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Ethics
Our last key factor for understanding individuals in organizations is ethics, which is the set of
the moral choices a person makes based on what he or she ought to do. Ethics is based on an
individual's beliefs about what is right and wrong or good and bad. Ethics can also be regarded
as the vehicle that converts values into action. You might value a clean environment; the
corresponding ethical behavior is not to place a television set or computer in a landfill. Ethics is a
major consideration in studying the actions of managerial workers and the functioning of
organizations. The prominent financial scandals in business during the first several years of the
new century have intensified recognition of the importance of ethics. We will therefore refer to
ethics at various places in this book.
The ethical behavior of organizational members, whether individual contributors (non-managers)
or managers, exerts a major force on how outsiders and insiders will perceive the firm. If the
behavior of one or more organizational members is outrageously unethical, it may violate the
law, thus leading to outside intervention. Furthermore, if top-level management in the company
is unethical, the result can be an erosion of employee trust and organizational loyalty.
Here we approach ethics as it relates to individuals from four perspectives, First we look at three
somewhat philosophical criteria for making ethical decisions. Second, we describe major causes
of ethical problems. Third, we present an eight part guide to ethical decision making. Fourth, we
describe the role of organizations in promoting ethical and socially responsible behavior.
Ethical Decision-Making Criteria
A standard way of understanding ethical decision making is to understand the philosophical basis
for making these decisions. When attempting to decide what is right and wrong, people can focus
on (1) consequences; (2) duties, obligations, and principles; or (3) integrity.
Focus on Consequences
When attempting to decide what is right and wrong, people sometimes focus on the
consequences of their decision or action, According to this criterion, if nobody gets hurt, the
decision is ethical. Focusing on consequences is often referred to as utilitarianism. The decision
maker is concerned with the utility of the decision. What really counts is the net balance of good
consequences over bad.
To focus on consequences, the decision maker would have to be aware of all the good and bad
consequences of a given decision. A financial vice president might decide that if all travelexpense reimbursements were delayed by 10 days, the company could earn $1 million per year
nationwide. The earnings would stem from holding on to money longer, thus collecting interest.
How would this vice president know how many family arguments and how much job stress
would be created by these delayed reimbursements? How many good performers would quit in
disgust?
Focus on the Rights of Individuals
Another approach to making an ethical decision is to examine one's duties in making the
decision. The theories underlying this approach are referred to as deontological) from the Greek
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word deon (or duty). Deontology also refers to moral philosophies that center on the rights of
individuals and the intentions associated with a particular behavior. A fundamental idea of
deontology is that equal respect must be given to all persons. The deontological approach is
based on universal principles such as honesty, fairness, justice, and respect for persons and
property. Rights, such as the right to privacy and safety, are the key aspects of deontology. From
a deontological perspective, the principles are more important than the consequences. If a given
decision violates one of these universal principles, it is automatically unethical, even if nobody
gets hurt.
The financial vice president pondering whether to defer payments on travel expenses would not
have to spend much time with deontology. She would say to herself, "Delaying these payments
may earn the company another $1 million per year, but it is not honest, fair, or just. Furthermore,
employees have a right to prompt payment."
Focus on Integrity (Virtue Ethics)
The third criterion for determining the ethics of behavior focuses on the character of the person
involved in the decision or action. If the person in question has good character and genuine
motivation and intentions, he or she will be judged to have behaved ethically. The criteria for
good character will often include the two other ethical criteria. For example, one might judge a
person to have good character if he or she follows the right principles and respects the rights of
others.
Trustworthiness has emerged in recent years as a virtue of major importance for managers and
professionals, in part because of many well-publicized incidents of executives being
untrustworthy. The name Enron has become almost synonymous with untrustworthy behavior.
Research suggests that trust makes a major contribution to organizational effectiveness. Two
major contributors to trust are consistent behavior and clear communication. Any act of bad
management is likely to engender distrust. At the top of the list are inconsistent messages from
top management and inconsistent standards.
The decision maker’s environment, or community, helps define what integrity means. You might
have more lenient ethical standards for a person selling you investment derivatives (high-risk
investments used to hedge other investments, with their value derived from the existence of other
securities) than you would for a bank vice president who accepted your cash deposit.
The virtue ethics of managers and professionals who belong to professional societies may be
readily inferred. Business-related professions having codes of ethics include accountants,
purchasing managers, and certified financial planners. To the extent that the person abides by the
tenets of the code, he or she behaves ethically. An example of such a tenet would be for a
financial planner to be explicit about any commissions he or she stands to gain from a client
accepting the advice.
Major Causes of Ethical Problems
Individuals, organizations, and society must share some of the blame for the prevalence of
unethical behavior in the workplace. Exhibit 1 presents a sampling of unethical behavior in
business. Major contributors to unethical behavior are an individual's, greed and gluttony, or the
desire to maximize self-gains at the expense of others. Former Federal Reserve Chairman Alan
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Greenspan said that "an infectious greed" had contaminated the business community in the late
1990s, as one executive after another manipulated earnings or resorted to fraudulent accounting
to capitalize on soaring stock prices. The decision makers at Fidelity (in the chapter opener) who
accepted lavish gifts from a brokerage house might have been experiencing greed and gluttony.
Exhibit 1.
Ethical Question
Have you inflated numbers in a forecast?
Have you taken office supplies home?
Have you ever inflated your company's sales to win a client?
Have you ever put a personal cost on your expense report or company credit card?
Have you booked an order that wasn’t yet contracted?
Source J. Alsever, “The Ethics Monitor,” Fast Company, August 2005, p. 27
% Yes % No
12
69
19
19
6
88
31
81
81
94
Another key contributor to a person's ethics and morality is his or her level of moral
development. Some workers are morally advanced, while others are morally challenged—a
condition that often develops early in life. People progress through three developmental levels in
their moral reasoning. At the preconventional level, a person is concerned primarily with
receiving external rewards and avoiding punishments. A manager at this level of development
might falsify earnings statements for the primary purpose of gaining a large bonus.
At the conventional level, people learn to conform to the expectations of good behavior as
defined by key people in their environment, as well as societal norms. A manager at this level
might be just moral enough to look good, such as being fair with salary increases and
encouraging contributions to the United Way campaign. At the postconventional level, people
are guided by an internalized set of principles based on universal, abstract principles that may
even transcend the laws of a particular society. A manager at the postconventional level of moral
behavior would be concerned with doing the most good for the most people, whether or not such
behavior brought him or her recognition and fortune. If the manager just described wanted to
direct an apprenticeship program, he or she might also be at the postconventional level of moral
behavior.
Another major contributor to unethical behavior is an organizational atmosphere that condones
such behavior. If leaders at the top of the organization take imprudent, quasi legal risks, other
leaders throughout the firm might be prompted to behave similarly. The ethical violations of the
financial services giant, Citi, were attributed to an aggressive culture that encouraged daring
risks. For example, Japanese regulators accused Citi of numerous instances of unfair transactions
in which excessive profits were obtained through unsound means. The megabank admitted to
failing to comply with regulatory requirements.
Unethical behavior is often triggered by pressure from higher management to achieve goals. One
study found that 56% of all workers feel some pressure to act unethically or illegally (Greengard,
1997). Another cause of unethical behavior emphasizes the strength of relationships among
people as a major factor. Assume that two people have close ties to each other, such as having
worked together for a long time or knowing each other both on and off the job. As a
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consequence, they are likely to behave ethically toward each other on the job. In contrast, if a
weak relationship exists between the two people, either party is more likely to engage in an
unethical relationship. Executives who do not feel that they have a personal relationship with
employees well below them in the hierarchy are more likely to behave unethically toward them
than if a bond had been formed.
A final cause of unethical behavior is unconscious biases that lead us to make unfair judgments
and lead us toward discriminatory practices. Suppose a real-estate manager believes that women
are much better at selling homes than men are, and the manager is not aware of his bias. His
unconscious belief may lead him to hire a woman rather than a man when the two have
comparable qualifications. It is difficult to overcome an unconscious bias, yet progress can be
made by remembering to broaden one's options when making a workplace decision.
AN EIGHT-STEP GUIDE TO ETHICAL DECISION MAKING
Linda K. Trevino and Katherine A. Nelson (1995) have developed a guide to ethical decision
making that incorporates the basic ideas found in other ethical tests. After studying this guide,
you will be asked to ethically screen a decision. The eight steps to sound ethical decision making
are described here.
1. Gather the facts. When making an important business decision, it is necessary to gather
relevant facts. Ask yourself such questions as, "Are there any legal issues involved here?"
"Is there a precedent in our firm with respect to this type of decision?" "Do I have the
authority to make this decision?" "Are there company rules and regulations governing
such a decision?"
2. Define the ethical issue. The ethical issues in a given decision are often more complicated
than suggested at first glance. When faced with a complex decision, it may be helpful to
talk over the ethical issues with another person. The ethical issues might involve common
ethical problems such as:
a. Lying to customers
b. Job discrimination
c. Sexual harassment
d. Offering or accepting bribes or kickbacks
e. Overstatement of the capability of a product or service
f. Use of corporate resources for personal gain
3. Identify the affected parties. When faced with a complex ethical decision, it is important
to identity those who will feel the impact of the decision. Brainstorming may be helpful
to identity all the parties affected by a given decision. Major corporate decisions can
affect thousands of people. If a company decides to shut down a plant and outsource
manufacturing to a low-wage country, thousands of individuals and many different
parties are affected. Workers lose their jobs, suppliers lose their customers, the local
government loses out on tax revenues, and local merchants lose many of their customers.
The people affected by the decision to delay expense-account reimbursements include the
workers owed the money and their families. In some instances, the creditors of the
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workers owed money may also receive late payments.
4. Identify the consequences. After you have identified the parties affected by the decision,
the next step is to predict the consequences for each party. It may not be necessary to
identity every consequence. Yet it is important to identity the consequences with the
highest probability of occurring and those with the most negative outcomes.
Both short-term and long-term consequences should be specified. The company closing a
plant might create considerable short-term turmoil but might be healthier in the long
term. A healthy company would then be able to provide for more workers. The short-term
consequences of delaying expense reimbursements might be a few grumbles; ill will
probably will be created for the long term.
The symbolic consequences of an action are important. Every action and decision sends a
message (the message is a symbol of something). If a company moves manufacturing out
of a community to save on labor costs, it means that the short-term welfare of domestic
employees is less important than the welfare of shareholders. Delaying expense-account
reimbursements symbolizes more concern about optimizing cash flow than treating
employees fairly.
5. Identify the obligations. When making a complex decision, identify the obligations and
the reason for each one. A manufacturer of automotive brakes has an obligation to
produce and sell only brakes that meet high safety standards. The obligation is to the auto
manufacturer who purchases the brakes, and more importantly to the ultimate consumer,
whose safety depends on effective brakes. The ultimate reason for the obligation to make
safe brakes is that lives are at stake.
6. Consider your character and integrity. A core consideration when faced with an ethical
dilemma is to consider how relevant people would judge your character and integrity.
What would your family, friends, significant others, teachers, and coworkers think of
your actions? How would you feel if your actions were publicly disclosed in the local
newspaper or through e-mail? If you would be proud for others to know what decision
you made when you faced an ethical dilemma, you are probably making the right
decision.
7. Thinking creatively about potential actions. When faced with an ethical dilemma, put
yourself in a creative-thinking mode. Stretch your imagination to invent several options
rather than thinking you have only two choices—to do or not to do something. Creative
thinking may point toward a third choice, or even more alternatives. Visualize the ethical
dilemma of a purchasing agent who is told by a sales rep that he will receive a Blackberry
as a token of appreciation if his company signs a contract. The agent says to himself, "I
think we should award the contract to the firm, but I cannot accept the gift. Yet if I turn
down the gift, I will be forfeiting a valuable possession that the company simply regards
as a cost of doing business."
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By thinking creatively, the agent finds another alternative. He tells the sales rep, "We will
grant the contract to your firm because your product fits our requirements. I thank you for
the offer of the Blackberry but instead please give it to the Southside Young
Entrepreneur's Club in my name."
8. Check your intuition. So far we have emphasized the rational side of ethical decision
making. Another effective way of conducting an ethics screen is to rely on intuition. How
does the contemplated decision feel, taste, and smell? Would you be proud of yourself or
would you be disgusted with yourself if you made the decision? Of course, if a person
lacks a conscience, checking intuition is not effective.
References
Greengard, S. (1997, October). 50% of your employees are lying, cheating, and stealing.
Workforce, p 46.
Trevino, L. K., & Nelson, K. A. (1995). Managing business ethics: Straight talk about how to do
it right. New York: Wiley.