Paul L. Schumann, Ph.D.
Professor of Management
MGMT 440: Human Resource Management
© 2008 by Paul L. Schumann.
All rights reserved.
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Role of Ethics in Business
Law vs. Ethics
Making Ethical Judgments Using Moral Principles
Motivating Ethical Behavior by Employees
2
Should
managers
consider
ethics when
making
decisions?
• Friedman (1970): Managers should “… conduct
the business … to make as much money as
possible, while conforming to the basic rules of
society, both those embodied in law and those
embodied in ethical custom.”
• Maximize profits, but actions should be both
legal & ethical
• Why might ethical behavior be an important
factor that contributes to the strategic success
of the organization?
3
Is there a conflict
of law and ethics?
Ethical?
Yes
No
Yes
No conflict
Legal
but
unethical
No
Ethical
but illegal
No conflict
Legal?
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Example: Legal but
Example: Ethical
unethical?
but illegal?
“Jim Crow” laws that
required discrimination
against Black Americans
Provide service in violation
of “Jim Crow” laws to a Black
American in a restaurant
Laws in Nazi Germany that
contributed to the holocaust
Help a holocaust victim
escape from Nazi Germany
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Legal Judgment: Is the action legal or
illegal?
Judgment Based on Legal Factors
Laws
Regulations
Court
Decisions
6
Moral Judgment: Is the action ethical or
unethical?
Judgment Based on 5 Moral Principles
Utilitarian
Rights
Justice
Care
Virtue
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What action
will do the
most good
and the least
harm for
everyone
who is
affected?
•Who are the stakeholders?
•What are the alternative courses of
action?
•For each alternative, what are the
benefits and costs (good and harm) for
each stakeholder now and in the future?
•Which alternative creates the most
benefits and the least costs for all
stakeholders considered together?
8
What would happen in a competitive
market in which all stakeholders have
complete and accurate information
and are free to make their own
choices in mutually beneficial
negotiations with each other?
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What action do you have the moral right to take …
… that does not infringe on the moral rights of others,
and …
… that advances the moral rights of others?
10
What action
do you have
the moral
right to take
in the
situation
under
consideration?
•Reversibility
•Universalizability
•Respect & free
consent
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What moral
rights do
other
stakeholders
have?
•Reversibility
•Universalizability
•Respect & free
consent
12
Is there a
conflict of
moral rights?
If so, decide
whose rights
take
precedence
• What competing interest is being
protected by each conflicting right?
• Which competing interest is more
important?
• Give precedence to the right that
protects the more important
interest.
13
What action produces a fair
distribution of benefits and costs
for all of the stakeholders?
What action provides
all stakeholders with
equal liberties and
equal opportunities
…
… but allows for
differences in results
based on differences
in contributions …
… while helping
those in need to the
greatest extent
possible?
14
What action appropriately cares for your own needs …
… and also appropriately cares for those people with whom you
have special relationships (e.g., family, friends, coworkers,
supervisors, employees, customers, suppliers, stockholders, etc.)?
•Care appropriately for those with whom you have a relationship, especially those
who are vulnerable and dependent on you
•Nurture the ability of those with whom you have a relationship to make their own
choices and live their own lives
•Do not base relationships on domination, oppression, hatred, violence,
disrespect, injustice, exploitation, etc.
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What
action
displays
virtuous
character
traits?
• Does the action display virtues such as
benevolence, civility, compassion,
conscientiousness, cooperativeness, courage,
fairness, generosity, honesty, industriousness,
loyalty, moderation, self-control, self-reliance,
or tolerance?
• Or does the action display vices such as
cowardice, deceit, dishonesty, laziness, neglect,
or selfishness?
• Take the action that displays virtues, not vices.
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Moral Judgment: Is the action ethical or
unethical?
Judgment Based on 5 Moral Principles
Utilitarian
Rights
Justice
Care
Virtue
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• If they all reach the came conclusion, then that’s the moral
judgment
• If they reach what appear to be conflicting conclusions:
• Determine if the conflict can be resolved by developing
(guided by the moral principles) a previously unconsidered
course of action that satisfies all 5 moral principles
Do all five moral principles
reach the same conclusion,
or do they reach conflicting
conclusions?
• If the conflict cannot be resolved with a different course of
action, then examine your values to decide which principles
should take precedence
• Example: “the ends can’t justify the means”  the Rights
Principle takes precedence over the Utilitarian Principle
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Stage 1: Self-interest: “The only crime is getting
caught”
• Make it more likely to catch bad behaviors
• Anticipate possible bad behaviors
• Create rules & expectations: What’s unacceptable?
• Communicate rules & expectations
• Monitor & enforce the rules
• Increase the penalties for bad behaviors
• Have formal policies that describe the escalating sanctions
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Stage 2: Self-interest: “What’s in it for me — I’ll
scratch your back if you scratch mine”
• Create incentives for good behaviors and to avoid bad
behaviors
• Punish bad behaviors
• Withhold benefits valued by the employee for bad
behaviors
• Create positive incentives for good behaviors
• Tie rewards to good behaviors
• Watch for unintended incentives for bad behaviors
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Stage 3: Group norms are important: “Do your duty
to those whose opinions you value”
• Focus on co-workers & direct supervisors
• Monitor for workgroups with bad norms
• Screen applicants in hiring for the desired norms
• Use formal socialization, orientation, & training sessions to
teach the desired norms
• Use self-managed teams & coach them to have the desired
norms
• Direct supervisors should formally praise good behaviors
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Stage 4: Social institutions are important : “Do your
duty to society at large”
• Help employees become good citizens, including good
corporate citizens
• Create organizational awards and recognitions for
examples of good corporate citizenship
• Publicize examples of good corporate citizenship
• Company newsletter
• Company website
• Press releases to the media
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Stage 5: Protect the social contract
• Use participative management techniques
• Create formal impartial due process procedures to resolve
conflicts & disagreements
• Create opportunities for employees to participate in due
process procedures
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Stage 6: Universal ethical principles
• Create & use an ombudsoffice
• Create method for employees to report illegal or unethical
behavior
• Ethics hotline
• Ethics webpage on company website
• Ombudsoffice investigates complaints, reports findings, &
helps to resolve issues
• Guided by independence, confidentiality, objectivity, &
ethics
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Role of Ethics in Business
Law vs. Ethics
Making Ethical Judgments Using Moral Principles
Motivating Ethical Behavior by Employees
25