Chapter One

Introduction to Business Ethics and Social Responsibility

Ethics is a conception of right and wrong conduct. It tells us whether our behavior is moral or
immoral and deals with fundamental human relationships- how we think and behave toward
others and how we want them to think and behave toward us. Ethical principles are guides to
moral behavior. For example, in most societies lying, stealing, deceiving, and harming others are
considered to be unethical and immoral. Honesty, keeping promises, helping others, and
respecting the rights of others are considered to be ethically and morally desirable behavior.
Such basic rules of behavior are essential for the preservation and continuation of organized life
everywhere.

These notions of right and wrong come from many sources. Religious beliefs are a major source
of ethical guidance for many. The family institution- whether two parents, a single parent, or a
large family with brothers and sisters, grandparents, aunts, cousins, and other kin- imparts a
sense of right and wrong to children as they grow up. Schools and school teachers, neighbors and
neighborhoods, friends, admired role models, ethnic groups, and the ever-present electronic
media and the internet influence what we believe to be right and wrong in life. The totality of
these learning experiences creates in each person a concept of ethics, morality, and socially
acceptable behavior. This core of ethical beliefs then acts as a moral compass that helps guide a
person when ethical puzzles arise.

Ethical ideas are present in all societies, organizations, and individual persons, although they
may vary greatly from one to another. Your ethics may not be the same as your neighbor’s; one
particular religion’s notion of morality may not be identical to another’s; or what is considered
ethical in one society may be forbidden in another society. These differences raise the important
and controversial issue of ethical relativism, which holds that ethical principles should be
defined by various periods of time in history, a society’s traditions, the special circumstances of
the moment, or personal opinion. In this view, the meaning given to ethics would be relative to
time, place, circumstance, and the person involved. In that case, the logical conclusion would be
that there would be no universal ethical standards on which people around the globe could agree.

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However, for companies conducting business in several societies at one time, whether or not
ethics is relevant can be vitally important.

For the moment, however, we can say that despite the diverse systems of ethics that exist within
our own society and throughout the world, all people everywhere do depend on ethical systems
to tell them whether their actions are right or wrong, moral or immoral, approved or disapproved.
Ethics, in this basic sense, is a universal human trait, found everywhere.

What is business ethics?

Business ethics is the application of general ethical ideas to business behavior. Business ethics is
not a special set of ethical ideas different from ethics in general and applicable only to business.
If dishonesty is considered to be unethical and immoral, then any one in business who is
dishonest with stakeholders- employees, customers, stockholders, or competitors- is acting
unethically and immorally.

1.1 The Social Responsibility of Business

At any one time in any society there is a set of generally accepted relationships, obligations
and duties between the major institutions and the people. Philosophers and political theorists
have called this set of common understandings “the social contract.”
Steiner

The social responsibility of business is a substantial part of this social contract. It is the set of
“generally accepted relationships, obligations and duties” that relate to the corporate impact on
the welfare of society. What becomes “generally accepted” is likely to be different for any two
societies and is also likely to change within any society over time.
In addition to differences between societies and within a society over time, subcultures with
diametrically opposed expectations are part of most major cultures. Almost any response to a call
for “socially responsible” behavior by one group is likely to produce complaints by another
group. The result seems to be a kind of paralysis fostered by the implicit suggestion that inaction
is the safest response. However, inaction, or the failure to consider the social responsibility of
certain outcomes, is often repugnant to much of society. A sense of frustration with “the system”
is thus the fare of business managers at all levels in an organization.

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1.2 Ethics and Profits
'Is it not possible to make profit ethically?' A question we all need to answer for ourselves.

Ethics and profit - complementary or opposites

In certain countries ethics comes on a poor second when it comes to doing business successfully.
"Successfully" here means generating large amounts of surplus. For this purpose the business
houses need to expand their territory, coverage and products to capture large chunks of the
market.

Creating a base for such activities can be done in two ways:

(1) Go the hard way - advertise, consolidate, build brand and image in the national and
international market segment you prefer. This involves money, effort and tremendous
perseverance.
(2) Go the easy way - bribe your way through government and other corridors which would
help you create a niche market almost overnight.

Which would be the best way, in your opinion? You would say, 'the ethical way', of course. But
you would be amazed at how many would still go the other way. Why? Because, the keyword
today is "results" and here "results" means profit. Corporate houses feel that their stakeholders
would appreciate the fact that they generate wealth for them - by whichever means. While it is
true that the public does like a hike in the profits, the 'by whichever means' acceptability is
debatable. If you go down to the grassroots, ethics is still an important threshold in the values of
the common human being.

The general public still values basic business ethics more than profit, though globally the
consumerism movement makes it seem otherwise. Ethics to most is synonymous with trust and
truth without which no real value addition can be expected or enjoyed.

1.3 Stakeholders
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The term stakeholder refers to persons and groups that affect, or are affected by, an
organization’s decisions, policies, and operations. The word stake, in this context, means an
interest in- or claim on- a business enterprise. Those with a stake in the firm’s actions include
such diverse groups as customers, employees, stockholders, the media, governments,
professional and trade associations, social and environmental activists, and non-governmental
organizations.
Business organizations are embedded in networks involving many participants. Each of these
participants has a relationship with the firm, based on ongoing interactions. Each of them shares,
to some degree, in both the risks and rewards of the firm’s activities. And each has some kind of
claim on the firm’s resources and attention, based on law, moral right, or both. The number of
these stakeholders and the variety of their interests can be large, making a company’s decisions
very complex.
Managers make good decisions when they pay attention to the effects of their decisions on
stakeholders, as well as stakeholders’ effects on the company. On the positive side, strong
relationships between a corporation and its stakeholders are an asset that adds value. On the
negative side, some companies disregard stakeholders’ interests either, out of the belief that the
stakeholder is wrong or out of the misguided notion that an unhappy customer, employee, or
regulator does not matter. Such attitudes often prove costly to the company involved. Today, for
example, companies know that they cannot locate a factory or store in a community that strongly
objects. They also know that making a product that is perceived as unsafe invites lawsuits and
jeopardizes market share.
1.3.1 Market vs. Nonmarket Stakeholders
Business interacts with society in many diverse ways, and a company’s relationships with
various stakeholders differ. Market stakeholders are those that engage in economic transactions
with the company as it carries out its primary purpose of providing society with goods and
services. (for this reason, market stakeholders are also sometimes called primary stakeholders.)
market stakeholders of a business include employees, stockholders, creditors, suppliers,
customers, and distributors, wholesalers, retailers. Stockholders invest in the firm and in return
receive the potential for dividends and capital gains. Creditors lend money and collect payments
of interest and principal. Employees contribute their skills and knowledge in exchange for

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wages, benefits, and the opportunity for personal satisfaction and professional development. In
return for payment, suppliers provide raw materials, energy, services, and other inputs; and
wholesalers, distributors, and retailers engage in market transactions with the firm as they help
move the product from plant to sales outlets to customers. All businesses need customers who
are willing to buy their products or services. These are the fundamental market interactions every
business has with society.
Nonmarket stakeholders, by contrast, are people and groups who-although they do not engage in
direct economic exchange with the firm- are nonetheless affected by or can affect its actions.
Nonmarket stakeholders of business are also called secondary stakeholders. Nonmarket
stakeholders include the community, various levels of government, nongovernmental
organizations, the media, business support groups (e.g., trade associations), and the general
public. The community may have an interest to employ local residents in the company; ensure
that the local environment is protected and developed. Nongovernmental organizations may have
an interest to monitor company actions and policies to ensure that they conform to legal and
ethical standards, and that they protect the public’s safety. Media will be interested in keeping
the public informed on all issues relevant to their health, well-being, and economic status and
also monitor company actions. Business support groups are interested in providing research and
information that will help the company or industry perform in a changing environment.
Governments have keen interest to promote economic development, encourage social
improvements, and raise revenue through taxes. The general public has certain interests that
emanate from the motive to protect social values, minimize risks, and achieve prosperity for
society.
1.3.2 Stakeholder Power
Stakeholder power refers to the ability to use resources to make an event happen or to secure a
desired outcome. Experts have recognized four types of stakeholder power: voting power,
economic power, political power, and legal power.
a) Voting power means that the stakeholder has a legitimate right to cast a vote.
Stockholders typically have voting power proportionate to the percentage of the
company’s stock they own. Stockholders typically have an opportunity to vote on such
major decisions as mergers and acquisitions, the composition of the board of directors,

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 and other issues that may come before the annual meeting. They also exercise rights to
inspect company books and records.
b) Economic power: Customers, suppliers, and retailers have economic power with the
company. Suppliers can withhold supplies or refuse to fill orders if a company fails to
meet its contractual responsibilities. Customers may refuse to buy a company’s products
or services if the company acts improperly. Customers can boycott products if they
believe the goods are too expensive, poorly made, or unsafe. Employees, for their part,
can refuse to work under certain conditions, a form of economic power known as a strike
or slowdown. Economic power often depends on how well organized a stakeholder group
is. For example, workers who are organized into unions usually have more economic
power than do workers who try to negotiate individually with their employers.
c) Political power: Governments exercise political power through legislation, regulations, or
lawsuits. While government agencies act directly, other stakeholders use their political
power indirectly by urging government to use its powers, by passing new laws or
enacting regulations.
d) Legal power: Finally, stakeholders have legal power when they bring suit against a
company for damages, based on harm caused by the firm- for instance, lawsuits brought
by customers for damages caused by defective products, brought by employees for
damages caused by workplace injury, or brought by environmentalists for damages
caused by pollution or harm to species or habitat.

Why should business be ethical?

Why should business be ethical? What prevents a business firm from piling up as much profit as
it can, in any way it can, regardless of ethical considerations? The major reasons why business
firms should promote a high level of ethical behavior are listed below.
1. To meet demands of business stakeholders: organizational stakeholders demand that
businesses exhibit high levels of ethical performance and social responsibility.
2. To enhance business performance: some people argue that another reason for business to
be ethical is that it enhances the firm’s performance. Whether at the organizational or
individual level, businesses increasingly are recognizing that ethics pays and are

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 encouraging ethical behavior through reward programs and other incentives or
commendations. Business executives recognize that ethical actions can directly affect
their organization’s bottom line, and have chosen to reward these actions accordingly. It
is also clear that “the lack of ethics costs.” Researchers have identified that costs to the
company go far beyond the government’s fines.
3. Comply with legal requirements: doing business ethically is also often a legal
requirement.
4. Prevent or minimize harm: another reason businesses and their employees should act
ethically is to prevent harm to the general public and the corporation’s many
stakeholders. One of the strongest ethical principles is stated very simply: Do no harm. A
company that is careless in disposing of toxic chemical wastes that cause disease and
death is breaking this ethical injunction. Many ethical rules operate to protect society
against various types of harm, and businesses are expected to observe these
commonsensical ethical principles.
5. To promote personal morality: a final reason for promoting ethics in business is a
personal one. Most people want to act in ways that are consistent with their own sense of
right and wrong. Being pressured to contradict their personal values creates emotional
stress. Knowing that one works in a supportive ethical climate contributes to one’s sense
of psychological security.

Why ethical problems occur in business?

If businesses have so many reasons to be ethical, why do ethical problems occur? Although not
necessarily common or universal, ethical problems occur frequently in business. Finding out
what causes them is one step toward minimizing their impact on business operations and on the
people affected. Some of the main reasons are;
1. Personal gain and selfish interest: desire for personal gain, or even greed, causes some ethics
problems. Businesses sometimes employ people whose personal values are less than
desirable, who will put their own welfare ahead of all others, regardless of the harm done to
other employees, the company, or society. A manager or employee who puts his or her own
self-interest above all other considerations is called an ethical egoist. Self-promotion, a focus

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 on self-interest to the point of selfishness, and greed are traits commonly observed in an
ethical egoist. The ethical egoist tends to ignore ethical principles accepted by others,
believing that ethical rules are made for others. Altruism- acting for the benefit of others
when self-interest is sacrificed- is seen to be sentimental or even irrational. “looking out for
number one” is the ethical egoist’s motto.
2. Competitive pressures on profits: when companies are squeezed by tough competition, they
sometimes engage in unethical activities to protect their profits. This may be especially true
in companies whose financial performance is already substandard. Research has shown that
managers of poor financial performers and companies with financial uncertainty are more
prone to commit illegal acts. In addition, intense competitive pressure in the global market
place has resulted in unethical activity, such as the practice of price fixing.
3. Conflicts of interest: a conflict of interest occurs when an individual’s self interest conflicts
with acting in the best interest of another, when the individual has an obligation to do so. For
example, if a purchasing agent directed her company’s orders to a firm from which she had
received a valuable gift, even if this firm did not offer the best quality or value, she would be
accused of unethical behavior because of a conflict of interest. In this situation, she would
have acted to benefit herself, rather than in the best interests of her employer. A failure to
disclose a conflict of interest represents deception in and of itself and may hurt the person or
organization on whose behalf judgment has been exercised. Many ethicists believe that even
the appearance of a conflict of interest should be avoided, because it undermines trust.
4. Cross-cultural contradictions: some of the knottiest ethical problems occur as corporations
do business in other societies where ethical standards differ from those at home. Today, the
policymakers and strategic planners in all multinational corporations, regardless of the nation
where they are headquartered, face this kind of ethical dilemma.
Are multinational companies ethically responsible for what happens to their
products, even though they are being sold legally? Which standards or whose ethical
standards should be the guide?

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 Chapter Two

Ethics Concepts and Theories

2.1 Types of ethical theories

It is customary to divide ethical theories into two groups, usually called teleological and
deontological. The most prominent historical examples of a teleological and a deontological
theory are utilitarianism and the ethical theory of Immanuel Kant, respectively. A third kind of
ethical theory is one based on the concept of virtue. Aristotle’s ethics is the best example of a
theory of this kind.
2.1.1 Teleological theories
Teleological theories hold that the rightness of actions is determined solely by the amount of
good consequences they produce. The word teleological is derived from the Greek word telos,
which refers to an end. Actions are justified on teleological theories by virtue of the end they
achieve, rather than some feature of the actions themselves. Thus, the concept of goodness is
fundamental in teleological theories, and the concepts of rightness and obligation, or duty, are
defined in terms of goodness.
Utilitarianism
According to utilitarianism, our obligation, or duty, in any situation is to perform the action that
will result in the greatest possible balance of good over evil. Obviously, a great deal depends on
what is regarded as good and as evil. In classical utilitarianism, pleasure is taken to be ultimately
the only good, and evil is the opposite of pleasure, or pain. But, utilitarianism can be understood
more broadly, so that goodness is human well-being. Whatever makes human beings generally
better off or provides some benefit is good, and whatever makes them worse off or harms them is
evil. Differences of opinion exist, of course, on what constitutes benefits and harms, or being
better or worse off. Generally, utilitarianism does not attempt to resolve these differences but
accept each person’s own conception of what being better off means for him or her.

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The Strengths and Weaknesses of Teleological Theories
Teleological theories have much strength. One is that they are in accord with much of our
ordinary moral reasoning. The fact that an action would provide some benefit or inflict some
harm is generally a morally relevant reason for or against performing it. So utilitarianism is able
to explain why such actions as lying, breaking a promise, stealing, and assault are wrong and
their opposites- truth telling, promise keeping, respect for property, and the like- are right.
Utilitarianism can also explain why lying in some circumstances are the right thing to do. It
would be wrong to tell a murderer the location of an intended victim, for example, because the
harm that would be done in this instance outweighs any benefit from telling the truth.
Second, teleological theories provide a relatively precise and objective method for moral
decision making. Assuming that the goodness of consequences can be easily measured and
compared, a teleological decision maker need only determine the possible courses of action and
calculate the consequences of each one. For this reason, utilitarianism is attractive not only for
matters of individual choice but also for decisions on issues of public policy. Utilitarian
reasoning has also found favor among economists, who use the assumption that individuals seek
to maximize their own utility or welfare to explain and predict a wide range of economic
phenomena, such as prices and the allocation of resources. The ethical theory underlying
classical economic theory is broadly utilitarian.
The weaknesses of teleological theories derive from the same features that constitute their
strengths. Although much of our ordinary moral reasoning is teleological, some of it is decidedly
non teleological in character. Generally, we have an obligation to keep our promises, even when
more good might be achieved by breaking them. If we promise another person to store some
food that belongs to them, for example, it would be wrong to give the food away to hungry
beggars merely because doing so would have better consequences. Indeed, in deciding whether
to keep a promise, the consequences seem to be morally irrelevant, although there might be
stronger obligations that override the keeping of a promise. If the food is needed to save the life
of a person, for example, then we might have an obligation to provide it- not because of the good
consequences, however, but because of a stronger obligation to save a life.

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2.1.2 Deontological Theories
Deontological theories, in contrast to teleological theories such as utilitarianism, deny that
consequences are relevant to determining what we ought to do. Deontologists typically hold that
certain actions are right not because of some benefit to ourselves or others but because of the
nature of these actions or the rules from which they follow. Thus, bribery is wrong, some say, by
its very nature, regardless of the consequences. Other examples of non consequentialist
reasoning in ethics include arguments based on principles such as the Golden Rule (Do unto
others as you would have them do unto you) and those that appeal to basic notions of human
dignity and respect for other persons. Obligation, or duty, is the fundamental moral category in
deontological theories, and goodness and other concepts are to be defined in terms of obligation,
or duty. (The word deontological derives, in fact, from deon, the Greek word for duty.)
An example of a deontological theory consisting of a set of absolute moral rules is that presented
by the twentieth-century British philosopher W. D. Ross. The seven rules in Ross’s system are
the following:
1. Duties of fidelity- to keep promises, both explicit and implicit, and to tell the truth.
2. Duties of reparation- to compensate People for injury that we have wrongfully inflicted
on them.
3. Duties of gratitude- to return favors that others do for us.
4. Duties of justice- to ensure that goods are distributed according to people’s merit or
deserts.
5. Duties of beneficence- to do whatever we can to improve the condition of others.
6. Duties of self-improvement- to improve our own condition with respect to virtue and
intelligence.
7. Duties of nonmaleficence- to avoid injury to others.

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The Strengths of Deontological Theories
One virtue of deontological theories such as Ross’s is that they make sense of cases in which
consequences seem to be irrelevant. Especially in justifying the obligations that arise from
relations, such as contracts and roles, it is more plausible to appeal to the relations themselves
than to the consequences. Thus, a manufacturer has an obligation to honor a warranty on a
defective product even if the cost of doing so exceeds the benefit of satisfying a consumer. And
an employee has an obligation to an employer to be loyal and to do his or her job. Another
strength of deontological theories is the way they account for the role of motives in evaluating
actions. Two people who give large amounts to charity- one out of genuine concern to alleviate
suffering and the other to impress friends and associates- produce the same amount of good, yet
we evaluate the two actions differently. The role of motives in evaluating actions is easily
explained if we accept the belief of most deontologists that the rightness of actions depends
wholly or in part on the motives from which they are performed and not on consequences.

The Weaknesses of Deontological Theories

The main weakness of deontological theories lies in the failure to provide a plausible account of
how we can know our moral obligations and resolve problems of moral conflict. Although the
rules in Ross’s theory are plausible, no reason is offered for accepting these rules and not others.
Ross’s rules are also open to the charge of ethnocentrism; that is, of erroneously accepting the
rules of our own society as though they were universal. People at different times and in different
places might reject Ross’s rules and regard others as being equally worthy. Worse, he suggests
no order of priority among the rules, so that we have no guidance in cases where they conflict.
For example, should we keep a promise or tell the truth, when doing so will harm someone? Or
should gratitude for a past favor alter in some way distribution of goods according to merit or
desert?
Ross attempted to solve the problem of conflict among rules by making a distinction between
actual and prima facie obligations. All rules have exceptions. Thus, the rule Tell the truth does
not necessarily rule out harmless falsehoods or so called white lies. In most cases of rule conflict,
however, we do not make exceptions to rules, Ross claims. Rather, a rule that is overridden by
another still applies and would be our actual duty if the other rule did not intervene. If we lie to

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save a person’s life, for example, this case is not an exception to the rule Tell the truth. But the
obligation that a rule creates is only a prima facie obligation. That is, it is an obligation that we
ought to perform unless another prima facie obligation overrides it. In any given situation, we
may have several prima facie obligations. Our actual obligation, though, is what we ought to do
“on balance,” or “ all things considered.”

Kant’s Ethical Theory

Immanuel Kant (1724-1804) wrote his famous ethical treatise Foundations of the Metaphysics of
Morals (1785) before the rise of English utilitarianism, but he was well acquainted with the idea
of founding morality on the feelings of pleasure and pain, rather than on reason. Accordingly,
Kant set out to restore reason to what he regarded as its rightful place in our moral life.
Specifically, he attempted to show that there are some things that we ought to do and others that
we ought not to do merely by virtue of being rational. Moral obligation thus has nothing to do
with consequences, in Kant’s view, but arises solely from a moral law that is binding on all
rational beings.
The main features of the ethical theory presented in the foundations can be illustrated by
considering one of Kant’s own examples:
A man finds himself forced by need to borrow money. He well knows that he will not be able to
repay it, but he also sees that nothing will be loaned him if he does not firmly promise to repay it
at a certain time. He desires to make such a promise, but he has enough conscience to ask
himself whether it is not improper and opposed to duty to relieve his distress in such a way.
What (morally) ought this man to do? A teleological theory would have us answer this question
by determining the consequences of each alternative course of action. Making a promise that he
knows he cannot keep might enable the man to extricate himself from his immediate troubles,
but more likely the long-term consequences of being in debt and losing the trust of others would
outweigh any possible gain. No rule that would make such an action morally right could possibly
be justified, moreover, by the consequences of everyone’s acting in that way. According to both
act and rule-utilitarianism, therefore, the man probably ought to refrain from making the
untruthful promise.

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Kant regarded all such appeals to consequences as morally irrelevant. As a deontologist, he held
that the duty to tell the truth when making promises arises from a rule that ought to be followed
without regard for consequences. Even if the man could do more good by borrowing money
under false pretenses- by using it to pay for an operation that would save a person’s life, for
example- the action would still be wrong. Kant denied, furthermore, that any consequence, such
as pleasure, could be good. In a deontological theory, duty rather than good is the fundamental
moral category. As a result, the only thing that can be good without qualification, according to
Kant, is what he called a good will, performing an action solely because it is our duty.
Regardless of whether Kant is successful in his attempt to show how it is possible for some
imperatives to command categorically and not merely hypothetically, many philosophers still
find a kernel of truth in Kant’s principle of the categorical imperative, which they express as the
claim that all moral judgments must be universalizable. That is, if we say that an act is right for
one person, then we are committed to saying that it is right for all other relevantly similar
persons in relevantly similar circumstances. By the same token, if an act is wrong for other
people, then it is wrong for any one person unless there is some difference that justifies making
an exception. This principle of universalizability expresses the simple point that, as a matter of
logic, we must be consistent in the judgments we make.

The Principle of Universalizability

The principle of universalizability has immense implications for moral reasoning. First, it
counters the natural temptation to make exceptions for ourselves or to apply a double standard.
Consider a job applicant who exaggerates a bit on a resume but is incensed to discover, after
being hired, that the company misrepresented the opportunity for advancement. The person is
being inconsistent to hold that it is all right for him to lie to others but wrong for anyone else to
lie to him, or that there is nothing wrong with lying if it is necessary to get a job, but companies
ought to be completely truthful in their dealings with potential employees. An effective move in
a moral argument is to challenge people who hold such positions to site some morally relevant
difference. What is so special about you specifically or job applicants in general? If they can give
no acceptable answer, then they are forced by the laws of logic to give up one or the other of the
inconsistent judgments.

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Second, the universalizability principle can be viewed as underlying the common question,
“what if everyone did that?” the consequences of a few people cheating on their taxes, for
example, are negligible. If everyone were to cheat, however, the results would be disastrous. The
force of “what if everyone did that?” is to get people to see that since it would be undesirable for
everyone to cheat, no one ought to do so. This pattern of ethical reasoning involves an appeal to
consequences, but it differs from standard forms of utilitarianism in that the consequences are
hypothetical rather than actual. That is, whether anyone else actually cheats is irrelevant to the
question “what if everyone did that?” the fact that the results would be disastrous if everyone did
is sufficient to entail the conclusion that cheating is wrong.
Respect for persons
The foundations contain a second formulation of the categorical imperative, which Kant
expressed as follows:
Act so that you treat humanity, whether in your own person or in that of another, always as an
end and never as a means only.
These words are usually interpreted to mean that we should respect other people (and ourselves!)
as human beings. The kind of respect that Kant had in mind is compatible with achieving our
ends by enlisting the aid of other people. We use shop clerks and taxi drivers, for example, as a
means for achieving our ends, what is ruled out by Kant’s principle, however, is treating people
only as a means, so that they are no different, in our view, from mere “things.”
The moral importance of human beings is not unique to Kant’s theory, of course. Virtually all
systems of ethics require that we respect other persons. The distinctiveness of Kant’s
contribution lies in his view of what it means to be a human being and what we are respecting
when we have respect for persons. For utilitarians, human beings are creatures capable of
enjoying pleasure, and so we are morally obligated to produce as much pleasure as possible,
taking into consideration the pleasure of everyone alike. Kant holds, by contrast, that the morally
significant feature of human beings is not their capacity for enjoying pleasure but their
rationality. Lower animals are capable of enjoying pleasure, too; what distinguishes human
beings, for Kant, is their capacity for using reason. To respect persons, therefore, is to respect
them as rational creatures.

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Rationality is what gives persons a greater moral value than anything else in creation, including
pleasure. Indeed, rational beings are the only things that ultimately have value, according to
Kant; other things have value only because we place a value on them as means to our ends.
Books, music, fine food, travel, and the company of friends, for example, have value as a result
of our enjoyment of them. Apart from rational beings who want them and act to obtain them,
they have no value at all. Kant expressed this point by saying that their value is conditional. The
only thing that has unconditional value and is an end in itself is that which gives value to other
things; namely, human beings. In Kant’s own words:
Now, I say, man and, in general, every rational being exists as an end in himself and not merely
as a means to be arbitrarily used by this or that will. In all his actions, whether they are directed
to himself or to other rational beings, he must always be regarded at the same time as an end.
From this follows the second formulation of the categorical imperative.
Our account of the second formulation is not complete, however, without an explanation of how
Kant understood reason. Reason, in Kant’s view, is what enables human beings to act freely.
Every event in nature other than the actions of human beings is rigidly determined by
antecedents. The ringing of a doorbell, for example, follows inevitably once the button is pushed.
Human beings are exempt, however, from the determinism that prevails in the rest of the natural
world. We lone have a free will. Thus, we are free to push a doorbell button- or not to push it, as
we choose. Freedom of this kind is possible, according to Kant, because we are able to create the
rules that govern our conduct. His conception of rationality can be expressed roughly by saying
that we are rule-making beings. This idea of acting on rules of our own devising is also conveyed
by the term autonomy, which is derived from two Greek words meaning “self’ and “law.” To be
autonomous is quite literally to be a lawgiver to oneself, or self-governing. A rational being,
therefore, is a being who is autonomous. To respect other people, then, is to respect their
capacity for acting freely; that is, their autonomy.
Strengths and weaknesses of the principle
The principle of respect for persons has some significant strengths and weaknesses. The main
weakness is that it does not lend itself to a precise method for decision making. Certainly,
slavery and gross exploitation of labor are forbidden by the principle, but utilitarianism judges
these practices to be immoral as well. Respect for persons is likely to yield different results,

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though, in cases where utilitarians would sacrifice the interests of a few individuals to increase
the overall welfare of society. Kant’s principle lays a greater stress on the welfare of every
person, thereby providing greater protection for the claims of individuals over those of society at
large. However, it does not tell us where to draw the line.
2.1.3 Virtue Ethics
Despite their differences, utilitarian and Kantian ethics both address the question, what actions
are right? Virtue ethics asks instead, what kind of a person should we be? Moral character rather
than right action is fundamental in this ethical tradition, which originated with the ancient Greeks
and received its fullest expression in Aristotle’s Nicomachean Ethics. The role of ethics
according to Aristotle is to enable us to lead successful, rewarding lives- the kind of lives that we
would call “the good life.” The good life in Aristotle’s sense is possible only for virtuous
persons- that is, persons who develop the traits of character that we call the virtues. Aristotle not
only made the case for the necessity of virtue for good living but also described particular virtues
in illuminating detail.
A complete theory of virtue ethics must do three things. First, it must explain what is a virtue.
That is, the concept of a virtue needs to be defined. Second, it must offer some list of the virtues-
and a list of their corresponding vices. Finally, the theory must offer some justification of that list
and explain how we decide what are virtues and vices.
What is a virtue?
Defining virtue has proven to be difficult, and philosophers are by no means agreed. Aristotle
described virtue as a character trait that manifests itself in habitual action. Honesty, for example,
cannot consist in telling the truth once; it is rather the trait of a person who tells the truth as a
general practice. Only after observing people over a period of time can we determine whether
they are honest. A virtue also results from something within a person rather than occurring by
chance. An honest person can be relied on to tell the truth; and we can say, “I know she is telling
the truth because she is honest.
This account is incomplete, however, because it does not distinguish virtue from other
dispositions, such as the disposition to eat when hungry or the disposition of a carpenter to cut
square corners. Mere feelings, like hunger, are not virtues, according to Aristotle, in part because
virtues are acquired traits. A person must become honest through proper upbringing. A virtue is

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also something that we actually practice. A skilled carpenter may know how to cut square
corners but need not do so, but honesty is not simply a matter of knowing how to tell the truth.
Honesty, in other words, is not merely a skill that a person possesses but an inclination to act.
For these reasons, Aristotle classified virtue as a state of character, which is different from a
feeling or a skill. Finally, a virtue is something that we admire in a person; a virtue is an
excellence of some kind that is worth having for its own sake. A skill like carpentry is useful for
building a house, for example, but not everyone need be a carpenter. Honesty, by contrast, is a
trait that everyone needs for a good life.

A list of virtues
Most lists of the virtues contain few surprises. Such traits as benevolence, compassion, courage,
courtesy, dependability, friendliness, honesty, loyalty, moderation, self-control, and toleration
are most often mentioned. Aristotle also considered both pride and shame to be virtues on the
grounds that we should be proud of our genuine accomplishments (but not arrogant) and properly
shamed by our failings.
Virtue ethics in business
Virtue ethics could be applied to business directly by holding that the virtues of a good business
person are the same as those of a good person (period). Insofar as business is a part of life, why
should the virtues of successful living not apply to this realm as well? However, business people
face situations that are peculiar to business, and so they may need certain business-related
character traits. Some virtues of everyday life, moreover, are not wholly applicable to business.
Any manager should be caring, for example, but a concern for employee welfare can go only so
far when a layoff is unavoidable. Honesty, too, is a virtue in business, but a certain amount of
bluffing or concealment is accepted in negotiations. Regardless of whether the ethics of business
is different from that of everyday life, we need to show that virtue ethics is relevant to business
by determining the character traits that make for a good businessperson.
Honesty in business is not necessarily the same as honesty is other spheres of life, however. A
person selling a house, for example, may rightly conceal the minimum price at which she would
settle, in the hope that a buyer will bid higher; so too may she conceal the fact that she is eager to
sell the house quickly, since this information would give the buyer an advantage. To conceal

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unseen termite damage, however, is a form of dishonesty that is generally illegal. The ethics of
negotiation permits some concealment that would be unacceptable between family members or
friends, but the differences may be accounted for by the purposes of the different activities. If the
purpose of negotiation is to arrive at a fair price, then the concealment of certain matters may
actually conduce to this end. Thus, the buyer and seller of a house are more likely to arrive at a
fair price if the buyer is not aware of the seller’s eagerness. Whether any given character trait is a
virtue in business, then, is to be determined by the purpose of business and by the extent to
which that trait contributed to that purpose.

Strengths and weaknesses of virtue ethics

The main strengths of virtue ethics derive from a better fit with our own moral experience. In
particular, an ethical theory that emphasizes character over the rules of right conduct is better
suited to explain the following.
1. How we actually think about decisions. Although utilitarianism and Kantian ethics
provide universal moral principles that can be applied to specific cases, the proponents of
a virtue ethics approach respond that people generally do not reason that way. The
response of most people to a complex ethical dilemma is to ask what they feel
comfortable with or what a person they admire would do. Codes of professional ethics
generally offer abstract principles and sometimes specific rules; but they also stress that a
professional should be a person of integrity, and this conception of the character of a
professional may be a more effective guide than principles and rules. Furthermore, the
moral education that we provide for children does not consist merely of telling them
which actions are right and wrong but, more importantly, of shaping their character. Our
concern with shaping character springs mainly from the belief that a disposition to do the
right thing is more important than merely knowing what is right. According to Aristotle,
doing the right thing should be so ingrained that we do not even have to think about it.
Ideally, morality should be something that we do not think about at all- but merely do out
of habit.
2. The importance of relations in morality. A second strength of a virtue ethics approach is
that a concern for universal principles seems to leave out the role that personal relations

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 play in morality. Utilitarianism and Kantian ethics would have us treat the interests of
everyone impartially, but, in fact, we consider the interests of family members, friends,
and members of a local community to be of greater moral importance. Insofar as virtue
ethics views individuals as embedded in a community and holds that a web of close
relationships is essential for a good life, it is better able, so its proponents claim, to give
an account of the importance of relations in morality. A concern for the virtues also
echoes some themes in feminist ethics, which models ethics on family relations in which
love and caring are central. Since business activity consists so much of roles and
relationships, in which such concepts as loyalty and trust figure prominently, then
perhaps an ethics of virtue is more relevant to the experience of people in the workplace.

Virtue ethics also has some well-known weaknesses that afflict both Aristotle’s theory
and modern attempts to restore the Aristotelean tradition.
1. Incompleteness. For all its importance, a virtuous character can take us only so far in
dealing with genuine ethical dilemmas. Some dilemmas involve the limits of rules- such
as, when not revealing information becomes a lie- or conflicts between rules. If telling the
truth will do great harm to a person, for example, then we are forced to choose between
the rules Tell the truth and Avoid harm.
2. Conflicting Interests. Happiness, according to Aristotle, is possible for anyone who
becomes a certain kind of person. Being a successful person in life is, in this respect, like
being a good poet: if only we all cultivate our poetic abilities, then we can all become
good poets together. In assuming that we can all achieve happiness through a life of
virtue, Aristotle is often accused of overlooking the fact that our interests often conflict.
Insofar as our goals in life include possessing goods that are in limited supply, then not
everyone can be successful. May be everyone could be a good poet, but not everyone
could be fabulously rich. Consequently, a major task of traditional ethical theory is to
manage conflict and to enable us to live in peace with one another. This view of morality
is also congenial (friendly) to economic theory because the market provides a mechanism
for moderating conflict and enabling self-interested individuals to interact in ways that
benefit all. One response of virtue ethics theorists is to play down the problem of

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 conflicting interests and to insist that morality is more a matter of living cooperatively in
communities than of moderating conflict. It is true that business is about cooperation; but
it is also about power and curbing the abuse of power, and virtue ethics has little to say
about that.
The idea of virtue in business is not hopelessly out of place. There are character traits that
not only lead to success in business but elevate the tone of business, and the world of
business contains leaders and ordinary workers with exemplary character. No ethical
theory neglects the virtues entirely, however; both utilitarianism and Kantian ethics
consider character to be important in leading us to perform right actions. The
distinguishing feature of virtue ethics is its insistence that being of certain character and
not performing right actions is central to morality. Although this view fits some features
of our moral experience, it fares less well with others. Ultimately, the choice lies between
two different conceptions of what we expect of an ethical theory. If we expect an ethical
theory to help us solve the really hard and complex problems of life, then an ethics of
right action may be more helpful. If, on the other hand, we are more concerned with
living our daily life in a community with others, then perhaps an ethics of character is
more appropriate.

2.2 Rights, Justice and Care

Rights: Determining and Protecting Entitlements
Human rights are another basis for making ethical judgments. A right means that a person or
group is entitled to something or is entitled to be treated in a certain way. The most basic human
rights are the rights to life, safety, free speech, freedom, being informed, due process, and
property, among others. Denying those rights or failing to protect them for other persons and
groups is normally considered to be unethical. Respecting others, even those with whom we
disagree or dislike, is the essence of human rights, provided that others do the same for us. This
approach to ethical reasoning holds that individuals are to be treated as valuable ends in
themselves just because they are human beings. Using others for your own purposes is unethical
if, at the same time, you deny them their goals and purposes.

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The main limitation of using rights as a basis of ethical reasoning is the difficulty of balancing
conflicting rights. For example, an employee’s right to privacy may be at odds with an
employer’s right to protect the firm’s assets by testing the employee’s honesty.
Despite this kind of problem, the protection and promotion of human rights is an important
ethical benchmark for judging the behavior of individuals and organizations. Surely most people
would agree that it is unethical to deny a person’s fundamental right to life, freedom, privacy,
growth, and human dignity. By defining the human condition and pointing the way to a
realization of human potentialities, such rights become a kind of common denominator of ethical
reasoning, setting forth the essential conditions for ethical actions and decisions.
Justice: is it fair?
This method of ethical reasoning concerns justice. A common question in human affairs is, is it
fair or just? Employees want to know if pay scales are fair. Consumers are interested in fair
prices when they shop. When new tax laws are proposed, there is much debate about their
fairness- where will the burden fall, and who will escape paying their fair share?
Justice, or fairness, exists when benefits and burdens are distributed equitably and according to
some accepted rule. For society as a whole, social justice means that a society’s income and
wealth are distributed among the people in fair proportions. A fair distribution does not
necessarily mean an equal distribution. Most societies try to consider people’s needs, abilities,
efforts, and the contributions they make to society’s welfare. Since these factors are seldom
equal, fair shares will vary from person to person and group to group. Justice reasoning is not the
same as utilitarian reasoning. A person using utilitarian reasoning adds up costs and benefits to
see if one is greater than the other; if benefits exceed costs, then the action would probably be
considered ethical. A person using justice reasoning considers who pays the costs and who gets
the benefits; if the shares seem fair (according to society’s rules), then the action is probably just.

2.3 Compliance and integrity

2.3.1 Integrity
Integrity is one of the most important and often-cited terms regarding virtue, and refers to being
whole, sound, and in an unimpaired condition. In an organization, it means uncompromising
adherence to ethical values. Integrity is connected to acting ethically; in other words, there are
substantive or normative constraints on what it means to act with integrity. This usually rests on
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an organization’s enduring values and unwillingness to deviate from standards of behavior. At a
minimum, businesses are expected to follow all applicable laws and regulations. In addition,
organizations should not knowingly harm customers, clients, employees, or even other
competitors through deception, misrepresentation, or coercion. Although businesspeople often
act in their own economic self-interest, ethical business relations should be grounded on honesty,
integrity, fairness, justice, and trust. Buyers should be able to trust sellers; lenders should be able
to trust borrowers. Failure to live up to these expectations or to abide by laws and standards
destroys trust and makes it difficult, if not impossible, to continue business exchanges. These
virtues become the glue that holds business relationships together, making everything else more
effective and efficient.
2.3.2 Compliance
Laws and regulations are established by governments to set minimum standards for responsible
behavior—society’s codification of what is right and wrong. Laws regulating business conduct
are passed because certain stakeholders believe that business cannot be trusted to do what is right
in certain areas, such as consumer safety and environmental protection. Because public policy is
dynamic and often changes in response to business abuses and consumer demands for safety and
equality, many laws have been passed to resolve specific problems and issues. But the opinions
of society, as expressed in legislation, can change over time, and different courts or state
legislatures may take diverging views. For example, the thrust of most business legislation can
be summed up as follows: Any practice is permitted that does not substantially lessen or reduce
competition or harm consumers or society.
The primary method of resolving conflicts and serious business ethics disputes is through
lawsuits in which one individual or organization uses civil laws to take another individual or
organization to court. To avoid lawsuits and to maintain the standards necessary to reduce risk
and create an ethical culture, it is necessary to have both legal and organizational standards
enforced. It is important for a company to have a functioning program in place long before an
ethical disaster strikes.
The role of laws is not so much to distinguish what is ethical or unethical as to determine the
appropriateness of specific activities or situations. In other words, laws establish the basic
ground rules for responsible business activities. Most of the laws and regulations that govern

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business activities fall into one of five groups: (1) regulation of competition, (2) protection of
consumers, (3) promotion of equity and safety, (4) protection of the natural environment, and (5)
incentives to encourage organizational compliance programs to deter misconduct, which we
examine later.
1. Laws Regulating Competition
The issues surrounding the impact of competition on business’s social responsibility arise from
the rivalry among businesses for customers and profits. When businesses compete unfairly, legal
and social responsibility issues can result. Intense competition sometimes makes managers feel
that their company’s very survival is threatened. In these situations, managers may begin to see
unacceptable alternatives as acceptable, and they may begin engaging in questionable practices
to ensure the survival of their organizations.
Size frequently gives some companies an advantage over others. For example, large firms can
often generate economies of scale (for example, by forcing their suppliers to lower their prices)
that allow them to put smaller firms out of business. Some companies’ competitive strategies
may focus on weakening or destroying a competitor, which can harm competition and ultimately
reduce consumer choice. Other examples of anticompetitive strategies include sustained price
cuts, discriminatory pricing, and price wars. Intense competition may also lead companies to
resort to corporate espionage. Corporate espionage is the act of illegally taking information from
a corporation through computer hacking, theft, intimidation, sorting through trash, and through
impersonation of organizational members. Estimates show corporate espionage may cost
companies nearly $50 billion annually. Unauthorized information collected includes patents in
development, intellectual property, pricing strategies, customer information, unique
manufacturing and technological operations, as well as marketing plans, research and
development, and future plans for market and customer expansion. Determining an accurate
amount for losses is difficult because most companies do not report such losses for fear that the
publicity will harm their stock price or encourage further break-ins. Espionage may be carried
out by outsiders or by employees—executives, programmers, network or computer auditors,
engineers, or janitors who have legitimate reasons to access facilities, data, computers or
networks. They may use a variety of techniques for obtaining valuable information such as
dumpster diving, whacking, and hacking.

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 2. Laws Protecting Consumers
Laws that protect consumers require businesses to provide accurate information about products
and services and to follow safety standards; in this regard consumer protection laws provide a
valuable base for our practices. Large groups of people with specific vulnerabilities have been
granted special levels of legal protection relative to the general population. For example, the
legal status of children and the elderly, defined according to age-related criteria, has received
greater attention.
3. Laws Promoting Equity and Safety

Even with the passage and enforcement of safety laws, many employees still work in unhealthy
or dangerous environments. Safety experts suspect that companies underreport industrial
accidents to avoid state and federal inspection and regulation. The current emphasis on increased
productivity has been cited as the main reason for the growing number of such accidents.
Competitive pressures are also believed to lie behind the increases in manufacturing injuries.
Greater turnover in organizations due to downsizing means that employees may have more
responsibilities and less experience in their current positions, thus increasing the potential for
accidents.
4. Laws Protecting the Environment
Environmental protection laws have been enacted largely in response to concerns over business’s
impact on the environment. Sustainability has become a buzzword in recent years, yet many
people may not even think about what it means. According to the UN’s World Commission on
the Environment and Development, sustainable means “meeting the present needs without
compromising future generations to meet their own needs.” The environment and sustainability
are more important topics than ever. Consumer interest in sustainability is so great that many
firms have even made being green a competitive issue.

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