Why Good Managers take bad decisions

Assignment by A.M.Parkar, Roll No.32, MFM, Semester-IV

Why Good Managers make bad ethical choices?

Business Ethics It is defined as written and unwritten codes of principlesand values that govern decisions and actions within a company. Business ethics can be used to describe the actions of individuals within an organization, as well as the organization as a whole. The organization’s culture sets standards for determining the difference between good and bad decision making and behavior.

Importance of Ethical Business Decisions Company who wish to thrive long-term must adoptsound ethical decision-making practices. Companies who behave in a socially responsiblemanner are much more likely to enjoy ultimate success than those whose actions are motivated solely by profits. Company knowing the difference between right andwrong and choosing what is right is the foundation for ethical decision making. Doing the right thing often leads to the greatestfinancial, social, and personal rewards in the long run.

Factors Impacting Business Ethics 1 . Corporate culture

2 . Existence and application of a written code of ethics

3 . Formal and informal policies and rules

4 . Norms for acceptable behavior

5 . Financial reward system

6 . System for recognizing accomplishment

7 . Company attitude toward employees

8 . How employees are selected for promotions

9 . Hiring practices

1 0 . Applications of legal behavior

1 1 . Degree to which professionalism is emphasized

1 2 . The company’s decision making processes

1 3 . Behaviors and attitudes of the organization’s leadersetc…

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What makes an individual, A Good Manager? To choose a field thoughtfully To be a good mediocre To create productive environment To define success To be a good communicator To transfer the skills To build morale To solve the challenges To be sound mind To be a risk taker & solver at times

Why good managers make bad ethical decisions…?

Generally accepted principles of right and wronggoverning the conduct of individuals.

Our personal ethical code exerts a profound influenceon the way we behave as businesspeople.

The first step to establishing a strong sense ofbusiness ethics is for a society to emphasize strong personal ethics.

Expatriate managers may experience more than theusual degree of pressure to violate their personal ethics.

Several studies of unethical behavior in businesshave concluded that businesspeople sometimes do not realize they are behaving unethically primarily because they simple fail to ask…. “Is this decision or action ethical?”

Often the result of applying straight-forward businesscalculus to a decision without considering important ethical issues.

The climate in some businesses does not encouragepeople to think through the ethical consequences of business decisions.

Result of an organizational culture thatdeemphasizes business ethics, reducing all decisions to be purely economic.

Corporate culture refers to any set of values, norms,rituals,formal rules, and physical artifacts that exists in a company.

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Pressure from the parent company to meet unrealistic goals that can only be attained by cutting corners or acting in an unethical manner.

This often results in managers violating their own personal ethics and engages in unethical behavior.

An organizational culture with values that reinforce ethical behavior is an essential ethical component.

Companies having an ideal blend of Morality & Profitability are visionary companies with strong ideology (ideals)

Ideology – set of basic precepts or beliefs or values that are subscribed to.

Core Ideology exists in these companies not just as words but as a vital shaping force.

Combining both – Ideology andProfits.

These companies do pursue profits or long term shareholder wealth but they also pursue meaningful ideals of serving humanity.

Ethical Dilemma

When all choices are deemed undesirable because of potentially negative ethical consequences or more than one choice appears correct, making it difficult to select the course of action.

Ethical dilemmas often arise when a person has responsibility towards more than one entity & they are on conflicting course.

A Manager has responsibility towards his company, his superior, his colleagues, society, his family & so on. A manager often finds himself in dilemma & takes decisions which are harmful to certain stakeholders.

Quite often he finds his boss asking him to give cover for some goof-up he may have committed or asked to project some inflated figures to allow boss to project a better image of the department which will enable him a promotion. Now, if a Manager follows his boss’s orders, he is betraying company. If he does not, then he is betraying his boss.

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Also company may want the Manager to execute certain things which may be against the larger interest of the society. By involving himself into such unethical tasks, he is putting his as well as his family’s life into danger.

A live example of this is as follows,

What choice did the American Pilots, who dropped nuclear bombs on Hiroshima & Nagasaki, two cities of Japan, have? They were fully aware of human costs of their actions in terms of deaths of lacs of innocent people. Should they have refused in the name of their responsibility or huminity?

Managerial Teasers

You are in-charge of cash expenses – Your supervisor comes and asks you for a cheque of Rs.3000 towards expenses he incurred entertaining a client last night. At lunch your supervisors girlfriend stops by to pick him up for lunch and you overhear her telling thereceptionist what a great time she had at dinner with your supervisor the night before.

What do you do?

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You are the HR manager in your company – Your Company has a firm policy regarding cases of theft of company property. Used company equipment is sold in a bid each month. You see a valued employee who is 5 months away from retirement, slip an electric drill and put it in his car.

What do you do?

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You are the buyer for a retail clothing store. Your store has a policy of not accepting gifts. However, over the years, salesmen have offered and other employees have accepted lunch, theater and sporting event tickets. You arrive home from office one evening and find a new LCD and DVD player at your doorstep with a note that says “A personal gift for long lasting friendship “The xyz Clothing Company “

What do you do?

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Common Ethical Dilemmas for Business Managers

Honesty in Advertising and in communications with superiors, clients & government

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Problems relating to special gifts, entertainment and kickbacks Over-looking wrong doing of others

Managers at various levels have been found very frequently to be indulging in unethical practices. When questioned, they always have a reason for their conduct. Following are some of the reasons that are offered as explanation for their conduct-

a) I have to satisfy the inspector from the Electricity Board to maintain adequate power supplies in times of recurrent shortages.

b) I am obliged to entertain and enrich purchase Manager of a high value customer to keep him from switching over to our competitor.

c) I have to fiddle around with year-end inventories to show a higher profit figure to the Board of Directors.

d) I have to produce fake securities and bills receivables to procure ready cash.e) I have to over-invoice import bills and under-invoice export bills to oblige

overseas owners.f) I have to sign the transfer order of an Officer to satisfy the Higher-level boss.g) I have to arrange for cash payments to Government officials from Tax

departments to keep them from creating trouble for the Company.h) I have to manipulate data when preparing the project report to meet the

hurdle rate of Financial Institution.

These are invoked to circumvent the conflict between the instant, relative & enduring universal values (Honesty, responsibility etc.) This side-stepping is also an excuse at times to subvert personal ethics in favor of company goals, under the argument that personal values are in-appropriate as standards for corporate decisions.

Primary reasons for bad choices by Good Managers are as follows,

a) No Co-relation between Managerial Ability and ethics- there is actually nothing surprising about good managers taking bad ethical decisions because there is not much co relation between two. Managerial ability is about planning, organizing, developing, deploying, directing, coordinating and controlling particular activity. Hardly do any of these functions need ethical

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input. On the contrary, control function when dealing with human element, often requires employment of cunning to extract best out of people in short term.

b) Greed is one of the prime reasons for managers taking bad ethical decisions. Material success is high on the most managers’ mind. Desire to achieve material success drives them towards unethical conduct.

c) Short term focus is another reason. Ethical conduct is sure but slow way to success managers lack patience and take short cut of unethical way to achieve quick material success. However long term consequences of such unethical conduct are often disastrous.

d) Inadequate moral development is another reason. Many managers during their development process don’t get expose to reach post conventional level of moral development and remain at pre conventional level where they are guided in their actions by rewards and punishments.

e) Misplaced loyalty – many managers fall due to their misplaced. These are people who are perfectly ethical I their personal conduct. However they indulged in all sort of unethical practices as managers i.e. because they attach more loyalty to their company rather than society. They take bad decisions in order to benefit the company they are ethical in their own right but not in popular sentiments of society who are at receiving end of their skewed loyalty.

f) Peer pressure is another reason. Man living in a environment where unethical decisions are routine among peers. Ethical conduct becomes reason for ridicule and decision from poor group.

g) Company’s policies are one of the reasons. Many companies give little importance to ethical issues in their business. Profit is the only motive. In order to retain their livelihood in such companies many desperate managers succumb to the pressure.

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Why Good Managers take bad decisions