Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

BUSINESS ETHICS

Lecture 2

AP. Azmi Ariffin MBA, CA (M), IIA

2-2

CHAPTER OBJECTIVES

After learning this chapter, you will be able to:

1. Describe Normative thoeries of ethicso Egoism, Utilitarianism & kan’t Ethicso Other Non consequentialist perspectives

2. Describe a process for ethically responsible decision-making.

3. Apply this model to ethical decision points.

4. Explain the reasons why “good” people might engage in unethical behavior.

5. Explore the impact of managerial roles on the nature of our decision-making.

2-3

Normative theories of ethics

o Normative Theories- principles(s) which distinguished right actions from wrong.

o Normative theories are divided into 2 kinds:o Consequentialist

o Determine what is right by weighing the ratio of good to bad that an action will produce.

o If its consequences are good, then the act is right; if they are bad, the act is wrong.

o 2 most important theories:o Egoism – advocates individual self-interesto Utilitarianism – one must take into account everyone

affected by the action

2-4

Nonconsequentialist (deontological) theories

o Right & wrong are determined by more than the likely consequences of an action.

o See other factors are also relevant to the moral assessment of an action.

o Below are the critical inquiries of Nonconsequentialist:oHow well justified are the Nonconsequentialist

principles and moral rights?o Can the nonconsequentialist satisfactorily handle

conflicting rights and principles?

2-5

Egoism

o is a view where it equates morality with self-interest (always look out for number one).

o It focuses on the happiness of individuals. o 2 kinds of egoism:

o Personal egoists – pursue their own best interest but do not say what others should do.

o Impersonal egoists – everyone should let self-interest guide his/her conduct.

o Psychological egoism – people are, as matter of fact, so constructed that they must behave selfishly.

2-6

Problems with egoism:

o Psychological egoism is not a sound theory – sometimes people are acting for reasons that are not self-interested (a sense of obligation / to promote others happiness)

o Ethical egoism is not really a moral theory at all – misunderstands the nature & point of morality.

o Ethical egoism ignores blatant wrongs – by reducing everything to the standard of best long-term self-interest, egoism takes no stand against such seemingly immoral acts as theft, murder, racial & sexual discrimination.

2-7

Utilitarianism

o Is the moral doctrine that we should always act to produce the greatest possible balance of good over bad for everyone affected by our actions.

o The interest of the community are simply the sum of the interests of its members.

o 6 points about Utilitarianism:o Unhappiness vs happiness – when deciding which

action will produce the greatest happiness, we must consider unhappiness/ pain as well as happiness.

o Action affect people to different degreeo  

2-8

6 points about Utilitarianism: (Cont’d)

o Any action can be morally right – utilitarian’s evaluate actions according to their consequences & actions produce different results in different circumstances, almost anything might, in principle, be morally right in some particular situation.

o Maximize happiness in the short and long runo Do not know for certain what future consequences

of our actiono When choosing among possible actions,

utilitarianism does not require us to disregard our own pleasure

2-9

Utilitarianism at Organizational Level

o Utilitarianism provides a clear & straightforward basis for formulating & testing policy.

o Provides an objective & attractive way of resolving conflicts of self-interest.

o Provides a flexible, result-oriented approach to moral decision making.

2-10

Critical inquiries of Utilitarianism:

o Is utilitarianism really workable? – in difficult cases, we may be very uncertain about the likely results of the alternative courses of action open to us.

o Are some actions wrong, even if they produce good? – Utilitarianism focuses on the results of an action, not on the character of the action itself.

o Is utilitarianism unjust? – Utilitarianism concerns itself with the sum total of happiness produced, not with how that happiness is distributed. Utilitarianism may even require that some people’s happiness be sacrificed in order to achieve the greatest amount of happiness.

2-11

German ethical thinker Immanuel Kent

o Kant’s Ethics tells that we should carry out moral actions because it is our duty to do so and not because we want or are inclined to, or because the benefits outweigh the costs.

o The categorical imperativeo An absolute moral truth must be logically

consistent, free from internal contradiction – everyone would be obliged to follow it without exception.

2-12

Kant (Cont’d)

o We should always act in such a way that we can will the maxim of our action to become a universal law.

o By maxim, Kant meant the subjective principle of an action, the principle (or rule) that people in effect formulate in determining their conduct.

o Moral rules prescribe categorically, not hypothetically – a hypothetical prescription tells us what to do if we desire a particular outcome (if I want people to like me, I should be nice to them).

o A categorical imperative takes the form of “Do this” or “Don’t do that” – no if, and or but.

2-13

Kant in an organizational context

o Categorical gives us firm rules to follow in moral decision making, rules that do not depend on circumstances / results & that do not permit individual exceptions.

o Kant introduces an important humanistic dimension into business decisions.

o Kant stresses the importance of motivation & of acting on principle. According to Kant, it is not enough just to do the right thing, an action has moral worth only if it is done from a sense of duty (from a desire to do the right thing for its own sake)

2-14

Below are the critical inquiries about Kant’s Ethic:

o What has moral worth? – If the action is motivated by self-interest (to get reputation for honesty), then it does not have moral worth.

o Is the categorical imperative an adequate test of right? – suppose that we decide that stealing is sometimes right, perhaps in the case of a person who is starving.

o What does it mean to treat people as means?

2-15

Kant’s Ethic (Cont’d)

o Prima facie obligationso Is an obligation that can be overridden by a more important

obligation.o Moral Decision Making: Toward a Synthesiso In any moral discussion, make sure participants agree about

the relevant facts.o Once there is general agreement on factual matters, try to spell

out the moral principles to which different people are, at least implicitly, appealing.

o We cannot sincerely endorse a principle if we are not willing to see it applied generally.

o Looking at an issue from the other person’s point of view.

2-16

OPENING DECISION POINT: WHAT WOULD YOU DO?

o You find the iPod . . . .oWhat would you think about as you sat there trying

to decide what to do? oWhat are the key facts that you should consider

before making a decision, as either the person who discovered the iPod, the friend, or the judicial board member?

o Is this an ethical issue? What exactly are the ethical aspects involved in your decision?

oWho else is involved, or should be involved, in this decision? Who has a stake in the outcome?

2-17

OPENING DECISION POINT: WHAT WOULD YOU DO?

oWhat alternatives are available to you? What are the consequences of each alternative?

oHow would each of your alternatives affect the other people you have identified as having a stake in the outcome?

oWhere might you look for additional guidance to assist you in resolving this particular dilemma?

2-18

AN ETHICAL DECISION-MAKING PROCESS: CLICK TO EXPLORE EACH ELEMENT o Determine the factso Identify the ethical issues involvedo Identify stakeholders and consider the situation from their point of viewo Consider the available alternatives – also called “moral imagination”o Consider how a decision affects stakeholders, comparing and weighing the

alternatives, based on:o Consequences o Duties, rights, principleso Implications for personal integrity and character

o Make a decision o Monitor and learn from the outcomes

2-19

DETERMINE THE FACTS

o It is essential to make an honest effort to understand the situation, to distinguish facts from mere opinion

oKnowing the facts and carefully reviewing the circumstances helps in resolving disagreements at an early stage.

o Social sciences can help in determining the facts surrounding our decisions.

oHow would this apply to the Opening Decision Point (the I-Pod)?

2-20

IDENTIFY THE ETHICAL ISSUESINVOLVED

o It requires the ability to recognize a decision or issue as an ethical decision or ethical issue.

o In certain situations, issue identification becomes the first step and determining the facts becomes the second step.

o In many business situations, what appears to be an ethical issue for one person will be perceived as a simple financial decision by others.

2-21

IDENTIFY THE ETHICAL ISSUESINVOLVED

o How does one determine that a question raises an ethical issue at all? When does a business decision become an ethical decision?o We need to recognize that business or economic decisions

and ethical decisions are not mutually exclusive. o Being sensitive to ethical issues is an important

characteristic that needs to be cultivated in ethically responsible people.

o We need to ask how our decisions will impact the well-being of the people involved.

o To the degree that a decision affects the well-being of the people involved, it is a decision with ethical implications.

2-22

IDENTIFY THE ETHICAL ISSUESINVOLVED

o Normative myopia: Shortsightedness about values. o It is the inability to recognize ethical issues.

o In business contexts, it can be easy to become so involved in the financial aspects of decisions that one loses sight of the ethical aspects.

o Normative myopia does not occur in business alone. o Inattentional blindness: Results from focusing

failures.o Change blindness: Means by which ethical issues

might go unnoticed.

2-23

IDENTIFYING STAKEHOLDERS

o Stakeholders: All of the groups and/or individuals affected by a decision, policy or operation of a firm or individual.

o Making more reasonable and responsible decisions:o Consider issues from a variety of perspectives

other than one’s own and other than what local conventions suggest.

o Thinking and reasoning from a narrow and personal point of view virtually guarantees that we have not understood the situation fully.

2-24

IDENTIFYING STAKEHOLDERS

o A major challenge to ethical decision making:oDecisions involve the interests of multiple

stakeholders.o Ethical decisions involve dilemmas:

o There are many perspectives and interests at stake.

2-25

APPLICATION: IDENTIFYING STAKEHOLDERS

o Try shifting your role:o Rather than being in the position of the person who

discovers the I-Pod, what would you think of this case if you were the person who lost it?

oHow does that impact your thinking? oWhat would your judgment be if you were the

friend who was asked for advice?

2-26

APPLICATION: IDENTIFYING STAKEHOLDERS

Let’s try it again:o Consider Aaron Feuerstein’s decisions on the night of

his factory fire from chapter one. o In his position, some people might think:

oHow the fire would affect their own personal well-being.

o The financial status of the owner and his family was serious threatened by the fire

oA decision that considered only the owner’s point of view, would not be a responsible decision.

2-27

CONSIDER THE AVAILABLE ALTERNATIVES

o Creativity in identifying options: Moral imagination.oMoral imagination: Element that distinguishes

good people who make ethically responsible decisions from good people who do not.

o Do not consider only the obvious options with regard to a particular dilemma, but also the much more subtle ones that might not be evident at first blush.

2-28

APPLICATION: EXPLORING ALTERNATIVES

o Consider the case of discovering a lost iPod. o One person might decide to keep it because:

o She judges that the chances of discovering the true owner are slim.

o If she doesn’t keep it, the next person to discover it will. o Another person is able to think of some alternatives:

o One could return early for the next class to see who is sitting at the desk.

o One could check to learn who the previous class teacher was and ask that teacher for help in identifying the owner.

2-29

COMPARE AND WEIGH THE ALTERNATIVES

o Create a mental spreadsheet that evaluates the impact of each alternative you have devised on each stakeholder you identify. o Most helpful way to accomplish this task is to try to place oneself in

the other person’s position.

o Understanding a situation from another’s point of view.o Weighing the alternatives will involve the following consequences

to all the relevant stakeholders:o Likelyo Foreseeableo Possible

2-30

COMPARE AND WEIGH THE ALTERNATIVES

o A critical element of this evaluation will be the consideration of ways to mitigate, minimize, or compensate for any possible harmful consequences or to increase and promote beneficial consequences.

o Additional factor in comparing and weighing alternativeso Consideration of the effects of a decision on one’s own integrity,

virtue, and character.

2-31

MAKING THE DECISION

o To be accountable in our decision making, it is not sufficient to deliberate over the process.

o We should learn from our experiences.

2-32

MONITORING THE OUTCOMES

o To be accountable in our decision-making, we have a responsibility:o To evaluate the implications of our decisions.o To monitor and then learn from the outcomes.o To modify our actions accordingly when faced with similar challenges

in the future.

2-33

WHY DO “GOOD” PEOPLE ENGAGE IN “BAD” ACTS?

o There are many ways in which responsible decision making can go wrong:o People can simply choose to do something unethical. o Well-intentioned people fail to choose ethically.

o Stumbling blocks to responsible decision-making and behavioro Cognitive or intellectual.

2-34

EXPLAINING “BAD” ACTS?

o According to the model of ethical decision making, a certain type of ignorance can account for bad ethical choices.o Ignorance can be willful and intentional. o After you discover a lost I-Pod, you might rationalize to yourself that

no one will ever know, that no one is really going to be hurt, that if the owner was so careless, they deserve to lose their I-Pod.

o You might try to justify the decision by telling yourself that you are only doing what anyone else would do in this circumstance.

o You might choose not to think about it and try to put any guilty feelings out of your mind.

2-35

EXPLAINING “BAD” ACTS?

o Cognitive barrier: Considering only limited alternatives. o Responsible decision making would require that we discipline

ourselves to explore additional methods of resolution. o Simplified decision rules are most comfortable to us.

o Having a simple rule to follow can be reassuring to many decisions-makers; even if it may not be the best possible decision.

o We often select the alternative that satisfies minimum decision criteria: Satisficing.

o Other stumbling blocks o Motivation o Willpower

2-36

DECISION POINT: IF GRISHAM IS RIGHT . . . .

o If Grisham is correct, and we are destined to unintentionally cross lines, perhaps it is critical to begin to make our lines more clearly drawn.

o Try this exercise – in your head, consider your response to the following questions:o What values are most important to you? What are you willing to

sacrifice to maintain your own values? What is important? What are your priorities?

o What do you stand for, personally and professionally?o Are there any values that would you quit a job over?o What would you be willing to die for?

2-37

USUAL SUSPECTS FOR EXPLAINING UNETHICAL CONDUCT

o Enormous amounts of corporate executive compensation.o Lack of oversight of corporate executive decisions.o Significant distance between decision makers and those they impact.o Financial challenges.o Set of ethical values that has not yet caught up to technological

advances.

2-38

The most serious challenge we all face…..

Making ethically responsible decisions throughout one’s life.

2-39

ETHICAL DECISION-MAKING IN MANAGERIAL ROLES

o Social circumstances can make it easier or more difficult to act in accordance with one’s own judgment.

o Within business, an organization’s context sometimes make it difficult for even the best-intentioned person to act ethically, or it can make it difficult for a dishonest person to act unethically.

o Responsibility for the circumstances that can encourage ethical behavior and discourage unethical behavior falls to the business management and executive team.

2-40

MANAGERIAL ROLES

o The decision-making model introduced in this chapter develops from the point of view of an individual who finds herself/himself in a particular situation.

o Personal integrity lies at the heart of such individual decision-making: o What kind of person am I? o What are my values? o What do I stand for?

2-41

MANAGERIAL ROLES

o Within a business setting, individuals must consider the ethical implications of both personal and professional decision making.

o Every individual fills a variety of social roles and these roles carry with them a range of expectations, responsibilities, and duties. o Some of our roles are social: friend, son\daughter, spouse, citizen,

neighbor. o Some are institutional: manager, teacher, student body president. o Some are professional: attorneys, accountants, auditors, financial

analysts.

2-42

ROLES & RESPONSIBILITIES

Decision-making in these contexts raises broader questions of social responsibilities and social justice.

2-43

ROLES & RESPONSIBILITIES: APPLICATION

o Consider how different roles might impact your judgment about the discovery of the iPod.

o Your judgment about the iPod might differ greatly if:o You knew that your friend had lost it.o You were a teacher in the class.o You were a member of the campus judicial board.

2-44

ROLES & RESPONSIBILITIES IN BUSINESS

o In a business context, individuals fill roles of employees, managers, senior executives, board members.

o Managers, executives, board members have the ability to create and shape the organizational context in which all employees make decisions. o Hence, they have a responsibility to promote organizational

arrangement that encourage ethical behavior and discourage unethical behavior.

2-45

DISCUSSION OF OPENING DECISION POINT: WHAT WOULD YOU DO?

o Try to determine the facts:o Knowing that the iPod functioned perfectly would be good evidence

for concluding that it was left behind accidentally rather than intentionally discarded.

o Knowing the actual cost of the iPod would also be evidence that it is something likely to be highly valued and not something easily abandoned.

o The situation raises ethical issues of rights, happiness, personal integrity and honesty.

o It involves two major stakeholders: the true owner and yourself.

2-46

DISCUSSION OF OPENING DECISION POINT: WHAT WOULD YOU DO?

o Any decision you make will have broader implications:o It will encourage or diminish a campus culture of trust and honesty.

o Consider the following perspectives:o Imagining yourself in the position of the student who lost the iPod/ the

student who might sit in judgment at a campus judicial hearing.o Imagining the results of keeping the iPod and then having that fact

discovered and publicized.o Considering the number of hours someone might have to work at an

on-campus job in order to earn enough money to buy another iPod.o Reflecting on the type of person who keeps another’s property and to

ask yourself if this is who you really are and want to be.

2-47

Corporate code of ethics.Purposes…

o communicating the organisation’s values into a succinct and sometimes memorable form

o the code serves to identify the key stakeholders and the promotion of stakeholder rights and responsibilities

o code of ethics is a means of conveying these values to stakeholders

o a code of ethics serves to influence and control individuals’ behaviour, especially internal stakeholders such as management and employees

o a code of ethics can be an important part of an organisation’s strategic positioning

2-48

Group assignment

o Case study 1o Case study 2

2-49

CHAPTER TWO VOCABULARY TERMS

o After examining this chapter, you should have a clear understanding of the following key terms and you will find them defined in the glossary:o Bounded ethicalityo Change blindnesso Ethical decision-making processo Inattentional blindnesso Moral imaginationo Normative myopiao Perceptual differenceso Personal and professional decision making

2-50

End of Lecture 2