1 Business Ethics Fundamentals Professor Craig Diamond BA 385 October 14, 2009 Chapter 7

2 Outline of Topics  The Public’s Opinion of Business Ethics  Business Ethics: What Does It Really Mean?  Ethics, Economics and Law: A Venn Model  Four Important Ethics Questions  Three Models of Management Ethics  Making Moral Management Actionable  Developing Moral Judgment  Elements of Moral Judgment

3 Introduction Concerns about business ethics are part of society’s larger concerns about ethical behavior

4 Introduction Business Ethics  Public’s interest in business ethics has heightened during the last three decades  Public’s interest in business ethics has been spurred by headline-grabbing scandals  The scandals of the early 2000s, beginning with Enron, created and defined the “ethics industry”

5 Ethics Scandals (this decade) Introduction Bernard Madoff Banking/mortgage industry Enron WorldCom Arthur Anderson Tyco Adelphia Global Crossing Dynegy HealthSouth Boeing Martha Stewart Parmalat (Italy) Computer Associates These scandals had serious consequences for employees and other stakeholders

6  McKinsey study: In terms of trust, Europeans and American ranked business the lowest of all major institutions The Public’s Opinion of Business Ethics Public Survey Findings

7  Three out of four employees reported encountering ethical lapses on the job  More than one in three respondents said these incidents happen at least once a week  Ten percent believed that a current issue in their company could create a business scandal if discovered  Younger workers reported higher levels of witnessing ethical lapses and being distracted by them Employees’ Opinion of Business Ethics LRN Ethics Study Survey Findings

8  The media are reporting ethical problems more frequently and fervently  In-depth investigative reporting of business ethics on TV shows as 60 Minutes, 20/20, Dateline NBC, Primetime Live, and FRONTLINE  Internet coverage in the form of webpages and blogs has expanded in recent years Media Reporting on Business Ethics

9 Business Ethics Today versus Earlier Periods Ethical Problem Society’s Expectations of Business Ethics Actual Business Ethics 1960sEarly 2000sTime Expected and Actual Levels of Business Ethics Figure 7-3

10 Business Ethics: What Does It Really Mean? Ethics The discipline that examinesgood or bad practices within thecontext of moral duty and obligation Moral conduct Relates to principles of right and wrongin behavior Business Ethics Concerned with good and bad orright and wrong behavior andpractices that take place in business

11 Descriptive Ethics Involves describing, characterizingand studying morality  Focuses on “What is” Normative Ethics Concerned with supplying andjustifying moral systems  Focuses on “What ought / ought not to be” Business Ethics: What Does It Really Mean?

12 Three Approaches to Business Ethics Conventional Approach Based on how society todayviews business ethics Principles Approach Based upon the use of ethicsprinciples to direct behavior, actionsand policies (Chapter 8) Ethical Tests Approach Based on short, practical questionsto guide ethical decision making andbehavior (Chapter 8)

13 Conventional Approach Decision or Practice Prevailing Norms of Acceptability Comparison of a decision or practice to prevailing societal norms.

14 Sources of Ethical Norms Fellow Workers Family Friends The Law Regions of Country Profession Employer Society at Large Local Community Religious Beliefs The Individual Conscience Figure 7-4

15 Ethics and the Law  Obeying the law does not always mean that you are behaving ethically. Examples: Hewlett Packard Board controversy (recording conversations) Enron – many decisions legal but totally unethical Bryan’s decision (case 35)

16 Conventional Approach: Making Ethical Judgments Behavior or act that has been committed Prevailing norms of acceptability Value judgments and perceptions of the observer compared with Figure 7-5

17 Ethics, Economics, and Law Figure 7-6

18 Four Important Ethical Questions 1. What is? 2. What ought to be? 3. How do we get from what is to what ought to be? 4. What is our motivation in all this?

19 1) What Is?  What are your personal ethics?  What are your organization's ethics?  What are the ethics of your industry?  What are society’s ethics?  What are global ethics?

20 2) What Ought to Be?  How ought we treat our aging employees?  How safe ought we make this product?  How clean an environment should we aim for?  How should we treat long-time employees when the company is downsizing?  Should we outsource aspects of production to China or India? Example Questions

21 3) The Practical Question What are we able to accomplish? What circumstances permit us to accomplish? What do we intend to accomplish? Getting from “what is” to “what ought to be”

22 4) What is our motivation?  It is important to ask this question. Are there mixed motives here?  Could help to identify the importance of an issue. Example: Bryan – why is he so upset with his company’s decision? Is he on a personal environmental mission, or does he believe the company could be in trouble later? Both?

23 Three Models of Management Ethics Immoral Management An approach devoid of ethical principlesand active opposition to what is ethical Moral Management Conforms to high standardsof ethical behavior or professionalstandards of conduct Amoral Management  Intentional: does not considerethical factors  Unintentional: casual or carelessabout ethical factors  Intentional: does not considerethical factors  Unintentional: casual or carelessabout ethical factors

24 Everyday Immoral Practices Stealing petty cash Cheating on expense reports Taking credit for another’s accomplishments Lying on time sheets Coming into work hungover Telling a demeaning joke Taking office supplies for personal use Showing preferential treatment toward certain employees Rewarding employees who display wrong behaviors Harassing a fellow employee From “Deloitte & Touche USA 2007 Ethics and Workplace” Survey

25 Characteristics of Moral Managers  Conform to high level of ethical or right behavior  Conform to high level of personal and professional standards  Ethical leadership is commonplace  Goal is to succeed within confines of sound ethical precepts  High integrity is displayed  Embrace letter and spirit of the law  Possess an acute moral sense and moral maturity Figure 7-8

26 Integrity Strategy  Guiding values and commitments make sense and are clearly communicated.  Company leaders are personally committed, credible, and willing to take action on values  Espoused values are integrated into normal channels of management decision making  The organization’s systems support and reinforce its values  All managers have the skills, knowledge, and competencies to make ethically sound decisions daily

27 Examples of Moral Management  3M Company voluntarily phased out a chemical; withdrew product that could have been very profitable “precautionary principle” was applied  McCulloch (chain saws) voluntarily implemented higher safety standard than required by the industry or by law  Merck Provided free drug in developing country that benefitted up to 18 million people

28 Characteristics of Amoral Managers Intentionally Amoral Managers:  Don’t think ethics and business should “mix”  Business and ethics are existing in separate spheres  A vanishing breed Unintentionally Amoral Managers:  Don’t consider the ethical dimension of decision making  Don’t “think ethically”  Have no “ethics buds”  Well-intentioned, but morally casual or unconscious  Ethical gears are in neutral Figure 7-9

29 Hypotheses Regarding Moral Management Models  Population Hypothesis  Individual Hypothesis Most (not all) people in business probably act amorally most of the time, but also act morally sometimes and immorally sometimes.

30 Moral Management and CSR Figure 7-11 xx = moderate consideration xxx = significant consideration

31 Making Moral Management Actionable  Senior management needs to lead the transition from amoral to moral management Business ethics training Codes of conduct Mission / Vision statements Ethics officers Tighter financial controls Ethically sensitive decision-making processes Leadership by example  Recognize that amoral management exists widely and can and should be remedied

32 Developing Moral Judgment Level 1 Level 2 Level 3 Kohlberg’s Levels of Moral Development Preconventional Level Conventional Level Postconventional Level

33 Developing Moral Judgment Figure 7-13 Postconventional – always asking “What ought to be”

34 Why Managers / Employees Behave Ethically Most of Us Many of Us Very Few Of Us 1. To avoid some punishment 2. To receive some reward 3. To be responsive to family, friends, or superiors 4. To be a good citizen 5. To do what is right, pursue some ideal Figure 7-14

35 “Ethics of Caring” Recognize their own needs and needs of others Establish connections and participate in social life Sole Concern for Self Level 1 Level 2 Level 3 Gilligan’s alternative model applied to women (or men):

36 External Sources of a Manager’s Values Philosophical values Cultural values Legal values Religious values Professional values The Web of Values Values = what is important to me?

37 “Norms” prevalent in business organizations include: Internal Sources of a Manager’s Values  Respect for the authority structure  Loyalty to bosses and the organization  Conformity to principles and practices  Performance counts above all else  Results count above all else

38 Elements of Moral Judgment  What does it take to develop moral judgment? Moral imagination (seeing the ethical complexities in situations) Moral identification and ordering Moral evaluation Tolerance of moral disagreement and ambiguity Integration of managerial and moral competence A sense of moral obligation Amoral ManagementMoral Management