© 2015 Cengage Learning

Chapter 7 Business Ethics Fundamentals © 2015 Cengage Learning

Learning Outcomes Describe how the public regards business ethics. Define business ethics and appreciate the complexities of making ethical judgments. Explain the conventional approach to business ethics. Differentiate it from the principles approach and ethical tests approach. Analyze economic, legal, and ethical aspects of a decision by using a Venn Model. Identify and explain three models of management ethics. Give examples of each. Describe and discuss Kohlberg’s three levels of developing moral judgment. Identify and discuss the elements of moral judgment. © 2015 Cengage Learning

Chapter Outline The Public’s Opinion of Business Ethics Business Ethics: Meaning, Types, Approaches Ethics, Economics and Law - A Venn Model Three Models of Management Ethics? Making Moral Management Actionable Developing Moral Judgment Elements of Moral Judgment Summary © 2015 Cengage Learning

Business Ethics Scandals The public’s interest in business ethics is at an all-time high, spurred by scandals. The Enron scandal impacted business so greatly it is called “The Enron Effect.” But then followed more scandals: Worldcom, Tyco, Arthur Andersen And then the Wall Street financial scandals: AIG, Bear Stearns, Lehman Bros, Fannie Mae, Freddie Mac, and Bernie Madoff Business will never be the same. © 2015 Cengage Learning

© 2015 Cengage Learning

The Public’s Opinion of Business Ethics (1 of 2) The public’s view of business ethics has never been very high. Anecdotal evidence suggests that many people see business ethics as an oxymoron, and think that there’s only a fine line between a business executive and a crook. A Gallup poll taken in December, 2012, revealed that only 21 % of the public thought business executives had high or very high ethics. © 2015 Cengage Learning

The Public’s Opinion of Business Ethics (2 of 2) National Business Ethics Survey Findings - Observed ethical misconduct at work has decreased slightly, from 49% to 45%. Reporting bad behavior (whistle-blowing) is on the rise. from 63% to 65%. Retaliation against those who report misconduct has increased sharply, to 22% experienced retaliation. Pressure to compromise is near the all-time high. Weak ethical cultures – the percentage of companies with weak ethics cultures increased to almost record levels. © 2015 Cengage Learning

Are the Media Reporting Business Ethics More Vigorously? It is sometimes difficult to tell whether business ethics have really deteriorated or whether the media is doing a more thorough job of reporting ethics violations. There is no doubt that news media outlets are reporting ethical problems more frequently and fervently. The media had a field day with the Bernie Madoff Ponzi scheme which defrauded thousands of investors out of $50 billion. Investigate reporting on ethics has been shown on 60 Minutes, 20/20, Dateline NBC, Rock Center and Frontline. © 2015 Cengage Learning

Is Society Changing? Former U.S. Treasury Secretary, Michael Blumenthal- “People in business have not suddenly become immoral. What has changed are the contexts in which corporate decisions are made, the demands that are being made on business, and the nature of what is considered proper corporate conduct.” History shows that a good number of what are now called unethical practices were at one time considered acceptable. Or it may be that those practices never were acceptable to the public, but because they were not known, it seemed they were tolerated. © 2015 Cengage Learning

Business Ethics Today versus Earlier Periods Ethical Problem Society’s Expectations of Business Ethics Actual Business Ethics 1960s 2010 Time Expected and Actual Levels of Business Ethics © 2015 Cengage Learning

Business Ethics: Meaning, Types, Approaches (1 of 2) Ethics – is the discipline that deals with moral duty and obligation. Moral Conduct - relates to principles of right, wrong, and fairness in behavior. Business Ethics - Is concerned with morality and fairness in behavior, actions, and practices that take place within a business context. Is the study of practices in organizations and is a quest to determine whether these practices are acceptable or not. © 2015 Cengage Learning

Business Ethics: Meaning, Types, Approaches (2 of 2) Descriptive Ethics - Involves describing, characterizing, and studying morality. Focuses on what is occurring. Normative Ethics - Focuses on what ought or should be occurring. Demands a more meaningful moral anchor than just “everyone is doing it.” Normative Ethics is our primary concern in this text © 2015 Cengage Learning

Three Major Approaches to Business Ethics Conventional Approach - Based on how the average person views business ethics, and on common sense. Principles Approach - Based on the use of ethics principles to justify and direct behavior, actions, and policies. Ethical Tests Approach - Based on short, practical questions to guide ethical decision making and behavior and practices. © 2015 Cengage Learning

The Conventional Approach to Business Ethics The conventional approach to business ethics involves a comparison of a decision or practice to prevailing societal norms. Ethical Egoism - An ethical principle based on the idea that the individual should seek to maximize his or her own self interests as a legitimate factor. Decision, Behavior, or Practice Prevailing Norms of Acceptability © 2015 Cengage Learning

Sources of Ethical Norms Fellow Workers Family Friends The Law Regions of Country Profession Employer Society at Large Local Community Religious Beliefs The Individual One’s Self-Interest and Conscience © 2015 Cengage Learning

Ethics and the Law The law and ethics can overlap in many respects. The law is a reflection of what society thinks are minimal standards of conduct and behavior. Research of illegal corporate behavior focuses on two questions: What leads firms to behave illegally? What are the consequences of engaging in illegal behavior? © 2015 Cengage Learning

Making Ethical Judgments Behavior or act that has been committed Prevailing norms of acceptability Value judgments and perceptions of the observer Compared with © 2015 Cengage Learning

The Danger of Ethical Relativism A serious danger of using the conventional approach to business ethics is: Ethical Relativism - One picks and chooses which source of norms one wishes to use based on what will justify current actions or maximize freedom. © 2015 Cengage Learning

Ethics, Economics, and Law – A Venn Model © 2015 Cengage Learning

Three Models of Management Ethics Immoral Management - An approach devoid of ethical principles and an active opposition to what is ethical. The operating strategy of immoral management is focused on exploiting opportunities for corporate or personal gain. Moral Management - Conforms to highest standards of ethical behavior or professional standards of conduct. Amoral Management – Different in nature from the others, it has two kinds: Intentional: Does not consider ethical factors. Unintentional: Casual or careless about ethical factors. © 2015 Cengage Learning

Characteristics of Immoral Managers- These Managers: Intentionally do wrong Are Self-centered and self-absorbed Care only about self or organization’s profits or success Actively oppose what is right, fair, or just Exhibit no concern for stakeholders Are the “bad guys” An ethics course probably would not help them © 2015 Cengage Learning

Examples of Immoral Management - 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 © 2015 Cengage Learning

Characteristics of Moral Managers These Managers: Conform to the highest standards of ethical behavior or professional standards of conduct. Ethical Leadership is commonplace. Their goal is to succeed within the confines of sound ethical precepts Demonstrate high integrity in thinking, speaking and doing. Follow both the letter and the spirit of the law Possess an acute moral sense and moral maturity Moral managers are the “good guys” © 2015 Cengage Learning

Habits of Moral Leaders - They have a passion to do right. They are morally proactive. They consider all stakeholders. They have a strong ethical character. They have an obsession with fairness. They undertake principled decision- making. They integrate ethics wisdom with management wisdom. © 2015 Cengage Learning

Positive Ethical Behaviors of Moral Leaders - Giving proper credit where it is due Being straightforward and honest with other employees Treating all employees equally Being a responsible steward of company assets Resisting pressure to act unethically Recognizing and rewarding ethical behavior of others Talking about the importance of ethics and compliance on a regular basis © 2015 Cengage Learning

Characteristics of Amoral Managers- Intentionally Amoral Managers Don’t think ethics and business should “mix.” Business and ethics exist 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. © 2015 Cengage Learning

© 2015 Cengage Learning

Two Hypotheses Regarding Moral Management Models Population hypothesis The distribution of the three models approximate a normal curve, with the amoral group occupying the large middle part of the curve and the moral and immoral categories occupying the tails. Individual hypothesis Within the individual manager, these three models may operate at various times and under various circumstances. © 2015 Cengage Learning

Three Models of Management Morality and Emphases on CSR © 2015 Cengage Learning

Moral Management Models And Acceptance or Rejection of Stakeholder Thinking © 2015 Cengage Learning

Making Moral Management Actionable - The characteristics of immoral, moral and amoral management provide benchmarks for managerial self-analysis, and help managers recognize the need to move from the immoral or amoral ethic to the moral ethic. Amoral management is a morally vacuous condition that can easily be disguised as an innocent, practical, bottom-line philosophy. But it is the bane of the management profession. Most managers are not “bad guys,” but managerial decision-making cannot be ethically neutral. Both immoral and amoral management must be discarded and the process of developing moral judgment begun. © 2015 Cengage Learning

Kohlberg’s Model of Moral Development © 2015 Cengage Learning

Why Managers and 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 © 2015 Cengage Learning

Ethics of Care as Alternative to Kohlberg Recognize their own needs and needs of others Level 3 Establish connections and participate in social life Level 2 Self is Sole Object of Concern Level 1 © 2015 Cengage Learning

External Sources of a Person’s Values Philosophical values Cultural values Legal values Religious values Professional values The Web of Values © 2015 Cengage Learning

Sources Internal to the Organization Norms prevalent in business include - 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 © 2015 Cengage Learning

Elements of Moral Judgment - Moral imagination Moral identification and ordering Moral evaluation Tolerance of moral disagreement and ambiguity Integration of managerial and moral competence A sense of moral obligation © 2015 Cengage Learning

Key Terms bottom-line mentality Business ethics Compliance strategy Conventional approach to business ethics Conventional level of moral development Descriptive ethics Ethical egoism Elements of moral judgment Ethical relativism Ethical tests approach to business ethics Immoral management Individual hypothesis Integrity strategy Intentional amoral management Kohlberg’s levels of moral development Moral development morality Moral management Normative ethics Population hypothesis Preconventional level of moral development Principles approach to business ethics Postconventional, autonomous, principled level of moral development Unintentional amoral management © 2015 Cengage Learning