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Personal and Organizational Ethics

Professor Craig Diamond

BA 385

October 21, 2009

Chapter 8

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Outline of Topics

Introduction

Personal and Managerial Ethics• Principles approach• Ethical Tests approach

Improving Organizational Ethics

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Introduction to Chapter 8

Key question this chapter addresses: “How do we make judgments about ethical dilemmas and come to justifiable decisions”?

Focus on the day-to-day ethical issues that managers face

Many managers have no training in business ethics or ethical decision-making

Ethics is vital to business success

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Ethics Resource Center – 2003 Survey

Behaviors observed by employees:• Abusive or intimidating behavior toward employees (23%)

• Misreporting actual time or hours worked (20%)

• Lying to employees, customers, vendors or the public (19%)

• Withholding needed information from employees, customers, vendors or the public (18%)

• Discriminating on the basis of race, color, gender, age, or similar categories (13%)

• Stealing, theft or related fraud (12%)

• Sexual harassment (11%)

• Falsifying financial records and reports (5%)

• Giving or accepting bribes, kickbacks, or inappropriate gifts (4%)

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Levels at Which Ethical Issues May Be Addressed

PersonalLevel

Situations faced in our personal lives outside the work context

Organizational Level

Workplace situations faced as managers and employees

Focus of this chapter

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Levels at Which Ethical Issues May Be Addressed

Societal andGlobal Levels

Societal or global situationsconfronted indirectly as a management team

IndustryLevel

Situations where a manager or organization might influence business ethics at the industry level

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Personal and Managerial Ethics

Conventional approachConventional approach

Principles approachPrinciples approach

Ethical tests approachEthical tests approach

ResolvingResolvingEthicalEthical

ConflictsConflicts

ResolvingResolvingEthicalEthical

ConflictsConflicts

Ethical decisions

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Ethical Dilemmas in Organizations

Typical dilemma: making a choice between self-interest and the interest of other stakeholders or groups.

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Types of Ethical Principles

TeleologicalTheories

TeleologicalTheories

Focus on the consequences or results of the actions they produce

Focus on the consequences or results of the actions they produce

DeontologicalTheories

DeontologicalTheories

Focus on duties Focus on duties

AretaicTheories

AretaicTheories

Focus on virtue (character trait)Focus on virtue (character trait)

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Principles Approach to Ethics

Major Principles of Ethics Applied to Business

Utilitarianism Categorical Imperative Rights Justice

Care Virtue ethics Servant leadership Golden Rule

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Principle of Utilitarianism

Utilitarianism focuses on acts that produce the greatest ratio of good to evil for everyone

Ignores actions that may be inherently wrong

May come into conflict withthe idea of rights & justice

Difficult to formulate satisfactoryrules for decision making

Strengths Weaknesses

Forces thinking about the general welfare and all stakeholders

Allows personal decisions to fit into the situation complexities

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Kant’s Categorical Imperative

Kant’s Categorical Imperative is a duty-based principle of ethics. A sense of duty arises from reason.

Formulations

1. Act only on rules that you would be willing to see everyone follow.

2. Act to treat humanity in every case as an end and never as a means (respect for people).

3. Every rational being is able to regard oneself as a maker of universal law. We do not need an external authority to determine the nature of the moral law.

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Principle of Rights

Focuses on protecting individual moral or legal rights

• Addresses weaknesses of utilitarianism

• Based on moral reasoning, not dependent on a legal system

• Morality from perspective of individuals and groups

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Rights vs. Utilitarianism

Equality vs. Efficiency Minimizing cost vs. safety precautions

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Examples of Legal or Moral Rights

Figure 8-1

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Principle of Justice

Fair treatment of people - “Fairness Principle”

Types of justice

Distributive – how to distribute benefits and burdens

Compensatory – compensation for past injustices

Procedural – ethical due process

Rawlsian

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1. Have employees been given input into the decision process?

2. Do employees believe the decisions were made and implemented in an appropriate manner?

3. Do managers provide explanations when asked? Do they treat others respectfully? Do they listen to comments being made?

Ethical Due Process

Fairness in Process and Decision-Making

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1. Each person should be treated equally and have and equal right to the most basic liberties

2. As much as possible, we should benefit the well-being of the socially and economically worse off

• Also known as “progressive” policy, e.g., “progressive taxation”

Rawls’s Principles of Justice

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Virtue ethics: focuses on individuals becoming imbued with virtues (focus on character over actions)

Aristotle and Plato

Ethic of Care and Virtue Ethics

Principle of caring: focuses on a person as a relational (cooperative) and less as an individual Feminist theory Stakeholder thinking

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Listening Empathy Healing Persuasion Awareness Foresight Conceptualization Commitment to the growth of

people Stewardship Building community

Servant Leadership

Leadership through serving others

Business Ethics and

Leadership

Bridges

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The Golden Rule

The Golden Rule focuses on the premise that you should do unto others as you would have them do unto you

The Golden Rule is…

1. accepted by most people

2. easy to understand

3. a win-win philosophy

4. a compass when you need direction

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Reconciling Ethical Conflicts

Concerns to be Addressed in Ethical ConflictsConcerns to be Addressed in Ethical Conflicts

Obligations

Ideals (values)

Effects (consequences)

Obligations

Ideals (values)

Effects (consequences)

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Guidelines for Conflicting Obligations, Ideals, and Effects

When two or more moral obligations conflict, choose the stronger one

When two or more ideals conflict, or when ideals conflict with obligations, honor the more important one

When effects are mixed, choose the action that produces the greater good or less harm

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Ethical Tests Approach

Test of One’s Best SelfTest of One’s Best Self

Test of Making Something PublicTest of Making Something Public

Test of VentilationTest of Ventilation

Test of Common SenseTest of Common Sense

Test of the Purified IdeaTest of the Purified Idea

Big Four (greed, speed, laziness, or haziness)Big Four (greed, speed, laziness, or haziness)

Gag TestGag Test

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Factors Affecting the Morality of Managers

Society’s Moral Climate

Business’s Moral Climate

Industry’s Moral Climate

IndividualOne’s Personal

Situation

IndividualOne’s Personal

Situation

SuperiorsSuperiors

PoliciesPolicies

PeersPeers

Organization’s Moral Climate

Figure 8-4

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Factors Affecting the Organization’s Moral Climate

1. Behavior of superiors (# 1 influence)

2. Behavior of one’s peers in the organization

3. Ethical practices of one’s industry or profession

4. Society’s moral climate

5. Formal organizational policy (or lack of one)

6. Personal financial need

Figure 8-5

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Pressures Exerted on Employees by Superiors

Top management: 50 percent agreed

Middle management: 65 percent agreed

Lower management: 85 percent agreed

“Managers feel under pressure to compromise personal standards to achieve company goals.”

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Pressure on Employees

One study found:• 60% of workers felt a “substantial” amount of pressure on

the job. 27% felt a “great deal” of pressure.

• 48% of workers reported that, due to pressure, they had engaged in one or more unethical and/or illegal actions during the past year (most frequent: cutting corners in quality control).

• Reasons for pressure:• 52% balancing work and family• 51% poor internal communication• 51% workload• 51% poor leadership

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Improving the Ethical Climate

Top Management

Moral Leadership

Top Management

Moral Leadership

Ethics Programsand Officers

Ethics Programsand Officers

RealisticObjectives

RealisticObjectives

Ethical Decision-Making Processes

Ethical Decision-Making Processes

Codes ofConduct

Codes ofConduct

Figure 8-7

EffectiveCommunication

EffectiveCommunication

Ethics TrainingEthics Training

CorporateTransparency

CorporateTransparency

Whistle-BlowingMechanisms

Whistle-BlowingMechanisms

Ethics Audits andRisk Assessments

Ethics Audits andRisk Assessments

Board of Directors’Oversight

Board of Directors’Oversight

Discipline ofViolators

Discipline ofViolators

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Two Pillars of Leadership

TraitsTraits

Ethical Leadership

BehaviorsBehaviors

DecisionMaking

DecisionMaking

RoleModeling

RoleModeling

EthicsCommunication

EthicsCommunication

Effective Rewards and Discipline

Effective Rewards and Discipline

Moral Person Moral Manager

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Effective Communication

Candor – honest, sincere, fair, free from prejudice and malice

Fidelity – detailed, accurate, no deception or exaggeration

Confidentiality – deciding when not to share information

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Ethics Programs

Written standards of conduct

Ethics training

Mechanisms to seek ethics advice or information

Methods for reporting misconduct anonymously

Disciplinary measures for employees who violate ethical standards

Inclusion of ethical conduct in the evaluation of employee performance

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Ethics Officers

Title of employee who managed the Ethics Program

Became more common following publication of the 1991 Sentencing Commission Guidelines. Then even more common after Sarbanes-Oxley in 2002.

2006: 62% of Fortune 500 companies had Ethics Officers

High profile Ethics Officers (on executive team)

• Examples: AIG, Bear Stearns

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Ethical Decision-Making Process

Figure 8-9

Industry and company standards also part of ethics screening

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Ethics Check

1. Is it legal?

2. Is it balanced (does it treat stakeholders fairly)?

3. How will it make me feel about myself?

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Texas Instruments Ethics Quick Test

1. Is the action legal?

2. Does it comply with our values?

3. If you do it, will you feel bad?

4. How will it look in the newspaper?

5. If you know it’s wrong, don’t do it.

6. If you’re not sure, ask.

7. Keep asking until you get an answer.

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Sears’ Guidelines

1. Is it legal?

2. Is it within Sears’ shared beliefs and policies?

3. Is it right / fair / appropriate?

4. Would I want everyone to know about this?

5. How will I feel about myself?

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Legal Compliance vs. Ethics

Until recently, legal compliance received much more focus than ethics. That is beginning to change.

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Codes of Ethics

95% of major corporations have them

Level of effectiveness depends on: Corporate culture Code enforcement Discipline for violation, reward for compliance Many other factors

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Hotlines: anonymous reporting of ethics problems• 78% of large companies have them• Most frequent way that ethical problems are reported• Can be as effective as ethics audits• One cross-industry study:

• 65% of reports warranted further investigation• 46% resulted in action being taken

Hotlines

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Ethics Training

About 77% of publically traded companies offer ethics training to employees

Effectiveness depends on:

• Culture

• Length and quality of training

• Many other factors

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Corporate Transparency

CorporateTransparency

Company activities, processes, practices, and decisions become open or visible to the outside world.

Leads to accountability and

trust of stakeholders

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The 2002 Sarbanes-Oxley Act

Companies are required to 1) provide avenues for employees to report ethical problems and 2) protect whistle-blowers without fear of retaliation

It is a crime to alter, destroy, conceal, cover up, or falsify documents to prevent its use in a federal government lawsuit

Board of Director Leadership and Oversight

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From Moral Decisions to Moral Organizations

Moral DecisionsMoral Decisions

Moral ManagersMoral Managers

Moral OrganizationsMoral Organizations

Figure 8-10

Maximize these

Maximize these

Ultimate goal

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Aretaic theories Categorical imperative Codes of conduct Codes of ethics Compensatory justice Corporate transparency Deontological theories Distributive justice Ethic of care Ethical due process Ethical tests Ethics audits Ethics officer Ethics programs Golden Rule Legal rights

Key Terms

Moral rights Negative right Opacity Positive right Principle of justice Principle of rights Principle of utilitarianism Procedural justice Rights Risk assessments Servant leadership Teleological theories Transparency Utilitarianism Virtue ethics