2. Outline – Business Ethics
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Overview of Ethics and Business Ethics
Who makes Un-Ethical Decisions and Why?
Corporate Responsibility
International Perspective of Ethics
Corporate Ethical Codes and Ethics Training
Four “ethical systems” for your consideration!
3. What are business ethics?
• Ethics are principles that explain what is good and
right and what is bad and wrong and that prescribe
a code of behavior based on these definitions.
• Business ethics provide standards or guidelines
for the conduct and decision making of employees
and managers.
• Ethical Dilemma: A situation in which an
individual or team must make a decision that
involves multiple values.
4. Recent International Examples of HighProfile Ethical Scandals
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United States: Enron, Worldcom, Global Crossing
Russia: Mafia, expropriation and extortion
France, Italy, South Korea: Bribery
Ecuador, Peru: Embezzlement
Bangladesh/Pakistan: Child labor
Africa/South America: Environmental Degradation
Vietnam/China: Software Piracy
Numerous others
5. Why Study Business Ethics?
• To obtain a better understanding of:
– Ethical decision-making
– Frequently occurring dilemmas
– Moral philosophies
– Preventative measures
6. Levels at Which Ethical Issues May Be
Addressed
• Personal level—situations faced in personal life
(income tax, doing kid’s homework, etc.)
• Organizational level—workplace situations faced
as managers and employees (cutting corners, etc.)
7. Levels at Which Ethical Issues May Be
Addressed
• Industrial level—situations confronted as
professionals (the practices of stockbrokers,
accountants, etc.)
• Societal and international levels—local-toglobal situations confronted indirectly as a
management team
8. Ethical Leadership
• Managers must provide a good role model by:
– Being ethical and honest at all times.
– Telling the truth; don’t hide or manipulate information.
– Admitting failure and not trying to cover it up.
– Communicating shared ethical values to employees
through symbols, stories, and slogans.
– Rewarding employees who behave ethically and punish
those who do not.
– Protecting employees (whistleblowers) who bring to
light unethical behaviors or raise ethical issues.
9. What Typical “Moral Dilemmas” Do
Managers Face?
• Making phone calls, surfing the internet, playing computer
games, doing personal business on company time
• Lying about being sick or late
• Stealing office supplies for personal use
• Padding expense accounts or stealing monetary resources
from the company
• Harassment of other employees, including e-mail
• Failure to “walk the talk” or the “say-do” gap
10. What Typical “Moral Dilemmas” Do
Managers Face?
• Failing to act when one observes unethical behavior
• Carrying out decisions/orders that you clearly believe are
wrong
• Acting unethically because “everyone else is doing it”
• Falsifying data to meet deadlines, quality standards, avoid
extra work, etc.
• Reducing safety and quality standards for products sold in
other countries with less strict laws
11. Typical Dilemmas
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End Results/Performance
Quality vs schedule
Quality vs budget
Quality vs health & safety
Schedule vs budget
Schedule vs health & safety
Budget vs health & safety
Organizational/Stakeholders
Customers vs employees
Customers vs owners
Customers vs community
Employee vs owners
Employee vs community
Owners vs community
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Societal/Goods and Services
Quality vs price
Quality vs availability
Quality vs health & safety
Price vs availability
Price vs health & safety
Availability vs health & safety
Personal/Human Needs
Physical vs security needs
Physical vs belonging needs
Physical vs self-esteem needs
Security vs belonging needs
Security vs self-esteem needs
Belonging vs self-esteem needs
12. Most Common Types of Misconduct
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Lying to employees/customers/vendors
Withholding information
Intimidation
Misreporting of time worked
Discrimination
Sexual harassment
Stealing/Theft
Environmental and safety violations
13. Why Do Managers Bend the Rules?
• 111 executives were surveyed regarding reasons
for breaking company rules
• Three common themes emerged:
1. Performance-based judgment calls
2. Faulty rules
3. Abiding by socially-embedded norms
From Veiga, J.F., Golden, T.D., & Dechant, K. 2004. Why managers bend company rules.
Academy of Management Executive, vol. 18, no.2, pp. 84-89.
14. Principal Causes of Ethical Compromise
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Meeting aggressive financial objectives
Meeting schedule pressures
Helping the organization survive
Rationalizing that others do it
Resisting competitive threats
Saving jobs
» Source: Ethics Resource Center/SHRM, 1997.
17. Justifications for Unethical Behavior
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Moral justification:
– In terms of a higher purpose
Displacement of responsibility:
– Blaming your behavior on others
Diffusion of responsibility:
– A group is responsible, no one person
Advantageous comparison:
– Others are worse
Disregarding or distorting consequences:
– Minimizing the harm caused
Attribution of blame:
– Caused by someone else’s behavior
Euphemistic labeling
– Covering it with cosmetic words
18. Reasons for Not Reporting Observed
Misconduct
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Afraid of not being deemed a team player
Didn’t believe corrective action would be taken
Fear of retribution
No one else cares
Didn’t trust firm to keep report confidential
– Source: Ethics Resource Center/SHRM, 1997
20. Stated Values of
Organizations
Stated Value
Percentage of
Respondents
Customer satisfaction
77%
Ethics/integrity
76%
Accountability
61%
Respect for others
59%
Open communication
51%
Profitability
49%
Teamwork
47%
Innovation/change
47%
Continuous learning
43%
Positive work environment
42%
Diversity
41%
Community service
38%
Trust
37%
Social responsibility
33%
Security/safety
33%
Empowerment
32%
Employee job satisfaction
31%
Have fun
24%
Source: “AMA Corporate Values Survey,” (www.amanet.org), October 30, 2002.
21. Managing Organizational Ethics
Factors Affecting the Morality of Managers
Society’s Moral Climate
Business’s Moral Climate
Industry’s Moral Climate
Superiors
Superiors
Policies
Policies
Individual
Individual
(One’s
(One’s
personal
personal
situation)
situation)
Peers
Peers
22. Managing Organizational Ethics
Factors Influencing Unethical Behavior
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Behavior of superiors
Ethical practices of one’s industry or profession
Behavior of one’s peers in the organization
Formal organizational policy (or lack of one)
Personal financial need
23. Organizational Influences
- Ethical codes
- Organizational culture
- Role models
- Perceived pressure for results
- Rewards/punishment system
Political/legal/
economic
influences
ion
Ro
Ex l e
pe
c ta
t
Cultural Influences
- Family
- Education
-Religion
- Media/entertainment
s
A Model of Ethical Behavior in the
Workplace
Individual
- Personality
- Values
- Moral
principles
- History of
reinforcement
- Gender
Ethical
behavior
25. Individual Characteristics Affecting
Ethical Behaviors
• Values
– Basic convictions about what is right or wrong
on a broad range of issues
• Stage of Moral Development
– A measure of an individual’s independence
from outside influences
26. Moral Development and Ethics
• Understanding right from wrong
• Three levels
– Preconventional: Based on self-interests
– Conventional: Based on expectations of others
– Postconventional: Based on moral principles
regardless of leader or group ethics
Source: Adapted from Lawrence Kohlberg, “Moral Stages and Moralization: The Cognitive-Development Approach.” In Thomas Likona
(ed.), Moral Development and Behavior: Theory, Research, and Social Issues (Austin, TX: Holt, Rinehart and Winston , 1976), 31-53.
27. Stages of Moral Development
Source: Based on L. Kohlberg, “Moral Stages and Moralization: The CognitiveDevelopment Approach,” in T. Lickona (ed.). Moral Development and Behavior: Theory,
Research, and Social Issues (New York: Holt, Rinehart & Winston, 1976), pp. 34–35.
28. Factors That Affect Employee Ethics
(cont’d)
• Moral Development
– Research Conclusions:
• People proceed through the stages of moral
development sequentially.
• There is no guarantee of continued moral
development.
• Most adults are in Stage 4 (“good corporate
citizen”).
30. Individual Characteristics
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Personality Variables
– Ego strength
• A personality measure of the strength of a person’s
convictions
Ethics related to need and traits
Unethical behavior more likely
– Emotionally unstable
– Locus of Control
• A personality attribute that measures the degree to which
people believe they control their own life.
• Internal locus: the belief that you control your destiny.
• External locus: the belief that what happens to you is due
external forces, luck or chance.
Individual Perception, Values, Attitudes, and Biases
31. Ethical Issues in
Perception, Attitudes,
and Personality
• Stereotypes and workforce diversity
– Can have inaccurate stereotypes about the
ethics of people with different social, racial,
and ethnic backgrounds
– These stereotypes can affect opinions people
develop about the ethical behavior of such
people in the workplace
32. Ethical Issues in
Perception, Attitudes,
and Personality (Cont.)
• Self–presentation
– Deliberately managing self–presentations so
decisions and behavior appear ethical
– Limited experimental evidence suggests one
can favorably manage other people's
impressions of their ethical attitudes
33. Leadership Styles Based on Ego and Attitudes
Theory Y Attitudes
Theory X Attitudes
Positive
•Gives and accepts
positive feedback
•Bossy
•Pushy
SelfConcept
•Expects others to
succeed
•Impatient
•Critical
Negative
•Afraid to make decisions
•Pessimistic
SelfConcept
•Unassertive
•Promotes hopelessness
•Self-blaming
•Autocratic
•Lets others do the job
their way
35. The Theory of Cognitive Dissonance
Cognitive Dissonance
Any incompatibility between two or more attitudes
or between behavior and attitudes.
Desire to reduce dissonance
Desire to reduce dissonance
• •Importance of elements creating dissonance
Importance of elements creating dissonance
• •Degree of individual influence over elements
Degree of individual influence over elements
• •Rewards involved in dissonance
Rewards involved in dissonance
36. Measuring the A-B Relationship
• Recent research indicates that attitudes (A)
significantly predict behaviors (B) when
moderating variables are taken into account.
Moderating Variables
Moderating Variables
• •Importance of the attitude
Importance of the attitude
• •Specificity of the attitude
Specificity of the attitude
• •Accessibility of the attitude
Accessibility of the attitude
• •Social pressures on the individual
Social pressures on the individual
• •Direct experience with the attitude
Direct experience with the attitude
38. Values
Values
Basic convictions that a specific
mode of conduct or end-state of
existence is personally or socially
preferable to an opposite or
converse mode of conduct or
end-state of existence.
Value System
A hierarchy based on a ranking
of an individual’s values in terms
of their intensity.
39. Importance of Values
• Provide understanding of the attitudes, motivation,
and behaviors of individuals and cultures.
• Influence our perception of the world around us.
• Represent interpretations of “right” and “wrong.”
• Imply that some behaviors or outcomes are
preferred over others.
40. Types of Values –- Rokeach Value
Survey
Terminal Values
Desirable end-states of
existence; the goals that a
person would like to achieve
during his or her lifetime.
Instrumental Values
Preferable modes of behavior
or means of achieving one’s
terminal values.
43. Mean Value Rankings
of Executives, Union
Members, and
Activists
Source: Based on W. C. Frederick and J. Weber, “The Values of
Corporate Managers and Their Critics: An Empirical Description and
Normative Implications,” in W. C. Frederick and L. E. Preston (eds.)
Business Ethics: Research Issues and Empirical Studies (Greenwich,
CT: JAI Press, 1990), pp. 123–44.
E X H I B I T 3–2
E X H I B I T 3–2
45. Structural Variables
• Organizational characteristics and mechanisms that guide
and influence individual ethics:
– Performance appraisal systems
– Reward allocation systems
– Behaviors (ethical) of managers
– An organization’s culture
– Intensity of the ethical issue
• Good structural design minimizes ambiguity and
uncertainty and fosters ethical behavior.
47. What Is Social Responsibility?
• The Classical View
– Management’s only social responsibility is to
maximize profits (create a financial return) by
operating the business in the best interests of
the stockholders (owners of the corporation).
– Expending the firm’s resources on doing
“social good” unjustifiably increases costs that
lower profits to the owners and raises prices to
consumers.
48. What Is Social Responsibility? (cont’d)
• The Socioeconomic View
– Management’s social responsibility goes beyond
making profits to include protecting and improving
society’s welfare.
– Corporations are not independent entities responsible
only to stockholders.
– Firms have a moral responsibility to larger society to
become involved in social, legal, and political issues.
– “To do the right thing”
49. To Whom is Management Responsible?
Exhibit 5.1
50. Arguments For and Against Social Responsibility
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For
– Public expectations
– Long-run profits
– Ethical obligation
– Public image
– Better environment
– Discouragement of further
governmental regulation
– Balance of responsibility and
power
– Stockholder interests
– Possession of resources
– Superiority of prevention
over cure
•
Against
– Violation of profit
maximization
– Dilution of purpose
– Costs
– Too much power
– Lack of skills
– Lack of accountability
51. From Obligation to Responsiveness to
Responsibility
• Social Obligation
– The obligation of a business to meet its economic and legal
responsibilities and nothing more.
• Social Responsiveness
– The capacity of a firm to adapt to changing societal conditions
through the practical decisions of its managers in responding to
important social needs.
• Social Responsibility
– A firm’s obligations as a moral agent extends beyond its legal
and economic obligations, to the pursuit of long-term goals that
are good for society.
52. Social Responsibility versus Social
Responsiveness
Social Responsibility
Social Responsiveness
Major consideration
Ethical
Pragmatic
Focus
Ends
Means
Emphasis
Obligation
Responses
Decision framework
Long term
Medium and short term
Source: Adapted from S.L. Wartick and P.L. Cochran, “The Evolution of the Corporate
Social Performance Model,” Academy of Management Review, October 1985, p. 766.
Exhibit 5.3
53. Does Social Responsibility Pay?
• Studies appear to show a positive relationship between
social involvement and the economic performance of
firms.
– Difficulties in defining and measuring “social
responsibility” and “economic performance raise issues
of validity and causation in the studies.
– Mutual funds using social screening in investment
decisions slightly outperformed other mutual funds.
• A general conclusion is that a firm’s social actions do not
harm its long-term performance.
54. Benefits of social responsibility:
• Pursuit of social responsibility as a goal may
ultimately lead to survival of the organization.
• Narrow focus on producing goods and services for
profit may impair company performance in the
long run.
• Corporate responsibility is related to higher
financial performance and the ability to recruit
better quality job applicants.
55. Disadvantages of social responsibility:
• Socially responsible firms are likely to be less
efficient and may be driven out of business by
more efficient competitors willing to singlemindedly pursue profits.
• Firms that give profits are more likely to fail and
become a detriment to society because jobs and
stockholders’ investments are lost.
56. Business Practices and Social Issues
• Social Impact Management
– The field of inquiry at the intersection of business
practice and wider societal concerns that reflects and
respects the complex interdependency of those two
realities.
– The question of how to go about increasing managers’
awareness within their decision-making processes of
how society is impacted by the conduct and activities of
their firms.
57. The Greening of Management
• The recognition of the close link between an
organization’s decision and activities and its impact on the
natural environment.
– Global environmental problems facing managers:
• Air, water, and soil pollution from toxic wastes
• Global warming from greenhouse gas emissions
• Natural resource depletion
58. How Organizations Go Green
• Legal (of Light Green) Approach
– Firms simply do what is legally required by obeying laws, rules,
and regulations willingly and without legal challenge.
• Market Approach
– Firms respond to the preferences of their customers for
environmentally friendly products.
• Stakeholder Approach
– Firms work to meet the environmental demands of multiple
stakeholders—employees, suppliers, and the community.
• Activist Approach
– Firms look for ways to respect and preserve environment and be
actively socially responsible.
59. Approaches to Being Green
Source: Based on R.E. Freeman. J. Pierce, and R. Dodd. Shades of Green: Business
Ethics and the Environment (New York: Oxford University Press, 1995).
60. Ethics in an International Context
• Ethical standards are not universal.
– Social and cultural differences determine
acceptable behaviors.
• Foreign Corrupt Practices Act
– Makes it illegal to corrupt a foreign official yet
“token” payments to officials are permissible
when doing so is an accepted practice in that
country.
61. Ethical Issues in the Global Economy
• Sexual Discrimination
• Racial Discrimination
• Human Rights (i.e. poor working conditions, low
wages )
• Price Discrimination
• Bribery
• Harmful Products
• Pollution
• Privacy
62. Some Causes of Bribery
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Matching competitor’s bribes
Vendor pressure for bribes
Gaining entrance to new markets
Pressure to meet sales quotas
– Source: Ferrell et al. (2000)
63. Corruption Perceptions Index 2004
145 nations
1. Finland
2. New Zealand
3. Denmark
3. Iceland
5. Singapore
6. Sweden
7. Switzerland
8. Norway
9. Australia
10. Netherlands
17. USA
122. Bolivia
133. Indonesia
140. Azerbaijan
140. Paraguay
142. Chad
142. Myanmar
144. Nigeria
145. Bangladesh
145. Haiti
64. Corruption Perceptions Index 2002
102 nations
1. Finland
2. Denmark
3. New Zealand
4. Iceland
5. Singapore
6. Sweden
7. Canada
16. U.S.A.
95. Azerbaijan
96. Indonesia
97. Kenya
98. Angola
99. Madagascar
100. Paraguay
101. Nigeria
102. Bangladesh
65. Factors that affect a Nation’s
Ethical Climate
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Wealth (income per capita)
Government (form, size, reputation)
Culture (religion, values, rituals)
Legal system and law enforcement
Availability of resources
Economic environment
Influence of foreign investors
66. Ethical Relativism vs.
Moral Absolutism
• Ethical Relativism - Ethical standards vary from
culture to culture
• Moral absolutism - A universal standard should
apply for business conduct
• Culture Clusters?
67. The Global Compact
Human Rights
Principle 1: Support and respect the protection of international human rights within their
sphere of influence.
Principle 2: Make sure business corporations are not complicit in human rights abuses.
Labor Standards
Principle 3: Freedom of association and the effective recognition of the right to collective
bargaining.
Principle 4: The elimination of all forms of forced and compulsory labor.
Principle 5: The effective abolition of child labor.
Principle 6: The elimination of discrimination in respect of employment and occupation.
Environment
Principle 7: Support a precautionary approach to environmental challenges.
Principle 8: Undertake initiatives to promote greater environmental responsibility.
Principle 9: Encourage the development and diffusion of environmentally friendly
technologies.
Source: The Global Compact Web site (www.unglobalcompact.org), August 14, 2000.
Exhibit 5.10
68. Why Have an Ethical Compliance
Program?
• To increase morale
• To minimize a the threat of a negative public
perception
• To ensure that policies and values of firm are
understood by employees
• To strengthen long-run competitive advantage
• To reduce the potential for penalties
69. Minimum Requirements for Ethical
Compliance Programs (FSG)
• A Code of Ethics
• A High-level Ethics Officer or staff
• Autonomy taken from individuals with a propensity for
misconduct
• Ethics Training Programs
• A system that monitors, audits, and reports misconduct
• Enforcement of standards, codes, and punishment
• Continual improvement of Ethical compliance program
– Source: Federal Sentencing Guidelines Manual
70. Why Ethical Codes
• In the absence of a code of ethics,
– There is usually a lack of consensus about
appropriate ethical behavior; and
– Different people use different ethical criteria to
determine whether a practice or behavior is
ethical or unethical.
• Business ethics are not the same things as laws.
71. Developing a Code of Ethics
• A formal statement of firm’s moral
expectations
• Should emphasize overall values of firm
• Should specify certain rules or guidelines
• Top management and Legal staff involvement
is key
• Should be unique; industry and firm specific
• Desired corporate culture should be stressed
72. A company needs to ensure agreement about the relevant
criteria on which to judge the ethics of a business decision so
that people do not base decisions on personal value systems.
Code of Ethics
Corporate Credos
Ethical Policy
Statements
74. Whistleblower policies
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•
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•
•
•
•
The policy encourages reporting unethical conduct.
Meaningful procedure to deal fairly with reported violations.
Those who report violations are protected from retaliation.
Alternative reporting procedures.
Anonymous reporting to an ethics officer/committee.
Feedback to employees on ethics violations.
Top management support and involvement.
75. Core Corporate Abilities of the
Managing Ethics Competency
• Identify and describe the principles of ethical decision making and
behavior
• Assess the importance of ethical issues in actions
• Apply laws, regulations, and organizational rules in making
decisions and taking action
• Demonstrate dignity and respect for others
• Demonstrate honest and open communication limited only by
legal, privacy, and competitive considerations
76. Managerial Actions to Promote
Ethical Attitudes
Identifying and developing ethical attitudes that are crucial for
organizational operations
Selecting employees with desired ethical attitudes
Incorporating ethics into the performance evaluation process
Establishing a culture that reinforces ethical attitudes
77. The Value of Ethics Training
• Training in ethical problem solving can make a difference
in ethical behaviors.
• Training in ethics increase employee awareness of ethical
issues in business decisions.
• Ethics training clarifies and reinforces the organization’s
standards of conduct.
• Employees become more confident that they will have the
organization’s support when taking unpopular but ethically
correct stances.
78. Forms of Ethics Training
•
•
•
•
•
•
Lectures
Videos
Simulations
Games
Cases
Web-based materials
79. Managing Across Cultures Competency
• Behavioral Indicators:
– Understand, appreciate, and use cultural factors that can affect
behavior
– Appreciate the influence of work-related values on decisions,
preferences, and practices
– Understand and motivate employees with different values and
attitudes
– Communicate in the local language
– Deal effectively with extreme conditions in foreign countries
– Utilize a global mindset (use a worldwide perspective to
constantly assess threats or opportunities)
80. How Managers Can Improve Ethical
Behavior in An Organization
1. Hire individuals with high ethical standards.
2. Establish codes of ethics and decision rules.
3. Lead by example.
4. Delineate job goals and performance appraisal
mechanisms.
5. Provide ethics training.
6. Conduct independent social audits.
7. Provide support for individuals facing ethical dilemmas.
82. Improving Ethical Climate
Ethics Programs
& Officers
Realistic
Objectives
Effective
Communication
Top
Management
Leadership
Ethics Audit
Ethics Training
Ethical Decisionmaking Processes
Codes of
Conduct
Discipline of
Violators
Whistle-blowing
Mechanisms
(“Hotlines”)
83. Criteria for ethical decision making:
• Utilitarianism
– A means of making decisions based on what is
good for the greatest number of people.
• Individualism
– The degree to which a society values individual
self-interest over group needs and goals.
– Individual self-interest should be promoted as
long as it does not harm others.
84. Criteria for ethical decision making: (continued)
• Rights approach
– A means of making decisions based on the
belief that each person has fundamental human
rights that should be respected and protected.
• Justice approach
– An approach to decision making based on
treating all people fairly and consistently when
making business decisions.
85. Four Major Ethical Systems
Ethical System
Proponent
End-result
John Stuart Mill
Rule
Immanuel Kant
Social Contract
Personalistic
Definition
Moral rightness of an
action is determined by
considering its
consequences
Moral rightness of an
action is determined by
laws and standards
Jean Rousseau
Moral rightness of an
action is determined by
customs and norms
Martin Buber
Moral rightness of an
action is determined by
one’s conscience
86. Example of End-Result Ethics
If I get married
•
•
•
•
•
•
Points
Secure sex life
+ 1000
No messing around
-300
Joy of children
+700
Expense of children
-300
Old age companionship +400
Responsibility
-800
TOTAL = +700
If I don’t marry
•
•
•
•
•
•
Points
Freedom
+ 500
Loneliness
-300
No children
- 800
No responsibly
+1000
No ties
+400
No one to care
-500
TOTAL = +300
Answer = I DO!!
87. Summary (consider them all!!)
Ethical Issue
End-result
Rule
Social Contract
Personalistic
Reason
Right-Good
Decisions
