Ethics in the World of Business

Chapter One

Ethics in the World of Business

1. Nature of Business:

Distinguishing the features of business:

• Economic Character: The interactions in business are as sellers and buyers, employers and employees in which both sides conceal their full hand and are engaged in some bluffing.
• Taking place in the organization: The business in the organization theory is a basically a system of functional positions designed to achieve certain goals.

1. Levels of Decision Making:

Three levels of decision making:

1. Individual level: when a situation or a problem confronts an individual and requires     that person to make a decision about his own response.

Relevant Question: What do I do?

1. Organizational level: The problem requires that the individual decision maker acts on behalf of the organization to solve the situation.

Relevant Question: what do we as an organization do?

1. Business System level: The problem arises from accepted business practices that cannot be effectively addressed by individual or organizations.

Relevant Question: What do we as a society do?

Part II:

1. Ethics and Economics: there is an ethical influence in economics.

1. Justification of market system: is an argument made by Adam Smith, who is the father of modern day economics.

1. It justifies the pursuit of self-interest that through making trades for personal advantage, we promote the interests of others such that when we pursue profit, we create a business that benefits society’s wellbeing.
2. For this exchange to occur, production and distribution of a good or service must be present. Some factors that influence distribution include initial endowments (income/skills/qualities), resources, and change in fortune.

1. Creating conditions for the free market: using government’s help (like laws against fraud and theft). Companies with good reputations attract more customers and therefore create more profits and opportunities (and vice versa).
2. Fairness in the free market:

1. Ethics influence people’s behavior in economics.
2. It should be fair for all parties of the exchange.
3. It should be guided by non-economic values (Ex: Selling cocaine is very profitable but illegal and unethical).

1. Ethics and Law: there are two schools of thought.

1. Ethics and law are not the same.

However, ethics should also be able to guide us publically by identifying whether the matter is ethical or not.

1. The law embodies the ethics of business such that laws are ethical rules enacted by legislators (law-makers).
2. Differences between acting ethically and legally:

1. Not everything legal is ethical → Discrimination.
2. Not everything unethical is illegal → Advertising for smoking.

1. Ethics and Management:

1. Ethical management: acting ethically as a manager by doing the right thing.
2. Management of ethics:  acting effectively in situations that have an ethical aspect.
3. Internal Environment: could be described by the culture of the firm, the type of relationship between management and shareholders and the roles of each individual. Effective organizational functioning depends on acceptance, perception of fairness, commitment.
4. Role: is a structured set of relationships with accompanying rights and obligations.
5. Agency problem: conflict between managers and shareholders of a firm often due to manager laziness and lack of foresight for the firm.  

1. Ethics in organizations:

1. Individual decision making: accompanied by lack of self-guidance of the person along with constant excuses as answers to the problem.
2. Rationalization for individual decision making include:

1. “Everybody else is doing it”.
2. “No harm no foul”.
3. “I deserve it”.

1. Features that contribute to mistakes in decision making:

1. Making decisions over time and not at once.
2. Multiple decisions taking place leading to confusion.
3. Fragmentation of responsibility.