The document discusses ethics systems and behavioral ethics. It covers topics such as utilitarianism, rights, justice, behavioral ethics experiments, and their implications for management. It analyzes cases related to genetic testing in the workplace, undocumented workers at Chipotle, and environmental injustice. The document provides an overview of key concepts in moral philosophy and how they relate to analyzing ethical issues and dilemmas that arise in business.

1. ETHICS SYSTEMS
Stephen Ong, BSc(Hons) Econs (LSE),
MBA International Business(Bradford)
Visiting Fellow, Birmingham City University
Visiting Professor, Shenzhen University
MBA1034 GOVERNANCE, LAW & ETHICS

2. • Discussion: The role of
Accountancy firms
1
•Utilitarianism, Rights
& Justice, and
Management
2
• Case Discussion : The
Galleon Group & Insider
Trading
3
Today’s Overview

3. 1. Open Discussion
• Prem Sikka, (2008),"Enterprise culture and
accountancy firms: new masters of the
universe", Accounting, Auditing &
Accountability Journal, Vol. 21 Iss: 2 pp. 268 –
295

4. 2.
UTILITARIANISM

5. Topics Covered
• Introduction
• The managerial role of ethics
• What ethics is and is not
• Personal and business ethics
• Ethics and individual interests
• Ethics, politics, and change
• Casuistry
• The methodology of ethics
• The relationships among moral philosophy,
ethics, and political philosophy

6. Topics Covered
• Utilitarianism: A consequentialist
system
• Utilitarian duty and the Calabresi and
Melamed principles
• Act and rule utilitarianism
• Utilitarianism and rights
• Criticisms of utilitarianism
• Utilitarianism in application

7. Introduction
• The content of corporate social
responsibility is provided by
ethics
• Ethics and its application in
management constitute a broad
and deep subject

8. The Managerial Role of Ethics
• As a normative approach, ethics
provides principles for:
–Evaluating alternatives
–Formulating policies to take
into account the interests,
rights, and liberties of those
affected

9. What Ethics Is and Is Not
• Ethics is a systematic approach to moral judgments based on
reason, analysis, synthesis, and reflection
• Ethics addresses matters of importance to human well-
being, autonomy, and liberty
• Ethics is based on moral standards that are independent of
the declarations of governments or other authoritative
bodies
• Ethics is the discipline concerned with judgments based on
moral standards and the reasoning therefrom
• The focus of ethics is not on:
– Simple temptation
– Issues involving direct mutual advantage

10. Business Ethics
• The application of ethics principles to
issues that arise in business

11. Personal and Business Ethics
• In personal ethics, an individual is the principal
• Business ethics:
– Pertains to situations in which individuals:
• Are In an organizational position
• Act as agents of the company and its owners
– Differs from personal ethics because a manager has
accepted the responsibilities associated with the
position occupied

12. Ethics and Individual Interests
• Ethical behaviour enables society to realize the
benefits from social interactions
– Allows individuals to rely on the word and conduct of
others
• Ethical behaviour does not always make an
individual or a firm better off
• Good ethics may not always be
profitable, unethical behaviour can
result in substantial losses

13. Ethics, Politics and Change

14. Casuistry
• Approach to moral practice that seeks to
balance competing considerations by:
–Making exceptions to principles in
particular cases
• Characterized as a false art of making
exceptions in particular situations,
resulting in the violation of underlying
principles

15. Appropriate and Inappropriate
Methods of Applied Ethics

16. Process of Ethics Analysis

17. 21-17
Moral Philosophy
•Concerned with deducing moral
principles and standards from axioms
or self-evident principles
Political Philosophy
•Related to ethics and moral
philosophy but focuses on institutions
to govern the interactions among
individuals

18. Relationship Between Moral
Philosophy and Ethics

19. Utilitarianism: A Consequentialist
System
• In a consequentialist system, an action is
moral if it produces better consequences
than any other alternative
• Utilitarianism is a consequentialist system
with two particular features:
–Consequences are to be evaluated in terms
of the preferences of individuals affected
–Those preferences are to be aggregated

20. Summary of the Components of
Utilitarianism
• Utilitarianism is a moral philosophy that holds
that:
• Moral good is judged in terms of consequences
• Consequences are evaluated in terms of human well-
being
• Human well-being is evaluated in terms of individual
preferences
• The rightness of an action is judged by the aggregate
well-being, or good, it yields
• The morally justified action maximizes aggregate
well-being

21. Utilitarian Duty and the Calabresi
and Melamed Principles
• The most difficult aspect of applying
utilitarianism, or any other ethics
system, is:
–Determining who has the duty to take a
moral action
• The Calabresi and Melamed principles
provide a framework for reasoning
about the assignment of duty

22. Act Utilitarianism
• Focuses on the consequences of a
particular action in a particular situation
• Prescribes the action that yields the
greatest aggregate well-being for
everyone affected by the action
Rule Utilitarianism
• Focuses on a general rule of
behaviour to be followed by all
individuals in all similar situations

23. Jointly Determined Consequences
• In many situations
consequences are jointly
determined by the actions of
more than one person
–In such a situation, a second
form of rule utilitarianism is
applicable

24. Utilitarianism and Rights
• Rights may be classified as:
–Intrinsic - To be respected because
they have moral standing
independent of the consequences
they yield
–Instrumental - To be respected
because they lead to desirable
consequences

25. Criticisms of Utilitarianism
• Philosophical criticisms
• Interpersonal comparisons of
utility
• Identifying costs and benefits
• The measurement problem
• The information problem

26. Utilitarianism in Application
• Methodology:
– Identify the alternatives – rules of behaviour and
actions
– For each alternative, identify the set of consequences
for all persons affected
– Determine which of the consequences are social
costs and which are social benefits
– Evaluate and estimate the social costs and social
benefits
– Choose the action or rule that yields the greatest
difference between social benefits and social costs

27. Case - Gilead Sciences : The Gilead
Access Program for HIV Drugs
• A major milestone in AIDS treatment
therapy was reached in October 2001
• The FDA approved Gilead’s breakthrough
drug Viread as a first-line treatment for
AIDS patients
• Gilead was motivated by the suffering of patients with
HIV/AIDS
• Wanted its drugs to be available to those who needed
them in the least developed countries
• No single governing body provided regulatory standards and
oversight for pharmaceuticals

28. Case - Gilead Sciences : The Gilead
Access Program for HIV Drugs
–A drug had to be registered in each
country before it could be used
• Patent protection allowed
pharmaceutical companies to control drug
pricing and distribution
• In most developing countries, the
company had no physical presence
• Gilead was developing its access program
in a charged environment

29. Case - Consumer Awareness or Disease Mongering?
GlaxoSmithKline and the Restless Legs Syndrome
• Restless legs syndrome - Neurological disorder
characterized by an uncontrollable urge to move
the legs
– Accompanied by unpleasant and sometimes painful
sensations in the legs
• GSK recognized the potential of Requip to treat
RLS after doctors had begun to prescribe it for
the disorder
• The Restless Legs Syndrome (RLS) Foundation, of
Rochester, Minnesota, conducted research on
and provided education about RLS

30. Case - Consumer Awareness or Disease Mongering?
GlaxoSmithKline and the Restless Legs Syndrome
• Disease-mongering - Corporate-
sponsored creation or exaggeration
of maladies for the purpose of selling
more drugs
• For a year in advance of approval of
Requip in the United Kingdom GSK
had advertised in doctors’ magazines
to promote awareness of RLS

31. 2.3
RIGHTS AND
JUSTICE

32. Topics Covered
• Introduction
• Classification of ethics systems
• Classes of rights
• Kantian maxims or moral rules
• Applied rights analysis
• Conflicts among rights
• Equal employment opportunity
• Paternalism
• Neoclassical liberalism
• Categories of justice theories
• Rawls’s theory of justice
• Higher order standards for evaluating ethics systems

33. Introduction
• Consequentialist ethics systems such as
utilitarianism focus on:
–The good and evaluate the good in terms
of individuals’ preferences for
consequences
• Rights established under a
consequentialist system are instrumental
–Their justification is in terms of the
consequences they yield

34. Classification of Ethics Systems
• Teleological - Define the rightness of
an action in terms of the good its
consequences yield
–Also called consequentialist systems
• Deontological - Holds that moral right
takes precedence over the good
–Can be evaluated by considerations
independent of, or in addition to,
consequences

35. Teleological and Deontological
Ethics Systems

36. Rights
• May be derived from moral principles
• May be established through political
choice
• These often reflect moral principles
• Established through legislation
• Established through private agreements
• Established by implicit contracts

37. Negative and Positive Rights
• Negative rights impose duties on people
and the state not to interfere with the
actions of a person
–For example, freedom of speech and
assembly
• Positive rights impose affirmative duties
on others to take particular action
–For example, right to public education

38. Kantian Maxims or Moral Rules
• Categorical imperative - A
fundamental axiom on which Kant’s
system is based on
–Serves two basic functions
•Provides a basis for determining
maxims and moral rules
•Prescribes that individuals are to act
in accord with those rules

39. The Relationship between
Maxims and Rights
• Kant’s system is expressed in
terms of maxims:
–Which individuals have a moral
duty to respect
•That duty establishes moral
rights

40. Instrumental Rights
•To be respected because they contribute
to achieving better consequences, by,
for example, enabling individuals to
pursue their interests
Intrinsic Rights
•To be respected in and of themselves
and do not require any justification in
terms of consequences or other
considerations

41. Instrumental Rights and
Consequences

42. Intrinsic Rights and Consequences

43. Criticisms of Kantian Rights
• Include:
–Those that pertain to
deontological systems in
general
–Those specific to his system

44. Applied Rights Analysis
• In managerial decision making,
rights have two effects:
–They rule out certain alternatives,
such as those that would violate moral
principles or legally protected rights
–A right may impose an affirmative
duty that requires a firm to take
particular actions

45. Granted Right
•Established by moral consensus or
by government and is accompanied
by a clear assignment of the
corresponding duty
Claimed Right
•When the duty has not been clearly
assigned, moral consensus is absent,
or government has not spoken

46. Rights and Moral Standing

47. A Methodology for Rights Analysis
• Identify the rights claimed and their claimed moral
bases
• Determine which claimed rights satisfy moral standards
• If a claim is not morally justified, check whether it is
established by government
– If it is, it is granted and is to be respected
– If not, the claim need not be respected
• Identify the actions consistent with the
protection or promotion of any morally justified
rights

48. A Methodology for Rights Analysis
• Identify conflicts among rights
– If there are none, those claimed rights with moral
standing are to be respected
• If there are conflicts among rights with moral
standing:
– Investigate the importance of the interests those
rights are intended to protect or promote
• Prioritize the rights based on the importance of
those interests and determine the extent to
which each is constrained by the others
• Choose the action that does best in terms of the
priorities established

49. Conflicts Among Rights
• Rights and interests
• Prioritization

50. Applied Rights Analysis: Integrity
Tests

51. Equal Employment Opportunity
• A principle supported by virtually all ethics
systems
–Its importance is supported by legal
grants that provide for its public
enforcement
–Its legal manifestation is Title VII of the
Civil Rights Act of 1964:
• Which prohibits discrimination on the basis
of “race, colour, sex, religion, or national
origin”

52. Paternalism
• Actions taken to benefit a person
without that person’s consent
–Is a moral wrong
–Is objectionable from a consequentialist
perspective because:
•It denies individuals the opportunity
to make choices that would further
their interests

53. Neoclassical Liberalism
• Emphasizes the liberty of
individuals
• Concerned with the relationships
between liberty and morality
and between liberty and the
state

54. Categories of Justice Theories
• Distributive
• Compensatory
• Retributive

55. Distributive Justice: Utilitarianism,
Egalitarianism, and Rawlsian Justice

56. Injustice
• A general principle advanced in
conceptions of justice is that:
–An injustice is morally tolerated
only if it is necessary to avoid a
greater injustice
–Requires an ordering of injustices

57. Rawls’s Contractarian Framework

58. Difference Principle,
Utilitarianism, Egalitarianism

59. Criticisms of Rawls’s Theory
• One form of criticism centers on whether all individuals
in the original position would choose the same
principles:
• If so, whether they would choose Rawls’s principles rather
than some other principles
• Another criticism centers on Rawls’s conclusion that:
• In the original position, once liberties and equal
opportunity have been assured, society would choose
institutions that provide the maximum benefit to
the least advantaged

60. Methodology for Applying the
Principles of Justice
• Identify the liberties and rights involved
• The principle of equal liberty
• The principle of fair equality of opportunity
• For the remaining alternatives, evaluate their
fairness implications for the pursuit of
opportunities by those affected
• Choose among the remaining policies based
on the difference principle
• Identify which parties have which duties

61. Higher Order Standards for
Evaluating Ethics Systems
• The ethics systems based on utilitarian,
rights, and justice considerations use
two general standards for determining
which principles or rules have moral
standing:
–Universalizability (which implies
reversibility)
–Unanimous impartial choice as in Rawls’s
original position

62. Case - Genetic Testing in the
Workplace
• Determines susceptibility to certain hazards can be
done from a sample of blood or other bodily fluid
• Can be used for either screening or monitoring
purposes
• Can also be used to monitor groups of employees
over time
– To determine if they experience chromosome
damage due to exposure in the workplace
• In 2008, Congress enacted and the president signed
the Genetic Information Nondiscrimination Act

63. Case - Chipotle Mexican Grill and
Undocumented Workers
• Despite the success of the company in the marketplace, the
management team faced:
– A difficult challenge in its nonmarket environment
• In 2010 ICE conducted an investigation of Chipotle restaurants
leading to the firing of 400 workers
• The chair of the immigration subcommittee of the House
Judiciary Committee, Elton Gallegly (R-CA), argued that the use
of E-Verify should be mandatory
– The U.S. Chamber of Commerce reported that its members
had mixed reactions to making E-Verify mandatory
• Advocates for undocumented workers argued that firing the
workers would simply drive them into the underground
economy

64. Case - Environmental Injustice?
• Addresses two aspects
– Explanation for the empirical finding
– Centers on whether the situation is unjust
• Explanations for the finding that minorities and those in
poverty are disproportionately located proximate hazardous
waste facilities
1. Firms that construct and operate plants with toxic emissions
and hazardous waste facilities: Seek to impose harm on the
poor and minorities
2. Locations for such facilities are chosen on an economic
basis
3. Locations for toxic emissions and hazardous waste facilities
are chosen based on economic considerations and with the
intent of avoiding posing a risk to people

65. Case - Environmental Injustice?
• The bulk of the empirical studies examining the
socio-economic characteristics of people who
might be exposed to the hazards analyze:
–The data at a point in time at which both the
toxic emission site and the people are present
• Ann Wolverton, an economist at the EPA,
conducted an empirical study on Environmental
Injustice
–Supports the third explanation and not the first
or second explanations

66. 2.4
BEHAVIOURAL ETHICS
AND
MANAGEMENT

67. Topics Covered
• Introduction
• Behavioural ethics experiments
• Managerial implications
• The challenge of corporate social
responsibility
• Sources of unethical behavior

68. Introduction
• Corporate statements of social
responsibility and codes of ethics
have become commonplace

69. Behavioural Ethics Experiments
• Self-interest, altruism, and fairness
• Audience effects, the self, and corporate social
responsibility
• Reciprocity
• Behaviour in groups
• Implications for the application of ethics principles
• Moral suasion
• Conclusions from the experiments
• Extrapolation
• Overconfidence in one’s self

70. Self-Interest, Altruism, and Fairness
• A dictator game involves two participants:
– A proposer who unilaterally makes a decision about
how much of a sum of money, referred to as an
endowment, to keep and how much to contribute
– A responder who takes no action and simply receives
the contribution
• An unconditional altruist:
– Takes into account the well-being of others
independently of their actions
• A conditional altruist:
– Takes into account the well-being of others conditional
on their past actions as well as their current situation

71. Audience Effects, The Self, and
Corporate Social Responsibility
• Audience effects studied to:
– Assess whether proposers allocate a portion of the
endowment to the responder so as not to appear selfish
either to the responder, the experimenter, or one self
• Audience effects can have implications for firms
considering whether to practice corporate social
responsibility (CSR)
• Audience effects should be a function of the size and
composition of the audience
• Behaviour can also be affected by one’s own self-
image

72. Reciprocity
• The simplest setting in which to
study reciprocity is a variant of a
dictator game referred to as an
ultimatum game

73. Behaviour in Groups
• Group decisions have been studied
using a (linear) public goods game in
which:
–All participants in a group have an
endowment that they can keep for
themselves or
–They can contribute some portion of it to a
public good that benefits all members of
the group

74. Implications For the Application
of Ethics Principles
• Rawls’s theory of justice criticized
because:
–It represents a slice in time and ignores how
that slice in time was arrived at
• The actions taken by individuals in the
past as well as events beyond their
control determine where they are located
on the justice frontier

75. Moral Suasion
• Behaviour can be influenced by
moral suasion

76. Conclusions from the
Experiments
• Experimental findings discussed
suggest a number of conclusions
about behaviour
• Each of these should be interpreted
with caution and as a tendency
rather than a law of human
behaviour

77. Extrapolation
• Care must also be taken in
extrapolating from experimental
findings to real-world contexts

78. Overconfidence in One’s Self
• People often overestimate their
ability to deal effectively with moral
issues
–The self-serving bias of moral
superiority can lead to
overconfidence and reduced care:
• When making decisions on issues
involving moral concerns

79. Managerial Implications
• The most consistent conclusion from the
experiments is people differ in:
• Behaviour
• Preferences
• Moral conduct
• Differ in the importance of factors such as:
• The characteristics of those affected by their decisions
• The audience for their actions
• The scrutiny they face
• The social context of their situation
• How they take strategic considerations into account

80. Managerial Implications
• Implications of the experiments are
relevant for:
–Firms and their managers when
making decisions that involve moral
concerns
–Anticipating nonmarket action that
may be motivated by the (ethical)
conduct of a firm

81. The Challenge of Corporate
Social Responsibility
• The spread of codes of ethics and statements of
social responsibility is due to:
– A belief by some firms that they should be accountable
for conduct beyond profit maximization
– A defensive motivation intended to avoid private
politics led by activists and other interest groups or to
preempt public politics and additional government
regulation
• Approaches used to giving standing to corporate
social responsibility:
– Triple bottom line
– Balanced scorecard

82. Core Principles and Their
Evolution
• Johnson & Johnson’s “Our
Credo” identifies:
–Commitments to a set of
stakeholders and can be
revised as the set of relevant
issues it faces evolves

83. Principles, Objectives, and
Strategies

84. Sources of Unethical Behaviour
• Unethical behaviour has a number of sources:
–Some are idiosyncratic to the particular
individuals involved
–Others are functions of the managerial
practices or the policies of the firm itself
–Personal weakness
–Temptation
–Narrow focus on the duties imposed by the
law
–Reliance on an ethics framework

85. Case - Denny’s and Customer Service
• Six African American agents filed a lawsuit
against Denny’s (a unit of Flagstar) restaurant for
discrimination
• In response to the agents’ charges, Flagstar fired
the manager of the restaurant for failure to
report the incident
–But maintained that the delay in serving
the black agents was not racially based
• Other such incidents followed regularly forcing
Denny’s to apologize to customers, firing or
transferring “bad-apple” employees, and
creating a cultural diversity team

86. Case - Fresenius Medical Care
in China
• Human rights groups and activists had regularly
charged that China sold human organs
harvested from executed prisoners, many of
whom were sentenced to death for political
crimes or for theft or corruption
• Fresenius Medical Care’s Nanfang facility was
operated by Chinese doctors, and Fresenius had
one employee in Hong Kong who monitored the
facility
– Fresenius’s investigation revealed that foreign
patients were receiving dialysis treatment at Nanfang
for relatively short periods

87. CASE DISCUSSION :
INSIDER TRADING

88. Case - Insider Trading
• Illegal insider trading refers generally to buying
or selling a security, in breach of a fiduciary duty
or other relationship of trust and confidence,
while in possession of material, nonpublic
information about the security
• Rajaratnam, founded Galleon, which recorded a
peak of $7 billion in funds under management
– The government had been alerted to Rajaratnam’s
activities by messages uncovered during an
investigation of a hedge fund run by his brother
– One source of information for Rajarartnam was
expert networks
• Primary Global Research

89. Core Readings
• Baron, David P.(2013) Business and its environment,
7th Edition, Pearson, Ch.21-23
• Cheeseman, Henry R.(2013) Business law, 8th Edition,
Prentice Hall. Ch.2

90. Next Week’s Ideas for Discussion
• Bartram, S (2008) What lies beneath:
foreign exchange rate exposure, hedging
and cash flows. Journal of Banking and
Finance, 32 (8). pp. 1508-1521.

91. QUESTIONS?