Unit 1: Business ethics foundations

Ethics is the study of moral principles that govern a person's behaviour. Business ethics applies these principles to business conduct — honesty, fairness, integrity and responsibility. Nature: based on moral values, relative to society and time, voluntary yet expected, and wider than law. Purpose: build trust, guide decisions, protect stakeholders and sustain long-term success.

Characteristics

• Based on moral and social values; a code of conduct for business.
• Voluntary and self-disciplined, yet expected by society.
• Relative — standards differ across cultures and change over time.
• Protects all stakeholders, not only owners.
• An art and a science — principles applied through judgement.

• Principles: honesty, integrity, fairness, transparency, accountability, respect for others, promise-keeping, legal compliance, concern for stakeholders and the environment.

• For the firm: reputation and brand value, customer loyalty, investor confidence, lower legal and regulatory risk, better employee morale and retention.
• For society: fair markets, consumer protection, environmental care, trust in institutions.
• For managers: a consistent basis for difficult decisions and defensible conduct.

• Core ethical values: trustworthiness, respect, responsibility, fairness, caring and citizenship (Josephson's "six pillars of character").

• Ethical absolutism: some moral rules are universal and unchanging — right everywhere and always (e.g., bribery and child labour are wrong in every country).
• Ethical relativism: what is right depends on culture, society or the individual — "when in Rome, do as the Romans do".

• Middle path: follow universal "hypernorms" (human rights, honesty) while allowing local variation in non-core matters — integrative social contracts theory (Donaldson and Dunfee).

Lawrence Kohlberg described how moral reasoning matures through three levels with two stages each.

• Levels: pre-conventional (stages 1–2), conventional (stages 3–4), post-conventional (stages 5–6).
• Business relevance: most managers reason at the conventional level, so organisational rules, culture and leadership strongly shape behaviour.
• Criticism: Carol Gilligan argued it neglects an "ethics of care"; it measures reasoning, not actual behaviour.

• Meaning: a formal written statement of the values and standards of conduct expected of all employees.
• Contents: conflicts of interest, gifts and hospitality, confidentiality, insider information, fair dealing, harassment, environment, use of company assets, reporting violations.

A stakeholder is any group that affects or is affected by the firm (R. Edward Freeman, 1984).

• Stakeholder mapping (Mendelow): power vs interest — manage closely, keep satisfied, keep informed, monitor.