Understanding Ethics: Key Concepts and Business Implications

Learning Materials This lesson examines ethics as an idea. Take a moment to reflect on your understanding of the word. What does the word mean to you? What are the first thoughts that enter your mind when you think of the word ethics? What comes to mind when you think of the term ethical dilemma ? Are there events or circumstances you immediately think of? A Working Definition of Ethics The words morals and ethics are often used interchangeably. But they do have different meanings. Morals are the individual values you use to determine whether or not a given action is “good” or “bad,” or “right” or “wrong.” Ethics is a set of moral principles or guidelines. Ethics is provided by an external source. Ethics serves the same purpose. (Byars & Stanberry, 2019) The words good , bad , right , and wrong are put in quotes. This is because they are fairly subjective. Subjective means that they can mean different things to different people. It is probably not difficult for you to think of a time where you and another person disagreed on what was right or wrong. If you spend any time on social media, you have probably seen many people disagree on what is right or wrong. Ethics and morals are also distinct from laws. Laws are formal rules established by a government that dictate how its citizens are to act. When you encounter a situation where your choices put your values into conflict, you have encountered an ethical dilemma. Think about the most recent ethical decision you needed to make. What was it? What was the outcome? How did your values guide your actions? Example Watch the following video that presents a well-known ethical dilemma called the trolley problem (BBC Radio 4, 2014):

Why do you need ethics? Acting with integrity is important. Integrity is the quality of being honest and having strong moral principles. Organizations should choose legitimate and lawful ways of creating revenue. Consumers want this from companies (Byars & Stanberry, 2019). These concepts are at the heart of business ethics. Business ethics explores why you act in ethical ways. Business ethics says that you do not act a certain way just because it is important to you as an individual. Acting in ethical ways increases the likelihood that your organization will witness positive business outcomes. These outcomes might include increased profits. They might lead to a more satisfied workforce. This retains employees at high rates. There are many reasons to act in ethical ways. What are some reasons you can think of to act ethically in your personal life? In your professional life? Example Review the following infographic to see how Louis thinks about ethics in his personal and professional life: Ethical Decisions PDF Are ethics important for businesses? To answer this question, you can look at it from two different perspectives. First, put yourself in the shoes of a customer buying a product. As the customer, is it important for you to know that a company is acting with integrity? Why or why not? Looking ahead: In Unit 4, there will be a discussion about companies you would or would not buy from. The other perspective you will look at this question from is that of a business. Is there a compelling business reason to act ethically?

Obligations of a Business PDF Business ethics refers to the ideas that relate to these arguments. Business ethics explores how companies and their agents abide by the law and respect the rights of their stakeholders. Stakeholders are many different people, such as the following:  Customers  Clients  Employees  The community  The environment They are stakeholders because they are affected by the company's actions. Example Costco's founder says that ethics is at the heart of the company's success. The founder says that Costco's success depends on “what we stand for in the customer’s eyes, and what we mean to all of the stakeholders in our business.” (Guo, 2020) Read an ethical snapshot of ethics at Costco by clicking on the following icon: Knowledge Check Answer the following question to check your understanding of the lesson so far: The term refers to a system for determining whether or not a specific action is “right” or “wrong”. Correct View solution What do you value? Ethics

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All people approach this subject with a set of pre-existing beliefs, thoughts, and biases. You may spend very little or a lot of time thinking about the nature of your actions and the reasons that you make decisions. Practice One way of thinking about what you value is to participate in an ethical self- assessment. An ethical self-assessment is designed to get you thinking about what you believe and what you value. Complete the ethical self-assessment in the activity below: If you are having trouble completing this activity or if you would like to download a PDF version of the ethical self-assessment, click the link below: http://resources.careered.com/LCMSFileSharePreview/Resources/AdobePDF/Et hical Self-Assessment PDF.pdf Want to learn more? Watch It Watch the following video that discusses ethics (Integrating Ethics: From Thought to Action, 2017): Watch It Watch the following video that explains how ethics, morals, and the law differ (The Ethics Centre, 2020): Read It Click on the icon below to read about different examples of business ethics:

Key Terms Review Study It Click on each term to review the important vocabulary found within this lesson. Learning Materials Utilitarianism Utilitarianism is the ethical philosophy that supports the idea that actions should result in the greatest good for the greatest number of people. Reflect

Take a moment to think about an action that you took recently. Did it result in the greatest good for the greatest number of people? If it did, you might think like a utilitarian! Study It There are two branches of utilitarianism. Each has the same goal. The goal is to maximize the greatest good or overall happiness. But these two branches disagree on how to apply the idea. These two branches are as follows:  Act utilitarianism: This branch says you people should choose your individual actions based on what you think will cause the greatest overall good or greatest overall happiness (Byars & Stanberry, 2018).  Rule utilitarianism: This branch says that you should figure out as a whole what individual actions tend to cause the greatest overall good or greatest overall happiness and then turn those into rules (Nathanson, n.d.). Utilitarianism in Your Personal Life How does this relate to your personal life? Well, utilitarian thinking can promote ways of acting that might be focused on others. This means not just focusing on yourself. But utilitarian thinking may also lead to behaviors that you might not be proud of. For example, have you ever lied? Lying may create the greatest amount of good or happiness. In utilitarian thinking, you would see it as your ethical obligation to do it. But what do you do if you think lying is just wrong ? Utilitarianism in Business In business, utilitarian thinking can cause managers to focus on creating the greatest overall happiness for all organizational stakeholders. This includes shareholders and others affected by their decisions. Utilitarian thinking is one of the most common forms of ethical reasoning used in business. Can you think of advantages and disadvantages of this type of thinking? One possible

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disadvantage is that focusing on the outcomes may result in an ignorance of issues related to the organization's inputs, such as its work environment or culture (Byars & Stanberry, 2018). Watch It Watch the following video that defines utilitarianism (McCombs School of Business, 2018): Deontology Deontology is an alternative way of approaching ethical reasoning. It focuses on people's innate morals. It also follows the idea of the categorical imperative . This is the idea that the right actions are what all people should always do in that situation (Byars & Stanberry, 2018). Deontology serves as the foundation for rules and laws. Example What if Louis thinks about this question through the lens of deontology? He would ask himself, “In this same situation, what would I want everyone to do?” Note how this is different from the utilitarian question, “What action would result in the greatest good?” In society, deontology serves as the

foundation for rules and laws. In the professional world, deontology is a less frequently used form of ethical reasoning. But you can still see its influence in corporate codes of conduct and codes of ethics. Justice A third way that you can make ethical decisions is to employ a justice-based approach . This approach relies on the idea that humans enter into a social contract when they create a community together. It promotes the idea of fairness in the distribution of goods and services within a society (Byars & Stanberry, 2018). What do you think? Should there be an equitable distribution of goods and services within a society? If you think there should be, to what extent? If you think there should not be, why not? This approach is not widely used in the business world, where utilitarian thinking is the dominant mode of ethical reasoning. Example In 1965, the average amount of money that chief executive officers (CEOs) made was about 20 times the salary of their average worker. In 1989, that had increased to 58. By 2018, the ratio had increased to 278:1. (Keshner, 2019) Is that fair? Think about the three ethical perspectives that you have learned about, as follows:  Utilitarianism  Deontology  Justice Which one would you use to answer the question? Want to learn more? Read It

Read an article about this issue by clicking on the icon below: Watch It Watch the following video for more information on deontology (CrashCourse, 2016): Key Terms Review Study It Click on each term to review the important vocabulary found within this lesson. Categorical imperative Descriptive ethics Normative ethics Justice Utilitarianism Deontology Social contract the greatest number of your employees receives the greatest benefit overall. What kind of ethical thinking are you using? Learning Materials

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Personal values and professional ethics Have you ever been asked to do something at work that made you uncomfortable? If so, you may have encountered an issue where a professional responsibility conflicted with your personal values. What did you do? What happens when a business focuses too much on profits? They may be encouraging employees to do things that conflict with their own personal ethics. There are countless examples of companies that are intentionally involved in unethical and illegal activities. Some individuals, usually employees, feel compelled to reveal this private information to the public. This is referred to as whistleblowing . Around 40% of corporate fraud is reported by company insiders (ACFE, 2018). How are these companies punished? They could be fined, and sometimes, those involved can even go to prison. What most often happens though is that the organization simply loses revenue. About 5% of all revenue is lost to fraud (ACFE, 2018). How do individuals that commit fraud justify their actions? They simply say that no one is really getting hurt.

Example Watch the following video for an example of an employee committing theft and fraud (ABC Action News, 2017): Many organizations clearly state the ethical obligations of their employees. You can find these in many places, such as the following:  Statements of core values  Codes of conduct  Codes of ethics Also, many professions have specific codes of professional practice. These highlight very specific professional and ethical obligations that people in a profession must follow. Business Ethical Standards Core Values Core values are drawn from a company’s mission. These core values represent the ideals of the organization. They guide employees on how to fulfill the organization's mission. For instance, Coca-Cola's mission is to “refresh the world in mind, body, and spirit, to inspire moments of optimism and happiness through our brands and actions, and to create value and make a difference.” To achieve that mission, Coca-Cola states that its core values include the following (Coca-Cola United, 2020):  Quality  Excellence  Integrity  Respect What do you think of these values? How do you think they help Coca Cola achieve its mission? Companies formalize these values in an effort to promote a certain kind of corporate culture. Corporate culture consists of the shared values, beliefs, and operating principles that characterize a business environment. Core values are not limited to the world of business. If you think about it, you have your own core values that guide you as you attempt to fulfill your own

life's mission. Have you ever taken a moment to think about that? What is your mission statement? How do your core values help you accomplish it? Codes of Conduct A code of conduct outlines the norms, rules, and responsibilities of proper practices of an individual party or an organization. This is important because codes provide unity. Codes of conduct reinforce standards. They also provide clear direction on what to do in certain situations. Watch It Watch the following brief video to learn more about codes of conduct (Global Ethics Solutions, 2019): Example Many businesses have codes of conduct. But so do schools! Colorado Technical University outlines the behavior expected by students in the university catalog. The policy begins as follows:

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The policy goes on to specify the types of behaviors that might fall under this policy. Click on the icon below to view the whole policy: Are there any expectations that surprise you? Why do you think it is important that your university outlines these expectations? Why do you think it is important that you adhere to them? Codes of Ethics Codes of conduct provide guidelines for individual behavior. Organizations can also guide decision making by creating a code of ethics. These two terms may seem somewhat similar. But here is the key difference. Codes of conduct typically outline specific behaviors that are prohibited. Codes of ethics typically outline the values that should guide decision making itself. Codes of ethics empower employees to work through ethical dilemmas by clearly stating the values that they should use when facing a dilemma. Example

AEDI is a small company whose mission is to help organizations improve through the use of resources, data, and advice. In addition to that mission statement, the company provides employees with the following code of ethics: AEDI is committed to honesty and integrity in actions with customers, employees, and suppliers. The company expects its employees to exercise the following values at all times:  Accountability . Be responsible for your work and to one another.  Respect . Treat everyone with dignity.  Honesty . Do not lie  Teamwork . Work with each other. Practice Complete the activity below to practice your understanding: Codes of Professional Practice Certain professions have their own codes. Codes of professional practice are statements that define the responsibilities and values that guide the decision making of a particular type of professional. Think of how doctors and lawyers have codes of practice that they are obligated to follow. These serve the same purpose as codes of ethics in organizations. But these codes can guide individuals who are working for themselves. Example Can you think of a profession that may encounter unique ethical situations? Do they have any ethical guidance that can help them? Complete the activity below to see examples of codes of professional practice: Want to learn more? Watch It

Watch the video below to learn more about legal and ethical liability (TEDx Talks, 2015): Read It Click on the icon below to read an article about how whistleblowers have benefited businesses: Read It Click on the icon below to see an example of a codes of ethics for engineers: Key Terms Review Study It Click on each term to review the important vocabulary found within this lesson. Code of conduct Code of ethics Code of professional practice Core values Corporate culture Professional obligations Values Whistleblower Learning Materials

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What is an ethical decision-making model? Ethical decision-making models provide a set of steps that you can follow in situations where your alternatives put your values into conflict (O'Fallon & Butterfield, 2005). The types of ethical dilemmas you typically encounter usually fall along the following lines: Ethical Dilemmas PDF These issues are complex. Can you think of a time in your life when you felt a conflict between these ideas? Facing Ethical Situations PDF Having an ethical decision-making model is important because your default decision-making process may be affected by several factors that you are not conscious of. These factors may include unconscious biases , which are social stereotypes about certain groups of people that individuals form and that they are unaware of. Watch It Learn more about how bias and unconscious decisions affect thinking by watching the following video (The Ethics Centre, 2020): One additional way that using a model like this is helpful is that it avoids the issues you encounter when you use heuristics , which are rule-of-thumb strategies for making decisions (Cherry, 2020). Example

Think about a rule of thumb you might use in your personal life. As an example, you may generally believe it is okay to go a couple of miles over the speed limit, and so your “rule of thumb" or heuristic is that it is safe to go 5 miles over the speed limit. The problems with using heuristics become obvious when you encounter complex situations. That might be the case when you run into a school zone or a work zone where your heuristic may get you into trouble. Using a decision-making model can help in situations of complexity. Closer Look: One Ethical Decision-Making Model This section explores the steps in the ethical decision-making model provided by the Markkula Center for Applied Ethics at Santa Clara University. There is a nearly infinite number of these models available online, but they typically look similar to this one, which has been built using research and studied in the real world. The steps of the model are as follows: 1. Recognize an ethical issue. 2. Get the facts. 3. Evaluate alternative actions. 4. Make a decision and test it. 5. Act and reflect on the outcome. Watch It You can explore each of these steps in a bit more detail by watching the video below (Markkula Center for Applied Ethics, 2017): Ethical Decision-Making in Practice What do these steps look like in practice? Go back to the dilemma that Louis encountered above. See how these steps help guide his decision making. Absent a formal statement like a code of conduct or code of ethics, Louis can use a decision-making framework to think through the issue. Recognize an Ethical Issue

Get the Facts Evaluate Alternative Actions How would you respond to these questions? Depending on your values, you may respond to these questions differently. Does one question give you a stronger sense of guidance than another? Why?

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Make a Decision and Test It Act and Reflect on the Outcome Want to learn more? Watch It Watch the following video to learn more about ethical decision making in management (Gregg Learning, 2017): Read It

Click on the icon below to read an article about making decisions about right and wrong: Read It Click on the icon below to learn more about heuristics: Key Terms Review Study It Click on each term to review the important vocabulary found within this lesson. Ethical decision-making model Heuristics Unconscious biases Learning Materials

Is eating chocolate ethical? Did you know that Americans eat around 9.7 pounds of chocolate every year (Conway, 2018)? Most people probably never think about whether eating chocolate is ethical. Think about that for a second. Think about all that you have learned about ethics so far. Do you think it is ethical to eat chocolate? Have an idea? If not, take a moment to reflect on how goods like chocolate are produced. Your consumer choices become ethical choices because they drive business choices, which have real human consequences. Twenty years ago, the world's largest chocolate companies made a pledge. They pledged to eliminate the use of child labor in their chocolate production and sourcing. They set specific goals to reduce the use of child labor in cocoa supply chains in 2005, 2008, and 2010 (Whoriskey, 2019). However, the use of child labor is still widespread today.

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Ethical sourcing is one way that companies can overcome issues in their supply chains. Ethical sourcing is the business practice of ensuring that items used in the production of a good or the provision of a service meets the following requirements:

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 They are obtained in responsible and sustainable ways.  They are made by workers who are protected with basic worker rights, such as working in a safe environment.  They are made with respect for impacts on society and the environment. A business that practices ethical sourcing will benefit from the following:  Decreased litigation  Improved corporate reputation  More efficient business processes  Improved employee morale The U.S. Department of Labor estimated that more than 2 million children in West Africa are involved in the production of cocoa (ILAB, n.d.). This work can be quite hazardous. But it is quite common for preteens and younger children to be the ones doing it. What would the ethical standards of utilitarianism, deontology, and justice have to say about this? The chocolate industry initially promised the elimination of child labor from the cocoa supply chain. But the companies involved have revised that promise downward. Now, they promise a reduction of 70% (Whoriskey, 2019). Example Some companies see opportunities here. For example, one Dutch chocolatier was established solely for the purpose of eliminating the use of child labor and child slavery in the production of cocoa (Myers, 2019). Tony’s Chocolonely was formed to raise awareness of the use of child labor in the supply chain. To accomplish its goals, Tony's pays a living wage to workers. But this means that they have to charge a higher price for consumers (Myers, 2019). Would you pay more for ethically sourced chocolate? How much would you be willing to pay? Tony’s is an example of a company that is pursuing a goal of corporate social responsibility. Corporate social responsibility is an evolving but increasingly applied way of thinking about how companies make their profits. This idea challenges companies to think about the social and environmental impacts of

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business decisions. A company practicing this does not just think about its own profits. Can the government take your property? Eminent domain is a legal principle that allows the government to take individual property for public use. Sometimes, eminent domain is applied to give a person's property to a company. The government would argue that taking this property serves the public good. This has the potential to create significant conflicts. What if individual property owners may not want to give up their property? Knowledge Check Answer the question to check your understanding of the lesson so far. The government taking your property to serve the greatest good or the greatest overall happiness for the greatest number of people is an example of thinking. Wrong View solution Example Complete the activity below to see an example of eminent domain:

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The gender pay gap The gender pay gap is the difference in pay that men and women earn for the same work. This has been a major issue in society over the last few decades (O'Neill, 2019). In the United States, on average, a woman working full-time makes 81% compared to what a man makes in the same position (Meara, Pastore, & Webster, 2019). Want to learn more? There is much more to learn about the difference in salary between men and women. You might even be surprised to learn that this occurs at well-known companies, too. Click on the icon below to learn more: You should think about the gender pay gap using the justice model of ethical thinking. The gender pay gap is essentially unfair to women. Some people argue that this gap is caused by women being more likely to do part-time work. Women are more likely to take time off work to raise a child. But you still see a difference in pay that is attributable to gender itself (Meara et al., 2019). Women overall make less than men. This is unfair, so the ethical lens of justice says that this is simply unethical. Example The gender pay gap exists in companies of all types, but it is also a feature of U.S. sports. Click on the icon below to read about the pay gap:

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Reflect This is a complicated topic. The following are some questions to help you think about this:  Should pay equality be a goal in and of itself?  Are there any situations where a pay difference between genders makes sense?  What would the different ethical perspectives (i.e., utilitarian, deontology, and justice) have to say about this? There is another issue related to the gender pay gap. Say that you apply for a job, and the company asks you to provide your salary history. This means that the company wants to know how much you have made in the past. Is this ethical? The disclosure of salary during the job application and interviewing process can have the unintended effect of replicating existing differences in pay. This

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is because previous salary is one of the most significant predictors of future salary. Think about it this way. On average, men report higher earnings. If previous salary predicts future salary, then men will continue to make more, and women will continue to make less. Want to learn more? Watch It Watch the following video that further explores eminent domain (The Federalist Society, 2019): Read It Click on the icon below to learn more about injustice in the cocoa industry: Read It Click on the icon below to read an article that discusses the reasons that a business should practice ethical sourcing:

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Key Terms Review Study It Click on each term to review the important vocabulary found within this lesson. Corporate social responsibility Eminent domain Ethical sourcing Gender pay gap

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