Ethics, responsibility and sustainability
Chapter 1: Ethics and Business
Opening Decision Point – “case study to get familiar with main topic”
• Zika Virus and Olympic Sponsors (HDM, 2-3)
o In 2016 → Zika Virus, transmitted by mosquitos. Postponement to another place/time of
the games. “if we are bringing in all these athletes and tourists to Rio and they go back
home → could spread virus to all over the world. This can be avoided by postponing it.”.
But what with Main sponsors? Logo, visibility, marketing campaigns,… → marketing
efforts would be pointless.
o Also no unanimity among experts: some experts said it would increase spreading, others
did not. Uncertainty of facts of spreading of the Zika Virus.
1. How much responsibility do sponsoring corporations bear for the outcomes of things like the
Olympic Games? All the sponsors are doing is paying money to have their logos featured at
Olympic venues and the right to use the Olympic logo in their advertising. The Rio sponsors
wouldn’t be directly spreading Zika. Does that indirectness matter, ethically?
2. One danger is that the decision would not be based on ethics at all, and that the organizations
involved would fall prey to a general “the Olympics must go on!” attitude (= a “can-do” attitude,
Challenger 1986).
3. Does the lack of full agreement between experts absolve Olympic sponsors of blame if the Rio
Olympics ended up contributing to the spread of the Zika virus? Would it be ethically correct of
the sponsors to say, after the fact, “We didn’t know for sure there would be a problem.”?
Ethics and Business
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that you’ll do
things differently.” - Warren Buffett
1.1 Making the Case for Business Ethics – why is business ethics important?
• Business ethics is a process of responsible decision making.
o Scandals are often brought about by ethical failures.
▪ People doing bad things.
o Homework: familiarize yourself with the following cases:
▪ Enron/Arthur Andersen: Wanted to show healthy financial balance sheets to the
public by setting up a daughter company and putting all depts on their balance
sheets. They ended up with 100s of these daughter companies. Enron eventually
went bankrupt
▪ Madoff: financial pyramid system, offering huge amounts of interests by using
incoming money. This collapsed.
▪ BP Deep Water Horizon: drilling for Mexican Golf. Not an accident,
▪ Volkswagen: Dieselgate. VW was seen as one of the best ethical and environ-
mental companies. But they had cheating-software and were lying about how
clean their cars were.
• This text provides a decision-making model that can help avoid future ethical failures.
1
,• As an introduction to this model, this chapter reflects on the intersection of ethics and business
(e.g. the Adam Smith problem: on the one hand → economic handbook about selfishness and
following own way, on the other hand creating to be ethical and look after each other and be
sympathetic.). How can you combine harsh business handbook and soft ethical handbook?
• There has been a shift from whether ethics should play a role in business decisions to how to
most effectively do so.
o Which values and principles should guide business decisions.
o Origins of this shift: the serious consequences of unethical behavior for many people and
organizations
▪ e.g. Madoff: initially you would think only a few rich and stupid people were
affected, but this was not the case. ALSO +100 non-profit organizations, they
were going bankrupt. The whole world was feeling the consequences.
▪ Also see Reading 1-1 for why this shift has occurred.
• Responsible decision making must move beyond concern for stockholders to consider the impact
on all stakeholders
o = Anyone who affects or is affected by decisions made within the firm, for better or
worse.
Reality check: How does the law support ethical behavior? Adopted since the Enron-scandal. P. 8
Ethics and law are not the same, but they overlap in many ways. Good laws become law precisely because
they promote important ethical values. Sometimes: laws are adopted to support ethical behaviour in a
different way, namely by drawing the attention of business leaders to the need to work hard on ethical
behaviour in their organizations, e.g. by adopting a code of ethics.
• The case for (studying) Business Ethics:
o Unethical behavior might affect a wide range of people including ourselves (as managers
involved, or as employees, consumers, citizens, …).
o ‘Bad’ companies can lose in the marketplace (e.g. customer boycotts) or even go out of
business and employees might end up in jail. – negative reason to study ethics
o ‘Good’ companies might create an ethical competitive advantage through a good
reputation, attracting and holding good employees, values like trust … - positive reason
o As future managers/leaders we will have to manage the ethical behavior of others and
will be seen as role models
▪ e.g. Prince Bandar Bin Sultan: accused of receiving commissions of $240 Billion
▪ e.g. AIG: during crisis → bankrupt, US govern. Bailed them out for $150 billion.
One week later, the executives went out to an extremely expensive hotel. They
payed $ 500K with the govern. money. They used it for personal reasons.
Reality check: Why be good? P. 9
Ethics pays: • A good reputation is valuable
• Illegal conduct can be extremely costly
• Good governance pays off financially
2
,1.1.1 Summary: why are we studying ethics?
• Legal requirements. • For business students, ethics is an
• Unethical behavior creates legal, financial important field of study.
and marketing risks. • Leaders need to know how to manage
• Maintaining an ethical advantage aids ethical behavior of others.
success. • Business must take ethics into account
• Ethical reputations provide a competitive and integrate ethics into its organizational
edge. structure.
• Ethical management may aid • But what is ethics
organizational structure and efficiency.
Ethics and Business
“Ethics is the new competitive environment.” - Peter Robinson, CEO, Mountain Equipment Co-op
1.2 Business Ethics as Ethical Decision Making
• Our approach to business ethics focuses on ethical decision making, not just on information and
knowledge about ethics.
• The authors’ fundamental assumption is that a process of rational decision making can and will
result in behavior that is more reasonable, accountable, and ethical.
o responsible decision making and deliberation will result in more responsible behavior.
• Ethics refers to how human beings should properly live their lives.
• Even if an ethics course does not change your capacity to think, we believe that it could stimulate
your choices of what to think about.
o If you are smart, you remain equally smart after this class. BUT this class gives more fuel
to think about
• Caution: no manipulation (influence someone’s behavior) but reasoning to attempt to produce
more ethical behavior among the students who enroll.
• Influencing, manipulation, threats, guilt, pressure, bullying, intimidation, … do not belong in an
ethical classroom. Persuading through reasoning however does!
• Our role [as teachers] should not be to preach our own ethical beliefs to a passive audience, but
instead to treat students as active learners and to engage them in an active process of thinking,
questioning, and deliberating.
• Teaching ethics must challenge students to think for themselves!
1.3 Business Ethics as Personal Integrity and Social Responsibility
• Ethical business leadership is precisely this skill: to create the circumstances (= corporate culture)
within which good people are able to do good, and bad people are prevented from doing bad.
• How should we live? What is good or bad?
o Philosophers emphasize that ethics is normative, dealing with our reasoning about how
we should act (choose, behave and do things).
o Social sciences also examine human decision making/actions but these sciences are
descriptive rather than normative. They provide an account of how and why people do
act the way they do – they describe.
o As a normative discipline, ethics seeks an account of how and why people should act a
certain way, rather than how they do act.
3
, o Philosophical ethics merely asks us to step back from implicit everyday decisions to
examine and evaluate them. More than 2,000 years ago Socrates gave the philosophical
answer to why you should study ethics: “The unexamined life is not worth living.”
1.3.1 How should “we” live?
• If defining “We” individually
o Here, ethics is based on our value structures,
▪ defined by our moral systems;
▪ and, referred to as morality;
▪ or personal integrity.
• If defining “We” collectively
o This area is sometimes referred to as social ethics.
o Here, we judge companies from a social perspective;
▪ for their social responsibility.
• Managerial decisions involve both aspects of ethics:
1. personal integrity and
2. social responsibilities.
• The normative approach to business is at the center of business ethics. Step back from the facts
to ask:
o What should I do? What ought I do?
o What rights and responsibilities are involved?
o What good will come from this situation?
o Am I being fair, just, virtuous, kind, loyal, trustworthy, honest, …?
o The words above in italic are the basic categories, concepts and language of ethics.
• Homework: read ‘Ethics after an Oil Spill’, p. 15, and answer the questions.
• Homework: answer question 4, HDM page 24.
o Someone is against animal testing. On the other hand he is working on new vaccine that
needs to be tested on animals. Society expects that they do everything to find a vaccine,
but this is against personal integrity. Both do not always overlap.
• Ethics is a normative discipline as it deals with norms;
o Those standards of appropriate and proper (or “normal”) behavior.
▪ E.g.: “Don’t hurt anyone”; “Don’t steal”, “Work hard”; “Don’t lie”; “Don’t
discriminate”; …
o Not all norms are ethical norms e.g. etiquette, fashion, accounting, …
▪ E.g. “Don’t talk during the lectures”; “Come on time for a meeting”; “Wear
skinny jeans”; “Greet your colleagues”; “Follow the accounting norms”; …
o Norms appeal to certain values.
▪ Behind the norms are things we consider valuable.
▪ E.g.: respect for the other and his properties, life, health, truth, equality,, …
▪ E.g.: respect for teacher and students, efficiency, beauty, being part of the group
• Efficiency: come in time SO that we can start in time.
4
Chapter 1: Ethics and Business
Opening Decision Point – “case study to get familiar with main topic”
• Zika Virus and Olympic Sponsors (HDM, 2-3)
o In 2016 → Zika Virus, transmitted by mosquitos. Postponement to another place/time of
the games. “if we are bringing in all these athletes and tourists to Rio and they go back
home → could spread virus to all over the world. This can be avoided by postponing it.”.
But what with Main sponsors? Logo, visibility, marketing campaigns,… → marketing
efforts would be pointless.
o Also no unanimity among experts: some experts said it would increase spreading, others
did not. Uncertainty of facts of spreading of the Zika Virus.
1. How much responsibility do sponsoring corporations bear for the outcomes of things like the
Olympic Games? All the sponsors are doing is paying money to have their logos featured at
Olympic venues and the right to use the Olympic logo in their advertising. The Rio sponsors
wouldn’t be directly spreading Zika. Does that indirectness matter, ethically?
2. One danger is that the decision would not be based on ethics at all, and that the organizations
involved would fall prey to a general “the Olympics must go on!” attitude (= a “can-do” attitude,
Challenger 1986).
3. Does the lack of full agreement between experts absolve Olympic sponsors of blame if the Rio
Olympics ended up contributing to the spread of the Zika virus? Would it be ethically correct of
the sponsors to say, after the fact, “We didn’t know for sure there would be a problem.”?
Ethics and Business
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that you’ll do
things differently.” - Warren Buffett
1.1 Making the Case for Business Ethics – why is business ethics important?
• Business ethics is a process of responsible decision making.
o Scandals are often brought about by ethical failures.
▪ People doing bad things.
o Homework: familiarize yourself with the following cases:
▪ Enron/Arthur Andersen: Wanted to show healthy financial balance sheets to the
public by setting up a daughter company and putting all depts on their balance
sheets. They ended up with 100s of these daughter companies. Enron eventually
went bankrupt
▪ Madoff: financial pyramid system, offering huge amounts of interests by using
incoming money. This collapsed.
▪ BP Deep Water Horizon: drilling for Mexican Golf. Not an accident,
▪ Volkswagen: Dieselgate. VW was seen as one of the best ethical and environ-
mental companies. But they had cheating-software and were lying about how
clean their cars were.
• This text provides a decision-making model that can help avoid future ethical failures.
1
,• As an introduction to this model, this chapter reflects on the intersection of ethics and business
(e.g. the Adam Smith problem: on the one hand → economic handbook about selfishness and
following own way, on the other hand creating to be ethical and look after each other and be
sympathetic.). How can you combine harsh business handbook and soft ethical handbook?
• There has been a shift from whether ethics should play a role in business decisions to how to
most effectively do so.
o Which values and principles should guide business decisions.
o Origins of this shift: the serious consequences of unethical behavior for many people and
organizations
▪ e.g. Madoff: initially you would think only a few rich and stupid people were
affected, but this was not the case. ALSO +100 non-profit organizations, they
were going bankrupt. The whole world was feeling the consequences.
▪ Also see Reading 1-1 for why this shift has occurred.
• Responsible decision making must move beyond concern for stockholders to consider the impact
on all stakeholders
o = Anyone who affects or is affected by decisions made within the firm, for better or
worse.
Reality check: How does the law support ethical behavior? Adopted since the Enron-scandal. P. 8
Ethics and law are not the same, but they overlap in many ways. Good laws become law precisely because
they promote important ethical values. Sometimes: laws are adopted to support ethical behaviour in a
different way, namely by drawing the attention of business leaders to the need to work hard on ethical
behaviour in their organizations, e.g. by adopting a code of ethics.
• The case for (studying) Business Ethics:
o Unethical behavior might affect a wide range of people including ourselves (as managers
involved, or as employees, consumers, citizens, …).
o ‘Bad’ companies can lose in the marketplace (e.g. customer boycotts) or even go out of
business and employees might end up in jail. – negative reason to study ethics
o ‘Good’ companies might create an ethical competitive advantage through a good
reputation, attracting and holding good employees, values like trust … - positive reason
o As future managers/leaders we will have to manage the ethical behavior of others and
will be seen as role models
▪ e.g. Prince Bandar Bin Sultan: accused of receiving commissions of $240 Billion
▪ e.g. AIG: during crisis → bankrupt, US govern. Bailed them out for $150 billion.
One week later, the executives went out to an extremely expensive hotel. They
payed $ 500K with the govern. money. They used it for personal reasons.
Reality check: Why be good? P. 9
Ethics pays: • A good reputation is valuable
• Illegal conduct can be extremely costly
• Good governance pays off financially
2
,1.1.1 Summary: why are we studying ethics?
• Legal requirements. • For business students, ethics is an
• Unethical behavior creates legal, financial important field of study.
and marketing risks. • Leaders need to know how to manage
• Maintaining an ethical advantage aids ethical behavior of others.
success. • Business must take ethics into account
• Ethical reputations provide a competitive and integrate ethics into its organizational
edge. structure.
• Ethical management may aid • But what is ethics
organizational structure and efficiency.
Ethics and Business
“Ethics is the new competitive environment.” - Peter Robinson, CEO, Mountain Equipment Co-op
1.2 Business Ethics as Ethical Decision Making
• Our approach to business ethics focuses on ethical decision making, not just on information and
knowledge about ethics.
• The authors’ fundamental assumption is that a process of rational decision making can and will
result in behavior that is more reasonable, accountable, and ethical.
o responsible decision making and deliberation will result in more responsible behavior.
• Ethics refers to how human beings should properly live their lives.
• Even if an ethics course does not change your capacity to think, we believe that it could stimulate
your choices of what to think about.
o If you are smart, you remain equally smart after this class. BUT this class gives more fuel
to think about
• Caution: no manipulation (influence someone’s behavior) but reasoning to attempt to produce
more ethical behavior among the students who enroll.
• Influencing, manipulation, threats, guilt, pressure, bullying, intimidation, … do not belong in an
ethical classroom. Persuading through reasoning however does!
• Our role [as teachers] should not be to preach our own ethical beliefs to a passive audience, but
instead to treat students as active learners and to engage them in an active process of thinking,
questioning, and deliberating.
• Teaching ethics must challenge students to think for themselves!
1.3 Business Ethics as Personal Integrity and Social Responsibility
• Ethical business leadership is precisely this skill: to create the circumstances (= corporate culture)
within which good people are able to do good, and bad people are prevented from doing bad.
• How should we live? What is good or bad?
o Philosophers emphasize that ethics is normative, dealing with our reasoning about how
we should act (choose, behave and do things).
o Social sciences also examine human decision making/actions but these sciences are
descriptive rather than normative. They provide an account of how and why people do
act the way they do – they describe.
o As a normative discipline, ethics seeks an account of how and why people should act a
certain way, rather than how they do act.
3
, o Philosophical ethics merely asks us to step back from implicit everyday decisions to
examine and evaluate them. More than 2,000 years ago Socrates gave the philosophical
answer to why you should study ethics: “The unexamined life is not worth living.”
1.3.1 How should “we” live?
• If defining “We” individually
o Here, ethics is based on our value structures,
▪ defined by our moral systems;
▪ and, referred to as morality;
▪ or personal integrity.
• If defining “We” collectively
o This area is sometimes referred to as social ethics.
o Here, we judge companies from a social perspective;
▪ for their social responsibility.
• Managerial decisions involve both aspects of ethics:
1. personal integrity and
2. social responsibilities.
• The normative approach to business is at the center of business ethics. Step back from the facts
to ask:
o What should I do? What ought I do?
o What rights and responsibilities are involved?
o What good will come from this situation?
o Am I being fair, just, virtuous, kind, loyal, trustworthy, honest, …?
o The words above in italic are the basic categories, concepts and language of ethics.
• Homework: read ‘Ethics after an Oil Spill’, p. 15, and answer the questions.
• Homework: answer question 4, HDM page 24.
o Someone is against animal testing. On the other hand he is working on new vaccine that
needs to be tested on animals. Society expects that they do everything to find a vaccine,
but this is against personal integrity. Both do not always overlap.
• Ethics is a normative discipline as it deals with norms;
o Those standards of appropriate and proper (or “normal”) behavior.
▪ E.g.: “Don’t hurt anyone”; “Don’t steal”, “Work hard”; “Don’t lie”; “Don’t
discriminate”; …
o Not all norms are ethical norms e.g. etiquette, fashion, accounting, …
▪ E.g. “Don’t talk during the lectures”; “Come on time for a meeting”; “Wear
skinny jeans”; “Greet your colleagues”; “Follow the accounting norms”; …
o Norms appeal to certain values.
▪ Behind the norms are things we consider valuable.
▪ E.g.: respect for the other and his properties, life, health, truth, equality,, …
▪ E.g.: respect for teacher and students, efficiency, beauty, being part of the group
• Efficiency: come in time SO that we can start in time.
4
