Business ethics C3 theories principles in_business_ethics

• Business ethics has both normative and descriptive dimensions.

• Normative ethics � the study of principles, rules, or theories that guide our actions and judgements, to determine what actually is morally right or wrong.

• Descriptive ethics � the scientific study of moral beliefs and practices, to describe how people behave and think when dealing with moral issues and arguments.

• Descriptive ethics tries to write down the rules of behaviour that people use in their lives. For example: "some people believe that it is alright to lie in certain circumstances". They don't judge whether or not it is alright, they just say that some people believe that it is alright. Descriptive ethics are not value judgments about what is right or wrong, they are just observations about how people tend to behave - what ethics they tend to follow.

• Normative ethics is what you have when you write down the rules that people should follow. For example "it is never alright to lie". This is a statement that doesn't say what people are actually doing, it says what they should be doing. It is a value judgment.

Normative Theories

1. Stockholders Theory - According to this theory, businesses are merely arrangements by which one group of people, the stockholders, advance capital to another group, the managers, to be used to realize specified ends and for which the stockholders receive an ownership interest in the venture. Stockholder theory holds that managers are obligated to follow the (legal) directions of the stockholders, whatever these may be. Thus, if the stockholders vote that the business should not close a plant without giving its employees 90 days notice, should have no dealings with a country with a racist regime, or should endow a local public library, the management would be obligated to carry out such a directive regardless of its effect on the business's bottom line.

Normative Theories

1. Stockholders Theory (cont.) – a problem with this theory is that it would appear that the owners of the stocks can do whatever they want without concerning others well beings.

Normative Theories (cont.)

2. Stakeholders Theory - holds that effective management requires the balanced consideration of and attention to the legitimate interests of all stakeholders, defined as anyone that includes "any group or individual who can affect or is affected by the corporation”. Thus, as an empirical theory, the stakeholder theory asserts that a business's financial success can best be achieved by giving the interests of the business's stockholders, customers, employees, suppliers, management, and local community proper consideration and adopting policies which produce the optimal balance among them. The stakeholder theory holds that management's fundamental obligation is not to maximize the firm's financial success, but to ensure its survival by balancing the conflicting claims of multiple stakeholders. This argument asserts that management's obligation to the stakeholders can be derived from Immanuel Kant's principle of respect for persons.


2. Stakeholders Theory (cont.) - The main problem with this argument is that there is a gap in the reasoning that leads from the principle of respect for persons to the prescriptions of the stakeholder theory. This implies only that no stakeholder may be forced to deal with the business without his or her consent, not that all stakeholders are entitled to a say in the business's decision-making process or that the business must be managed for their benefit.


3. Social Contract Theory - asserts that all businesses are ethically obligated to enhance the welfare of society by satisfying consumer and employee interests without violating any of the general canons of justice. The social contract theory is based on the traditional concept of a social contract, an implicit agreement between society and an artificial entity in which society recognizes the existence of the entity on the condition that it serves the interests of society in certain specified ways. This theory of business ethics takes much the same approach toward deriving the social responsibilities of businesses. The main problem with this theory is that the social contract theory is often criticized on the ground that the "social contract" is not a contract at all. Critics of the social contract theory point out that the social contract is neither an express nor an implied contract.

Descriptive Business Ethics

• Example of descriptive business ethics is “Your Personal Moral Dilemma”.

• It illustrate how you will react when facing with certain moral or ethical issues.

• At the business context, this refers to how organization will react when facing with business related ethical conflict or dilemma.

Ethics in Islam

• Islam places the highest emphasis on ethical values in all aspects of human life. In Islam, ethics governs all aspects of life.

• Moral principles and codes of ethics are repeatedly stressed throughout the Holy Qur’an and Al-Hadith.

You are the best nation that has been raised up for mankind; You enjoin right

conduct, forbid evil and believe in Allah. (3:110)

I have been sent for the purpose of perfecting good morals. (Al-Hadith)

Islamic Approaches to Business Ethics

• There are two primary sources of normative Islamic teachings. The first and most important source is the Qur’an & the second is “Al-Hadiths”or “As-Sunnah”.

• Some specific principles of business ethics in Islam are as follows:

1) Freedom of Enterprise – An individual is free to pursue his economic activities provided he respects the code of conduct prescribed for the profession, which broadly means choosing things lawful and shunning matters unlawful.

2) Keenness to Earn Legitimate (Halal) Earnings – slam places great emphasis on the code of lawful and unlawful in business transactions. Many Qur’anic verses disapprove the wrongful taking of the property.

Do not devour another’s property wrongfully – unless it be by trade

based on mutual consent. (4:29)

3) Trade through Mutual Consent – Mutual consent between the parties is a necessary condition for the validity of a business transaction. It, therefore, follows that a sale under coercion is not acceptable in Islam. A sale transaction is to be regarded as legal only if it is made through the mutual consent of the parties concerned. Taking advantage of someone’s plight and charging high price is also a form of pecuniary exploitation and as such forbidden in Islam.

Islamic Approaches to Business Ethics (cont.)

4) Truthfulness in Business Transactions – The tradition implies that Allah blesses business dealings if both the buyer and the seller are true to each other. Telling lies and hiding facts will result in the loss of divine blessing.

The truthful merchant [is rewarded by being ranked] on the Day of

Resurrection with prophets, veracious souls, martyrs and pious

people. (Tirmidhi, No: 1130)

5) Trustworthiness in Business Transactions – A true Muslim trader will not, therefore, barter his Akhirah(hereafter) for worldly gains. He will avoid fraud, deception, and other dubious means in selling his merchandise. The sense of mutual trust demands that the pros and cons of commodity be revealed to the buyer so that he purchases the commodity in full satisfaction.


6) Generosity and Leniency in Business Transactions –One should be lenient and generous in bargaining. Therefore, whoever demands his debt back from the debtor should do so in a decent manner. The Prophet (sws) invokes Allah’s mercy thus:

May Allah’s mercy be on him who is lenient in his buying, selling, and

in demanding back his money [or debts]. (Bukhari, No: 1934)

7) Honouring and fulfilling Business Obligations –Islam attaches great importance to the fulfilment of contract and promises. Islamic teachings require a Muslim trader to keep up his trusts, promises and contracts. The basic principles of truth, honesty, integrity and trust are involved in all business dealings.


8) Fair Treatment of Workers – According to the Islamic teachings it is the religious and moral responsibility of the employer to take care of the overall welfare and betterment of his employees. Fair wages, good working conditions, suitable work and excellent brotherly treatment should be provided to the workers.

9) Avoid the Sale of Al-Gharar (Uncertainty, Risks, Speculation) – this refers to the sale of a commodity or good which is not present at hand; or the sale of an article or good, the consequences or outcome of which is not yet known; or a sale involving risks or hazards where one does not know whether at all the commodity will later come into existence. Such a sale is strictly prohibited in Islam because the quality, whether good or bad, is not known to the buyer at the time of the deal and there is every possibility that the contract may give rise to disputes and disagreements between the concerned parties.


10) Others – Hoarding of Foodstuff, Exploitation of One’s Ignorance of Market Conditions, Giving Short Measures, Dealing in Stolen Goods.


= the process of looking at the information available to us in resolving an ethical dilemma, and drawing conclusions based on that information in relation to our own ethical standards.

Ethical Reasoning

Kohlberg argues that we develop a reasoning process over time through 6 stages (classified into 3 levels of moral development):

Ethical Reasoning Process (by Lawrence Kohlberg)

Level 1: Preconventional – At this level of moral development, person’s response to a perception of right and wrong is initially directly linked to the expectation of punishment or reward:

Stage 1: Obedience and Punishment Orientation – a person is focused in avoidance of punishment and respect to power and authority – that is, something is right or wrong because a recognized authority figure says it is.

Ethical Reasoning Process (by Lawrence Kohlberg) – cont.

Level 2: Conventional – At this level, a person continues to become aware of broader influences outside of the family.

Stage 2: Individualism, instrumentalism, and exchange – a person is focused on satisfying his or her own needs – that is, something is right or wrong because it helps me to get what I want or need.

Stage 3: “Good boy/Nice girl” – a person is focused on meeting the expectations of family members – that is, something is right or wrong because it pleases those family members.

Stage 4: Law-and-Order Orientation – a person is increasingly aware of his membership is a society and the existence of codes of behaviour-that is, something right or wrong because codes of legal, religious, or social dictate it.

Ethical Reasoning Process (by Lawrence Kohlberg) – cont.

Level 3: Post-Conventional – At this highest level, a person makes clearer effort to define principles and moral values that reflect an individual value system rather than simply reflecting the group position.

Stage 5: Social contract legalistic orientation – a person is focused on individual rights and the development of standards based on critical examination-that is, something is right or wrong because it has withstood scrutiny by the society in which the principle is accepted.

Stage 6: Universal ethical principle Orientation – a person is focused on self-chosen ethical principles that are found to be comprehensive and consistent-that is, something is right or wrong because it reflects that person’s individual value system and the conscious choices he or she makes in life.

Solving Ethical Problem - An Consequences Approach

3-steps process for solving an ethical problem:

Step 1: Analyze the consequences – Ask the questions - Who will be helped by what you do? Who will be harmed? What kind of benefits and harms are we talking about? How does all of this look over the long run as well as the short run?

Solving Ethical Problem - An Consequences Approach (cont.)

Step 2: Analyze the actions – Consider all of the options from a different perspective without thinking about the consequences. Ask – How do the actions measure up against moral principles like honesty, fairness, equality, respect dignity? Are any actions at odds with those standards? If there is a conflict between principles or between the rights of different people involved, is there a way to see one principle as more important than others? Which option offers actions that are least problematic?

Solving Ethical Problem - A Consequences Approach (cont.)

Step 3: Make a decision – Take both part of your analysis into account and make decision.

Solving Ethical Problem - 8 Questions Approach

1) What are the facts? Know the facts as best as you can.

2) What can you guess about the fact that you don’t know? Since it is impossible to know all facts, make reasonable assumptions about the missing pieces of information.

3) What do the facts mean? Facts by themselves have no meaning. You need to interpret the information in light of values that are important to you.

4) What does the problem look like through the eyes of the people involved? Put yourself into other person’s shoes. Understand the problem through variety of perspectives increase the possibility of wise choice.

Solving Ethical Problem - 8 Questions Approach (cont.)

5) What will happen if you choose one thing rather than another? All actions have consequences. Make a reasonable guess to what will happen if you follow a particular course of action. Decide whether you think more goods than harms will come to your action.

6) What do your feeling tells you? Your feeling about ethical issues may give you a clue to parts of your decision that your rational mind may overlook.

7) What will you think of yourself if you decide one thing or another? Some call thin conscience. It is a form of self-appraisal. It helps you decide whether you are the kind of person you would like to be.

Solving Ethical Problem - 8 Questions Approach (cont.)

8) Can you explain or justify your decision to other? Your be shouldn’t be based on a whim, neither should it be self-centered. For this reason, you must be able to justify your moral decision in ways that seem reasonable to reasonable people. Ethical reasons can’t be private reasons.

Solving Ethical Problem - An Analytical Approach

Step 1

An Analytical Approach to Ethical Problems (cont.)

Step 2

Group Assignment/Project 1 (50%)

1. Form a team consists of not more than 5 members per group.

2. Select a company. Identify the business ethical dilemmas or issues faced or faces by the company.

3.Write a narrative report on the company’s case.

4. Identify who are their affected stakeholders & discuss how they are affected.

5. Elaborate step-by-step how the company or the management of the company evaluate and resolve their ethical dilemma/issues.

INSTRUCTIONS:

Group Assignment/Project 1 (50%)

6. The report must be computer typed using Tahoma/Arial (12 points single spacing), combined, and its length should not less than 5 and not more than 10 pages.

7. The submission due date is on the 29th August 2012.

Education

Business ethics C3 theories principles in_business_ethics