CH.2 BUSINESS ETHICS
a study of what is right or good in a business setting
BUSINESS ETHICS
actions must be judged by their motives and means as well as their results
DEONTOLOGICAL
STAGES OF MORAL DEVELOPMENT (KOHLBERG)
FIRST STAGE- Pre-conventional; 1) Obedience and punishment "How can I avoid punishment?"; 2) Self-interest orientation "What's in it for me?" SECOND STAGE- Conventional; 3) Interpersonal accord and conformity "Social norms"; 4) Authority and social-order maintaining orientation "Law and order mentality" THRID STAGE- Post- conventional; 5) Social contract orientation; 6) Universal ethical principles "Principled conscience"
THE SOCIAL CONTRACT THEORY
The belief that people are free and equal by natural right, and that this in turn requires that all people give their consent to be governed; espoused by John Locke and influential in the writing of the declaration of independence. *because society allows for the creation of corporations and gives them special rights, including a grant of limited liability, corporations owe a responsibility to society*
actions must be judged by what the person feels is right or wrong
ethical relativism
COST-BENEFIT ANALYSIS
*a study that compares the costs and benefits to society of providing a public good* - quantifies in monetary terms the benefits and costs of alternatives
KANT'S CATEGORICAL IMPERATIVE
*an act is only ethical if it would be acceptable for everyone to do the same thing* 1. must potentially be a universal law that could be applied consistently and 2. must respect the autonomy and rationality of all human beings and not treat them as an expedient.
DEONTOLOGICAL ETHICS
*good actions flow from good processes* - holds that actions must be judged by their motives and means as well as their results - from the Greek word deon, meaning duty or obligation
UTILITARIANISM
*idea that the goal of society should be to bring about the greatest happiness for the greatest number of people* - a doctrine that assesses good and evil in terms of the consequences of actions. - Those actions that produce the greatest net pleasure compared with net pain are better in a moral sense than those that produce less net pleasure.
ETHICAL FUNDAMENTALISM
*individuals look to a central authority or outside set of rules to guide them in ethical decision making* - absolutism, individuals look to a central authority or set of rules to guide them in ethical decision making. - Some look to the Bible; others look to the Koran, or to the writings of Karl Marx, or to any number of living or deceased prophets.
SITUATIONAL ETHICS
*moral principles that vary with circumstances* - holds that developing precise guidelines for effectively navigating ethical dilemmas is difficult because real-life decision making is so complex. - To judge the morality of someone's behavior, the person judging must actually put herself in the other person's shoes to understand what motivated the other to choose a particular course of action.
ETHICAL RELATIVISM
*suggests that what is ethical in one culture is not necessarily the same as in another culture* - a doctrine asserting that actions must be judged by what individuals feel is right or wrong for themselves - It holds that when any two individuals or cultures differ regarding the morality of a particular issue or action, they are both correct because morality is relative. - However, although ethical relativism promotes open-mindedness and tolerance, it has limitations. If each person's actions are always correct for that person, then his behavior is, by definition, moral and therefore exempt from criticism.
RULE UTILITARIANISM
*supports rules that on balance produce the greatest pleasure for society* - general rules must be established and followed even though, in some instances, following rules may produce less overall pleasure than not following them. - for ex. If lying would not maximize pleasure generally, then one should follow a rule of not lying even though on occasion telling a lie would produce greater pleasure than would telling the truth.
LIBERTARIANS
*those who favor a minimal government role in any sphere* - stress market outcomes as the basis for distributing society's rewards - What is unjust to them is any attempt by society to take wealth earned by citizens and distribute it to those who did not earn it.
SEEING-KNOWING-DOING MODEL
- First, the decision maker should see (identify) the ethical issues involved in the proposed conduct, including the ethical implications of the various available options. - Second, the decision maker should know (resolve) what to do by choosing the best option. - Finally, the decision maker should do (implement) the chosen option by developing and implementing strategies.
WHAT is an example of Kant's categorical imperative?
- For example, you should not lie to colleagues unless you support the right of all colleagues to lie to one another. - Similarly, you should not cheat others unless you advocate everyone's right to cheat
WHAT is the problem with capitalism?
- In addition to capitalism's failure to allocate resources efficiently, it cannot be relied on to achieve all of the social and public policy objectives a pluralistic democracy requires. - For example, the free enterprise model simply does not address equitable distribution of wealth, national defense, conservation of natural resources, full employment, stability in economic cycles, protection against economic dislocations, health and safety, social security, and other important social and economic goals.
WHAT are some criticisms about Deontological ethics?
- Just as deontologists criticize utilitarians for excessive pragmatism and flexible moral guidelines, utilitarians and others criticize deontologists for rigidity and excessive formalism. - For example, A person hiding a terrified wife from her angry, abusive husband would seem to be acting morally by falsely denying that the wife is at the person's house. Yet a deontologist, feeling bound to tell the truth, might ignore the consequences of truthfulness, tell the husband where his wife is, and create the possibility of a terrible tragedy. - Another criticism of deontological theories is that the proper course may be difficult to determine when values or assumptions conflict.
WHAT are some criticisms about utilitarianism?
- The chief criticism of utilitarianism is that in some important instances it ignores justice. - A number of situations would maximize the pleasure of the majority at great social cost to a minority. - Another major criticism of utilitarianism is that measuring pleasure and pain in the fashion its supporters advocate is extremely difficult, if not impossible.
DIFFERENCE between understood truths and philosophical reasoning
- UNDERSTOOD TRUTHS: ex. facts and lies, the ten commandements - PHILOSOPHICAL REASONING: ex. observing rights that everyone should have, the constitution
BUSINESS ETHICS
- as a branch of applied ethics, is the study and determination of what is right and good in business settings. - Business ethics seeks to understand the moral issues that arise from business practices, institutions, and decision making, and their relationship to generalized human values.
ACT UTILITARIANISM
- assesses each separate act according to whether it maximizes pleasure over pain. - For example, if telling a lie in a particular situation produces more overall pleasure than pain, then an act utilitarian would support lying as the moral thing to do.
the capitalistic system is composed of six "institutions" what are they?
- economic motivation - private productive property - free enterprise - free markets - competition - limited government
POSTCONVENTIONAL LEVEL
- they accept and conform to moral principles because they understand why the principles are right and binding. - At this level, moral principles are voluntarily internalized, not externally imposed *universal*
DUTY- BASED APPROACH
- understood truths - beliefs formed through philosophical reasoning
WHAT are the goals of regulation of business?
1. to regulate both "legal" monopolies, such as those conferred by law through copyrights, patents, and trade symbols, and "natural" monopolies, such as utilities, transportation, and communications; 2. to preserve competition by correcting imperfections in the market system 3. to protect specific groups, especially labor and agriculture, from marketplace failures; and 4. to promote other social goals. Successful government regulation involves a delicate balance between regulations that attempt to preserve competition and those that attempt to advance other social objectives.
Google opted to expand their operation into China which has very different cultural and government operation than other countries in which Google operates. Google has always maintained that free speech without censorship is of utmost importance and prohibits governments from controlling the content available to consumers through their web browser. However, in order to expand their operations into China, Google agreed to allow the Chinese government to filter the content available to its citizens. The most likely ethical theory motivating them is: a. ethical relativism—changes their rule according to the circumstance. b. social contract—help investors to expect an even playing field. c. ethical egoist—maximizes self-interest. d. utilitarian—helps maximize pleasure for the most people.
A
If Lex Corp. engages in a cost-benefit analysis to determine whether a certain business process is working within the company, which ethical theory is Lex Corp. adopting? a. Utilitarianism. b. Ethical Relativism. c. Social Ethics. d. Deontology.
A
Kimmy Kant is a deontologist. She is thinking about lying on her tax return. Under deontology is telling a lie unethical? a. A lie would be unethical if she has immoral motives. b. Lying is ethical if an individual feels it is right. c. It would be immoral to lie if one could not support the right of all taxpayers to lie on their returns. d. If lying would maximize society's pleasure in general, then it is ethical, but if it would not maximize society's general pleasure, it is not.
A
The chief criticism of utilitarianism is that it: a. in some instances ignores justice. b. compares direct and indirect costs and benefits of program alternatives for meeting a specific goal. c. emphasizes justice and a central moral authority. d. only measures monetary gains and losses in making business decisions.
A
Under a stakeholder model: a. a corporation has fiduciary responsibilities to all of its stakeholders. b. society should provide each person with equal amounts of goods and services regardless of the contribution each makes to increase society's wealth. c. that if persons wish to act morally, they should emulate those in the society who always seem to do the right thing. d. the ends justifies the means
A
Under corporate social responsibility theory, to who(m) does the chairman and CEO of the company owe an ethical duty? a.The workers, the community, and the shareholders. b.The workers and the shareholders only. c.The shareholders of the company only. d.Nobody, as the chairman and CEO, he should only do what he feels is right.
A
Which of the following would be the best argument to the shareholders that paying the workers while the plant is under construction is the right decision? a.That long-term profit maximization would be benefitted by the move. b.That short-term profit maximization would be benefitted by the move. c.That the triple bottom line would be hurt by this move. d.That not paying them is illegal, and therefore would not meet the standards of a moral minimum.
A
A PRIORI
A priori reasoning is based on theory rather than experimentation and deductively draws conclusions from cause to effect and from generalizations to particular instances.
ETHICAL REASONING
A reasoning process in which an individual links his or her moral convictions or ethical standards to the particular situation at hand.
The two major forms of utilitarianism are ________________________ utilitarianism and ____________________________ utilitarianism.
ACT AND RULE UTILITARIANISM
How does a person, in Kohlberg's preconventional level of moral development, make ethical decisions? a. He conforms his behavior to meet the expectations of groups. b. He reacts to the fear of punishment. c. He develops his own universal ethical principles—even questioning laws. d. He accepts and conforms to moral principles because he understands "why" they are right.
B
Kant's categorical imperative proposes that: a. the "veil of ignorance" should be developed to consider the needs and rights of all society's members. b. moral actions must potentially be a universal law that could be applied consistently and must respect the autonomy of all human beings and not treat them as an expedient. c. if individuals wish to act morally, they should seek out and emulate those who always seem to know the right choices. d. the good and evil should be assessed in terms of the consequences of actions.
B
Max is a toy designer chooses to devote his efforts to design a toy that is the safest possible. He does so because he wishes to save lives and prevent injuries. He believes he and his employer have a duty to provide the public with the safest possible toy. The designer's approach to ethical decision-making is best characterized as: a. ethically fundamental. b. deontological. c. ethically relative. d. utilitarian.
B
The Supreme Court ruled on United States v. O'Hagan, a case on insider trading. In the case O'Hagan, a lawyer in a firm representing the target of a tender offer, traded in the stock of the company (using the insider information) for personal profit. The Court's ruled that this was a breach of a fiduciary duty to the source of the information, which is best characterized as: a. ethical relativism —changes their rule according to the circumstance. b. social contract—help investors to expect an even playing field. c. ethical egoist—maximizes self-interest. d. utilitarian—helps maximize pleasure for the most people.
B
Through his observation of human behavior, psychologist Lawrence Kohlberg developed a model of moral development. Stan is operating at the preconventional level. Would he stop at a stop sign? a. Stan would stop at the stop sign because it feels good to follow the law. b. Stan would stop at the sign only if he was fearful of being caught by a police officer for not stopping. c. Stan would stop at the stop sign if his colleagues were driving in front of him and stopped at the stop sign, too. d. Stan would stop at the sign only if an outside source, such as his pastor, suggested that he stop at all stop signs.
B
Twenty-year-old Maria was raised in a good, ethical home and attended parochial school through eighth grade. Maria is a good leader and citizen who sets the tone for the actions of young people in her church, family, and peer group. She does so because she believes in giving back to her community and making it a better place to live. Under Kohlberg's schematic analysis, Maria is most likely at what stage of moral development? a. Conventional. b. Post-conventional. c. Adult. d. Pre-conventional.
B
What do Libertarians stress as the basis for distributing society's rewards? a. A central authority. b. Market outcomes. c. The greatest good. d. All of these are correct.
B
Which of the following idea best supports the argument in favor of social responsibility in business? a. Businesses have a lower standard of accountability. b. Businesses have certain obligations beyond making profit. c. Businesses are artificial entities established to permit people to engage in profit-making. d. The expertise and talents of businesses should be allocated solely to meet the needs of their customers.
B
Which of the following is NOT a stage in Kohlberg's Theory of Moral Development? a. Preconventional. b. Intuitionism. c. Postconventional. d. Conventional.
B
ccording to Adam Smith, which of the following is not an "institution" of capitalism? a. Free enterprise. b. Corporate welfare. c. Free markets. d. Limited government.
B
A(n) __________ would support lying in a particular situation if doing so would produce more overall pleasure than pain. a. ethical fundamentalist b. deontologist c. act utilitarian d. ethical relativist
C
How are fiduciary responsibilities defined? a. Intentional fabrication of a document. b. Intentional misrepresentation of facts in order to cheat another. c. Utmost loyalty and good faith. d. Unlawful constraint exercised upon a person.
C
When the CEO of the company decides that he wants to pay the workers while the plant is closed because "it is the right thing to do", regardless of the consequences, what ethical philosophy is he likely using? a.outcome-based ethics b.utilitarian ethics c.duty-based ethics d.Business Process Pragmatism
C
Utilitarian notions underlie _______________-__________________________ ______________________________, an analytical tool used by many business and government managers today
COST-BENEFIT ANALYSIS
An ethical decision-making approach that asserts that actions must be judged by what individuals feel is right or wrong for themselves, is: a. act utilitarianism. b. rule utilitarianism. c. ethical fundamentalism. d. ethical relativism.
D
Apple coordinates much of their major philanthropy around a project to donate computers to schools and libraries. The most likely ethical theory motivating them is: a. moral relativist—changes their rule according to the circumstance. b. entitlement theory—we all have a set of rights that must be honored and protected by government. c. civil disobedience—natural law proponents way to create positive law. d. stakeholder model—creates a synergy by giving back while creating a potential profit stream.
D
As __________ and others have argued, businesses are artificial entities established to permit people to engage in profit-making, not social activities. a. Adolf Berle b. Lawrence Kohlberg c. Adam Smith d. Milton Friedman
D
Enrique argues the following: "the more responsible companies act, the less the governmental will have to regulate them." Does Enrique's argument favor social responsibility on the part of businesses? a. No, this runs because this runs counter to the stakeholder model. b. Yes, because it is based on utilitarianism in business. c. No, because any avoidance of government regulation does not favor social responsibility. d. Yes, because not only does anticipatory corporate action lessen the likelihood of government regulation, but social involvement also creates a climate of trust and respect that reduces the inclination of government involvement.
D
If an African culture and an Eastern Asian culture differ as to the morality of a particular action, under ethical relativism: a. both cultures are incorrect. b. the action should be assessed to determine whether the action produces more net pleasure compared with net pain. c. a cost-benefit analysis should be conducted to determine the relative economic efficiency of the action. d. both actions would be viewed as ethical.
D
Kelton is young, likable, optimistic and generous son of a prominent public official. He has a master's degree in business and is the business partner of Ralph and Bud in an oil drilling and exploration business. Kelton also serves as a director on the board of the Bonzai Savings and Loan Association. While serving on the Bonzai Board, Kelton votes to approve major loans to Ralph and Bud without disclosing to the other directors that he is a business partner of Ralph and Bud. Kelton also personally arranges for a $900,000 line of credit from Bonzai for an oil drilling venture in which he is a partner with Ralph. The drilling venture is unsuccessful and Ralph and Bud both default on their loans to Bonzai, which then causes the S & L to become insolvent. Federal banking officials seize Bonanza and liquidate its assets to pay creditors and depositors. Because Bonzai is federally insured, tax money is also used to pay off depositors whose deposits are insured under federal programs. Bonzai shareholders lose their investment money. Under the rule utilitarian doctrine, what should have Kelton have done? a. After disclosing his business ties, Kelton should then have refrained from voting on issues involving his business partners, especially when there was a chance he might personally benefit from any loans given to the two men. b. Kelton's obligation as a director is to make Bonzai as profitable as possible in order to make money for its shareholders. c. Kelton's actions (1) be possible for it to be made a universal law to be applied consistently; and (2) be respectful of the autonomy and rationality of all human beings and not treat them as an expedient. d. Kelton must take steps to lessen overall pain rather than to increase society's wealth.
D
Thomas is currently conforming his behavior to meet the expectation of his friends. Which level of moral development is she on, according to Kohlberg? a. Preconventional. b. Postconventional. c. Unconventional. d. Conventional.
D
Which of the following best describes the social egalitarian ethics theory? a. Social egalitarians believe individuals should seek out and emulate good role models. b. Social egalitarians support rules that, on balance, produce the greatest pleasure for society. c. Social egalitarians believe a rational person possesses inherent power to assess the correctness of actions. d. Social egalitarians believe that society should provide each person with equal amounts of good and services regardless of the contribution each makes to increase society's wealth.
D
study of what is right or good
ETHICS
IMMANUEL KANT
Greatest German philosopher of Enlightenment-separated science and morality into separate branches of knowledge-science could describe nature, it could not provide a guide for morality. Wrote Critique of Pure Reason
MILTON FRIEDMAN
He was a famous American economist. He strongly promoted the idea of free trade and condemned government regulation and socialism.
Immanuel Kant proffered the best-known deontological theory.... what was it?
KANT'S CATEGORICAL IMPERATIVE
FIDUCIARY RESPONSIBILITIES
Responsibilities of the person who manages a pension fund.
believe that society should provide all members with equal amounts of goods and services irrespective of their relative contributions
SOCIAL EGALITARIANS
corporations have fiduciary duty to all of their stakeholders and not just their stockholders
STAKEHOLDER MODEL
moral actions are those that produce the greatest net pleasure compared with greatest net pain
UTILITARIANISM
ACCOUNTABILITY
a corporation is subject to less public accountability than public bodies - This lack of accountability warrants particular concern because of the enormous power corporations wield in modern society. - Many large companies, like Walmart, Berkshire Hathaway, ExxonMobil, and Apple generate and spend more money in a year than all but a handful of the world's countries. If these companies suddenly began to pursue their own social agendas vigorously, their influence might well rival, and perhaps undermine, that of their national government.
each separate act must be assessed according to whether it maximizes pleasure over pain
act utilitarianism
EXPERTISE
although a corporation may have a high level of expertise in selling its goods and services, there is absolutely no guarantee that any promotion of social activities will be carried on with the same degree of competence
CORPORATIONS AS MORAL AGENTS
because a corporation is a statutory entity, it is difficult to resolve whether it should be morally accountable
SOCIAL EGALITARIANS
believe that society should provide all its members with equal amounts of goods and services regardless of their relative contributions
LESS GOVERNMENT REGULATION
by taking a more proactive role in addressing society's problems, corporations create a climate of trust and respect that has the effect of reducing government regulation
ETHICS
can be defined broadly as the study of what is right or good for human beings - It attempts to determine what people ought to do, or what goals they should pursue.
LONG-RUN PROFITS
corporate involvement in social causes creates goodwill, which simply makes good business sense
quantifies in monetary terms the costs and benefits of alternatives
cost and benefit analysis
stresses equality of opportunity rather than of the results
distributive justice
PRECONVENTIONAL LEVEL
earliest level of moral development; at this level, self-interest and event outcomes determine what is moral *a child's conduct is a reaction to the fear of punishment and, later, to the pleasure of reward* *self*
people look to central or external authority or set of rules to guide them through ethical decision making
ethical fundamentalism
SOCIAL ETHICS THEORIES
focus on a person's obligations to other members in society and on the individual's rights and obligations - For example, social egalitarians believe that society should provide each person with equal amounts of goods and services regardless of the contribution each makes to increase society's wealth.
OUTCOME-BASED APPROACH
good of the majority > good of one person ex. the train meme where you either hit one person or a bunch of people on the tracks OR - another ex. could be ... majority but minor impact < individual but major impact
people seek out/emulate good role models
good person theory
REGULATION OF BUSINESS
government regulation is necessary because all the conditions for perfect competition have not been satisfied and free competition cannot by itself achieve other social goals
GOOD PERSON PHILOSOPHY
individuals seek out and emulate good role models - One variation of these ethical approaches is the Television Test, which directs us to imagine that every ethical decision we make is being broadcast on nationwide television. - An appropriate decision is one we would be comfortable broadcasting on national television for all to witness.
a rational person has powers to assess the correctness of actions
institutionalism
stress market outcomes and basis for distributing societies rewards
libertarians
VEIL OF IGNORANCE
making decisions with a blind eye to extraneous factors that could affect the decision
CONVENTIONAL LEVEL
people conform their behavior to meet the expectations of groups, such as family, peers, and eventually society. *group*
A number of arguments oppose business involvement in socially responsible activities... what are they?
profitability, unfairness, accountability, and expertise.
supports rules that produce the greatest good
rule utilitarianism
judging someone's actions by first putting oneself in their shoes
situational ethics
focus on a persons obligations to other members of society or on the individuals rights and obligations
social ethics theories
DISTRIBUTIVE JUSTICE
stresses equality of opportunity rather than of results - According to distributive justice, the society contemplated through this "veil of ignorance" is the one that should be developed because it considers the needs and rights of all its members. - To Rawls, society must be premised on justice. Everyone is entitled to his or her fair share in society, a fairness all must work to guarantee.
INSTITUTIONALISM
that a rational person possesses inherent powers to assess the correctness of actions. - Just as some people are better artists or musicians, some people have more insight into ethical behavior than others.
PROFITABIITY
the business of business should be to return as much money as possible to shareholders
CORPORATE GOVERNANCE
the system of governing a company so that the interests of corporate owners and other stakeholders are protected *vast amounts of wealth and power have become concentrated in a small number of corporations, which in turn are controlled by a small group of people, and it is argued that they therefore have a responsibility to undertake projects to benefit society*
GOODWILL
the value of all favorable attributes that relate to a company that are not attributable to any other specific asset
STAKEHOLDER MODEL
theory of corporate social responsibility that suggests that managers are obliged to look beyond profitability to help their organizations succeed by interacting with groups that have a stake in the organization *corporations have fiduciary duty to all of their stakeholders, not just their stockholders*
UNFAIRNESS
whenever corporations engage in social activities, they divert funds rightfully belonging to shareholders and/or employees - Whenever companies stray from their designated role of profit-maker, they take unfair advantage of company employees and shareholders. - For example, a company may support the arts or education or spend excess funds on health and safety; however, these funds rightfully belong to the shareholders or employees
