Ethical Issues in Management
Spring 2007
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Ethical Issues in Management
• Ethical perspectives and moral
development
• Ethical decision making
• Social responsibility
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What Are Ethics?
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The area of philosophy concerned with human behavior in the
social context
Based on a consideration of values, rather than facts (although
it is necessary to determine the facts)
Both individual and shared values important
Not the same as legal considerations (although laws overlap
with society’s agreed-upon ethical standards)
Social and economic factors are not part of ethical decisions
(although many ethical decision have social or economic
implications)
• Morality vs. legality vs. social/economic forces
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Ethical Perspectives: Utilitarian
• Jeremy Bentham (1748 – 1832)
• Decisions are made on the basis of
outcomes
• Maximize benefits for the greatest
number
• Example: Oregon & health care
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Ethical Perspectives: Individualism
• Adam Smith (1723-1790)
• At the most basic level, “What’s in it for
me?”
• However, there’s a long-term equilibrium;
the invisible hand
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Ethical Perspectives: Moral Rights
• John Locke (1632 – 1704)
• Respect individual’s inherent rights and liberties
• Natural rights of mankind
• “The right of life, liberty, and the pursuit of happiness”
• Rights?
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Free consent
Privacy
Freedom of conscience
Free speech
Due process
Life and safety
Ethical Issues in Management
The problem arises
with how these are to
be put into action
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Immanuel Kant (1724 – 1804)
• For Kant, what is right is based on the
categorical imperative, which is the
notion that every person should act on
only those principles that he or she, as a
rational person, would prescribe as
universal laws to be applied to the whole
of humankind.
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Ethical Perspectives: Justice
• Decisions made with equity and
impartiality
• Types of justice
• Distributive
• Procedural
• Compensatory
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Social Justice Perspective
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Value placed on human dignity
Work for the common good
Human rights
Dignity of work
Society judged by treatment of poor and
vulnerable
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Levels of Moral Development
• Preconventional
• Obey to avoid physical punishment
• Follow rules if it is in your immediate interest
• Conventional
• Live up to what your family and friends expect
• Maintain order by fulfilling obligations
• Principled
• Value others’ rights regardless of majority opinion
• Follow self-chosen ethical principles even if they violate
the law
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Ethical Decision Making
• Codes of ethics
• State basic principles
• Can be for a specific organization
• Many professions also have an ethical code
• Can be very general (credo) or very specific
• Leadership
• Managers by definition are (or should be) role models
• Ethical training
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Components of Ethical Training
• Provide trainees with an understanding of ethical
judgment philosophies and guidelines.
• Provide industry/profession-specific areas of ethical
concern.
• Provide trainees with organizational ethical expectations
and rules.
• Provide trainees with an understanding of their own
ethical tendencies.
• Take a realistic view–elaborate on the difficulties of
ethical decision making.
• Get the trainees to practice and role-play.
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How is Business Viewed by
Society?
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The Simple Life Folks
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Redemption-May-Be-Possible
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Large organizations exploit those without power (especially
multinational firms and indigenous peoples)
Don’t abolish business firms, but major reform is needed
Critics from Within
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Large organizations, by their very existence, are destructive of human
values
We should adopt a simpler lifestyle, freeing ourselves of the need for
large businesses
We are interested in maximizing human potential
Businesses have done a lot to earn their bad reputation
Responsible business leaders must begin cleaning out the stables
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Do the Facts Justify Criticism ??
• Of the globe’s 100 largest economic entities, 51
are corporations; only 49 are countries
• The 300 largest global corporations hold onequarter of the entire globe’s productive assets
• 72% of Americans say business has too much
power over too many aspects of American life
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2004 Revenues ($B)
Saudi Arabia
$310.2
1)
WalMart
$288.0
2)
BP
$285.1
3)
Exxon / Mobil
$270.8
4)
Royal Dutch / Shell
$286.7
5)
General Motors
$193.5
Portugal
$188.7
6)
DaimlerChrysler
$176.7
7)
Toyota Motor
$172.6
8)
Ford Motor
$172.2
Czech Republic
$172.2
General Electric
$152.9
9)
10) Total Fina
Finland
$152.6
$151.2
Social Responsibility
Social Obligations School
• Maximize profits
• Stay within boundaries of law
The Friedman view
Social Reaction School
• Maximize profits, and at the same time….
• Ensure the organization’s survival by responding to
"currently prevailing social norms, values, and
performance expectations."
Social Responsiveness School
• Corporations should prevent and solve social problems
• Corporations can prevent and solve social problems
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Milton Friedman
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“The Social Responsibility of Business is to Increase its
Profits”
1) A corporation is an “artificial” person – thus, unlike a real
person, it has no ethical or moral obligations
2) Managers are responsible to owners: “That
responsibility is to conduct the business in accordance
with their desires, which generally will be to make as
much money as possible while conforming to the basic
rules of the society, both those embodied in law and
those embedded in ethical custom
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Freidman’s Reasoning, continued
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Individual managers fulfill their private ethical / moral
obligations from their personal resources
If managers are to spend money on public uses, they
must be accountable, just as are politicians. The
analogy here is with taxation; by spending money pf
public uses, the manger is in effect taxing employees,
customers and owners for the benefit of society as a
whole
For Freidman, this is “socialist” -- using “political
mechanisms, not market mechanisms…the
appropriate way to determine the allocation of scare
resources to alternate uses”
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Friedman, Finale
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Further, if business social spending (the specific
expenditures) were a good ides (accepted by society),
it would be a public responsibility and funded through
taxes
However, an organization may legitimately spend
money on what may be perceived as social
responsibility, but where there is a benefit to the firm
(for example, funding education)
Thus, corporations are judged solely by financial
performance, as defined by the owners / shareholders
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The Stakeholder Approach
• How do we solve the problem of the free rider?
• Organizations and people are bound together in a
network of mutual relationships
• Stakeholders
• Those people or groups essential to an organization’s
success
• Those people or groups affected by what an
organization does
• People with a “legitimate interest”
• An organization is obligated (duty) to consider the
interests of stakeholders
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Who Are the Stakeholders?
• Primary and secondary (how close are
they to the organization?)
• Who?
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Management
Employees
Owners
Local community
Suppliers
Customers
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Taking a Stand
• Looking at costs
• Short term vs. the long term
• Examples:
• Doing well by doing good: Costco
• Public relations: Sara Lee
• Environmental cost savings
• Obligation to just the stockholders or to
employees, and society as a whole ??????
• Management values
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Levels of Social Obligation
Obstructionist
Fight all the way
Proactive
Defensive
Take social
initiatives
Do only what is
legally required
Accommodating
Accept ethical
responsibility
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Values-Based Management
• Using shared values as a basis for
management decision-making
• Examples
• Levi Strauss
• Body Shop
• ServiceMaster
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