Business ethics and its

importance
Business ethics is the aspect of corporate governance

- has to do with the moral values of managers

encouraging them to be transparent in business
dealing.
Good business ethics is the backbone of every forward

thinking business. It helps to understand the reason,

its implications and how to address the situation.
Business malpractices have the potential to inflict

enormous harm on individuals, communities and

environment.

 The demands being placed on business to be

ethical by its various stakeholders becoming more
complex. Business ethics provides the means to
appreciate and understand these challenges more
clearly, in order that firms can meet these ethical
expectations more effectively.
Help to improve ethical decision making with the
appropriate knowledge and tools to allows the
managers to correctly identify, diagnose, analyse
and provide solutions to the ethical problems and
dilemmas they are confronted with.
Further refer:
(1)Business ethics and the evolution of corporate
responsibility; Gael McDonald, Chartered Accountant Journal

Corporation in their pursuit of profits usually: Ruin the environment;

Mistreat employees;
Sell shoddy and dangerous products;
Produce immoral advertisements;
Corrupt the political process.

Business ethics and law

The main device for checking corporate misdeeds

the law.
However, the legal regulation (being an important

element of any corporate control scheme) is

insufficient by itself.
Some argue that businesses should adhere to a

standard of ethical or socially responsible

behaviour that is higher than the law.

Stakeholder theory
It is not merely striving to maximization profits for shareholders, a

corporate should balance the interests of shareholders against the

interests of other corporate stakeholders, such as employees,
suppliers, customers and the community.
Traditional management model managers have a fiduciary

relationship with shareholders to act in their interests.

Stakeholder theory provide a compelling reason why other groups

also have a legitimate claim on the corporation. (welfare, rights).

Further refer to articles (1)Business ethics: the state of the art, Patricia H.

Werhane,IJMR March 1999; (2) Business ethics and the evolution of

corporate responsibility; Gael McDonald, Chartered Accountant Journal
March, 2007

Definition of stakeholders
Freeman- can affect or is affected by the

achievement of the organisations objectives.

Evan and Freeman benefit from or are

harmed by and whose rights are violated or

respected by, corporate actions.
Clarkson have or claim, ownership, rights or

interests in a corporation and its activities.

Stakeholderstraditional management model

Sharehold
ers

Employee
s

Corporati
on

Suppliers

Customers

Reference: Business ethics, Andrew Crane, Oxford third edition, 2010

Stakeholder model
Sharehold
ers
Competito
rs

Suppliers

Corporati
on
Customer
s

Civil
society

Governme
nt

Employee
s

ETHICAL THEORIES
1. Right theory
2. Justice theory
3. Utilitarianism
4. Profit maximization

Issue: whether our decisions or actions produce the

right result?

RIGHTS THEORY
Rights theory which is a deontological theories-

theories that focus on decisions or actions alone.

Eg: a deontological theory may find unacceptable

that any competent employees loses his job, even

if the layoffs effect is to reduce prices to
consumers and increase profit.
It

also holds that certain humans rights are

fundamental and must be respected by other
humans. Each of us faces a moral compulsion not
to harm the fundamental rights of others.

Strength and criticisms

Strength of Right Theory -It protects fundamental rights unless

some greater right takes precedence. E.g. members of modern

democratic societies have extensive liberties and rights that they
need not fear will be taken away by their government or other
members of society.
Criticisms of Right Theory It is difficult to achieve agreement

about which rights are protected. E.g. rights fundamental to women

in US are severely restricted in countries like Pakistan or Saudi
Arabia.
Right theories does not concern with the costs or benefits.
It promotes moral fanaticism and creates a sense of entitlement

reducing entrepreneurship and production. E.g. I am entitled to a job,

a place to live/food and health care regardless of how hard I work,
how motivated am I to work to earn those things?

JUSTICE THEORY
Justice theory which has concepts common to right

theory, but focus primarily on outcomes.

John Rawls A Theory of Justice Rawls reasoned

that it was right for governments to redistribute

wealth in order to help the poor and
disadvantages. He argued for a just distribution of
societys resources by which a societys benefits
and burdens are allocated fairly among its
member.
Each person has an equal right to basic rights and

liberties.

 Application

Rawls theory in the business

context- justice theory requires decision makes
to be guided by fairness and impartiality.

It

holds that businesses should focus on

outcomes: are people getting what they
deserve?

Strengths and Criticism

The protection of those who are least advantaged in society.
Its motives are consistent with the religious and secular

philosophies that urge humans to help those in need. Many

religions and cultures hold basic to their faith the assistance
of those who are less fortunate.
Criticisms it treats equality as an absolute without

examining the costs of producing equality including reduced

incentives for innovation, entrepreneurship and production.
Any attempt to rearrange social benefits requires an
accurate measurement of current wealth.

Utilitarianism

Jeremy Bentham and John Stuart Mill.

The basic principle of utilitarianism could be defined as:

According to utilitarianism, an action is morally right if it

results in the greatest amount of good for the greatest
amount of people affected by the action.

It also called the greatest happiness principle it focuses

solely on:(i)
the consequences of an action;
(ii)
weighs the good results against the bad results; and
(iii)
encourages the action that results in the greatest amount
of good for all people involved.

 It requires a decision maker to maximize utility for

society as a whole.
Maximizing utility means achieving the highest

level of satisfactions over dissatisfactions (on

society as a whole-the decision maker may be
required to do something that harms her by her
action in order to benefit the society as a whole).
It

also judges our actions as good or bad

depending on their consequences the end
justify the means.

Strengths & criticism

You merely need to do what is the best for society

as a whole.
U.S. by focusing on total social satisfactions,

benefits, welfare and wealth not on the allocations

of pleasures and pains, satisfactions and
dissatisfactions and wealth.
It

is
difficult
to
measure
ones
own
pleasures/satisfaction and pain/dissatisfaction.

Those benefits certainly are unequally distributed

across societys members.

Profit Maximization
Requires

a decision maker to maximize a

businesss long-run profits within the limits of the
law.

Based in the laissez faire theory of capitalism by

Adam Smith.
By focusing on results maximizing total social

welfare.
Profit maximization optimizes total social utility by

requiring the decision maker to make a decision

that merely maximizes profits for himself or

Strengths
Ones selfish interest by working in our own

interests, we compete for societys scarce

resources (labour and land) which are allocated to
those people and businesses that can use them
most productively.
By allocating societys resources to their most

efficient uses, as determined by a free market, we

maximise total utility or benefits.
If we fail to maximize profits, some of societys

resources will be allocated to less productive uses

that reduce societys total welfare.

 Profit maximization results in ethical conduct societys

member to act within the constraints of the law.

A decision maker to consider the rights protected by rights

theory and justice theory.

Ignoring

important rights of employees, customers,

suppliers, communities and other stakeholders may
negatively impact a corporations profit.

A business that engages with unethical behaviour is

subject to boycotts, adverse publicity, demands for more

restrictive laws.

criticisms
Subject to human failings that make it impossible

for them to maximize corporate profits.

The failure to discover and process all relevant

information and varying levels of aversion to risk

can result in one manager making a different
decision than another manager.
Even if the profit maximazation results in an

efficient allocation it does not concern itself with

how wealth is allocated within society.

 To some people, wealth disparity is unacceptable.

To

liberal economists, wealth disparity is

necessary component of a free market that
rewards hard work, acquired skills, innovation and
risk taking. (ability to compete).

Ability of laws and market forces to control

corporate behaviour is limited because it requires

lawmakers, consumers, employees and others to
detect unethical corporate act and take
appropriate steps.