MID-TERMS MODULE

MODULE 1

Ethics and Business

INTRODUCTION

Business is part of human society. And since it is part of the complex web of interaction
among institutions and people, its activities must be viewed and examined from the perspective
of morality. Business without ethics threatens the survival of human society and in some cases,
destroys the fiduciary relationships of people. The study of Business Ethics paves the way for
our common understanding of the fundamental concepts of what is right and wrong in our human
conduct and its implications to business as an important human activity.

OBJECTIVES
At the end of this module, students are expected to;
1. Understand the nature of business from the moral perspective.
2. Rationalize the importance of ethics in business.
3. Apply the dynamics of moral reasoning as a framework for making ethical decisions in
business.
4. Justify the need for ethical propriety in business and the corporate world.

1. The Nature of Business

Business is as old as human civilization. In the beginning of human existence,

men took care of their own needs and wants. They hunted animals and cultivated the land for
food and clothing and people simply provided for their own. As time went on, some people
became more proficient in doing one type of work or in producing one or several types of
goods. In doing so, other people sought their products and services so that they need not spend
more time, money and effort to acquire these goods that they need. He also learned that he
could expand his trades if he was able to acquire more capital needed to continue his
entrepreneurial activities. The more he acquires funds, the more he was able to supply goods
and services to his customers. The requirement therefore is for him to earn profit in order to
stay in business and provide the goods and services needed by the customers.

For as long as people have needs and wants, there will always be business. Those who
have capital will continue to produce and sell goods and services that will satisfy the needs and
wants of customers.
 Business is an activity that is part and parcel of human society. Society will not
exist without business. Since business is an integral part of society, its activities must be
examined from the ethical perspective, in the same way that society examines politics,
economics, government, culture and religion from the moral point of view. Without ethics,
business will be a chaotic human activity because there will be no common understanding and
agreement about what is right and wrong human conduct.

Business is also a complex enterprise that involves major activities like purchasing,
manufacturing, marketing, advertising, selling and accounting. Businessmen deal with
suppliers, customers, workers, employees and even competitors. Ironically, it is within this
structure of interaction of people that a lot of questionable practices occur – misrepresentation,
questionable pricing policies, false advertising, misbranding, lying, adulteration, unfair
competition, and local price-cutting, among other. The bottom line is, somewhere, somehow
people’s rights are being violated, their values disrespected and the interest of the common
good disregarded. Business is a good human activity. However, it is the selfish motive and
personal interests of scrupulous businessmen that make business bad and, in some instances,
unproductive.

2. The Importance of Ethics in Business

The study of Business Ethics paves the way for a common ground in our understanding
of the fundamental idea of what is good and what is bad in our human conduct. Without ethics,
people, especially businessmen, will set their own moral standards, moral rules and moral
principles. This would result into a kind of subjective morality, in which case, what is good for
one may be bad for another and vice versa. With this subjective ethical paradigm, business
people will consider some of their actions good but unacceptable to others. Examples are;
● Cheating the customers to gain profit may be acceptable to some businessmen but
bad for others.
● Abortion may be correct for one person but evil for another.
Ethics as a science does not only evaluate the morality of our human conduct but also
provides us with a common understanding of the universal, objective, and irreversible moral
principles that should govern our human behaviour and guide our moral decisions.

Another important aspect in business that needs profound examination is the manner in
which business leaders and managers confront ethical issues and problems affecting the flow
and dynamism of business activities. The resolution of some ethical issues like sexual
harassment, bribery, misrepresentation, theft, insider trading, conflict of interest and job
discrimination among others, cannot be resolved by quantitative approach alone but also by
philosophical analysis and moral reasoning.

Business Ethics opens a novel way of resolving moral problems and ethical dilemmas
affecting business transactions and the interactions of people in the corporate world. The study
of Business Ethics will also enhance the human and interpersonal skills of managers so they
can be more effecting in managing the human side of the organization.

3. The Businessman’s Myths about Business Ethics

Businessmen are not immoral. And it would be disastrous to judge and conclude that
business people commit unethical acts in doing business. Business, certainly is a good and
productive human activity. However, it is the businessman’s wrong perception about the role
that ethics plays in the world of business that affects his moral judgment and decision-making.

⮚ Myth #1: Ethics Is a Personal Affair and Not a Public Debatable Matter
Some businessmen claim that ethics is a private issue and not a public
matter. In one sense, this is true because one’s concept of morality is a result of
environmental factors like religion, culture and family values that have has a great
impact on the development of the ethical person. On the other hand, man is also a
social being, which means he is always a being in relation with other men. If
morality is subjective, people will make their own moral laws and principles and
could be worse if they begin to impose these personal norms on others.
People are entitled to their own values and religious beliefs but in the
exercise of these value systems, they must also consider the values and religious
orientations of others. The individual’s moral values may be very subjective but in
the exercise of this value system, he must also consider the impact and gravity of
his actions on others. Thus, ethics is not a personal affair but a public debatable
matter.

⮚ Myth #2: Ethics and Business Do Not Mix

Some businessmen claim that Ethics has no place at all in business. To
claim that business is an activity which is independent of morality is again a
short-sighted view of the relationship between ethics and business. Since business
is part of human society and its activities operate within the structure of beliefs
and value systems of people, it must also be viewed and examined from the
perspective of ethics.
 Any business activity that is devoid of morality will bring more harm than
good to people in particular, and the society in general. Furthermore, the belief
that ethics does not mix with business will only justify illegal activities and will
most likely promote questionable practices in business activities. Certainly,
Ethics has an important place in business.

⮚ Myth #3: Ethics in Business Is Relative

Some businessmen claim that morality is relative, which means, the
fundamental concepts of right and wrong depend on cultural and religious values
of people. This implies further that what may be considered a right action in one
country may be unacceptable in another country. The truth of the matter is, there
are universal moral principles that people share and agree upon regardless of
religious orientations, cultural expressions and value systems. The study of Ethics
paves the way for our common understanding of the fundamental principles of
right and wrong as reflected in our nature and conduct as human beings.

⮚ Myth #4: Good Business Means Good Ethics

Some businessmen claim that good business means good ethics. This is a
certainly a myth. A business may be profitable but the means of acquiring profits
may be questionable. The study of Ethics in business encourages businessmen
and managers to look closely into the end and the means of doing business. Profit
maximization is a good end in business but the means of getting those profits must
also be examined.

⮚ Myth #5: Business Is a War

Some business leaders and businessmen believe that business is a war.
For them, the market is an arena of gladiators trying to fight for survival and
vying for the number one position. But business is a good human activity, and as
an integral part of society, it must promote healthy competition and not destroy
the competitors.

4. The Relationship Between Ethics and Business

Ethics plays an important role in business. Without morality, business will be a chaotic
human activity. The concern of Ethics as a philosophical science, is to discover that there are
unwritten laws, written in the hearts of men that should govern our human conduct where
positive laws may be absent, and in some cases, not very clear.
 The following arguments justify the significant role of ethics plays in the world of
business

●Business is an integral part of human society

●“What is legal may not necessarily be moral.”
●Laws are insufficient
●Train managers to maximize profits by quantifying the operations of business
●“The business enterprise is an organ of society and its actions have a decisive
impact on the social scene.”
5. Moral Reasoning in Business

The essence of studying Business Ethics is to provide the manager as a decision maker
with a framework for the resolution of moral issues and problem affecting business activities and
the organization itself. Moral reasoning is a process in which ethical issues and problems are
benchmarked against a moral standard so that a moral judgment is made possible.

Figure 1. Framework for Moral Reasoning

5.1.Characteristics of a Good Moral Standard (Shaw, 1999)

1. One that looks at the issues as something that is very serious. e.g., murder, graft and
corruption, stealing.

2. Must be grounded on good moral arguments.

 – A good argument is an argument that always tells thetruth.
– A solid moral argument leaves no room for loopholes and counterarguments.

3. Should be objective and not subjective.

– It should beuniversally accepted and should applyto all.
– What is good for one person should be at the same time good for everybody.

4. When violated, brings about feelings of;

– Guilt
– Shame and remorse of conscience
5.2.Requirements for a Good Moral Judgement

1. Must be logical.
– the decision maker must arrive at an informed resolution of the issuebased on logical
reasoning

2. Must be based on facts and solid evidence.

– The information used in the process of moral reasoning must not come from
weaksources like, hearsay and rumors.

3. Must be based on sound and defensible moral principles.

– A weak ethical principle is open to a lot of criticism.

6. The Morality of Profit-Motive

People go into business for a number of reasons:

▪ Personal satisfaction
▪ To earn a livelihood
▪ Want to serve the society through goods and services they
offer the customers
▪ The most common is to make a profit.

Business as an activity is unthinkable without the profit motive.

Traditionally,business people have looked atthe profit motive as the most

importantaspectin business.
 According to Milton Friedman

“The only responsibility of business is to make profit so long as it stays within the rules of the
game, which is to say, engage in open and free competition without deception or fraud.”

According to Peter Drucker

“There are other factors that the businessman mustconsider in doing business,such as:
customer satisfaction, fair treatment of the employees, and respect for the environment”

6.1 The Good Side of Profit Motive

1. It motivates people to do something meaningful– It gives human life a goal

to pursue and something to live for.

2. It promotes ingenuity and cleverness in running a business – Business

leader and entrepreneurs have to struggle to overcome obstacles in order to achieve success.

3. It makes people productive – Because of their desire for money business

have become productive and some of their products have been useful and have enhance human
life.

4. It generates potential capital for the business– Profit is potential capital,

something that can be invested to establish new business. Profit also results in more jobs and
more goods and services for the public.

The Bad Side of Profit Motive

1. It promotes rivalry among competitors – Result into a “dog-eat-

dog”mentality where success is achieved by competing with others and pushing them down in
order that one’s own business might succeed. This certainly dehumanizes business as an
important human activity.

2. It makes people focus only on making money - That is to sell as many goods
as possible without considering whether or not these products satisfy the needs and wants of
consumers and end users.
 3. It turns the businessman from being a reflective and a questioning person
because it focuses his attentionon the practical activity of making money – Thus, a life
centered on profit only results into a narrow view of existence, deficient in many important
dimensions of human life.

4. It promotes self-interest rather than the common good

– Depletion of natural resources

– Toxic waste being thrown into the rivers

– Pollution of the environment

– Disregard for the next generation to come

7. Business Ethics Defined

The term "ethics" is derived from the Greek word "ethos" which refers to character or
customsor accepted behaviors. The Oxford Dictionary states ethics as "the moral principle that
governs a person's behavior or how an activity is conducted". The synonyms of ethics as per
CollinsThesaurus are - conscience, moral code, morality, moral philosophy, moral values,
principles, rules of conduct, standards.

situation.Ethics refers to well-founded standards of right and wrong that prescribe what
humans

ought to do, usually in terms of rights, obligations, benefits to society, fairness, or specific

virtues. Ethics is a set of principles or standards of human conduct that govern the behavior of

individuals or organizations. Using these ethical standards, a person or a group of persons or an

organization regulate their behavior to distinguish between what is right and what is wrong as

perceived by others. It is not a natural science but a creation of the human mind. For this reason,

it is not absolute and is open to the influence of time, place and

The study of ethics in management can be approached from many different directions.
Perhaps the most practical approach is to view ethics as catalyzing managers to take socially
responsible actions. The movement to include the study of ethics as a critical part of management
education began in the 1970s, grew significantly in the 1980s and is expected in continue
growing in the twenty-first century.

In business, ethics can be defined as the capacity to reflect on values in the corporate
decision-making process, to determine how these values and decision affect various
stakeholder groups, and to establish how managers can use these observations in day to-
day company management.

Business ethics refers to a ‘code of conduct’ which businessmen are expected to

follow while dealing with others. ‘Code of conduct’ is a set of principles and expectations
that are considered binding on any person who is member of a particular group. The
alternative names for code of conduct are ‘code of ethics’ or ‘code of practice’. Business ethics
comprises the principles and standards that guide behavior in the conduct of business. Businesses
must balance their desire to maximize profits against the needs of the stakeholders.

Maintaining this balance often requires trade-offs. To address these unique aspects of
businesses, rules – articulated and implicit, are developed to guide the businesses to earn profits
without harming individuals or society as a whole. Business ethics concerns itself with adhering
to the social principles of the situations in which business takes place.

Business Ethics is the study and philosophy of human behavior with emphasis on
the principles of correct conduct in business.

Moral values form the subject matter ofbusiness ethics. It deals with the right & and
wrong of doing things in business. The term right and wrong relates to the means or acts. Right
is that which it ought to be, otherwise, it is wrong. Right is right, if a wrong had been
committed, then it must be corrected.

Business Ethics is the study of what is right and wrong human behaviour and
conduct in business.

Business Ethics is a study of the perceptions of people about morality. moral norms,
moral rules and ethical principles as they apply to people and institutions in business.

Business Ethics is the study, evaluation, analysis, and questioning of ethical

standards, policies, moral norms and ethical theories that managers and decision makers
use in resolving moral issues and ethical dilemmas affecting business.
Prepared by:

Jennivib D. Diamzon, MMBM

Instructor