryerson Ltd. 1 Chapter Five Ethics of Business: The Theoretical Basis Prepared by Mark Schwartz, York University Canadian Business and Society: Ethics & Responsibilities

3. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.2 Chapter Outline Business Ethics: Key Terms Ethical Implications in Business Influences on Ethical Behaviour Theoretical Basis for Ethical Conduct Moral Reasoning Process Kohlberg’s Stages of Moral Development

4. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.3 Business Ethics Ethics of business: rules, standards, codes, or principles that provide guidelines for morally right behaviour and truthfulness in specific situations. Value judgments: subjective evaluations of what is considered important. Moral standards: the means by which individuals judge their actions and the actions of others.

5. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.4 Ethical Implications in Business Owners  fair and accurate disclosure Employees  hiring; firing; wages; privacy; discrimination; honesty; conflicts of interest; insider information Consumers  dishonest advertising; product safety Competitors  non-competitive behaviour; industrial espionage Suppliers  kickbacks; gifts; bribes Government  legal compliance; lobbying Society  respect for environment; corporate giving

6. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.5 Influences on Ethical Behaviour Individual morals National and ethnic cultures Government legislation and regulation The legal system Religion Colleagues or peers Education

7. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.6 Influences on Ethical Behaviour Media Corporate mission, vision, and values statements Union contracts Competitive behaviour Activists or advocacy groups (NGOs) Business or industry organizations Professional associations

8. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.7 Moral Reasoning Process Define moral issue or decision Gather all relevant information Identify the stakeholders involved Develop possible alternative solutions Consider applicable value judgments, moral standards, ethical principles Identify harms/benefits to stakeholders Determine practical constraints Decide on action

9. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.8 Principles - Which One? Although variations exist among the groups studied, the following principles have been rejected as guides to ethical decision making; the conventionalist ethic, the hedonistic ethic, the market ethic, the might-equals-right, the might-equals-right ethic and the relevation ethic.

10. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.9 Business Ethics - The Field Political Theory Law and Legal Studies Empirical Social Studies Normative Philosophy Theology Sociology/ Social Theory Business Studies Organisation Theory Organisation Behaviour

11. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.10 The Field of Business and Society/Business Ethics Friedman’s (1972) "The Social Responsibility of Business." Started by philosophers: Bowie, Werhane, Van Luijk. No agreement on what ‘business ethics’ is. Consensus on theory...DeGeorge (1982) "[m]astery of ethical theory....provides the necessary tools to engage intelligently in personal and social analysis of moral issues

12. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.11 The Role of Theory in Business Ethics Theory not very well conceptualised within the field (cf. Robertson and Ross 1990). Standard Model - Apply general normative philosophical principles to business ethics dilemmas. But how do you apply the theory? What specific theories do you choose?

13. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.12 Egoism  Egoism is a prominent moral philosophical theory.  Its main concern may be seen as the promotion of one's self- interest.  Egoism, as a normative theory, has been advocated by both ancient and modern philosophers.  There are two major approaches to egoism - psychological and philosophical.

14. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.13 Deontological Theory  Deontological theory holds that the concept of duty may be seen as independent of the concept of good and some actions are right or wrong for reasons other than their consequences.  Deontology holds that factors other than good outcomes justify at least some moral judgements and actions.

15. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.14 Consequentialism  Utilitarian, consequence or teleological theory holds that the moral worth of an action is determined solely by the consequences of actions or practices.  Utilitarianism espouses an action or practice is right if it leads to the greatest possible balance of good consequences, or to the least possible balance of bad ones.

16. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.15 Contract Theory  Contract theory is based on the premise that the sources of rights and/or ethics are based on some form of ‘contract.’  Much of the attractiveness of the social contract approach to ethics is that it seems to provide simple and related answers to two questions: what are the demands morality makes of us, and why should we feel obliged to obey them?

17. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.16 Contract Theory  The demands of morality are fixed by the agreements humans make to regulate their social interaction, and we should obey these demands because we have agreed to them.  The Social Contract Model - the social contract model assumes that the participants in the social contract are real persons who are presented within a hypothetical situation. The social contract theory therefore requires "rational" persons who are willing to agree out of self-interest to certain principles which set policy for the entire society in terms of rights, obligations, privileges and prerogatives.

18. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.17 Rights Theory  Deontological ethics, as discussed earlier, are concerned with the rules and principles which guide actions and based on systems of rights and duties.  Another version of deontology is offered by philosophers who focus on rights and principles which govern society at large.  This concern with rights and justice may be seen as basically a macro-version of deontological questions.

19. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.18 Rights Theory  The notion of ‘rights’ belongs to a tradition of ethical reasoning which goes back to antiquity. The Greeks, in particular the Stoic philosophers, recognised the possibility that actual human laws might be unjust  A theory of justice ideally results in decisions which are based on equity, fairness, and impartiality  The ethics of justice is above all concerned with protecting the individual against the coercive power of society.

20. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.19 The Questions Deontology 1. What are your duties, obligations, in the situation being examined? 2. The action that you are deciding to take, is it possible to do it in all situations? 3. Does the action being contemplated make sense? Does it seem the rational thing to do? 4. Does the course of action fulfil the obligations and duties set out in no. 1? Egoism 1. What is your own self-interest? 2. How can this self-interest be pursued? 3. How can this self-interested be maximised?

21. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.20 The Questions Consequentialism 1. What is the best possible outcome for the situation being considered? 2. Will this outcome be the best possible outcome for the greatest number of people? 3. If there is no best possible outcomes, what is the worst possible outcome? How can this worst possible outcome be minimised? Social Contract 1. Is there anything owed to you by society? Do you owe anything to society? 2. Why are these obligations owed to you? Why do you owe them to society? 3. Are they owed to everyone else in society in an equal manner? 4. Does the action which you are considering affect society or the structure of the environment in which you are operating?

22. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.21 Questions - Continued Rights 1. In the situation you are examining, are there any inherent rights involved (i.e. the right to free speech, the right to due process)? 2. Are any of those rights being violated? 3. What do you think your rights are in this situation? Are these rights the same as other actors in the case? 4. Is the decision being made fair, impartial and equal to all the parties concerned?

23. Chapter 5 Copyright © 2008 McGraw-Hill Ryerson Ltd.22 Kohlberg’s Stages of Moral Development Pre-Conventional Level (Self) Stage 1 – Punishment and obedience orientation Stage 2 – Individual instrumental purpose/exchange Conventional Level (Others) Stage 3 – Mutual interpersonal expectations Stage 4 – Law and order orientation Post-Conventional Level (Humankind) Stage 5 – Social contract orientation Stage 6 – Universal ethical principle orientation