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Fundamentals ofBusiness Ethics
BUSA 5200
BCIT
2013
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Ethics in Business
Ethics: systematic thinking aboutthe moral consequences of decisions
(right vs. wrong)
Business ethics: ethics applied tobusiness and managementsituations
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Business ethics issues: some examples
Owners accurate disclosure
Employees
hiring; firing; wages;
privacy; discrimination;honesty; conflicts ofinterest; insiderinformation
Consumers
sales techniques;advertising; productsafety
Competitors unfair competitive
behaviours; industrialespionage
Suppliers kickbacks; gifts; bribes
Government
legal compliance;
unethical lobbying Society
respect for environment
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Why Study Business Ethics?
Not any different than ethics in any other
aspect of life
Business ethics not an oxymoron business is
not only economic-based, but often trust-based
To improve ethicsin business & other
organizations
To remind us that our decisions (in
organizations) have consequences for others
(we are not alone the stakeholderconcept)
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5
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What do some Stakeholders see:
Expectations versus Reality
Ethical Problems
EthicalProblems
SocietysExpectations
ActualBusinessEthics
1950s 2010sTime
Ethics Today vs. The Past
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Publics Opinion of Ethics in Business
Gallup Poll: only 20% of public thought the
ethics of business executives to be high
To understand public sentiment; Consider: Has business ethics really deteriorated? [probably
not]
Has media reporting become more frequent &vigorous? [yes, very much so]
Are past acceptable practices becoming no longer
socially acceptable? [they are less acceptable now]
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Consequences of
Unethical Decisions
Loss of job/ harm to career (for individuals)Poor public image
Loss of customers
WhistleblowingPotential legal liability
Additional government regulation
Financial lossesUnethical culture develops inside organization
(may harm morale & efficiency)
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Paying Attention to Ethics in Business
Gives individuala good reputation
Provides apositive image for the firm
Improves stakeholder relationsIs an insurance policyagainst
unethical behaviour, poor stakeholderrelations, more govt. regulation, somelaw suits, etc.
Has often improved society
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10
Some Sources of Ethical Norms
FellowEmployees
Friends &Family
Education
ReligiousBeliefs
EmployersFormal Rules
ProfessionalNorms
LocalCommunity
Society atLarge
EmployerExpectations
Laws
The Individual
Conscience
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11
Sources of Influence on Ethics
Sources of influence that affect apersons ethics (approach to ethics &
actual behaviours)
Sources can be categorized as:1. Cultural
2. Legal
3. Organizational
4. Individual
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Cultural Influences
Culture (& subcultures in society)
Religion (upbringing & current contact)
Media/Entertainment (TV, movies, videos,books, news, etc. indirectly show what is
considered ethical in the society)
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Legal Influences
Laws: (laws prohibiting discrimination, pricefixing, etc. Disclosure requirements in real
estate, stock market, etc.)
Although there is some overlap between the
law (legal/illegal) & ethics (right/wrong), they
are not the same
However, the question Is it legal? is a useful
starting point for ethics analysis; but more is
needed
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Organizational Influences are
Critical
Behaviours by organizations leadersOrganizational culture: the way we do things
here
Role models in organization (tendency to copyheroes or exemplary performers)
Perceived pressure for results
What is rewarded/punished? (The folly of
hoping for one thing while rewarding another)
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Organizational Influencescontinued
Corporate codes of conduct/ethics (writtencodes & oral statements by senior executives)
Professional codes of conduct/ethics
(accountants, doctors, lawyers, real estateagents, etc.)
Business/industry groups (e.g., BetterBusiness Bureau)
Behaviour of competing firms (copyingothers, or not)
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Organizational Culture & Ethical Climate
Organizational culture: shared values in an organization
about how to think & behave appropriately
Ethical climate:
(1) Self-centered approach values individual self-interest
& economic efficiency of the firm(2) Concern-for-others approach values cooperation &
social responsibility (ethic of care)
(3) Integrity approach values procedures/rules, laws,
codes of conduct (ethic of justice)
Some organizations have aspects of all 3
approaches; others 1 or 2 of the approaches
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Organizational Factors Influencing
Ethical Behaviour
How strong is loyalty to the organization?How much respect is there for the authority
structure?
Conformity(Asch Experiment) &Obedience(Milgram Experiment) (how strong is adherenceto corporate culture?)
Expectations regarding performance & results
are ends/results more importantthemeans/methods used to achieve them? Successat all costs?
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Organizational Culture
1. Obedience to authority MilgramExperiment demonstrated howlegitimatepowercan influence behaviours offollowers (read: employee; member of
an organization)
2. Conformity to norms Asch Experiment
demonstrated howpeerscan influenceindividual behaviour (read: behaviour of aorganizational colleague; fellow employee)
18
Th A h E i t C f it t
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The Asch Experiment: Conformity to
the Behaviours of Peershttp://www.youtube.com/watch?v=rPEDS-0jMgs (asch 4:10)
19
http://www.youtube.com/watch?v=rPEDS-0jMgshttp://www.youtube.com/watch?v=rPEDS-0jMgs7/28/2019 Ethics 2013 Class notes BCIT
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The Milgram Experiment on
Obedience to Authority
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http://www.youtube.com/watch?v=8g1MJeHYlE0 (zimbardo on milgram / pull either
way 4:40)
http://www.youtube.com/watch?v=0L-hKsjGP1M (milgram anim. 2:53)
http://www.youtube.com/watch?v=8g1MJeHYlE0http://www.youtube.com/watch?v=0L-hKsjGP1Mhttp://www.youtube.com/watch?v=0L-hKsjGP1Mhttp://www.youtube.com/watch?v=8g1MJeHYlE07/28/2019 Ethics 2013 Class notes BCIT
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Zimbardo: Behaviour is infectious. We are social models
for both ethical or unethical behaviour.
21
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4 2006 The McGraw-Hill Companies, Inc. All rights reserMcShane/ Canadian OB 6e
IndividualBehaviour &
Results
Role
Perceptions
Situational
Factors
Motivation
Ability
Individual
Differences:
ValuesPersonality
Perceptions
Emotions
Attitudes
Stress
MARS Model of Individual Behaviour
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Individual Influences
Personality (internal/external locus of control)
Moral principles (stage of moral developmentof
person)
History of reinforcement (how has adherence or
non-adherence to ethics standards affected person
in the past? Did things go well, or poorly?)
Values (unique to each person, but values
influenced by other sources mentioned previously)
Other internal factors operating at the individual
level (family upbringing, education, etc.)
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Why Do Individuals Behave Ethically?
24
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Kohlbergs Stages of Moral Development
Pre-conventional: Focus on Self
(1) Avoid punishmentby following rules. Obedience isimportant.
(2) Follow rules only when in your immediate interest (toreceive rewards).
Conventional: Focus on Others(3) Be a good person. Consider welfare of others.
Loyalty is important.
(4) Act right to comply with law/order/norms in
society; fulfill your duties.
Principled: Focus on Humankind
(5) Follow self-chosen ethics principles even if theyconflict with the law.
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Kohlbergs Stages of Moral Development
Stages of moral development just described fit
well with an approach to ethics called the ethicof justice (or fairness)
This approach is commonly used in ethicsanalysis
However, it is not the only approach to ethics
Some critics say this is a overly male-orientedview of ethics
Is it overly concerned with justice/fairness/rulesto the exclusion of the important value ofcare/stakeholder relationships?
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3 Approaches to Business Ethics
1. Immoral Approach purposely unethical;a style devoid of ethical principles & opposeswhat is ethical
2. Moral Approach conforms to high standards
of ethical behaviour3. Amoral Approach
Intentional doesnt consider ethics;
thinks ethics doesnt fit into business affairs Unintentional casual or careless about
ethics & the resulting consequences
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3Approaches to Stakeholder Thinking (SHT)
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Which Approach Do People Use?
Individual Hypothesis: Individuals shiftfrom
one approach (immoral, amoral, moral) toanother depending on the situation or context
they are in (refer to Asch, Milgram, Zimbardo). OR
Population Hypothesis: Individuals tend toadopt one of the 3 approaches on a consistent
basis
Implications: Ethical behaviour of employeescan be influenced (for at least some persons).
The immediate situation does matter and is
important. As does the broader system.29
l h
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Population Hypothesis
30
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Applying the 3 Approaches to Business Ethics
1. Perpetrator of unethical behaviour(immoral approach)
2. Thinker & Doer. Realize that you are in a
Milgram Momentor an Asch Moment.Listen to your intuition & consider ethics &develop other options (moral approach)
3. Passive follower (go along with others orfollow the culture or obey the boss)(amoral approach)
31
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Milgram and Zimbardo
Why do people act unethically?1. The individual (bad apple)
2. The situation (expectations of managers,
behaviours of managers & colleagues,pressure for results, reward structure, etc.)(bad barrel)
3. The system (organizations culture asshaped by executives/leaders, culture of theindustry) (bad barrel maker)
32
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Bad Apples?
From Milgram and Zimbardo:
Bad Systems Bad Situations Bad
Apples Bad Behaviours (even in
otherwise good people)
33
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As Leaders/Managers/Colleagues: You Can Help
Pull Others To The Moral End Of The Distribution
H ?
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How? Increasing Ethical Behaviour inOrganizations
1. By focusing on the organization (the immediate
work situation & the broader system of the firm)
e.g., leadership; nature of authority/power
relations; is debate/discussion valued or not;organizations ethics culture; reward structure
2. By focusing on the individual (including
yourself) e.g., ethics training; ethics awareness(being aware of and prepared to deal with thechallenge of the Milgram or Asch momentif & when
it arises)
35
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Reinforcing Ethical Behaviour
in Organizations: Behavioural Aspects
Senior & other managers own behaviours setgood examples
Senior & other managers expectations of
employees encourage ethical behaviour
Culture established by leaders in organization
Behaviours offellowemployees set good example
Organizational culture developed by both leaders
& fellow employees encourage ethical behaviour
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Reinforcing Ethical Behaviour
in Organizations: Educational Aspects
Ethics education (taught incolleges/universities & professionalassociations to increase ethics awareness)
Ethics training delivered in-house(awareness of typical issues & how to handlethem)
Explanation of firms code of conduct/ethics
Ethical self-awareness & reflection (done onindividual basis & preferably voluntarily)
37
Reinforcing Ethical Behaviour
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Reinforcing Ethical Behaviour
in Organizations: Other Aspects
Statement of corporate values & philosophy(vision & mission statements)
Executive speech-making
Written code of conduct/ethics(for the firm and/or for particular professions)
Ethics audits (to review ethics
climate/behaviours)
38
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Other Aspects continued
Procedures to handle ethics concerns(Do they exist? Are they used? Are theyeffective?)
Ethics officer/ombudsman (for investigations)Whistleblowing procedure (is a procedure
available to report concerns)
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Ivey Pledge
University of Western Ontario: Richard Ivey
School of Business
http://www.ivey.uwo.ca/alumni/get-involved/ivey-alumni-association/ivey-ring-
tradition.htm
d f d d h
http://www.ivey.uwo.ca/alumni/get-involved/ivey-alumni-association/ivey-ring-tradition.htmhttp://www.ivey.uwo.ca/alumni/get-involved/ivey-alumni-association/ivey-ring-tradition.htmhttp://www.ivey.uwo.ca/alumni/get-involved/ivey-alumni-association/ivey-ring-tradition.htmhttp://www.ivey.uwo.ca/alumni/get-involved/ivey-alumni-association/ivey-ring-tradition.htm7/28/2019 Ethics 2013 Class notes BCIT
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.
Codes ofConductand Ethics
Codes of conduct: Explicitly state what
appropriate behaviour is by identifying what isacceptable & unacceptable. Tend to bedetailed.
Codes of ethics: Statement ofprinciples/values to guide behaviour bydescribing the general value system within
which organization attempts to operate. Lessdetailed. (Recall the Ivey MBA pledge discussedin class)
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.
Criticisms of CodesOften unenforceable no enforcement mechanism
If enforced, penalties often insignificantMaybe unnecessary (if the organization already
operates ethically)
Often very idealistic
Written in meaningless generalities
Merely to prevent government regulation
Mere response to public criticism
However: As part of a larger effort to reinforceethical behaviour, they have some value
Ethi P i O i ti
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Chapter 6
Ethics Programs in Organizations:
Comparison of 2 Approaches
Compliance-based
Focus on: Rules, laws
To preventillegal/criminal conduct
Lawyer-driven
Employee discretion
is limited
Code of conduct
Integrity-based Values/ethics/principles
To enable responsibleconduct
Management-driven
Employee discretion isincreased
Code of ethics
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Making Ethical Judgments
An action ordecision thathas been /
will be taken
Prevailingnormsof
acceptability
J udgmentsof the
observer
(includingthose basedon ethics
tests)
compared with (any discrepancy?)
Characteristics of Ethics Problems: Taking
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Characteristics of Ethics Problems: Taking
Action
1. Awareness of discrepancy? (something thatoffends your sense of right/wrong, your intuition,
firms ethics culture, government laws, etc.)
2. Pressure to act? (based on personal beliefs,corporate culture, professional codes of conduct,
laws, media, stakeholders, etc.)
3. Sufficient resources to do something? (do youhave enough power, influence, knowledge, etc.?)
(Recall the Auditor Case done in lab)
When your intuition tells you to take some
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When your intuition tells you to take some
time to think, think about these:
46
Personal virtues (would this look good on TV?)
Government requirements (is it legal?)
Economic efficiency (dont overuse this ethics test)
Utility (dont overuse this ethics test)
Rights (are rights respected?)
Justice (fair balance of costs & harms/benefits?)
Care (care for stakeholders, but avoid favouritism)
Try to achieve the best aspect of each of theabove to the greatest extent possible
P i lid & CSR P id ti ll th
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Previous slide & CSR Pyramid essentially say the same
thing; CSR is for firms while previous slide applies to
both individuals & firms
Economic Responsibility
Legal Responsibility
Ethical Resp.
Philan-thropic
Be profitable
Obey the law
Be ethical
Be a goodcorporate citizen
Desired
Expected
Required
Required
Source: Archie Carroll, 1991
Integrating Approaches to Ethics
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Integrating Approaches to Ethics
ASK:
Utility (do benefits exceed costs/harms?)
Rights (are rights respected?)
Justice (are costs & benefits fairly distributed?)
Care (are relationships preserved/strengthed?)
COMPARE ANSWERS: If yes is answer to all 4, the action being
analyzed is probably ethical.
If no is answer to all 4, action likely unethical.
If answers are mixed, try to design actions that,as much possible, respect all 4 approaches.