INTRODUCTION:Business Issues

INTRODUCTION (CONTD.) >>

Business Ethics MGT610

LESSON 01

INTRODUCTION

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

Japan.

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

run.

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.

Business Issues

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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