Chapter 3
Ethics and Behavior
in Organizations
Learning Goals
• Define ethical and unethical behavior
• Discuss why some scholars believe "It's
Good Business" to do business ethically
• Know the functions of ethical values and
standards for individuals and societies
Learning Goals (Cont.)
• Describe the various theories of ethics and
the guidelines each offers
• Explain how to manage for ethical behavior
in an organization
• Identify some international aspects of
ethical behavior in organizations
Chapter Overview
•
•
•
•
Ethical and Unethical Behavior
"It's Good Business"
Ethical Issues in Organizational Behavior
Ethics: The Study of Moral Philosophy
Chapter Overview (Cont.)
•
•
•
•
Ethical Values of Societies and Individuals
Theories of Ethics
Managing for Ethical Behavior
International Aspects of Ethics
Introduction
• Modern managers feel growing pressure
from the public and government to behave
ethically in business transactions
• Affects employees of all types of
organizations: public and private
• Ethical behavior: right and honorable
• Unethical behavior: wrong and
reprehensible
Introduction (Cont.)
• Standards for judging behavior as ethical or
unethical
– Right and wrong have different meanings to
different people
– Ethical standards vary from one country to
another
– Growing opportunities for global business
increases the complexity of ethical questions
• Ethical issues: product safety; affect human
behavior
Introduction (Cont.)
• Few in-depth studies of managers and
ethical behavior
– Ethics often are not specific decision criteria
– Managers find their decisions are bound by
context, leading to a situational form of ethics
– Veteran managers navigate “moral mazes” to
survive and succeed in their organizations
Introduction (Cont.)
• Few in-depth studies (cont.)
– Ethical dilemmas are common in management
decision making
– Choices between right and wrong are not
always clear
– Managers rarely use explicit ethical criteria in
their decision processes
Introduction (Cont.)
• Gallup opinion polls about ethical behavior
–
–
–
–
Pharmacists ranked highest
Car salespeople ranked lowest
Business executives ranked near the middle
People in the United States do not have a
positive view of ethics and behavior in
organizations
Ethical and
Unethical Behavior
• Ethical behavior is good, right, just,
honorable, and praiseworthy
• Unethical behavior is wrong,
reprehensible, or fails to meet an obligation
• Judgment of behavior is based on a specific
moral philosophy or ethical theory
Ethical and
Unethical Behavior (Cont.)
• Nagging issues
– Finding a standard of judgment with which all
reasonable people can agree
– Defining the meaning of “good,” “bad,”
“right”, and “wrong”
– Add the nasty issue of cross-cultural ethical
behavior
Ethical and
Unethical Behavior (Cont.)
• Subjectively ethical (or unethical):
person believes he or she acted ethically
according to his or her ethical philosophy
(or not)
• Objectively ethical (or unethical): person
acted according to a rule or law (or not)
• Example: a manager pays bribes because
he believes it is ethical in a particular
country (subjectively ethical) violates his
employer's policies (objectively unethical)
Ethical and
Unethical Behavior (Cont.)
Ethical dilemmas
Find 1 cent
Find wallet with $1,000
and no identification.
Find $1
Find wallet with $1,000
and identification.
Legal Versus Ethical Behavior:
The Issue of Lying
Legal
behavior
Testifying under
oath in court.
Ethical
behavior
“How does my
hair look?”
Lying to a customer
about the safety of
a product.
Lying: deliberate misrepresentation of the truth.
“It’s Good Business”
• Ethical behavior is the keystone for smooth,
effective, and efficient operation of business
organizations
• The basis of trust in business transactions
• Long-term positive effects of ethical
behavior: trust, reputation, repeat business
“It’s Good Business” (Cont.)
• Behaving ethical can be more costly in the
short term
• Example: adding safety equipment not
required by law
• Bears higher cost to do what the firm
believes is right
Ethical Issues in
Organizational Behavior
• Affect people’s behavior without their
consent and free will
• Create situations with dysfunctional high
stress for employees
• Many areas: each chapter discusses the
ethical issues
Ethics: The Study of
Moral Philosophy
• Ethics, or moral philosophy, seeks logical,
systematic principles that define ethical
behavior
• Describes the behavior a person ought to
choose as the right course of action
• Ethicists distinguish between ethical
absolutism and ethical relativism
Ethics: The Study of
Moral Philosophy (Cont.)
• Ethical absolutism: ethical system applies
to everyone, everywhere
• Ethical relativism: ethical system is based
on local values
Ethics: The Study of
Moral Philosophy (Cont.)
• Intermediate position: ethics and moral
judgments change over time
– What is right (or wrong) at one point in the
development of a social system may be wrong
(or right) at another point
– Ethical systems evolve with the requirements of
a social system so people in that system can
behave in ways they judge acceptable
• Only you can decide which position best
defines your beliefs
Ethical Values of Societies
and Individuals
• Ethical values of societies
– Exist in all societies
– Unwritten or written
– Act as “recipes of action” to reduce conflict
when people’s interests differ
– Change over time as the society’s needs change
– Cross-cultural effects, especially now. Another
source of change
Ethical Values of Societies
and Individuals (Cont.)
• Ethical values of individuals
– Develop from societal level values
– Learn from family, religious training, peers,
education, and life experiences
– Develop more complex thinking patterns with
maturity. Includes ethical values
– Individual differences within a society
Ethical Values of Societies
and Individuals (Cont.)
• Ethical values of individuals (cont.)
– Ethic of justice: applies moral rules to decide
the fairness of an act
– Believed primarily characteristic of men
– Stages of moral development
• From a self focus to
• a societal focus to
• a universal moral view
Ethical Values of Societies
and Individuals (Cont.)
• Ethic of justice: three stages
– Preconventional (individual view)
– Conventional (societal view)
– Principled (universal view)
See text book Figure 3.1
Ethical Values of Societies
and Individuals (Cont.)
• Ethic of justice (cont.)
– Preconventional stage
• Under age nine, some adolescents, and many
criminals
• Self centered
• Responds only to sanctions
• Late in stage: becomes aware of other’s interests
Ethical Values of Societies
and Individuals (Cont.)
• Ethic of justice (cont.)
– Conventional stage
• Characterizes most adolescents and adults
• Growing awareness of others’ expectations
• Accepts the view that mutual agreements take
precedence over self-interest
• Internalized the norms of a group or a society
• Late in stage: believes moral behavior strengthens
the surrounding social system
Ethical Values of Societies
and Individuals (Cont.)
• Ethic of justice (cont.)
– Principled stage
• Not reached until after age 20 to 25; many adults
never reach it
• Features the development of moral principles as
behavioral guides
• Person has critically assessed the norms accepted at
the conventional stage
Ethical Values of Societies
and Individuals (Cont.)
• Ethic of justice (cont.)
– Principled stage (cont.)
– Concludes there are universal moral principles
such as the right to liberty
– Late in stage: two beliefs
• A person's actions are always guided by freely
chosen moral principles
• Treat each person as a free, autonomous individual
Principles may conflict with law, and when they do,
the person must follow the moral principle
Ethical Values of Societies
and Individuals (Cont.)
• Ethical values of individuals (cont.)
– Ethic of care
• Moral judgments based on empathy for others and
the person’s relationship with them
• Primarily characteristic of women
See text book Figure 3.2
Ethical Values of Societies
and Individuals (Cont.)
• Ethic of care: three stages
– Focus on self (Concerned with survival)
– Focus on others (Self-sacrificing)
– Reflective understanding of caring for others
Ethical Values of Societies
and Individuals (Cont.)
• Ethic of care (cont.)
– Focused on self
• Own survival
• Similar to the preconventional stage for men
• Self-criticism for having selfish motives
Ethical Values of Societies
and Individuals (Cont.)
• Ethic of care (cont.)
– Focused on others
•
•
•
•
Move away from self-focus
Account for other people in situation
Feelings, emotion, empathy
Focus on unique qualities of situation
Ethical Values of Societies
and Individuals (Cont.)
• Ethic of care (cont.)
– Reflective understanding of caring for others
• Balanced view of self in moral decisions
• Strong focus on caring for others
• Consider the context, people, and feelings when
judging a moral course of action
Ethical Values of Societies
and Individuals (Cont.)
• Summary
– Ethic of justice: use abstract rules with little
focus on feelings and relationships
– Ethic of care: integrates feelings, emotions,
and personal relationships
Turning in your mother for having committed an
illegal act or foreclosing on her defaulted mortgage.
Ethical Values of Societies
and Individuals (Cont.)
• Heated debate about gender differences in
moral development between moral
philosophers and moral psychologists
• Research found slight differences between
the ethical perceptions of men and women
• Women tended to have a slightly higher
ethic than men
Ethical Values of Societies
and Individuals (Cont.)
• Conservative interpretation
– Both men and women use a justice or care
view, although they can prefer one to the other
– Choice of moral view may vary with the
specific moral dilemma
Both men and women may apply a justice view to
rights and justice problems and a care view to
moral dilemmas involving social relationships.
Theories of Ethics
• Four major theories of ethics in the Western
world
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–
–
–
Utilitarianism: net benefits
Rights: entitlement
Justice: fairness
Egoism: self-interest
Theories of Ethics (Cont.)
• Utilitarianism
– examine an action’s effects to decide whether it
is morally correct
– Action is morally right if the total net benefit of
the action exceeds the total net benefit of any
other action
– Assumes a person can assess all costs and
benefits of an action
Theories of Ethics (Cont.)
• Utilitarianism (cont.)
– Assessment of net benefits includes any
important indirect effects
– Example: assessing the effects of pollutant
discharge from a factory on the immediate
surrounding environment and those down
stream or down wind from the factory
– Two forms: act and rule
Theories of Ethics (Cont.)
• Utilitarianism (cont.)
– Act utilitarianism asks a person to assess the
effects of all actions
– Rejects the view that actions can be classified
as right or wrong in themselves
– Example: lying is ethical if it produces more
good than bad
Theories of Ethics (Cont.)
• Utilitarianism (cont.)
– Rule utilitarianism asks a person to assess
actions according to a set of rules designed to
yield the greatest net benefit to all affected
– Compares act to rules
– Does not accept an action as right if it
maximizes net benefits only once
– Example: lying is always wrong or “thou shalt
not lie”
Theories of Ethics (Cont.)
• Utilitarianism (cont.)
– Two main limitations
• Hard to use in difficult to quantify situations
• Does not include rights and justice
– Other ethical theories meet these objections
Theories of Ethics (Cont.)
• Rights
– Right: a person’s just claim or entitlement
– Focuses on the person’s actions or the actions
of others toward the person
• Legal rights: defined by a system of laws
• Moral rights: based on ethical standards
– Purpose: let a person freely pursue certain
actions without interference from others
Theories of Ethics (Cont.)
• Rights (cont.)
– Features
• Respect the rights of others
• Lets people act as equals
• Moral justification of a person’s action
– Examples
• Legal right: right to a fair trial in the United States
• Moral right: right to due process within an
organization
Theories of Ethics (Cont.)
• Rights (cont.)
– Rejects view of assessing the results of actions
– Expresses moral rights from individual's view,
not society's. Does not look to the number of
people who benefit from limiting another
person's rights
– Example: right to free speech in the United
States stands even if a person expresses a
dissenting view
Theories of Ethics (Cont.)
• Rights (cont.)
– Types of rights
• Negative rights: do not interfere with another
person’s rights
• Positive rights: A person has a duty to help others
pursue their rights
Negative: do not stop a person from whistleblowing
Positive: coworker helps another person blow
the whistle on unethical actions
Theories of Ethics (Cont.)
• Justice
– Looks at the balance of benefits and burdens
distributed among members of a group
– Can result from the application of rules,
policies, or laws that apply to a society or a
group
– Just results of actions override utilitarian results
– Rejects view that an injustice is acceptable if
others benefit the action
Theories of Ethics (Cont.)
• Justice (cont.)
– Theory of distributive justice: three
principles
• The Principle of Equal Liberty
– Basic liberties must be the same for all people
– Must protect liberties from attack by others
– Includes basic liberties of many Western Societies.
Example: freedom of speech
– Organization should not use deception to win contracts:
restricts the basic liberty of free choice
Theories of Ethics (Cont.)
• Theory of distributive justice (cont.)
– The Difference Principle
• Societies or groups will have inequalities but must
help the disadvantaged (sick, poor, disabled)
• Managers should use organizational resources
efficiently
• Helps productivity of society; society can then help
the disadvantaged
Theories of Ethics (Cont.)
• Theory of distributive justice (cont.)
– The Principle of Fair Equality of
Opportunity
• Everyone must have the same chance to get the best
positions available
• Organizations must select people based on ability to
do a job
• Provide equal access to education and training to
develop skills
Theories of Ethics (Cont.)
• Egoism
– Self-centered form of ethics
– Two forms of ethical egoism: individual and
universal
– Individual ethical egoism
• Judges actions only by their effects on one’s
interests
• Usually rejected by moral philosophers as a
defensible basis of ethics
Theories of Ethics (Cont.)
• Egoism (cont.)
– Universal ethical egoism
• Can include the interests of others when assessing
one’s actions
• Still self-centered: pursuing pleasure and avoiding
pain
• “Enlightened self-interest.” Considers the interests
of others because the person wants others to do the
same toward him or her
Theories of Ethics (Cont.)
• Egoism (cont.)
– Objections raised by moral philosophers
• Does not resolve conflicts in people’s interests
• One party would always have the pursuit of his or
her interests blocked
Theories of Ethics (Cont.)
• Questions from the ethical theories
– Utilitarianism: does the action yield the
greatest net benefits?
– Rights: does the action negatively affect
someone’s moral rights?
– Justice: does the action give a fair distribution
of costs and benefits among those affected?
– Egoism: will the action lead to other people
behaving toward me in a way I would like?
Managing for Ethical Behavior
• Dilemma of managing for ethical behavior
– Ethical behavior happens because a person
freely believes it is the right way to behave
– Cannot impose ethical behavior by force
– Can develop a culture that supports ethical
behavior
– The decision to behave ethically always rests
with each person
Managing for Ethical Behavior
(Cont.)
• Methods available
–
–
–
–
–
–
Codes of ethics
Policy guidelines
Decision procedures
Standards of ethical performance
Ethics training
Peer reporting of unethical behavior
Managing for Ethical Behavior
(Cont.)
• Codes of ethics
– Written statements describing prohibited
behavior
– Can base the code on theories of ethics
– Can come from industry associations,
professional associations, or individual
organizations
– Prohibited behaviors: kickbacks, illegal
political payments, inappropriate gifts
Managing for Ethical Behavior
(Cont.)
• Policy guidelines
– Written and usually available to all employees
– Areas covered: ethical responsibilities of the
organization, employee rights, quality of the
work environment
– Makes an organization's culture more ethical if
policies are accepted, followed, and enforced
Managing for Ethical Behavior
(Cont.)
• Decision procedures
– Specify composition of a decision-making
group and the scope of decision-making
information
– Encourage using more information about a
decision's ethical effects
– Examples
• Include community members and employees
affected by a new plant's design
• Information procedures for new product decisions:
require a fresh review of negative test results before
final decision
Managing for Ethical Behavior
(Cont.)
• Standards of ethical performance
– Become part of the organization's performance
appraisal process
– Required behavior consistent with law and
discretionary behavior that accords with an
ethics policy
– Example--sexual harassment: all employees
shall accept the mandate against sexual
harassment in Title VII of the Civil Rights Act
Managing for Ethical Behavior
(Cont.)
• Ethics training
– Goal: help the organization avoid
governmental and societal sanctions by
preventing unethical and illegal behavior
– Training content
• Discuss code of ethics
• Review organization procedures for reporting
unethical behavior
• Study ethical frameworks based on ethical theories
• Case studies of ethical and unethical decisions
Managing for Ethical Behavior
(Cont.)
• Ethics training (cont.)
– Assumes it can change a person's basic
character
– Dimensions of character
•
•
•
•
Capacity for ethical sensitivity
Ethical reasoning
Ethical conduct
Ethical leadership
Managing for Ethical Behavior
(Cont.)
• Peer reporting of unethical behavior
– Coworkers' reports of perceived unethical
behavior: whistle-blowing
– Problem: often exposes the reporter to strong
social pressure to overlook unethical behavior
– Encourage peer reporting by
• Specifying it as a desired behavior in a code of
ethics
• Ensure that unethical behavior by one person has
negative effect on many others. Punish entire group
for one member’s unethical act
International Aspects
of Ethics
• Sharp contrasts exist between U.S. attitudes
toward business ethics and those of other
countries
• Of the major capitalist nations, the United
States has the highest frequency of
reporting ethical violations, the toughest
laws, and the greatest prevalence of
organization codes of ethics
International Aspects
of Ethics (Cont.)
• Late 1999: Twenty-nine members and five
non-members of the Organization for
Economic Cooperation and Development
signed an ethics treaty
• The Convention on Combating Bribery of
Foreign Public Officials in International
Business Transactions has strong sanctions
for bribery
• Signatories represented economies in the
major world regions. China and India were
notable exceptions
International Aspects
of Ethics (Cont.)
• U.S. managers rely on rules applied equally
to all people
• Managers in other countries rely more on
shared values and a sense of obligation
• The perceived U.S. preoccupation with
business ethics prompted the British
magazine Economist to publish an editorial
entitled ”Hey, America, Lighten Up a Little”
International Aspects
of Ethics (Cont.)
• Multinational firms face many ethical
questions and issues
• Operate in many countries; subject to the
laws of those countries
• The legal and social context of globally
oriented organizations can present their
managers with ethical dilemmas
International Aspects
of Ethics (Cont.)
• A legal view
– The Foreign Corrupt Practices Act of 1977
(FCPA) prohibits a company from using bribes
to get business in another country or prevent the
restriction of its business
– Targets of bribes: foreign officials, foreign
political parties, and foreign political candidates
– Violations: maximum fine of $1 million to an
organization. Five years and a maximum fine of
$10,000 to a manager
International Aspects
of Ethics (Cont.)
• A legal view (cont.)
– The FCPA defines a payment as anything of
value, including gifts
– Under the act, a practice is corrupt if it tries to
induce a person to misuse an official position
for the benefit of a company
– A practice is also defined as corrupt by its
motive. It is not necessary to complete the
practice, nor must it be illegal in the other
country
International Aspects
of Ethics (Cont.)
• A legal view (cont.)
– The FCPA excludes small payments required in
the ordinary course of business in many
countries
– Allows such payments if they are a usual way
of doing business in a country although they
would be bribes according to U.S. values
– The act also allows entertainment and gifts if
they are customary
– An ethical dilemma?
International Aspects
of Ethics (Cont.)
Two ethical views
Cultural
relativism
Multinational
organization
Ethical
realism
International Aspects
of Ethics (Cont.)
• Ethical views (cont.)
- Cultural relativism
• Cultural relativism refers to differences in ethical
values among different cultures
• Premise: right and wrong should be decided by
each society's predominant ethical values
• Cultural relativists base their argument on three
points
International Aspects
of Ethics (Cont.)
• Ethical views (cont.)
- Cultural relativism(cont.)
• Three points
– Moral judgments are statements of feelings and opinions;
neither wrong nor right
– Moral judgments are based on local ethical systems;
cannot judge right or wrong across cultures
– Prudent approach: do not claim an action is either right or
wrong
International Aspects
of Ethics (Cont.)
• Ethical views (cont.)
- Cultural relativism(cont.)
• Managers should behave according to local ethical
systems, even if their behavior violates the ethical
systems of their home country
• Many philosophers have rejected cultural
relativism's argument that codes of ethics cannot
cross national boundaries
• Agree, however, that countries vary in what they
define as right and wrong
International Aspects
of Ethics (Cont.)
• Ethical views (cont.)
– Ethical realism
• Morality does not apply to international transactions
• Because no power rules over international events,
people will not behave morally
• Because others will not behave morally, one is not
morally required to behave ethically
– See text for a revision to this view of ethical
realism
International Aspects
of Ethics (Cont.)
• International ethical dilemmas
– Goods made in a country with no child labor
laws
– Goods made in a country with child labor laws
that are not enforced
– Changing the behavior of local people
– Making small payments that are allowed under
the FCPA