Business, Government, and

Society

Chapter - 07
Business
Ethics
Ethics: Ethics is the study of what is good and
evil, right and wrong, and just and unjust.

Business ethics: Business ethics, therefore, is the

study of good and evil, right and wrong, and just
and unjust actions in business.
 TWO THEORIES OF BUSINESS ETHICS
• The first, the theory of amorality, is that business
should be amoral, that is, conducted without
reference to the full range of ethical standards,
restraints, and ideals in society. Managers may
use compromising ethics because competition
distills their selfish actions into benefits for
society. Adam Smith noted that the “invisible
hand” of the market assures that “by pursuing his
own interest [a merchant] frequently promotes
that of the society more effectively than when he
really intends to promote it.”
• The second basic ethical view is the theory of
moral unity, in which business actions are
judged by the general ethical standards in
society, not by a special set of more
permissive standards. Only one basic ethical
standard exists, so business actions are judged
by the same principles as actions in other
areas of life.
MAJOR SOURCES OF ETHICAL VALUES
IN BUSINESS
 FACTORS THAT INFLUENCE
MANAGERIAL ETHICS
• Leadership: The example of company leaders is
perhaps the strongest influence on integrity. Not only
do leaders set formal rules, but by their example they
also reinforce or undermine right behavior.

• Strategies and Policies: A critical function of managers

is to create strong competitive strategies that enable a
company to meet strategic goals without encouraging
ethical compromise. In companies with deteriorating
businesses, managers have great difficulty meeting
performance targets and may feel pressure to
compromise ethical standards.
• Corporate Culture: Corporate culture refers to
a set of values, norms, rituals, formal rules,
and physical artifacts that exists in a company.
Corporate cultures are powerful and deep. In
the words of one scholar, they are “like water
around fish.” They evolve as companies cope
with recurring stresses in their competitive
environments.
• Individual Characteristics: Researchers try to
discover what individual qualities are associated
with ethical behavior. Demographic factors seem
to explain little. Some studies show that women
are more ethical than men, but results are mixed.
No studies find men to be more ethically sensitive
than women, but some show no difference. A few
studies suggest that people with more education
are more ethical, but others do not. Similarly,
some studies find that religious belief leads to
more ethical attitudes, but many others fail to
discover any relationship.
 HOW CORPORATIONS MANAGE
ETHICS
• Until the 1980s, most companies gave more
thought to managing petty cash than to
elevating ethics. Since then, more and more
companies have set up ethics and compliance
programs , or systems of structures, policies,
procedures, and controls designed to prevent
lawbreaking and promote ethical behavior.
Seven Steps for an Ethics Program
1. Establish standards and procedures.
2. Create high-level oversight.
3. Screen out criminals.
4. Communicate standards to all employees.
5. Monitor and set up a hotline.
6. Enforce standards, discipline violators.
7. Assess areas of risk, modify the program.
• Ethics and compliance programs may combine two
distinct approaches to prevent wrongdoing.
A compliance approach teaches employees to
meet legal and regulatory requirements and
emphasizes following rules.
An ethics approach teaches values such as
integrity, truth, fairness, and respect for others,
preparing workers to separate right from wrong in
moral spheres of work life.

• Most companies focus on compliance, but many put

effort into both.
The End