Business Ethics Midterm

Define Business Ethics

the study of business situations, activities, and decisions where issues of right and wrong are addressed

Business ethics as an oxymoron

suggests that there are not, or cannot be, ethics in business: that business is in some way unethical or that it is at best amoral

Business ethics: potential for good vs. harm

Business can be a major force for good, but has equal potential to cause serious harm to people, communities, and the environment

Business ethics: Complex stakeholder demands

Businesses face increasingly complex ethical demands from stakeholders, requiring managers to balance these expectations with effective economic performance

Business ethics: pressure & trust deficit

Employees often face pressure to comprise ethical standards, contributing to a broader crisis of public trust in business leaders — studying business ethics helps address both the causes of misconduct and ways to rebuild trust

US approach to business

Focus on individual company-level issues — privacy, workers rights, salary issues, whistleblowing, sustainability (seen as company responsibility)

European approach to business

Focus on broader social/systemic issues — the ethics of capitalism and economic rationality within the overall framework of business

Asian approach to business

Focus on corporate governance and management accountability — particularly mismanagement and corruption (e.g., china’s strong government crackdown, including arrests/executions of corrupt officials)

Sustainability: “the triple bottom line”

Profit, People, Planet

Consequentialist ethical approach

base their decisions on outcomes

Deontologists ethical approach

are motivated by duties, rules, and [universal and absolute] principles

Jeremy Bentham (consequentialist)

founder of Utilitarianism, argued that an action is morally right when it produces the greatest possible amount of happiness for the greatest number of people

John Stuart Mill (consequentialist)

developed bentham’s utilitarianism by distinguishing between different qualities of pleasure, rather than only focusing on their quantity

Peter singer (consequentialist)

a contemporary philosopher associated with preference utilitarianism and consequentialism. he applies reasoning to issues such as poverty, animal suffering, and business ethics

Immanuel Kant (Deontologist)

he argued that the morality of an action depends whether it follows a moral duty or principle, rather than on its consequences. His categorical imperative states that we should act only according to principles that we could reasonable want to become universal laws

Christine Korsgaard (Deontologist)

she argues that human beings have duties and moral obligations based on rationality and the value of humanity, she develops ideas about moral obligation, autonomy, and human dignity

Importance of Business Ethics

Helps control malpractices, maintain good relationship with employees, improves customer satisfaction, improves profitability, helps earn goodwill, enables better decision making, protection of the society

The Stockholder (shareholder) theory

Businesses are arrangements where stockholders advance capital to managers. managers have fiduciary duty to use that capital only for the purposes the stockholders authorized. implies businesses have no social responsibilities beyond pursuing profit

Consequentialist version of the stockholder theory

individuals pursuing private profit in a free market are guided by the “invisible hand” to also promote the general good, making direct exhortations to social responsibility unnecessary

Deontological version of the stockholder theory

managers accept stockholders’ money on the condition it be used as specified. diverting it to unauthorized social goals—even well intentioned ones—breaks that agreement and spends other peoples’ money without consent

Friedmans logic on shareholder theory

the company exists to generate profit, that profit ultimately serves the shareholders; so, profit sits in the middle as the direct objective of the company activity

Freemans logic on shareholder theory

the company first generates value for its stakeholders and profit appears as a result or by-product of serving those stakeholders well, rather than as the direct goal

The stakeholder theory

managers should manage the business for the benefit of al stakeholders (stockholders, employees, customers, suppliers, and local community)— not just stockholders, even if this means sacrificing stockholder interests

Hasnas’s critique on the stakeholder theory

respect for autonomy implies no one may be forced to deal with a business without consent, and that the business must deal honestly with those it contract with— but it does not imply that all affected parties are entitled to a say in decision-making or that the firm must be managed for their benefit

The social contract theory

it holds that society implicitly grants businesses the right to exist in exchange for benefits to society, structured around a social welfare term (benefiting consumers and employees) and a justice term (avoiding fraude, respecting workers, not systematically worsening any groups situation)

How social contract theory works

Social contract theory does not start from an abstract ethical principle. instead, it uses hypothetical thought experiment, following the model of classical political philosophers

The social welfare term

businesses must benefit consumers and employees and avoid harming society

the justice term

businesses must operate within certain basic rules of justice, no deception, exploitation, treating people with dignity

The relationship of human rights to business

there is an intrinsic interconnection between human rights and business activity, therefore there is the notion of “accepted workplace standards”

The three pillars

State duty to protect, corporate responsibility to respect, access to remedy

State duty to protect

Governments must protect against human rights abuses within their territory or jurisdiction by third parties, including business enterprises

Corporate responsibility to respect

Businesses must act with due diligence to avoid infringing on the rights of others and address any negative impacts with which they are involved

Access to Remedy

Victims must have access to effective judicial and non-judicial grievance mechanisms

Nolans view: Shift in attitudes, not full resolution

societal notions of corporate responsibility have evolved significantly since friedman’s 1970 writings, but the idea that business has a responsibility to respect human rights is now widely accepted

Nolans view: From denial to engagement

Many companies have moved from avoidance / denial of human rights relevance to acknowledgment and active engagement with the issue and with external stakeholders

Nolans view: Local law and courts are insufficient

Recourse to domestic law and judicial remedies in host countries should always be an option, but in practice this often fails. laws are frequently weak and enforcement weaker still, due to corruption or institutional fragility

Nolans view: relying on host governments is a long-term proposition

Governments cannot be counted on, in the short term, to guarantee human rights protections on their own

Nolans view: A multi-stakeholder approach is required

sustained improvement requires a “multi-pronged, multi-layered, multi-stakeholder approach”, a network form of governance involving cooperation

How do monotheistic religions judge the morality of interest

All three religions traditionally reject the idea of interest, defining it in eminently moral terms: the exploitation of people’s need for money for profit or personal benefit

The interest in judaism

“nevertheless, it is important to underline that the halakha (the jewish law) prohibition to lend money with interest applies only to other jews and it allows charging interest to non-jews”

Interest in Judaism: modern economic needs

the establishment of israel created a need for practical solutions allowing jews to access mortgages and other bank loans

Interest in judaism: Heter iska

Jewish law permits interest-based lending through the heter iska, a legal arrangement that transforms a loan into a business investment, thereby avoiding the prohibition of interest

Interest in judaism: Interest-free alternatives

Jewish communities in Israel, the US, and elsewhere also operate free-loan societies, which provide smaller interest free loans

Interest in Church History

On one hand, the church fathers categorically opposed interest, decrying it as a severe sin. similarly, the middle ages carry forward this understanding of interest as the sin of usury, supplementing it with a focus on interest as a form of robbery and thus even more strongly prohibited

Bernardino of Siena’s view of interest

sought to develop the notion of a just return on capital. he argued that lending could contribute to economic development and help people overcome poverty by providing them with capital to start or expand a business

The morality of interest in modern christianity

The reformers, particularly john calvin and john wesley, followed a similar line of though, allowing interest while limiting it according to principles of justice and the common good

John wesley’s view on the morality of interest

emphasized that the use of money had to be governed by love of one’s neighbor and concern for the common good, rejecting forms of interest that exploited or harmed others

The morality of interest in islam

distinguishes between rent and interest. it tends to regard returns associated with assets, labor, trade, or risk-taking as legitimate, while considering problematic return generated simply by the passage of time on a debt

The notion of ‘riba’

interest is defined as money earned out of money, most normally in the form of excess money taken on an existing amount of money

Unresolved tension of interest in islam

in practice, islamic banking often remains connected to the conventional interest-based financial system, making the full application of islamic principles to modern banking an unresolved issue

Islamic banking

some scholars reject conventional interest-based banking, while others defend it as unavoidable or argue that certain forms of banking do not constitute riba. therefore developed alternatives based on rent and profit-and-loss sharing

Pope Leo XIII

advocated for market regulation and the rights of the working class, on the other hand he supported the right to private property and private initiative

The dignity of work

as john paul II notes, this view is radically different from that of the ancient pagan world, where manual labor was thought to be unfit for free men and worthy only of slaves

Pope John Paul II’s view on labor

for christianity, the meaning of human life is to be found in work, “work is for a man to gain his resurrection”. the dignity of work constitutes one of the inalienable rights of the human person