Personal and Organizational Ethics

Business and Society Chapter Notes

Chapter 8

Personal and Organizational Ethics

LEARNING OUTCOMES

After studying this chapter, you should be able to:

Understand the different levels at which business ethics may be addressed.
Differentiate between consequence-based and duty-based principles of ethics.
Enumerate and discuss principles of personal ethical decision making and ethical tests for screening ethical decisions.
Identify the factors affecting an organization’s ethical culture and provide examples of these factors at work.
Describe and explain actions, strategies, or “best practices” that management may take to improve an organization’s ethical climate.

TEACHING SUGGESTIONS

INTRODUCTION – Chapter 8 has two primary purposes, the first of which is to explore some of the various ways to make judgments about ethical dilemmas. The authors present two approaches to making moral judgments, the principles approach and the ethical tests approach. The second purpose is to discuss ways in which managers can improve the moral culture and behavior of their organizations.

KEY TALKING POINTS – This chapter gets into what many philosophers consider the heart of ethics—how to make judgments about ethical dilemmas and come to justifiable decisions about them. As students will quickly note, there is a bewildering collection of ways to make moral judgments. The authors introduce and discuss eight different principles and sevendifferent ethical tests that a manager might use to think about moral dilemmas in the business context. In addition to these fifteenconcepts, the authors also provide a table with fourteen additional principles (although to be fair, there is some overlap between the table and text) and methods to reconcile conflicts among the various approaches.

Most people rely on their instincts to make moral judgments, as pointed out in the text. The students in your class will be no different, and so they will likely become somewhat frustrated trying to learn all of these different approaches. One way to help overcome this frustration and simultaneously help cement the concepts in their minds is to provide a number of ethical dilemmas for them to debate in class discussions (moral philosophy textbooks typically have a plethora of such cases and a hypothetical ethical dilemma is availablein the group project for this chapter). The students will be tempted to come to an immediate decision about the “right thing to do” (relying on their instincts), but the instructor will need to hold them back and guide the discussion toward the different principles and ethical tests that can be used to deliberate the cases. It often helps for students to analyze the dilemmas using an ethical principles and/or ethical testsmatrix as this device enables students to visualize the differences in the various principles and tests. A sample matrix is included at the end of this chapter. Instructors also may want to assign students to read “Sorrow and Guilt: An Ethical Analysis of Layoffs” from SAM Advanced Management Journal, Spring 2000, pp. 4-13. This article reviews the different ethical principles utilized by managers when making decisions regarding job layoffs and shows students that theethical principles and tests are relevant. The article also illustrates that the principles actually serve as the basis for many decisions made by management.

A particular strength of this chapter is the authors’ emphasis on the ethical climates within organizations, and the profound influence they have on individuals’ moral judgments. Although the textbook cannot do full justice to this idea (due to space limitations), there is strong evidence of the overwhelming power of organizational climates on individual ways of thinking, feeling, and acting. As the chapter indicates, surveys of thousands of Harvard Business Review readers found that the behavior of superiors is the number one factor that influences unethical decisions and behaviors.

Even Lawrence Kohlberg, the pioneer of the cognitive moral development field, recognized the influence of group forces over the individual’s ethical decision making, stating, “Individual moral action usually takes place in a social or group context and that . . . context usually has a profound influence on the moral decision making of individuals.” If we recognize the strong influence of organizational climate in conjunction with Kohlberg’s observation that most adults make moral judgments at his level 2, we can see why organizational members are so compliant with their bosses’ demands or even mere suggestions. Instructors will do well to emphasize the influence of organizational climate, because the prevailing assumption among Americans is that individuals make individual choices, largely unaffected by “outside” influences.

Using the Ethical Decision-Making Process illustrated in Figure 8-8, instructors can demonstrate how the ethical principles and tests introduced in this chapter are utilized by organizations through the conduct of top management and corporate codes of conduct. Students should revisit the ethical dilemmas that they explored when they first began discussing ethical principles and tests; however, when students use the ethics screen in the Ethical Decision-Making Process to determine the ethical course of action to take in a given quandary, instructors should direct students to consider the principles / tests employed by top management and the corporate code of conduct. This also emphasizes the difference between addressing ethical issues at the personal level versus the organizational level.

PEDAGOGICAL DEVICES – In this chapter, instructors may utilize a combination of:

Cases:

The Waiter Rule: What Makes for a Good CEO?

Using Ex-Cons to Teach Business Ethics

To Hire or Not to Hire

The Travel Billing Expense Controversy and the False Claims Act

Phantom Expenses

Family Business

Should Business Hire Undocumented Workers?

The High Cost of High Tech Foods

The Betaseron Decision (A)

Felony Franks: Home of the Misdemeanor Weiner

A Moral Dilemma: Head Versus Heart

The Case of the Fired Waitress

After-Effects of After-Hours Activities: The Case of Peter Oiler

Is Hiring on the Basis of “Looks” Discriminatory?

Ethics in Practice Cases:

Promise Versus Lie

Higher Goals, More Pressure, Lower Ethics?

The Anonymous CEO: Strong or Weak Ethical Leader?

Can You Learn Business Ethics from a Convicted Crook?

Spotlight on Sustainability:

Sustainability Audits Becoming Popular

Power Point slides:

Visit for slides related to this and other chapters.

LECTURE OUTLINE

ETHICS ISSUES ARISE AT DIFFERENT LEVELS
Personal Level
Organizational Level
Industry or Profession Level
Societal and Global Levels

PERSONAL AND MANAGERIAL ETHICS
Principles Approach to Ethics
What is an Ethics Principle?
Types of Ethical Principles or Theories
Principle of Utilitarianism
Kant’s Categorical Imperative
Principle of Rights
Principle of Justice
Ethics of Care
Virtue Ethics
Servant Leadership
The Golden Rule
Ethical Tests Approach
Test of Common Sense
Test of One’s Best Self
Test of Making Something Public (Disclosure Rule)
Test of Ventilation
Test of Purified Idea
Test of the Big Four
Gag Test
Use Several Tests Together

MANAGING ORGANIZATIONAL ETHICS
Factors Affecting the Organization’s Moral Climate
Pressures Exerted on Employees by Superiors
Improving the Organization’s Ethical Culture
Compliance versus Ethics Orientation
Top Management Leadership (Moral Management)
Weak Ethical Leadership
Strong Ethical Leadership
Two Pillars of Leadership
Ethical Leadership Characteristics
Effective Communication
Ethics Programs and Ethics Officers
Ethics Officers
Raising the Status of Ethics Officers
Setting Realistic Objectives
Ethical Decision-Making Processes
Ethics Screen
Ethics Check
Ethics Quick Test
Sears’ Guidelines
Codes of Conduct
Ways of Perceiving Codes
Disciplining Violators of Ethics Standards
Ethics “Hotlines” and Whistle-Blowing Mechanisms
Business Ethics Training
Business Roundtable Institute for Corporate Ethics
Ethics Audits and Risk Assessments
Corporate Transparency
Board of Director Leadership and Oversight

FROM MORAL DECISIONS TO MORAL ORGANIZATIONS

SUMMARY

SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

Students should recognize that their answers to these discussion questions should be well reasoned and supported with evidence. Although some answers will be more correct than others, students should be aware that simplistic answers to complex questions, problems, or issues such as these will never be “good” answers.

Students will have many different answers to this question. They may range from decisions whether or not to cheat on a test, to situations in their love lives, to illegal downloading of copyrighted material. Answers to the second part of the question, ethical dilemmas they have faced as part of an organization, are likely to be similarly diverse. They may range from decisions related to underreporting time spent at work, to taking company property (pens, damaged goods, petty cash), to reporting the unethical / illegal conduct of others. One that I faced in an organization was whether to tell the managing partner at a law firm where I did not work that associates were padding their hours on their time sheets. The law firm made more money from the additional hours, and I was friends with some of the attorneys who were padding their time. However, the clients were paying for the additional time. Further, since I wasn’t employed with the firm where the practice was occurring, I wasn’t certain how management would respond to the news. Finally, reporting the incident could have had a negative impact on my reputation in the legal community. Another example would be whether to tell a customer that senior managers at a bank were repeating false rumors about the customer’s business practices. Assume that these rumors could potentially do great harm to the customer’s business, but the managers have the ability to fire the informant if they desire to do so. Further, assume that this dilemma occurred during a recession,making the likelihood of finding another job comparable to the one at the bank slim.

In the first example I could have used any one of the guides presented in this chapter to help me with my decision. I could have weighed the consequences of my decision, both on the client’s business and on my family; I could have thought about how I would feel if my decision was on the front page of the local newspaper; I could have used the principle of caring—some of the clientswere friends of mine. One of the most popular ethical tests in business is the test of making something public. In fact, it is the test that Warren Buffet employs at Berkshire Hathaway. If I had asked myself how I would feel if others knew that I didn’t report the padding of the time sheets, I would have come forward to the management of the law firm where the practice was taking place.

Obviously, students will have different answers to this question. After all, philosophers have been debating this very question for hundreds of years with no resolution! On the consequential side, our society believes that results matter. What happens to people as a result of my actions is very important. Students like teleological theories, especially utilitarianism, because they often apply a cost-benefit approach to decision-making in their other business coursework. However, teleological theories have trouble with questions of rights and justice. We also think that there are some things that just should not be done, regardless of the outcome (e.g., killing an innocent person or denying someone the right to pursue his or her happiness). Many students will agree that there are certain moral and legal rights that cannot be overridden by utility. I personally tend to favor the deontological perspective—I believe there are things that should not be done regardless of the consequences. I also think that the consequences of doing my duty, or “the right thing” will almost always provide positive outcomes. However, when several moral and/or legal rights conflict under the principle of rights or when there are multiple acceptable outcomes using the principle of justice, I would use a teleological theory (e.g., utilitarianism) to reach a final decision.

Because ethical leadership is built upon management that embodies the characteristics of a moral manager and a moral person, I would focus on these aspects of ethical leadership. A moral person exhibits (1) ethical traits (such as honesty, trustworthiness, etc. – the foundation of virtue ethics), (2) ethical behaviors and (3) ethical decision-making. A moral manager (1) serves as an ethical role model, (2) effectively communicates ethical choices, and (3) uses effective rewards and discipline. Since research has shown that behavior of superiors is the factor most likely to impact an organization’s ethical climate, I believe that it would be paramount for me to serve as an ethical role model by demonstrating ethical behavior, specifically exhibiting the traits of a virtue ethicist and exercising ethical decision-making. I would strive to effectively communicate ethical choices, through my own actions and through the implementation of the company’s code of conduct and training courses. Finally, I would emphasize that there are rewards for ethical behavior and punishments for unethical behavior and implement those measures when appropriate.

Codes of conduct, if embedded in the culture of a company, can provide effective guidance to employees. Collins and Porras, in Built to Last, talk about the effects of “cult-like cultures.” These cultures provide ideological control (assuring that employees look at the world in similar ways) and simultaneous operational autonomy. An effective code of conduct can provide a like result. In addition, the Sarbanes-Oxley Act of 2002 requires public companies to have a code of conduct for senior financial officers or to publicly disclose why they do not have this code. Finally, the Federal Sentencing Guidelines direct prosecutors to consider “the existence and adequacy of the corporation’s compliance program”(which includes an effective code of conduct), when determining whether to charge an organization for the criminal actions of its agents. Unfortunately, in reality, most codes of conduct are written to protect the company from its employees’ behaviors, and many are little more than window dressing. On balance, like most things, codes of conduct can be helpful if they are carefully written, properly implemented, uniformly enforced, and embedded in the culture. And like most things, they can be harmful if employees see them as hypocritical, window dressing, or applied capriciously.

In my opinion, this question does not address the critical issue. Business ethics can be taught. The subject matter is no more difficult to grasp than any other academic subject. People have been making judgments about right and wrong all of their lives, using some type of criteria (or maybe just instinct, as the authors point out). People can learn how to use different ethical criteria. The more important, and much more relevant question is one of motivation—Rest’s third component. Because of this, effective ethics training must focus on the organization’s ethical climate, providing an atmosphere that is conducive to and supportive of ethical decisions. As discussed in this chapter, employees of firms feel pressured to compromise their ethics in pursuit of other (usually financial) goals. The problem is not that people don’t know how to make ethical decisions—the problem is that they are worried that doing the right thing will result in punishment rather than reward. So the real question is whether senior managers (those who establish the ethical climate in their organizations) can learn or be persuaded to establish climates that encourage and reward ethical behavior first and foremost, not exclusive pursuit of profit; I believe that current and future managers can be convinced to establish an ethical climate by studying the economic and legal consequences of unethical and ethical behaviors.

The single most important factor in establishing a strong ethical climate is the commitment and behavior of senior managers. These are the people in the organization who set the standards of behavior for everyone else. If the senior managers authentically believe in ethical behavior, and act that way themselves, there will be little difficulty in establishing an ethical work climate. All of the other practices discussed in the textbook—communicating effectively, establishing ethics programs, setting realistic performance objectives, including ethics in the decision-making process, establishing codes of conduct, disciplining violators, setting up hotlines, providing ethics training, performing ethics audits and risk assessments, being transparent, and providing effective board oversight will be helpful, but these measures will only be successful if senior management sets a moral tone at the top.

GROUP ACTIVITY

Divide students into groups of four to five students. Instruct them to read the following scenario:

“Alex Smith is preparing a sales presentation for his company, Phones4Kids, which manufactures and sells cell phones that are specifically designed for children. Phones4Kids employs several hundred workers in Mooray, Missouri, a small town with only two other large employers in addition to Phones4Kids. Alex hopes to sell specialty phones for boys and girls aged 6-10 to a retailer in Hooptown, Missouri. This sale would represent approximately 25% of the projected revenue for the current year for Phones4Kids. The phones are not specifically designed for internet access; however, about eight percent of the time the phones can pick up a wireless internet connection and the user can access the internet. There is a 48% chance that once a child connects to the internet using one of these specialty phones, he or she could access a pornographic site. Derrick Vance, Alex’s boss, has promised Alex a commission in addition to his regular salary if he makes the sale to the retailer. However, if he tells the retailer about the potential to access pornography via the cell phone, the retailer may buy the phones from a competitor that sells phones without internet access. Alex has reviewed the corporate policy for Phones4Kids and can find no specific guidance on how to handle this situation. However, the policy does indicate that sales representatives are to be honest and fair in their dealings with customers.”