Ethical Principles in Business

Ethical decision-making is crucial for businesses as it determines their impact on society,

employees, consumers, and the environment. To understand how businesses navigate ethical
challenges, we will explore two key ethical perspectives: Ethics of Care and Ethics of Virtue.
These ethical theories provide frameworks for evaluating corporate behavior.

Ethics of Care:

This perspective emphasizes the importance of relationships, compassion, and responsibility

toward others. Unlike traditional ethical approaches that focus on abstract principles, the ethics of
care suggests that businesses should prioritize the well-being of individuals affected by their
actions, such as employees, customers, and communities. Companies following this approach
would ensure fair wages, safe working conditions, and environmentally sustainable practices. For
instance, if a company discovers a safety defect in one of its products, the ethics of care would
require it to immediately take corrective action, even if it results in financial loss.

Ethics of virtue

The second ethical theory, ethics of virtue, is centered on moral character rather than rules or
consequences. According to this perspective, businesses and individuals should act in ways that
reflect virtuous qualities such as honesty, integrity, fairness, and responsibility. Ethical business
leaders do not merely follow the law but strive to be morally excellent in their decisions. A
company that voluntarily adopts sustainable business practices, even when not legally required,
demonstrates ethical virtue. This framework urges businesses to go beyond compliance and act
with a sense of moral duty.

Ford Pinto Case (Corporate Negligence & Ethics Violation): One of the most infamous cases
of corporate negligence is the Ford Pinto case. In the 1970s, Ford discovered that the Pinto’s fuel
tank was prone to explosions in rear-end collisions. However, instead of fixing the issue, Ford’s
executives calculated that it would be cheaper to pay for potential lawsuits resulting from accidents
than to redesign the fuel system. This decision resulted in multiple deaths and injuries, leading to
a significant ethical scandal. Analyzing this case from the perspective of ethics of care, Ford failed
to prioritize the safety of its customers, violating its moral responsibility toward consumers. From
the standpoint of ethics of virtue, Ford’s actions lacked integrity and accountability, as the
company placed financial interests above ethical considerations.

Caltex Case Study (Corporate Responsibility in Developing Countries): Another significant

case is the Caltex controversy involving an American oil company operating in developing nations.
Caltex was accused of exploiting workers and causing environmental damage in regions with weak
labor and environmental regulations. This raises the ethical question of whether multinational
corporations should adhere to the same ethical standards abroad as they do in their home countries.
From the perspective of ethics of care, businesses are responsible for protecting workers and local
communities, regardless of the legal requirements of a given country. Applying the ethics of virtue,
a responsible business would uphold ethical values, such as fairness and sustainability, even in
environments where regulations are less strict. This case illustrates corporations' moral challenges
when operating across different legal and cultural contexts.

Real-Life Example: Toxic Waste Dumping in Côte d'Ivoire (Trafigura Scandal)

One of the most infamous real-world examples of unethical industrial waste disposal occurred in
Côte d'Ivoire (Ivory Coast) in 2006, involving the multinational commodities trading company
Trafigura. The company was responsible for illegally dumping toxic waste in and around the city
of Abidjan, leading to severe health and environmental consequences.

Background of the Case

Trafigura, a Dutch-based company, was transporting a highly toxic petroleum byproduct known
as slop oil from Europe. This waste contained dangerous chemicals, including hydrogen sulfide
and caustic soda. Proper disposal of such hazardous waste in Europe would have been very costly,
requiring strict environmental compliance and specialized treatment facilities. Instead, to cut costs,
Trafigura sought to offload the waste in a country with weaker environmental laws and
enforcement.

The Dumping Incident

In August 2006, Trafigura hired a local company in Côte d'Ivoire to dispose of the waste. Rather
than treating it properly, the waste was dumped at multiple locations in open-air sites, near
residential areas, without any safety measures. As a result, thousands of people in Abidjan were
exposed to toxic fumes and chemicals. Within days, residents began experiencing severe health
issues, including skin burns, nausea, breathing problems, and even fatalities. Over 100,000 people
sought medical treatment, and at least 15 deaths were officially reported.

Ethical Analysis

From the ethics of care perspective, Trafigura completely disregarded the well-being of local
communities in Côte d'Ivoire. The company prioritized cost-saving over human lives and failed to
consider the long-term health and environmental consequences of its actions. If Trafigura had
applied the ethics of care, it would have ensured that the toxic waste was disposed of safely, even
if it meant incurring higher costs. Ethical businesses should recognize their responsibility toward
people affected by their operations, regardless of geographical location.

From the ethics of virtue framework, Trafigura’s actions demonstrated a lack of integrity and
responsibility. A company with ethical values would have invested in proper waste management
rather than exploiting legal loopholes in a poorer country. The decision to dump toxic waste in a
region with weaker regulations reflected a deliberate attempt to evade corporate responsibility.
Ethical virtue demands that businesses uphold moral principles consistently, regardless of external
legal constraints.

Consequences and Legal Action

The Trafigura case led to widespread international condemnation. The company initially denied
wrongdoing but later agreed to a $198 million settlement with the Ivorian government. However,
many victims and environmental activists argued that justice was not fully served, as the long-term
damage remained severe. The scandal also highlighted the need for stricter international
regulations to prevent companies from outsourcing pollution and environmental damage to
developing nations.

Conclusion: Balancing Profit and Social Responsibility

The Trafigura case is a clear example of how corporate profit-making can come at the expense of
ethical responsibility. Businesses operating globally must recognize that human lives and
environmental sustainability should never be sacrificed for financial gain. Ethical companies
invest in safe and responsible waste disposal rather than exploiting weaker legal frameworks in
developing nations. The case serves as a warning that unethical business practices can lead to
severe reputational, legal, and financial consequences, reinforcing the need for ethical leadership
and corporate accountability.

Market and Its Types: Definitions and Ethical Weaknesses with Real-Life Examples

Definition of Market

A market is a system or an environment where buyers and sellers interact to exchange goods,
services, or information. Markets can exist in different forms, ranging from physical marketplaces
to online platforms. The structure of a market significantly impacts how prices are determined,
competition is managed, and consumers are treated.

Types of Markets and Their Definitions

1. Perfect Competition
In a perfectly competitive market, numerous buyers and sellers participate, none of whom have
enough power to influence prices. The prices of goods and services are determined purely by
market forces such as supply and demand. Since there is free entry and exit of firms, products
are homogeneous, and information is easily available to all participants, this market structure
promotes efficiency and consumer welfare.

Example: The agricultural sector is one of the best examples of perfect competition. Farmers
who sell wheat, rice, or vegetables in an open market cannot influence the price of their
products. Since there are many farmers producing similar goods, prices are determined by
market demand and supply.

2. Monopoly
A monopoly exists when a single company or entity dominates an entire industry or market,
restricting competition. Since there are no direct competitors, monopolies can set prices and
control supply. Often, new firms are barred from entering the market due to high costs, legal
restrictions, or other barriers imposed by the monopolist.
 Example
Google, in the search engine industry, can be considered a near-monopoly. While alternative
search engines exist, Google holds most of the market share, allowing it to control advertising
prices and user data policies without significant competition. Another example is a
government-controlled electricity company in some countries, where consumers cannot
purchase from the sole provider.

3. Oligopoly
An oligopoly is a market structure where a small number of large firms dominate the industry.
These firms have significant control over prices and market decisions, and they may engage in
strategic decision-making based on the actions of their competitors. Since the market is
controlled by a few players, competition is limited, and unethical business practices such as
price-fixing and market allocation often arise.

Example
The automobile industry, with companies like Toyota, Ford, and Volkswagen, is a prime
example of an oligopoly. These firms dominate the market and sometimes coordinate prices to
maximize profits. Similarly, with only a few major players, the airline industry follows
oligopolistic competition.

Ethical Weaknesses in Different Market Structures with Real-Life Examples

1. Ethical Issues in Monopolies

o Unfair Pricing: Monopolists can charge higher prices because consumers have no
alternatives. For example, in 2015, the pharmaceutical company Turing
Pharmaceuticals, led by Martin Shkreli, increased the price of an essential drug,
Daraprim, by over 5000%, exploiting its monopoly.
o Resource Misallocation: Monopoly firms may limit supply to maximize profits
rather than ensure availability. This was evident in the past when De Beers
controlled the diamond industry and restricted supply to keep prices high.
o Suppression of Innovation: Since there is no competition, monopolies may lack
the motivation to innovate or improve their products.
 2. Ethical Issues in Oligopolies
o Price-Fixing: Some companies in an oligopoly may collude to fix prices, reducing
fair competition. For example, in 2012, airlines such as British Airways and Virgin
Atlantic were fined for fixing fuel surcharges, leading to increased ticket prices for
consumers.
o Market Manipulation: In the oil industry, companies such as OPEC (Organization
of the Petroleum Exporting Countries) sometimes control production to influence
global oil prices, which affects economies worldwide.
o Barriers to Entry: Oligopolies often make it difficult for new firms to enter the
market due to high startup costs and restrictive agreements.

The structure of a market plays a crucial role in shaping business ethics and corporate behavior.
While perfect competition promotes fairness and efficiency, monopolies and oligopolies often lead
to unethical practices such as price-fixing, limited consumer choices, and exploitation.
Governments and regulatory bodies must ensure proper oversight to prevent market abuses and
protect consumer interests.

Market System

A market system is a component of an economic system that specifically deals with how goods
and services are exchanged and how prices are determined. It refers to how buyers and sellers
interact in an economy. The three main types of market systems are:

1. Free Market
2. Command Market
3. Mixed Market

Market Systems and Their Ethical Advantages & Weaknesses

1. Free Market System

A free market is where economic decisions are driven by supply and demand, with minimal
government intervention. Prices, wages, and production are determined by private individuals and
businesses.
Ethical Advantages:

• Freedom of Choice: Consumers and businesses can make their own economic decisions
without government restrictions.
• Efficiency & Innovation: Competition encourages efficiency, technological
advancement, and economic growth.
• Fair Rewards for Effort: Hard work, talent, and innovation are rewarded, leading to
motivation and progress.

Ethical Weaknesses:

• Income Inequality: Wealth tends to concentrate in the hands of a few, leading to economic
disparity.
• Exploitation Risks: Businesses may exploit workers, cut wages, or ignore ethical labor
practices to maximize profits.
• Neglect of Social Welfare: Public goods like healthcare, education, and environmental
protection may be underprovided.

2. Command Market System

A command market is where the government controls production, pricing, and distribution of
goods and services. The state owns most resources, and economic planning replaces supply and
demand forces.

Ethical Advantages:

• Equal Distribution of Wealth: Reduces economic inequality by ensuring basic needs are
met for all citizens.
• Social Welfare Focus: Prioritizes healthcare, education, and essential services rather than
profit maximization.
• Protection from Exploitation: Prevents worker exploitation by ensuring stable wages and
working conditions.
Ethical Weaknesses:

• Lack of Individual Freedom: Limited consumer choice and entrepreneurship, as the

government dictates economic activities.
• Inefficiency & Bureaucracy: State-controlled industries often lack motivation for
innovation and efficiency.
• Corruption & Power Abuse: Government control can lead to mismanagement,
corruption, and a lack of transparency.

3. Mixed Market System

A mixed market blends elements of free markets and government intervention. While private
businesses operate freely, the government regulates essential sectors like healthcare, education,
and utilities.

Ethical Advantages:

• Balance Between Freedom & Welfare: Ensures economic freedom while addressing
social inequalities.
• Consumer & Worker Protection: Laws prevent monopolies, ensure fair wages, and
protect the environment.
• Stability & Economic Growth: Combines market efficiency with government oversight
to prevent economic crises.

Ethical Weaknesses:

• Government Overreach: Excessive regulations may hinder business growth and

innovation.
• Wealth Disparities Remain: Although reduced, economic inequality still exists.
 • Political Influence on Markets: Government policies may be influenced by political
motives rather than economic efficiency.

Each market system has its ethical benefits and drawbacks. A free market promotes individual
liberty but can lead to inequality. A command market ensures fairness but limits freedom and
efficiency. A mixed market attempts to balance the two, though challenges remain in maintaining
that equilibrium. Different nations choose their systems based on their ethical priorities and
economic goals.

Case Study 1: Swingline (Stapler Manufacturing Company, New York, 1926)

Swingline was founded in 1925 (incorporated in 1926) by Jack Linsky in New York and became
a leading manufacturer of staplers and related office supplies. The company thrived under the
principles of a free-market economy, where competition and consumer demand dictated
production. Swingline revolutionized the stapler industry by introducing efficient designs and
mechanisms that made stapling easier and more reliable. Over time, it became a dominant brand
in the office supply industry.

However, like many companies in a free-market system, Swingline eventually faced the pressure
of globalization and cost reduction. In 1999, the company closed its factory in Long Island City,
New York, and moved manufacturing to Mexico. This decision was driven by economic incentives
such as lower labor costs and reduced production expenses, which are common in free markets
where businesses seek maximum efficiency and profitability. However, this move also led to job
losses in the United States, highlighting one of the challenges of a free-market system—
outsourcing in search of cheaper labor can negatively impact local workers.

Case Study 2: Abbott Laboratories (HIV Vaccine)

Abbott Laboratories is a multinational healthcare company that has been a significant player in
pharmaceutical and medical research. One of its major contributions to global health was its work
on HIV/AIDS treatment and vaccine development. Abbott was instrumental in the 1980s and
1990s in developing diagnostic tests and antiretroviral drugs to combat the HIV/AIDS epidemic.
The case of Abbott's HIV vaccine research falls under a mixed economic system because
healthcare and pharmaceuticals operate under both market-driven and government-regulated
conditions. While private companies like Abbott invest in research and development (R&D) for
profit, government agencies, international health organizations, and NGOs often play a crucial role
in funding, regulation, and distribution to ensure accessibility.

A major controversy involving Abbott occurred in the early 2000s when the company significantly
increased the price of its HIV drug, Norvir (ritonavir), by nearly 400% in the U.S. while keeping
prices lower in other countries. This led to public outcry, lawsuits, and government scrutiny,
demonstrating how profit motives in a free-market system can sometimes conflict with ethical
concerns, particularly in healthcare. This case emphasizes the role of government intervention in
regulating drug prices and ensuring that life-saving treatments remain affordable.

Case Study 3: AvtoVAZ (Lada Automobiles, Soviet Union, 1966)

AvtoVAZ, commonly known as Lada, was established in 1966 in the Soviet Union as a state-
owned enterprise under a command economy model. Unlike companies in free or mixed markets,
AvtoVAZ operated under strict government control, where the Soviet state dictated production,
pricing, and distribution. The company’s goal was to provide affordable cars for the population
rather than maximize profits. As a result, Lada vehicles were cheap and widely available, but they
suffered from a lack of innovation and poor quality due to the absence of market competition.
Centralized economic planning often led to inefficiencies, excessive bureaucracy, and production
mismatches. While AvtoVAZ provided job security and economic stability, it failed to evolve
technologically, and Soviet citizens had limited choices when purchasing automobiles.

Comparison of the Three Cases

Swingline represents the free-market system, where competition drives innovation but can lead to
outsourcing and job losses when companies prioritize cost efficiency. Abbott Laboratories reflects
the mixed economy, where private-sector innovation is balanced by government regulation to
protect public interests. However, conflicts can arise when profit motives clash with ethical
concerns like drug pricing. AvtoVAZ exemplifies a command economy, ensuring stability and
affordability but suffering from inefficiencies, lack of competition, and technological stagnation.
Each system presents trade-offs between economic freedom, government intervention, and social
responsibility, shaping how industries and businesses operate worldwide.

Pharmaceutical Pricing and Accessibility

Case: A pharmaceutical company has developed a life-saving drug for a rare disease. The
company can either:

• Set a high price to recover R&D costs quickly, ensuring continued innovation.
• Offer the drug at a lower price, making it affordable but limiting future research funding.
Assignment Questions:
• Apply utilitarian principles to evaluate both pricing strategies.
• Discuss the short-term and long-term consequences of each decision.
• Propose a balanced ethical solution that maximizes social welfare while maintaining
profitability.

Factory Relocation and Employee Welfare

Case: A multinational company considers moving its manufacturing plant from a developed
country to a developing nation to cut costs. The move would reduce production expenses but also
result in job losses for many employees in the home country.
Assignment Questions:

• Analyze the decision from an act utilitarian and rule utilitarian perspective.
• Identify stakeholders affected and evaluate the greatest good for the greatest number.
• Suggest an ethical approach that balances profitability and employee well-being.