Ethics and

Business
By : Ma. Rica Emilia R.
Hermoso, MBA
5 Topics for the Sessions 2 & 3
Business Ethics as a Foundation of
Corporate Social Responsibility
Ethical Management of Profit
Utilitarianism and Business Ethics
Relativism and Business Ethics
Legal Compliance and Business Ethics
Definition of Business Ethics
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.
Definitions of Business Ethics
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.
Importance of Ethics in
Business
Ethics sets the standards towards guiding
ones behavior.
Business needs profound examination in
the manner wherein business leaders and
manager confront ethical issues and
problems affecting the flow of dynamism
of business activities.
Business ethics opens a novel way of
resolving moral and ethical dilemmas.
Relationship of Ethics and
Business
Business is an integral part of human
society. Therefore the actions of
individuals and institutions must be
subjected to moral rules and moral
evaluation.
In business, as in any other human
endeavour, what is legal may not
necessarily be moral.
Relationship of Business and
Ethics
Laws are insufficient. They cannot cover
all aspects of our human behavior. Laws
are sometimes absent or unclear in some
areas of our human conduct.
The trend in todays technocrat society is
to train managers to maximize profits by
quantifying the operations of business.
Managers and leaders must also respond
to complex situations bearing ethical
consequences.
Relationship of Business and
Ethics
Drucker reminds us that a business
corporation is not just created to make
profits but also to consider its moral and
social obligations to its stakeholders.
Business organizations should not just look
after their own interests but also the
interest of the common good.
Definitions of Corporate Social
Responsibility
Corporate Social Responsibility means
seriously considering the impact of
companys actions on society. (Bauer)
Corporate Social Responsibility is the
obligation of decision makers to take
actions which protect and improve the
welfare of society as a whole along with
their own interests. (Davis and Blomstrom)
Definitions of Corporate Social
Responsibility
Corporate Social Responsibility supposes
that the corporation has not only economic
and legal obligations, but also certain
responsibilities to society which extend
beyond these obligations. (McGuire)
Corporate Social Responsibility is that which
relates primarily to achieving outcomes from
organizational decisions concerning specific
issues or problems which have beneficial
rather than adverse effects upon pertinent
corporate stakeholders.(Epstein)
Definitions of Corporate Social
Responsibility
It is the response of the corporation to
issues beyond its narrow economic,
technical and legal requirements. It is the
obligation of the corporation to evaluate
the effects of its decision on the external
social system.(Professor Keith Davis of
Arizona State University)
Definitions of Corporate Social
Responsibility
one of the responsibilities of business to society is
to operate at a profit Business is the wealth-
creating organ of society. But what is important is
that management realizes that it must consider the
impact of every business policy and business
action on society. It has to consider whether the
action is likely to promote the public good, to
advance the basic beliefs of society, to contribute
to its stability, strength and harmony The ultimate
responsibility of management to itself, to our
heritage, to our society and to our way of
life.(Peter Drucker)
Corporate Social Responsibility
Corporate Social Responsibility is generally
understood to be the private sectors way of
integrating compliance with economic,
environmental and social imperatives with the
imperatives of their own business activities. It
means fulfilling the moral obligations of the
business by involving itself with commitments
and activities that contribute to and help
improve the condition of the society, the
community and the environment,
Historical Phases
of Corporate
Social
Responsibility
Phase 1: Profit Maximizing
Management
Management must maximize profit.
Individual drive for profit maximization would ultimately
create wealth for the nation.
Business systems as profit maximizers are used as tools
for the elimination of economic scarcity.
Businesses ignored unsafe working conditions, paid
starvation wages and used child labor in order to
maximize profit.
Problems of cultural minorities, unsafe products, unfair
advertising and urban poor problems were given little if
no attention at all.
Abuses of capitalism were extremely rampant and the
government tolerated these deplorable business
practices.
Phase 2: Trusteeship
Management
Management was considered both as an
instrument of stockholders and as a
trustee for all groups who contribute to
the business enterprise.
Aside from profit maximization,
managements concern was also to
maintain a fair balance in the interests of
employees, customers, creditors,
stockholders and the community.
Phase 3: Quality of Life
Management
Security of basic goods and service was no
longer a principal problem.
Social and economic problems brought
about by economic growth expanded the
concept of social responsibility of
management.
Society demanded managements active
participation in helping solve social and
environmental problems in view of the vast
resources(funds, manpower, materials,
management skills, and technology) of
businesses.
Phase 3: Quality of Life
Management
Business is expected to contribute to the
improvement of the quality of life, which
involves cultural, social, educational, political
factors and economic security.
Society is unstable if the quality of life of the
people is poor. Businesses contribute for a
good quality of life and society.
A prosperous society is the best environment
for a business to thrive in. Businesses will
benefit from its self-investment in society.
In Favour of Social
Responsibility
Long run self-interest
Business resources
Viability of Business
Public Image
Profit from Social Problems
Against Social Responsibility
Profit
maximization
Lack of social skills
Lack of social accountability
Higher Product Cost
Four Corporate Social
Responsibilities
Philanthropic Responsibilities DESIRED of
business by society.
Ethical Responsibilities- EXPECTED of
business by society.
Legal Responsibilities-REQUIRED of
business by society.
Economic Responsibilities- REQUIRED of
business by society.
Activities Related to CSR
Establishment of certifying bodies to develop
standards, programs, and to train certify
employees, managers and businesses with quality
programs, certifications and accreditations
Training employees for customer care and people
skills
Improvement of compensation and benefits
package
Establishment of programs for the protection of
environment
Active participation in sociocivic and charitable
activities
Response to Key Issues
Stakeholder rights
Supplier relations
Human rights
Human resource management practices
Consumer rights and protection
Labor protection and security
Environmental protection
Corporate governance
Community development
Health and safety
What is Profit?
Profit considered by businessmen as a
form of unanticipated reward or a
compensation for the efforts they spend,
skills they apply and returns for the capital
they invested in putting up and organizing
the business.
Friedman vs. Drucker
Milton Friedman the only responsibility
of business is to make profit so long as one
stays within the rules of the game and
engages in free competition without
deceit or fraud .
Peter Drucker- the primary responsibility
of business is to look for customers and
satisfy their needs and wants.
Assumptions of Profit-Motive
Profit-motive is an ethical issue.

Profit-motive
operates within two
important aspects of our human
conduct freedom and the structure of
business
Good Side of Profit Motive
Motivates people to do something
meaningful
Promotes ingenuity and cleverness in
running a business
Makes people productive
Generates potential capital for the
business
Bad Side of Profit Motive
Promotes rivalry among competitors.
Makes people focus only on making
money
Turns the businessman from being a
reflective and a questioning person
because he focuses his attention only on
the practical activity of making money
Promotes self-interest rather than the
common good
Ethical Considerations in Profit
Motive
Ismy profit fair enough for me and my
customers? Did I consider important
factors and parameters in making profit
such as costs of goods sold, overhead,
mark-ups, profit margins and the like?
Making excessive profits is totally wrong. It
leads to greed, avarice, and
manipulation of the customers.
Ethical Considerations in Profit
Motive
Profit is not the be-all and the end-all of
doing business. Other factors must be
considered like customers 'satisfaction,
respect for environment, enhancement of the
quality of life and the preservation of society.
Pope Pius XI, in Quadragesimo Anno (1931)
does not prohibit the producer from enriching
himself, provided one respects the laws of
God, does not prejudice the rights of others,
and works according to faith and right
reason. (QA #136)
Utilitarianism
and Business
Ethics
Utilitarianism
It is an example of consequentialist theory.
Maintains that the greatest good is the
greatest happiness or pleasure of the greatest
number
If the action can provide the greatest
happiness to the greatest number of people
who are affected by the action, then the
action is considered to be morally good.
Relativism and
Business Ethics
Ethical Relativism
Claims that when any two cultures or any
people hold different moral values of an
action , both can be right.
An action may be right for one person or
society and the same action taken in the
same way may be wrong for another
reason, and yet, both persons are equally
correct.
Ethical Relativism
While ethical relativism emphasizes the
difference of moral beliefs and practices
from the point of view of culture,
situational ethics (or moral subjectivism)
emphasizes moral differences based on
personal beliefs and convictions.
Approaches to
Moral
Differences
There is No Moral Truth
A philosophical perspective believes that
there is no ultimate right or wrong. Moral
Nihilism holds that we cannot know
whether or not there are moral truths.
Moral Subjectivism holds that moral views
differ from one person to another. This
results to a subjective morality, in which
case, what is good for one person may
be bad for another.
There is No Universal Moral
Truth
Each culture has its own set of rules that
are valid for that culture, and we have no
right to interfere, just as they have no right
to interfere with our rules. This view is
known as ethical relativism.
Deep Down, We Can Find
Basic Moral Truths
This philosophical perspective believes
that despite differences, people of
different cultures can still agree on certain
moral basics. People find some common
ground on basic moral principles. This is
called soft universalism.
There is One Universal Moral
Truth
Alsoknown as hard universalism or moral
absolutism.
Maintains that there is only one universal
moral code that everybody must follow.
Because this moral code is universal or
objective, moral problems and moral
conflicts can be solved through proper
moral reasoning.