Department of Business Administration

Faculty of Business

Lecture 1
BBA 361
Business Ethics & Corporate Governance
Department of Business Administration
 Ethics and Business

(See Chapter 7 and 8 of Business, Government, and Society,

Steiner/Steiner)

Business Ethics and its definitions

Two theories of Business Ethics
Major sources of Ethical values
1.1 What are Business Ethics?

Business ethics is the study of good and evil, right and wrong,
and just and unjust actions in business.
Ethical traditions that apply to business support truth telling,
honesty, protection of life, respect for rights, fairness, and
obedience to law.
Some ethical decisions are troublesome because although basic
ethical standards apply, conflicts between them defy resolution.
Some ethical issues are very subtle, hidden and hard to
recognize.
Eliminating unethical behavior may be difficult, but knowing
the rightness or wrongness of actions is usually easy.
Although managers face difficult ethical conflicts, applying
clear guidelines resolves the vast majority of them.
2.Two Theories of Business Ethics (I)
Two basic views exist about whether business ethics are more
permissive than general societal and personal ethics.

(A) The theory of amorality (latter 19th century)

- Business should be conducted without reference to the full
range of ethical standards, restraints, and ideals in society.
It has far less public acceptance today, but is lives on quietly.
It was believed that business and personal ethics existed in
separate compartments --- less idealistic ethics were
permissible in business.
Competitive pressure may justify ethical compromise.
2.Two Theories of Business Ethics (I)
(B) The theory of moral unity
Business actions are judged by the general ethical standards in
society, not by a special set of more permissive standards.
Actions are not moral just because they make money.
Ethical conflicts cannot be avoided simply because they arise
in the course of business.
Major Sources of Ethical Values in Business
 Religion
In all great religions a divine will reveal the nature of
right and wrong behavior in all areas of life,
including business.
Christian managers often seek guidance in the Bible.
In Islam the Koran () is a source of ethical
inspiration.
 Philosophy
Philosophy has produced a stream of notions about
what is right and wrong.
Greek ethics
Socrates asserted that virtue () and ethical behavior
were associated with wisdom and taught that insight
into life would naturally lead to right conduct.
Plato carried this doctrine of virtue as knowledge
further by elaborating the theory that absolute justice
exists independently of individuals and that its nature
can be discovered by intellectual effort.
 Philosophy (continued)
Aristotle spelled out virtues of character in the Nicomachean
Ethics () and advocated a regimen of
continuous learning to improve ethical behavior.
Epictetus () taught that virtue was found
solely within and should be valued for its own sake,
arguing that this inner virtue was a higher reward than
external riches or worldly success.
The great Catholic theologians St. Augustine and St.
Thomas Aquinas both believed that humanity should
follow Gods will; correct behavior in business and in all
worldly activity was necessary to achieve salvation and
life after death.
 Cultural Experience
Every culture transmits between generations a
set of traditional values, rules, and standards
that define acceptable behavior.
 Cultural Experience
Ethical values differ among nations as historical
experiences have interacted with philosophies and
religions to create diverging cultural values and laws.
The school of ethical universalism holds that in terms of
biological and psychological needs, human nature is
everywhere the same.
The school of ethical relativism holds that although
human biology is everywhere similar, cultural experience
creates widely diverging values, including ethical values.
Because of globalization, corporations struggle with the
question of how to apply conduct codes across cultures.
 Law
Laws codify, or formalize, ethical expectations.
Legal expectations are enforced through
damages, criminal prosecution of managers
and corporations, sentencing and fines.
Both managers and corporations are subject
to criminal prosecution.
Factors That Influence Managerial Ethics
Four Prominent forces shape ethical conduct in corporations
 (1) Leadership
The example of company leaders is perhaps the
strongest influence on integrity.
A common failing is for managers to show by their
actions that ethical duties can be compromised.
If the leader does something, an opportunistic
employee can rationalize his or her entitlement to do
it also.
 (2) Strategies and Policies
Managers must create strong competitive strategies
that enable the company to meet realistic financial
goals without encouraging ethical compromise.
Otherwise employees may feel pressured to engage
in unethical behavior.
Reward and compensation systems can expose
employees to ethical compromises.
 (3) Corporate Culture
A corporate culture is a set of values, norms, rituals,
formal rules and physical artifacts. Every corporate
culture has an ethical dimension reinforced by daily
habit and shared beliefs about which behaviors are
rewarded and which are penalized.
A factor that contributes to lowered ethical climates
in corporations is moral muteness.
The tendency toward moral muteness is probably
present to some degree in every company.
 (4) Individual Characteristics
Behavior is also motivated by individual characteristics.
Research suggests that size of company, ethics codes,
age, and work experience are related to ethical
behavior.
 Ethics Programs
Ethics programs are a set of interrelated policies and
methods.
Many companies have one or more of the central
elements of an ethics program, but only a small
number have strong programmes.
Some companies who engaged in criminal behavior
were forced to adopt strong ethics programs as part
of a settlement.
Even companies with complete ethics and
compliance efforts are subject to scandals.
 How Corporations Manage Ethics
1. Establish standards and procedures to prevent and
detect criminal conduct. Many companies have
responded by adopting codes of ethics.
2. Create high-level oversight to the board of directors
and assign responsibility to an executive who in
turn will assign day-to-day responsibility to a high
level manager.
3. Screen out criminals and those with a history of
unethical conduct.
 How Corporations Manage Ethics
4. Communicate standards to employees. Training is a
key method for meeting this requirement.
5. Monitor and audit the company. Set up an
anonymous hotline for reporting criminal and
ethics violation.
6. Enforce standards, discipline violators using
incentive and punishment
7. Assess areas of risk for unethical behavior. Modify
the program accordingly and take steps to prevent
violations.