Chapter-2

ETHICS IN BUSINESS Prof. P. GURU PRASAD M.Com., (University of Madras) L .L. B., (Acharya Nagarjuna University) M. Phil., (Annamalai University) PGD in Foreign Trade Management., (SICC)

Senior Finance, law & Accounting Faculty Center Academic Coordinator INC - GUNTUR [email protected]

CHAPTER-2 IMPORTANCE OF ETHICS IN BUSINESS

Objectives of the Chapter  Ethical theories  Market system  Importance of Trust in Business Relations  Integrative Social contract Theory

ETHICAL DILEMMAS Pricing Advertising Promotion Working conditions Customer service Work force reductions Environment Community relations supplier relations

Ethical Theories  Ethics or moral philosophy is at its simplest, a study of right and wrong behavior, with the ultimate aim of defining what is right and wrong.  Ethical theories are commonly divided into three subject areas: Metaethics Normative ethics Applied ethics

Metaethics  It is defined as “ The study of the origin and meaning of ethical concepts.”  Three issues:  Metaethics deals with the entire gamut of the ethics  Metaphysical issues that deal with the question whether the moral values exist independently of humans or whether they are simply human conventions.

Metaethics contd…  Psychological issues that deal with the psychological basic of the moral action, and  Linguistic issues that deal with the meaning of the key moral terms we use.

Normative Ethics The term ‘normative' implies something that ‘guides’ or ‘control’. Thus, normative ethics is that branch of ethics that guides human conduct. It sets out certain moral standards that help us to determine what is right and what is wrong. Eg: the Golden Rule

The Golden Rule • The Golden rule is an example of a normative principle: we should treat others the same way that we want others to treat us. • Since I do not want my colleague to cheat me, it is unethical on my part to cheat my colleague. • If I would like to receive help from others in times of trouble, then I should help others when they are in trouble. • It is also to be wrong for a person to lie, harass, victimize or kill others

Normative Ethics Other normative theories lay down a set of fundamental principles, such as, “moral right to life and liberty, which serve as a guide to ethical behavior.”

Normative Ethics contd…  Most ethicists do agree, however if a moral principle is to be accepted, it must be • Prescriptive- command, obligatory, imperative • Universal- applicable to any person • Overriding – primary consideration • Public – social interaction • Practical – achievable in ordinary situations

Normative Theories  There are three different normative theories each with its own set of moral principles. The three theories are: Teleological ethical theory Deontological ethical theory Virtue ethics

Teleological ethical theory  The word ‘Teleological’ is derived from two Greek words “telos” meaning ‘end’, ‘goal’ or ‘purposed’ and “logos” meaning ‘logic’ or ‘reason’. Thus, teleological means “thinking rationally about ends.”  Teleological theories are also called Consequentialist theories. These theories hold that an actions considered morally correct if the consequences of that action are more favorable than unfavorable.

Distributive justice • D J is another teleological approach to ethical decisionmaking and one that is based on a concept of fairness. It is nothing but equal distribution of goods and services. Therefore it is critical to determine a fair method for distributing goods and services. • Would we devise a system of high taxes and expensive welfare projects that, presumably, would benefit the impoverished but prove costly to the wealthy? • Or would we advocate a pure market-based system that demanded each of us to be responsible for our own needs and desires?

Veil of Ignorance • Rawls suggests that we consider how we would distribute goods and services if distribute goods and services if we were under a “ veil of ignorance” that prevented us from knowing our status in society. (our intelligence, wealth, appearance)

Teleological ethical theory contd…  Consequentialists have offered three definitions of ‘ good’. Each of these definitions gives us a different consequnetialist moral theory. These theories are: Egoism Utilitarianism Altruism

Egoism An action is morally right if the consequences of that action are more favorable than unfavorable only to the individual performing that action.

Utilitarianism An action is morally right if the consequences of that action are more favorable than unfavorable to every one.

Altruism An action is morally right if the consequences of that action are more favorable than unfavorable to everyone except the individual.

Deontological Ethical Theory  The word ‘deontological’ is derived from the Greek word “deno” meaning ‘duty’ or ‘obligation’. Deontological theories focus on certain fundamental duties that we have as human being, such as not committing murder or theft.  The duties upheld by deontological theory may be classified as  Duties to God, including honoring him and praying to him

Deontological Ethical Theory contd..  Duties to Oneself includes preserving ones life and sharing happiness.  Duties to Others, including family duties, social duties and political duties.

Virtue ethics Virtue ethics is concerned with attaining the dispositions (character or personality). The theory emphasizes character development rather than the articulation of abstract moral principles that guide actions.

Applied Ethics Applied ethics is a branch of ethics that deals with specific, often controversial moral issues such as abortion, female feticide and infanticide, displacement of tribal people due to huge hydroelectrical projects, cloning, testing drugs on animals etc.

Market System To work efficiently the market system must have the following:  The right to own and control private property  Freedom of choice in buying and selling goods and service  Access to quick, reliable, and precise market information

Impact of unethical behavior on Market system Unethical behavior on market system are: Coercion Deceptive information Theft Bribery

Importance of trust in Business Relations  For a business to operate smoothly it should maintain healthy relations with all its stakeholders.  Healthy relationships are developed through trust.  In a business arrangement, trust is the confidence that the other party has that you will not exploit its vulnerabilities.  Trust comprises three elements: Dependability Predictability Faith

Impact of unethical behavior on trust in business relations The role of trust in: Supplier relations Customer relations Employee relations

Integrative Social contract theory  Thomas Donaldson and Thomas Dun fee proposed the integrative Social contract Theory.  A social contract is an informal agreement concerning behavioral norms that are developed from shared goals, beliefs and attitude of groups of people or communities.  The main elements of the Social contract Theory are: Hyper norms Macro social contract Micro social contract

Hyper norms Hyper norms are universal norms that apply equally to all individuals. These include;  Basic human rights, including right to personal freedom, physical security and well-being, political participation, informed consent, ownership of property and the right to subsistence  The duty to respect the dignity of every human being.

Macro Social contract Macro social contract provide global norms. Some of the terms of macro social contract are as follows:  Local communities must be allowed ‘moral free space’ to spell out obligatory ethical norms for their members  The macro social contract must be based on the free consent of the parties involved, all of whom have the right to exit when they please.

Macro Social contract contd…  All macro social contract must be compatible with hyper norms  If conflict arises among various micro social contract, these must be resolved through priority rules that are compatible with the three principle listed above.

Micro Social contract  Micro social norms are developed for a community, a group and organization.  Communities may be economic or social. A firm or an industry and non-profit and service organizations are all communities.

Micro Social contract contd… The following are the priority rules, proposed by Donaldson and Dun fee.  The host community’s norms should govern all transactions within that particular community as long as they do not have significant adverse effects on individuals or communities.

Micro Social contract contd…  The more extensive or global community norm is, the greater the priority that should be given to its norms  Norms that help preserve the economic environment in which the transactions occur, should have priority over norms that could damage the economic environment.

Summary of the Chapter  Ethical theories  Market system  Importance of Trust in Business Relations  Integrative Social contract Theory

Thanking you Prof. P. GURU PRASAD M.Com., (University of Madras) L .L. B., (Acharya Nagarjuna University) M. Phil., (Annamalai University) PGD in Foreign Trade Management., (SICC)

Senior Finance, law & Accounting Faculty Center Academic Coordinator INC - GUNTUR [email protected]