Business Ethics MGT610
Let's begins with a case study of Merck and Company, discussing how they dealt with the
problem of developing a drug that was potentially life-saving but which presented them with
little, if any, chance of earning a return on their investment.
The drug was Ivermectin, one of their best-selling animal drugs. The potential market for the
drug was those suffering from river blindness an agonizing disease afflicting about 18 million
impoverished individuals in Africa and Latin America. The disease is particularly horrendous:
worms as long as two feet curl up in nodules under an infected person's skin, slowly sending
out offspring that cause intense itching, lesions, blindness, and ultimately death (though many
sufferers actually commit suicide before the final stage of the disease).
The need for the drug was clear. However, the victims of river blindness are almost exclusively
poor. It seemed unlikely that Merck would ever recoup the estimated $100 million it would cost
to develop the human version of the drug. Moreover, if there proved to be adverse human side
effects, this might affect sales of the very profitable animal version that were $300 million of
Merck's $2 billion annual sales. Finally, Congress was getting ready to pass the Drug
Regulation Act, which would intensify competition in the drug industry by allowing
competitors to more quickly copy and market drugs originally developed by other companies.
Questions: Was Merck morally obligated to develop this drug?
Their managers felt, ultimately, that they were. They even went so far as to give the drug away
for free. This story seems to run counter to the assumption that, given the choice between
profits and ethics, companies will always choose the former. The choice, however, may not be
as clear-cut as this dichotomy suggests. Some have suggested that, in the long run, Merck will
benefit from this act of kindness just as they are currently benefiting from a similar situation in
Even so, most companies would probably not invest in an R & D project that promises no
profit. And some companies often engage in outright unethical behavior. Still, habitually
engaging in such behavior is not a good long-term business strategy, and it is the view of this
book that, though unethical behavior sometimes pays off, ethical behavior is better in the long
A more basic problem is the fact that the ethical choice is not always clear. Merck, as a for-
profit corporation, has responsibilities to its shareholders to make a profit. Companies that
spend all their funds on unprofitable ventures will find themselves out of business.
This book takes the view that ethical behavior is the best long-term business strategy for a
company--a view that has become increasingly accepted during the last few years. This does
not mean that occasions never arise when doing what is ethical will prove costly to a company.
Such occasions are common in the life of a company, and we will see many examples in this
book. Nor does it mean that ethical behavior is always rewarded or that unethical behavior is
always punished. On the contrary, unethical behavior sometimes pays off, and the good guy
sometimes loses. To say that ethical behavior is the best long-range business strategy means
merely that, over the long run and for the most part, ethical behavior can give a company
significant competitive advantages over companies that are not ethical. The example of Merck
and Company suggests this view, and a bit of reflection over how we, as consumers and
employees, respond to companies that behave unethically supports it. Later we see what more
Business Ethics MGT610
can be said for or against the view that ethical behavior is the best long-term business strategy
for a company.
This text aims to clarify the ethical issues that managers of modern business organizations must
face. This does not mean that it is designed to give moral advice to people in business nor that
it is aimed at persuading people to act in certain moral ways. The main purpose of the text is to
provide a deeper knowledge of the nature of ethical principles and concepts and an
understanding of how these apply to the ethical problems encountered in business. This type of
knowledge and understanding should help managers more clearly see their way through the
ethical uncertainties that confront them in their business lives--uncertainties such as those
faced by the managers of Merck.
According to the dictionary, the term ethics has a variety of different meanings. One of its
meanings is: "the principles of conduct governing an individual or a group". We sometimes use
the term personal ethics, for example, when referring to the rules by which an individual lives
his or her personal life. We use the term accounting ethics when referring to the code that
guides the professional conduct of accountants.
A second--and more important--meaning of ethics, according to the dictionary, is: Ethics is
"the study of morality." Ethicists use the term ethics to refer primarily to the study of morality,
just as chemists use the term chemistry to refer to a study of the properties of chemical
substances. Although ethics deals with morality, it is not quite the same as morality. Ethics is a
kind of investigation--and includes both the activity of investigating as well as the results of
that investigation--whereas morality is the subject matter that ethics investigates.
This chapter discusses the case of B.F. Goodrich to clarify these definitions. Kermit Vandivier
was presented with a moral quandary: he knew that Goodrich was producing brakes for the
U.S. government that were likely to fail, but was required by his superiors to report that the
brake passed the necessary tests. His choice was to write the false report and go against his
ethical principles, or be fired and suffer the economic consequences.
He chose the former, even though his moral standards were in conflict with his actions. Such
standards include the norms we have about the kinds of actions we believe are right and wrong,
such as "always tell the truth." As Vandivier shows, we do not always live up to our standards.
There are other types of standards as well, such as standards of etiquette, law, and language.
Moral standards can be distinguished from non-moral standards using five characteristics:
1. Moral standards deal with matters that can seriously injure or benefit humans. For
example, most people in American society hold moral standards against theft, rape,
enslavement, murder, child abuse, assault, slander, fraud, lawbreaking, and so on.
2. Moral standards are not established or changed by authoritative bodies. The validity of
moral standards rests on the adequacy of the reasons that are taken to support and
justify them; so long as these reasons are adequate, the standards remain valid.
3. Moral standards, we feel, should be preferred to other values, including self-interest.
This does not mean, of course, that it is always wrong to act on self-interest; it only
means that it is wrong to choose self-interest over morality
4. Moral standards are based on impartial considerations. The fact that you will benefit
from a lie and that I will be harmed is irrelevant to whether lying is morally wrong.
Business Ethics MGT610
5. Moral standards are associated with special emotions and a special vocabulary (guilt,
shame, remorse, etc.). The fact that you will benefit from a lie and that I will be harmed
is irrelevant to whether lying is morally wrong.
Ethics is the discipline that examines one's moral standards or the moral standards of a society.
It asks how these standards apply to our lives and whether these standards are reasonable or
unreasonable--that is, whether they are supported by good reasons or poor ones. Therefore, a
person starts to do ethics when he or she takes the moral standards absorbed from family,
church, and friends and asks: What do these standards imply for the situations in which I find
myself? Do these standards really make sense? What are the reasons for or against these
standards? Why should I continue to believe in them? What can be said in their favor and what
can be said against them? Are they really reasonable for me to hold? Are their implications in
this or that particular situation reasonable?
Taking Vandivier as an example, we might ask if writing the false report was really wrong
given his responsibilities to support his family. Moreover, the company, not Vandivier, would
be held responsible for any faulty brakes. Finally, even if he did not cooperate and was
consequently fired, the brakes would still be manufactured and installed. The consequences of
writing the report or not would be the same, except that if he chose not to participate he would
be fired. It is in considering such points that we begin to do ethics.
Ethics is the study of moral standards--the process of examining the moral standards of a person
or society to determine whether these standards are reasonable or unreasonable in order to apply
them to concrete situations and issues. The ultimate aim of ethics is to develop a body of moral
standards that we feel are reasonable to hold--standards that we have thought about carefully and
have decided are justified standards for us to accept and apply to the choices that fill our lives.
Ethics is not the only way to study morality. The social sciences--such as anthropology,
sociology, and psychology--also study morality, but do so in a way that is quite different from
the approach to morality that is characteristic of ethics. Although ethics is a normative study of
ethics, the social sciences engage in a descriptive study of ethics.
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