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Topic
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Nature of
Ethics in
Modern
Business
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1."
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for
analysing
ethical
problems
in
X" INTRODUCTION
In this topic, we shall examine various ways through which organisations
attempt to strike a balance between economic and social performance when faced
with an ethical dilemma.
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3.1
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balance and consider various theoretical structures that may assist management
in finding solutions.
3.2
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Figure 3.1: Five characteristics of ethical problems in management
Sections 3.2.1 - 3.2.5 are taken from the book, The Ethics of Management, by
LaRue Tone Hosmer (1991).
Let us look at each characteristic in the following sections.
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3.2.1
Do you realise that the results of managerial decisions and actions do not stop
with first-level consequences? Rather, they extend throughout the society, and
that extension constitutes the essence of the ethical argument. The argument
states that the decisions of managers have an impact on those within the
organisation and outside the organisation: the society. Since the impact is beyond
their control, managers need to seriously consider their decisions.
For example:
(a)"
3.2.2
However, the above questions do not reveal the real situation faced in a business
organisation. Although a dichotomous framework presents the ethical issues in
sharp contrast, it does not accurately reflect the managerial dilemma. Therefore,
multiple alternatives have to be considered in making ethical choices.
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3.2.3
Pay an indirect bribe but maintain the sales volume of imported goods
through prompt delivery.
(b)" Cause air or water pollution but avoid the costs of installing and operating
pollution-control equipment.
(c)"
Design a slightly unsafe product but reduce the material and labour costs of
manufacture.
Like the dichotomous framework, the antithetical model for outcome evaluation
presents ethical issues in sharp focus but it does not accurately portray the
managerial dilemma. Social benefits and costs as well as financial revenues and
expenses are associated with almost all the alternatives in ethical choices.
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ACTIVITY 3.1"
You are the owner of an organisation. You intend to develop a
sophisticated product to cater to the societys needs. In order to be able
to produce the product, your organisation needs to conduct several
experiments which will pollute the air quality.
How do you deal with this situation using the ethical choice of
multiple alternatives?
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A deterministic model, that is, one without probabilities, simplifies the process of
analysis but it does not accurately describe the managerial dilemma. It is not
clear what consequences would follow from the alternatives considered to avoid
paying indirect bribes to customs officials. Neither is it clear what consequences
will follow from most ethical choices.
3.2.5
Maintain the dollar sales of imported goods at expected levels, and despite
slightly increased expenses for indirect bribes, the quarterly review will be
pleasant and remunerative.
EXERCISE 3.1
1."
2."
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3.3
What are some examples of ethical problems? Let us look at a few. Bear in mind
that the moral content of each problem differs, and that each of us will differ in
our view of the moral severity of that content.
Moral standards differ between individuals because the ethical systems of belief,
the values or priorities, the convictions that people believe are truly important,
and upon which their moral standards are based also differ. These beliefs depend
upon each persons family background, cultural heritage, educational experience
and other factors.
Difference in ethical beliefs are not important at this stage of discussion. What is
more important at this stage is to recognise that they can affect people adversely.
They may even hurt or harm others in ways beyond the control of those holding
the ethical beliefs. The condition of hurt or harm to others in ways beyond their
control is the essential element in the ethical dilemma of management. That
condition is present in all the examples outlined below.
(a)"
Pricing Level
Price, it would seem, should be a purely economic decision based upon cost
and demand. Yet the pricing level selected can have harmful effects on
some customers. In banking, for example, under the combined impact of
deregulation by the government and competition from other financialservice firms, it has become common to pay fairly high rates of interest on
customer deposits. However, the benefits of those rates go primarily to the
customers with large bank balances. To offset the increased interest that
must be paid to attract larger deposits and to reflect the actual costs of
service, most banks have raised the fees they charge to smaller customers.
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(c)"
Product Promotions
Promotion is one form of advertising; another is the use of gifts and price
rebates to attract customers. For example, under the impact of deregulation,
airlines have developed product promotion in the form of additional flights
and vacation lodgings for frequent flyer passengers who exceed a given
mileage on a particular airline each year.
Most frequent flyers travel on business, yet the benefits are given to the
traveller who decides which airline to use, not to the company that
generates the volume of traffic and pays for the tickets. The cost of these
benefits is borne by the non-business traveller, who generally flies much
less often.
Customer Service
Declining product quality has been a problem in many industries for a
number of years. Declining product quality in the automobile industry
results in lemons. It means new cars with major defects that can create
substantial hardships for buyers who cannot depend upon these cars for
transportation to and from work or medical appointments, shopping trips,
family gatherings, and so on.
(f)"
Workforce Reductions
It has become common for many large companies to reduce their size and
overhead costs to create a lean and mean management. These downsizing
operations are generally a response to an increase in competitive pressures,
but there is an obvious human cost to the people forced to leave.
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Supplier Relations
Larger manufacturing firms have economic power within the communities
in which they operate, and against small suppliers from which they
purchase materials, parts and supplies. Economic power is a difficult
concept to define but easy to recognise.
3.4
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By using the example of work force reductions and plant closures, let us see how
the three methods are applied to create a balance between economic and social
performances as shown in Table 3.1.
Table 3.1: Analytical Methods of Reasoning on Ethical Problems
Methods
Explanation
Economic
Analysis
Legal
Analysis
We can also look at the ethical problems through the framework of legal
approach; relying on impersonal social forces to decide between right
and wrong. Workforce reductions and plant closures are unpleasant but
society has never felt they are so harmful to the people involved that a
law prohibiting them is necessary. Should they become a major problem,
a law can be passed to deal with the situation.
The underlying belief is that a democratic society can establish its own
rules. If people and organisations follow these rules, members of that
society will be treated as justly as possible.
Ethical
Analysis
The above three methods of analysis have been proposed to resolve ethical
dilemmas in management. Now, try applying what you have learnt in this
section by answering the following questions.
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EXERCISE 3.2
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2."
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3.5
ETHICS IN ISLAM
It is essential to not look at ethics from a single perspective but also view it from
different perspectives. So, let us look at what Islam has to say about ethics.
In attempting to expound the major aspects of ethical thought in Islam, two
possible methods are used:
x" A historical or horizontal method which simply follows the chronological line
of development, or
x" An analytical or schematic method which deals with major ethical themes
vertically.
People sometimes question whether there is such a thing as Islamic ethics. They
are obviously puzzled by the legalism and ritualism of the religious and
institutional life of Muslims. They also wonder why the contribution of the
Muslim authors to the issue is insufficient compared to their contributions in
literary, linguistic, philosophical, historical, theological and scientific subjects.
Actually, there is a modest attempt to exhibit the ethical material in Islamic
thought as objectively as possible.
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3.5.1
Universal Message
The holistic approach of Islam is evident in its three core tenets as illustrated in
Figure 3.3 below.
Due to these tenets, Islam is deemed as universal and timeless. As such, it applies
to all people in all places. Islam is not a new religion but the continuation of
divine revelations from Prophet Abraham to Prophet Muhammad s.a.w, who
was the last prophet assigned to the human being. The Quran explicitly states
that Islam is the continuation and conclusion of the Creators religion given to
mankind.
3.5.2" Syariah
Before we move on to discuss the ethical aspects of Islam, let us look at what
syariah means.
Syariah is the law of Islam based on the Quran. Probably the most encompassing
and most universal ethical prescription of the syariah is contained in one of the
verses of the Quran which requires a Muslim, at all times and in all
circumstances, to act in what can be translated from Arabic as a decent and
benevolent way, and to refrain from wrongdoing.
This overall guiding conception is similar to Aristotles admonishment as shown
below.
Do not harm others and deal with others as one would wish to have others
deal with oneself.
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The basic message of the Creator is found in all His religious revelations to
humankind as shown below:
(a)"
None of you is a believer until he desires for his brother that which he
desires for himself.
(c)"
Buddhism rule:
Hurt not others in ways that you yourself would find hurtful.
(d)" Judaic rule:
What is hateful to you, do not do to your fellow man. That is the entire
law; all the rest is commentary.
Beyond this fundamental teaching which is shared with other great ethical
traditions, the Syariah regulates almost every aspect of relationships, ranging
from that which is between the Creator and humankind, to intimate matters of
interpersonal relations. As the Syariah is a comprehensive legal system, rules of
interpretation achieve a prominent position, and techniques of legal
interpretation based on the different schools of jurisprudence are outstanding. A
variety of contrasting positions and schools of thought has developed among
Muslims over the centuries.
3.5.3
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Furthermore, the Muslim world, during its first few centuries, was at the
crossroads of ancient trade routes from the Mediterranean, the Arabian Gulf, East
Africa, the Indian subcontinent and all the way to China. Due to this trading link,
a significant number of Arab words relating to trade and commerce have found
their way into Western languages. However, Muslim traders could not have
grown their faith and trade if it were not for their strong attachment to what we
now know as business ethics .
3.5.4
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3.5.5
Obligations of Piety
The fulfilment of obligations in good faith and in accordance with the principles
of business ethics is not only required but inseparable from the general obligation
of piety as can be seen in the following verse.
In the Quran, Chapter 2 Verse 177 says that:
It is not righteousness that you turn your faces towards East or West; but it is
righteousness to believe in God and the last day, and the angels and the Book,
and the messengers; to spend of your substance, out of love for Him, for your
kin, for orphans, for the needy, for the wayfarer, for those who ask, and for the
ransom of slaves; to be steadfast in prayer, and practise regular charity; to
fulfil the contracts which you have made.
A contract is the most important bond that exists between Muslims, as well as
between Muslims and non-Muslims as shown in the following hadith:
The buyer and the seller have the option (of cancelling the contract), as long
as they have not separated; then, if they both speak the truth and make it
manifest, their transaction shall be blessed, but if they conceal and tell lies, the
blessing of their transaction shall be obliterated.
Translation: Any defect in the thing sold must be made obvious. In the case of
defects being hidden, the contract or agreement made will be void.
Source: http://aaiil.org/text/had/manhad/ch22had.shtml
The prophet went on to say the following:
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3.5.6
Conclusion
EXERCISE 3.3
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2."
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x" Most ethical decisions have extended consequences, multiple alternatives,
mixed outcomes, uncertain consequences and personal implications.
x" Moral standards differ between individuals because the ethical systems of
belief, the values or priorities, the convictions that people believe are truly
important, and upon which their moral standards are based also differ.
x" There are three forms of analysis that can assist us in reaching the proper
balance between economic and social performances. They are:
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x" The main guiding principles in Islamic ethical issues are found in the syariah.
x" Syariah regulates almost every aspect of relationships, ranging from that
which is between the Creator and humankind, to intimate matters of
interpersonal relations.
Economic analysis
Mixed outcomes
Ethical analysis
Multiple alternatives
Ethical problems
Personal implications
Extended consequences
Syariah
Legal analysis
Uncertain consequences
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