CHAPTER 1

Moral standards include norms we have about the actions we believe

are morally right and wrong, as well as the values we place on what we
believe is morally good or morally bad.
Ethics is the discipline that examines one's moral standards or the
moral standards of a society.
A normative - conclusions about what things are good or bad or
about what actions are right or wrong.
A descriptive study - not try to reach any conclusions about what
things are truly good or bad or right or wrong.
Business ethics - right and wrong applied to business policies,
institutions, and behaviors.
there are three basic types of issues:
1. Systemic issues questions about the economic, political, legal,
or other social systems within which businesses operate.
2. Corporate issues questions about a particular company.
3. Individual issues questions about a particular individual within
an organization and their behaviors and decisions.

object to the application of ethics in business based on three

arguments
1. In a free market, the pursuit of profit will ensure maximum social
benefit
- most markets are not perfectly competitive markets
- Companies pursuing profit and using unethical practices can
hardly be called competitive.
2. A managers most important obligation as an agent is loyalty to the
company regardless of any ethical issue.
- no event would it be implied that an agent has a duty to perform
acts which are illegal or unethical.
3. as long as the companies obey the law, they will have done all that
ethics requires
- The Goldman Sachs managers were in effect saying if it was
legal, it was ethical.

Corporate social responsibility (CSR - corporations responsibilities

or obligations toward society.
Stakeholder- Any identifiable group or individual who can affect the
achievement of an organizations objectives or who is affected by the
achievement of an organizations objectives
Many issues that arise in business are related to the phenomenon of
globalization.
Multinational Corporations - companies that have manufacturing,
marketing, service, and administrative operations in many different
nations.
Ethical relativism is the theory that, because different societies have
different ethical beliefs, there is no rational way of determining
whether an action is morally right or wrong other than by asking
whether the people of this or that society believe it to be right or
wrong by asking whether people of a particular society believe that it
is.
Moral standard
1. Hypernorms might be human rights principles and principles of
justice that apply to all people in all communities.
2. Microsocial - one example is the norm when traveling a married
woman must be accompanied by her husband or a male relative, a
norm that is practiced in Saudi Arabia and several other Arab countries
but not in the United States nor in Europe.

six stages of moral development: Moral rights

1. level one : Pre-conventional Stages
a) Punishment and Obedience Orientation - the physical
consequences of an act wholly determine the goodness or
badness of that act.
b) Instrument and Relativity Orientation- right actions become
those that can serve as instruments for satisfying the childs own
needs or the needs of those for whom the child cares.
2. Level two : Conventional Stages
c) Interpersonal Concordance Orientation - Good behavior is
living to the expectations of those for whom one feels loyalty,
affection, and trust, such as family and friends.
d) Law and Order Orientation - Right and wrong now come to be
determined by loyalty to one's own larger nation or surrounding
society

3. Level Three: Post-conventional, Autonomous, or Principled

Stages
e) Social Contract Orientation - the person becomes aware that
people hold a variety of conflicting personal views and opinions
and emphasizes fair ways of reaching consensus by agreement,
contract, and due process.
f) Universal Ethical Principles Orientation - right action comes
to be defined in terms of moral principles chosen because of
their logical comprehensiveness, universality, and consistency.

Moral reasoning - reasoning process by which human behaviors,

institutions, or policies are judged to be in accordance with or in
violation of moral standards.

criteria:
1. Moral reasoning must be logical.
2. Factual evidence must be accurate, relevant, and complete.
3. Moral standards must be consistent.

CHAPTER 2

Utilitarianism general term for any view that holds that actions and
policies should be evaluated on the basis of the benefits and costs they
will impose on society. In any situation, the "right" action or policy is
the one that will produce the greatest net benefits or the lowest net
costs (when all alternatives have only net costs). The techniques of
economic costbenefit analysis.
- The major difficulty with utilitarianism, is that it is unable to deal
with two kinds of moral issues: those relating to rights and those
relating to justice.

four considerations to follow:

1. determine what alternative actions are available.
2.estimate the direct and indirect costs and benefits the action would
produce for all involved in the foreseeable future.
3. Subtract the costs from the benefits to determine the net utility of
each action.
4. The action that produces the greatest sum total of utility must be
chosen as the ethically appropriate course of action.

Efficiency operating in such a way that one produces the most one
can with the resources at hand.

two widely used common-sense criteria :

intrinsic goods : things that are desired for their own sake, such
as health and life .
instrumental goods

rule utilitarianism - instead of looking at individual acts to see

whether they produce more pleasure than the alternatives, one looks
only at moral rules at actions of a particular type.
contractual rights, sometimes called special rights and duties
or special obligations.
The First Formulation of Kants Categorical Imperative everyone be treated as a free and equal person.
two
criteria
for
determining
moral
right
and
wrong:
universalizability and reversibility.
The second formulation Kants Categorical Imperative - "Act in
such a way that you always treat humanity, whether in your own
person or in the person of any other, never simply as a means, but
always at the same time as an end."

Justice - matters that are more serious than fairness, though some
philosophers maintain that fairness is more fundamental. three
categories of issues involving justice:
1. Distributive justice is concerned with the fair distribution of
society's benefits and burdens.
2. Retributive justice refers to the just imposition of punishments
and penalties on those who do wrong.
3. Compensatory justice is concerned with compensating people for
what they lost when harmed by others.

Egalitarians hold that there are no relevant differences among people

that can justify unequal treatment. According to the egalitarian, all
benefits and burdens should be distributed according to the following
formula:
Every person should be given exactly equal shares of a society's or a
group's benefits and burdens.

Political equality equal participation in, and treatment by, the means
of controlling and directing the political system.
Economic equality equality of income and wealth and equality of
opportunity.
ethics of care - we have an obligation to exercise special care toward
the people with whom we have valuable, close relationships.

communitarian ethic sees concrete communities and communal

relationships as having a fundamental value that should be preserved
and maintained.
Integrating Utility, Rights, Justice, and Caring
- four main kinds of basic moral considerations:
1. Utilitarian standards - used when we do not have the resources to
attain everyone's objectives, so we are forced to consider the net
social benefits and social costs consequent on the actions (or policies
or institutions) by which we can attain these objectives.
2. Standards that specify how individuals must be treated must be employed when our actions and policies will substantially
affect the welfare and freedom of specifiable individuals.
3. Standards of justice - indicate how benefits and burdens should
be distributed among the members of a group. These sorts of
standards must be employed when evaluating actions whose
distributive effects differ in important ways.
4. Standards of caring - indicate the kind of care that is owed to
those with whom we have special concrete relationships.
moral virtue is an acquired disposition that is a valuable part of a
morally good person, exhibited in the person's habitual behavior.
The X-system takes in information and then makes decisions
automatically. The C-system consists of reasoning processes that we
engage in consciously and deliberately.
Casuistry uses those previous clear cases to decide what is ethical in
a new situation.
moral judgments are based on two different processes; the
unconscious use of prototypes that we gradually accumulate in life,
and the conscious use of moral reasoning that appeals to utility,
rights, justice and caring.

CHAPTER 3
Free market systems have two main components: a private property
system and a voluntary exchange system.
economic systems
1. Tradition based societies are small and rely on traditional
communal and family roles and customs to carry out the two basic
economic tasks.
2. Command economies, where the government authority makes the
economic decisions about what enterprises must produce, which
enterprises will produce it, and who will get it?
3. In a system based primarily on markets, private companies
make the main decisions about what they will produce and who will get
it.

Free Markets and Rights: John Locke : human beings have a

"natural right" to liberty and a "natural right" to private property. Locke
argued that if there were no governments, human beings would find
themselves in a state of nature (each man would be the political equal
of all others and would be perfectly free of any constraints other than
the law of nature).
Free Markets and Utility: Adam Smith : when private individuals
are left free to seek their own interests in free markets, they will
inevitably be led to further the public welfare by an "invisible
hand(market competition).
Natural price : When the supply of a certain commodity is not enough
to meet the demand, buyers bid the price of the commodity upward
until it rises above.
"absolute advantage": One country can produce a good more
cheaply than another
Free Trade and Utility: David Ricardo : comparative
advantage as a situation where the opportunity costs (costs in terms
of other goods given up) of making a commodity are lower for one
country than for another.
Marx and Justice: Criticizing Markets and Free Trade : freemarket capitalism necessarily produces extremes of inequality.
historical materialism: Those in power promote the ideologies that
justify their position of privilege.

CHAPTER 4

Perfect Competition : no buyer or seller has the power to

significantly affect the price of a good:
Characteristics :
1. numerous buyers and sellers
2. All buyers and sellers can freely and immediately enter or leave the
market.
3. Every buyer and seller has full and perfect knowledge of what every
other buyer and seller is doing
4. The goods being sold in the market are so similar to each other that
no one cares from whom each buys or sells.
5. The costs and benefits of producing or using the goods being
exchanged are borne entirely by those buying or selling the goods and
not by any other external parties.
6. All buyers and sellers are utility maximizers: Each tries to get as
much as possible for as little as possible.
7. No external parties (such as the government) regulate the price,
quantity, or quality of any of the goods being bought and sold in the
market.

equilibrium point, where the amount produced exactly equals the

amount buyers want to purchase.
The movement towards the equilibrium point can be explained in
terms of two principles: the principle of diminishing marginal
utility and the principle of increasing marginal costs.
Efficiency comes about in perfectly competitive free markets in three
main ways:
1. They motivate firms to invest resources in industries with a high
consumer demand and move away from industries where demand is
low.
2. They encourage firms to minimize the resources they consume to
produce a commodity and to use the most efficient technologies.
3. They distribute bundles of commodities among buyers so that they
receive the most satisfying commodities they can purchase, given
what is available to them and the amount they have to spend.
Monopoly Competition : there is only one seller, and other sellers
cannot enter the market.
Oligopolistic Competition : there are only a few significant ones and
the firms controlling this share may range from 2 to 50 firms
depending on the industry. Second, as with the monopoly, other sellers
are not free to enter the market
Oligopoly markets that are highly concentrated markets are
dominated by a few (three to eight) large firms.
The following list identifies practices that are clearly unethical:
1. Price Fixing - when companies agree to set prices artificially high.
2. Manipulation of Supply - when a company agrees to limit
production.
3. Market Allocation Market Division occurs when companies in
an oligopoly divides up the market among themselves (you get India
and I get China).
4. Bid Rigging Occurs when managers in an oligopoly market decide
in advance which of them will submit the winning bid.
5. Exclusive Dealing Arrangements - when a company sells to a
retailer only on condition that the retailer will not purchase products
from other companies and/or will not sell outside a certain
geographical area.
6. Tying Arrangements - when a company sells a buyer certain
goods only on condition that the buyer also purchases other goods
from the firm.
7. Retail Price Maintenance Agreements - when a company sells to
a retailer only on condition that they agree to charge the same set
retail prices.
8. Predatory Price Discrimination Price discrimination is when a
company charges different prices to different buyers for the same

goods or services. It becomes predatory price discrimination when the

companys intent is to run its competitor out of business.
9. Bribery Many companies have secretly bribed government
officials so they will purchase goods from the company and not its
competitors. When a bribe takes place the bribing company becomes a
monopoly.

CHAPTER 5

Pollution : the undesirable and unintended contamination of the

environment by the manufacture or use of commodities.
Resource depletion : the consumption of finite or scarce resources.
Global warming Greenhouse gases itself poses a difficult and
frightening challenge. Global warming greenhouse gases such as:
carbon dioxide, nitrous oxide, methane, and chlorofluorocarbons
Ozone depletion The release of chlorofluorocarbons (CFCs) into the
stratosphere above us gradually breaks down ozone gas in the
stratosphere.
Acid Rain occurs when coal containing high levels of sulfur is burned
and releases large quantities of sulfur oxides and nitrogen oxides into
the atmosphere.
Airborne Toxics are less catastrophic but highly worrisome air
pollution threats; 2.4 billion pounds of airborne toxic substances
released annually into the nation's atmosphere, including phosgene, a
nerve gas used in warfare, and methyl isocyanate
that our duty to protect the environment extends beyond the welfare
of humans (anthropocentric)
ecological ethics or deep ecology, maintains that the environment
deserves to be preserved for its own sake, regardless of whether or not
this directly benefits humanity.
Private costs are the actual private costs that a firm incurs to
produce a commodity.
Social costs include the private costs plus the external costs that the
firm does not pay the costs of pollution and medical care that result
from the manufacture of the commodities.
The amount a firm should invest in pollution control, then, must rest on
a cost-benefit analysis:
1. Identify costs and benefits of the proposed program and the person
or sectors incurring or receiving them. Trace transfers.
2. Evaluate the costs and benefits in terms of their value to
beneficiaries and donors. The standard of measure is the value of each

marginal unit to demanders and suppliers ideally captured in

competitive prices. Useful refinements involve:
a. Incorporating time values through the use of a discount rate.
b. Recognizing risk by factoring possible outcomes according to
probabilities and, where dependent, probability trees.
3. Add up costs and benefits to determine the net social benefit of a
project or program.
social audit (a report of the social costs and social benefits of the
firms activities)
Ecofeminists, a related group of thinkers, sees the key form of
hierarchy connected to the destruction of the environment as the
domination of women by men.
Conservation : the saving or rationing of natural resources for later
use.
Sustainability: encompassing more than just environmental
concerns.

CHAPTER 6

the contractual theory of business firms duties to consumers claims

that a business has four main moral duties:
1. Complying with the terms of the sales contract and the secondary
duties of
2. Disclosing the nature of the product,
3. Avoiding misrepresentation,
4. Avoiding the use of duress and undue influences.

The due care theory of the manufacturer's duties to consumers

is based on the idea that consumers and sellers do not meet as equals
and the consumer's interests are particularly vulnerable to being
harmed by the manufacturer, who has a knowledge and an expertise
that the consumer lacks.
The doctrine of caveat emptor is here replaced with a weak version
of the doctrine of caveat vendor.
Manufacturers' responsibilities to exercise due care extends to the
following three areas:
1. Design - a product's design should not conceal any dangers, should
conduct research and tests to uncover any risks, incorporate all
feasible safety devices, and use adequate materials. The capacities of
the persons who will use the product
should be considered. The design should additionally be well tested to
ensure that consumers will use the product properly.

2. Production - the manufacturing process must be controlled to

eliminate any defective items, identify weaknesses, and ensure that
unsafe economizing measures are not taken. Adequate quality controls
are to be used during manufacturing.
3. Marketing - the firm should attach labels, notices, and instructions
on the product warning of all potential dangers involved in using or
misusing the item. Manufacturers must also take into consideration the
capacities of the persons who they expect will use the product. If the
possible harmful effects of using a product are serious or if they cannot
be adequately understood without expert opinion, then sale of the
product should be carefully controlled.
Commercial advertising is sometimes defined as a form of
"information" and an advertiser as "one who gives information.
Production costs are the costs of the resources consumed in
producing a product.
Selling costs are the additional costs of resources that do not go into
the product itself, but rather are incurred as a result of persuading
consumers to purchase it.
Critics of advertising claim it has several adverse effects on society:
1. It degrades peoples tastes. To be effective it must present
irritating
and
aesthetically
unpleasant
displays,
inculcating
materialistic values and ideas about how happiness is achieved.
2. It wastes valuable resources. Selling costs are those that do not
add to the product but are used to getting people to buy the product.
3. It creates monopoly power. Monopolies lead to higher consumer
prices.
Psychological privacy is privacy with respect to a person's inner life.
Physical privacy is privacy with respect to a person's physical
activities.

To balance these two factors, the following factors are crucial:

1. Purpose
2. Relevance
3. Informing
4. Consent
5. Accuracy
6. Security Recipients and Uses
CHAPTER 7
Discrimination in employment involves three basic elements:
1. It must be a decision not based on individual merit.
2. The decision must derive from racial or sexual prejudice, false
stereotypes, or some other kind of morally unjustified attitude against
members of the class to which the employee belongs.

3. The decision must have a harmful impact on the interest of employees

against whom the decision is made in hiring, compensation, promotion,
job assignments, or termination of those employees.
three types of comparisons :
1. Average Income Comparisons - comparisons of average benefits
given to minorities and women, compared to other groups,
2. Lowest Income Comparisons - comparisons of the proportion of a
minorities and women found in the lowest levels of the institution
compared to the proportions of other groups found at those levels,
3. Desirable Occupation Comparisons - comparisons of the
proportion of a minorities and women found in the most advantageous
positions in the institution as compared to the proportions of other
groups in those positions.
affirmative action is as an instrument for increasing utility.
CHAPTER 8

employee's main moral duty is to work toward the goals of the firm.

Conflicts of interest arise when employees have a private interest in

the outcome of a task in which they are engaged that is possibly
antagonistic to the firm's interests and substantial enough that it might
affect the employee's independent judgment on the firm's behalf.

Commercial bribes and extortion are obviously unethical and create

clear conflicts of interest. Accepting gifts may or may not be ethical,
depending on a number of factors:
1. What is the value of the gift?
2. What is the purpose of the gift?
3. What are the circumstances under which the gift was given?
4. What is the position of the recipient?
5. What is the accepted business practice in the area?
6. What is the company's policy?
7. What is the law?

Insider trading, the act of buying or selling company stock on the

basis of confidential or proprietary information, is illegal and unethical.

A firm's main moral duty to its employees is to provide them with a

fair wage and fair working conditions. Setting a fair wage is both
important and difficult balancing the employers interest in minimizing
costs and the workers interest in providing a decent living for
themselves and their families.
The term sweatshop is used to describe a workplace that has
numerous health and safety hazards, poor working conditions and low
wages.
Whistle blowing, the attempt by an employee to disclose wrongdoing
in an organization, can take two forms.
Organizational Politics :
1. Blaming or attacking others.
2. Controlling information.
3. Developing a base of support for one's ideas.
4. Image building.
5. Ingratiation.
6. Associating with the influential.
7. Forming power coalitions and developing strong allies.
8. Creating obligations.