Chapter 8

Business & SocietyEthics, Sustainability, and Stakeholder

ManagementEighth Edition

Archie B. Carroll Ann K. Buchholtz

© 2012 South-Western, a part of Cengage Learning 1

Chapter 8Personal and

Organizational Ethics


Learning Outcomes

© 2012 South-Western, a part of Cengage Learning

1. Understand the different levels at which business ethics may be addressed.

2. Differentiate between consequence-based and duty-based principles of ethics.

3. Enumerate and discuss principles of personal ethical decision making and ethical tests for screening ethical decisions.

4. Identify the factors affecting an organization’s ethical culture and provide examples.

5. Describe and explain actions, strategies, or “best practices” to improve an organization’s ethical climate.

3

Chapter Outline• Ethics Issues Arise at Different Levels• Personal and Managerial Ethics• Managing Organizational Ethics• From Moral Decisions to Moral Organizations• Summary

4© 2012 South-Western, a part of Cengage Learning

Organizational Ethics

• Ethical decision making occurs daily in organizations.

• Many managers have no training in ethics or ethical decision making.

• Ethics is vital to business success.

© 2012 South-Western, a part of Cengage Learning5

Levels at Which Ethical Issues May be Addressed

Personal level• Situations faced in our personal lives outside the

context of our employment.Organizational level• Workplace situations faced by managers and

employees.Industry or profession level• A manager or organization might experience

business ethics issues at the industry or professional level.

Societal and global levels• Managers acting in concert through their companies

and industries can bring about constructive changes.6


Personal and Managerial Ethics

There are three major approaches to ethical decision making1. Conventional Approach

• Discussed in chapter 7.

2. Principles Approach• Managers desire to make decisions based on more

than is provided by the conventional approach to ethics.

• A principle of business ethics is an ethical concept, guideline, or rule that assists you in taking the ethical course.

3. Ethical Tests Approach• Discussed later in this chapter.


Types of Ethical Principles or Theories

Teleological theories• Focus on consequences or results.

Deontological theories• Focus on duties.

Aretaic theories• Focus on virtue.


Principles Approach to Ethics

Major principles of ethics• Utilitarianism• Kant’s Categorical Imperative• Rights• Justice• Principles of care• Virtue ethics• Servant leadership• Golden Rule


Utilitarianism

• A teleological principle that focuses on acts that produce the greatest good for the greatest number.


Strengths Weaknesses

Forces thinking about the general welfare of stakeholders

Ignores actions that may be inherently wrong

Allows personal decisions to fit into situational complexities

May conflict with the notion of justice

Difficult to formulate satisfactory rules for decision making

Kant’s Categorical Imperative

• A duty-based, deontological, principle.

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.

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.


Principle of Rights

Moral rights• Rights that we ought to have based on

moral reasoning.

Principle of rights• Focuses on examining and possibly

protecting individual moral or legal rights.• A negative right is the right to be left

alone.• A positive right is the right to something.


Principle of Justice

• Involves considering what alternative promotes fair treatment of people.

Types of justice• Distributive• Compensatory• Procedural• Rawlsian


Ethical Due Process

Process Fairness1. 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?


Rawls’s Principles of Justice1. Each person has an equal right to the most

basic liberties compatible with similar liberties for others.

2. Social and economic inequalities are arranged so that they are both: Reasonably expected to be to everyone’s

advantage, and Attached to positions and offices open to

all.


Ethic of Care and Virtue Ethics

Ethic of care/Principle of caring • Traditional ethics focus too much on the

individual self.• Views the individual as relational, not

individualistic– similar to stakeholder theory.

Virtue ethics • Focuses on individuals becoming

imbued with virtues.• Based on Aristotle and Plato.


Servant Leadership

Servant leadership• Based on the moral principle of serving

others first, such as employees, customers, and community.


Characteristics of Servant Leaders

• Listening• Empathy• Healing• Persuasion• Awareness• Foresight• Conceptualization• Commitment to the growth of people• Stewardship• Building community


The Golden Rule

• 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.


A Sketch of Ethical Principles


The Categorical Imperative

The Means-Ends Ethic

The Conventionalist Ethic

The Might-Equals-Right Ethic

The Disclosure Rule The Organization Ethic

The Golden Rule The Organization Ethic

The Hedonistic Ethic The Professional Ethic

The Intuition Ethic The Proportionality Principle

The Market Ethic The Revelation EthicThe Utilitarian Ethic

Ethical Tests Approach


Test of One’s Best Self

Test of Making Something Public

Test of Ventilation

Test of Common Sense

Test of the Purified Idea

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

Gag Test

Factors Affecting the Morality of Managers


Society’s Moral ClimateBusiness’s Moral ClimateIndustry’s Moral Climate

IndividualOne’s Personal

Situation

Superiors

Policies

Peers

Organization’s Moral Climate

Factors Affecting the Organization’s Moral Climate

1. Behavior of superiors

2. Ethical practices of one’s industry or profession

3. Behavior of one’s peers in the organization

4. Formal organizational policy (or lack thereof)

5. Personal financial need


Improving Organizational Ethical Culture

• Most organizations are a mix of compliance and emphasizing values like ethics.

Concerns about the compliance orientation1. Could undermine the ways of thinking or

habits of mind that are needed in ethics thinking.

2. Can squeeze out ethics.3. Managers many not consider tougher issues

that a more ethics-focused approach might require.


Improving Ethical Culture


Top Management

LeadershipMoral

Management

Ethics Programsand Officers

RealisticObjectives

Ethical Decision-Making Processes

Codes ofConduct

EffectiveCommunication

Ethics Training

CorporateTransparency

Whistle-BlowingMechanisms

Ethics Audits andRisk Assessments

Board of Directors’Oversight

Discipline ofViolators

Pillars of Leadership


Traits

Mor

al P

erso

nM

oral Manager

Ethical Leadership

Behaviors

DecisionMaking

RoleModeling

EthicsCommunication

Effective Rewards and Discipline

Effective Communication of Ethics

Requires• Written and verbal communication

• Candor

• Fidelity

• Confidentiality


Features of 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


Ethics Officers

• Are in charge of implementing ethics initiatives in the organization.

• The position may be created in response to the Federal Sentencing Guidelines, which reduces penalties to those companies with ethics programs.

• Problem with diminishing organizational status.


Ethical Decision-Making Process


Ethics Check

1. Is it legal?2. Is it balanced?3. How will it make me feel about

myself?


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.


Sears’ Ethics 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?


Codes of Conduct

• A way of establishing standards of behavior and communicating them to managers and employees.

• The single most important element of an ethics and compliance program.

• A fairly recent phenomenon.• Codes of conduct positively affect

corporate culture.


Content of Codes of Conduct

• Employment practices• Employee, client, and vendor information• Public information/communications• Conflicts of interest• Relationships with vendors• Environmental issues• Ethical management practices• Political involvement


How Codes of Conduct Influence Behavior

Codes of conduct act as a Rule book Signpost Mirror Magnifying glass Shield Smoke detector Fire alarm Club


Violators of Ethics Standards

• Management must forcefully discipline all violators of ethical norms and standards.

• Many business are unwilling to discipline violators.


Ethics Hotlines and Whistle Blowing

• Employees must have outlets to anonymously report questionable behaviors.

• Hotlines are the most common way to report corporate fraud.• Can be telephone, web, or email-based.


Purposes of Ethics Training

1. Learn the fundamentals of business ethics.

2. Learn to solve ethical dilemmas.3. Learn to identify causes of unethical

behavior.4. Learn about common managerial ethical

issues.5. Learn whistle-blowing criteria and

risks.6. Learn to develop a code of ethics and

execute an internal ethical audit.39


Ethics Audits and Risk Assessments

Ethics Audits• Intended to carefully review such ethics initiatives

as ethics programs, codes of conduct, hotlines, and ethics training programs.

Sustainability Audit • Helps to identify sustainability issues within an

organization.

Fraud Risk Assessment• Review processes that identify and monitor

conditions that may pertain to the company’s exposure to compliance/misconduct risk and to review methods for dealing with concerns.


Corporate Transparency

Corporate Transparency• A quality, characteristic, or state in which

activities, processes, practices, and decisions that take place in companies become open or visible to the outside world.

• The degree to which an organization: Provides public access to information. Accepts responsibility for its actions. Makes decisions more openly. Establishes incentives for leaders to uphold

standards.


Board of Director Leadership and Oversight

Leadership and oversight of ethical initiatives by boards is not a given.

The Sarbanes-Oxley Act• Companies are required to protect whistle-

blowers without fear of retaliation.• It is a crime to alter, destroy, conceal,

cover up, or falsify documents to prevent their use in a federal government lawsuit.


From Moral Decisions to Moral Organizations


Moral Decisions

Moral Managers

Moral Organizations

Key Terms• Aretaic

theories/principles• Categorical imperative• Codes of conduct• Codes of ethics• Compensatory justice• Compliance orientation• Corporate transparency• Deontological

theories/principles • Distributive justice• Ethical due process• Ethics orientation• Ethical tests• Ethic of care• Ethics audits• Ethics officer• Ethics programs• Golden Rule• Legal rights

• Moral rights• Negative rights• Opacity• Positive rights• Principle of justice• Principle of rights• Principle of utilitarianism• Procedural justice• Process fairness• Rights• Risk assessments• Servant leadership• Sustainability audit• Teleological

theories/principles• Transparency• Utilitarianism• Virtue ethics


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Chapter 8