1 Personal and Organizational Ethics Professor Craig Diamond BA 385 October 21, 2009 Chapter 8

2 Outline of Topics  Introduction  Personal and Managerial Ethics Principles approach Ethical Tests approach  Improving Organizational Ethics

3 Introduction to Chapter 8  Key question this chapter addresses: “How do we make judgments about ethical dilemmas and come to justifiable decisions”?  Focus on the day-to-day ethical issues that managers face  Many managers have no training in business ethics or ethical decision-making  Ethics is vital to business success

4 Ethics Resource Center – 2003 Survey  Behaviors observed by employees: Abusive or intimidating behavior toward employees (23%) Misreporting actual time or hours worked (20%) Lying to employees, customers, vendors or the public (19%) Withholding needed information from employees, customers, vendors or the public (18%) Discriminating on the basis of race, color, gender, age, or similar categories (13%) Stealing, theft or related fraud (12%) Sexual harassment (11%) Falsifying financial records and reports (5%) Giving or accepting bribes, kickbacks, or inappropriate gifts (4%)

5 Levels at Which Ethical Issues May Be Addressed Personal Level Situations faced in our personallives outside the work context Organizational Level Workplace situations faced asmanagers and employees Focus of this chapter

6 Levels at Which Ethical Issues May Be Addressed Societal and Global Levels Societal or global situationsconfronted indirectly as amanagement team Industry Level Situations where a manager ororganization might influence business ethics at the industry level

7 Personal and Managerial Ethics Conventional approach Principles approach Ethical tests approach Resolving Ethical Conflicts Ethical decisions

8 Ethical Dilemmas in Organizations  Typical dilemma: making a choice between self- interest and the interest of other stakeholders or groups.

9 Types of Ethical Principles Teleological Theories Focus on the consequences or results of the actions they produce Deontological Theories Focus on duties Aretaic Theories Focus on virtue (character trait)

10 Principles Approach to Ethics Major Principles of Ethics Applied to Business  Utilitarianism  Categorical Imperative  Rights  Justice  Care  Virtue ethics  Servant leadership  Golden Rule

11 Principle of Utilitarianism Utilitarianism focuses on acts that produce the greatest ratio of good to evil for everyone  Ignores actions that may be inherently wrong  May come into conflict with the idea of rights & justice  Difficult to formulate satisfactory rules for decision making StrengthsWeaknesses  Forces thinking about the general welfare and all stakeholders  Allows personal decisions to fit into the situation complexities

12 Kant’s Categorical Imperative Kant’s Categorical Imperative is a duty-based principle of ethics. A sense of duty arises from reason. 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 (respect for people). 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.

13 Principle of Rights Focuses on protecting individual moral or legal rights Addresses weaknesses of utilitarianism Based on moral reasoning, not dependent on a legal system Morality from perspective of individuals and groups

14 Rights vs. Utilitarianism  Equality vs. Efficiency  Minimizing cost vs. safety precautions

15 Examples of Legal or Moral Rights Figure 8-1

16 Principle of Justice Fair treatment of people - “Fairness Principle” Types of justice Distributive – how to distribute benefits and burdens Compensatory – compensation for past injustices Procedural – ethical due process Rawlsian

17 1. 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? Ethical Due Process Fairness in Process and Decision-Making

18 1. Each person should be treated equally and have and equal right to the most basic liberties 2. As much as possible, we should benefit the well-being of the socially and economically worse off Also known as “progressive” policy, e.g., “progressive taxation” Rawls’s Principles of Justice

19  Virtue ethics: focuses on individuals becoming imbued with virtues (focus on character over actions)  Aristotle and Plato Ethic of Care and Virtue Ethics  Principle of caring: focuses on a person as a relational (cooperative) and less as an individual  Feminist theory  Stakeholder thinking

20  Listening  Empathy  Healing  Persuasion  Awareness  Foresight  Conceptualization  Commitment to the growth of people  Stewardship  Building community Servant Leadership Leadership through serving others Business Ethics and Leadership Bridges

21 The Golden Rule The Golden Rule focuses on the premise that you should 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

22 Reconciling Ethical Conflicts Concerns to be Addressed in Ethical Conflicts  Obligations  Ideals (values)  Effects (consequences)  Obligations  Ideals (values)  Effects (consequences)

23 Guidelines for Conflicting Obligations, Ideals, and Effects  When two or more moral obligations conflict, choose the stronger one  When two or more ideals conflict, or when ideals conflict with obligations, honor the more important one  When effects are mixed, choose the action that produces the greater good or less harm

24 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

25 Factors Affecting the Morality of Managers Society’s Moral Climate Business’s Moral Climate Industry’s Moral Climate Individual One’s Personal Situation Superiors Policies Peers Organization’s Moral Climate Figure 8-4

26 Factors Affecting the Organization’s Moral Climate 1. Behavior of superiors (# 1 influence) 2. Behavior of one’s peers in the organization 3. Ethical practices of one’s industry or profession 4. Society’s moral climate 5. Formal organizational policy (or lack of one) 6. Personal financial need Figure 8-5

27 Pressures Exerted on Employees by Superiors  Top management:50 percent agreed  Middle management:65 percent agreed  Lower management:85 percent agreed “Managers feel under pressure to compromise personal standards to achieve company goals.”

28 Pressure on Employees  One study found: 60% of workers felt a “substantial” amount of pressure on the job. 27% felt a “great deal” of pressure. 48% of workers reported that, due to pressure, they had engaged in one or more unethical and/or illegal actions during the past year (most frequent: cutting corners in quality control). Reasons for pressure: 52% balancing work and family 51% poor internal communication 51% workload 51% poor leadership

29 Improving the Ethical Climate Top Management Moral Leadership Top Management Moral Leadership Ethics Programs and Officers Realistic Objectives Ethical Decision- Making Processes Codes of Conduct Figure 8-7 Effective Communication Ethics Training Corporate Transparency Whistle-Blowing Mechanisms Ethics Audits and Risk Assessments Board of Directors’ Oversight Discipline of Violators Discipline of Violators

30 Two Pillars of Leadership Traits Ethical Leadership Behaviors Decision Making Role Modeling Role Modeling Ethics Communication Effective Rewards and Discipline Moral PersonMoral Manager

31 Effective Communication  Candor – honest, sincere, fair, free from prejudice and malice  Fidelity – detailed, accurate, no deception or exaggeration  Confidentiality – deciding when not to share information

32 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

33 Ethics Officers  Title of employee who managed the Ethics Program  Became more common following publication of the 1991 Sentencing Commission Guidelines. Then even more common after Sarbanes-Oxley in  2006: 62% of Fortune 500 companies had Ethics Officers  High profile Ethics Officers (on executive team) Examples: AIG, Bear Stearns

34 Ethical Decision-Making Process Figure 8-9 Industry and company standards also part of ethics screening

35 Ethics Check 1. Is it legal? 2. Is it balanced (does it treat stakeholders fairly)? 3. How will it make me feel about myself?

36 Texas Instruments 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.

37 Sears’ 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?

38 Legal Compliance vs. Ethics  Until recently, legal compliance received much more focus than ethics. That is beginning to change.

39 Codes of Ethics  95% of major corporations have them  Level of effectiveness depends on:  Corporate culture  Code enforcement  Discipline for violation, reward for compliance  Many other factors

40  Hotlines: anonymous reporting of ethics problems 78% of large companies have them Most frequent way that ethical problems are reported Can be as effective as ethics audits One cross-industry study: 65% of reports warranted further investigation 46% resulted in action being taken Hotlines

41 Ethics Training  About 77% of publically traded companies offer ethics training to employees  Effectiveness depends on: Culture Length and quality of training Many other factors

42 Corporate Transparency Company activities, processes,practices, and decisions becomeopen or visible to the outside world. Leads to accountability and trust of stakeholders

43 The 2002 Sarbanes-Oxley Act  Companies are required to 1) provide avenues for employees to report ethical problems and 2) protect whistle-blowers without fear of retaliation  It is a crime to alter, destroy, conceal, cover up, or falsify documents to prevent its use in a federal government lawsuit Board of Director Leadership and Oversight

44 From Moral Decisions to Moral Organizations Moral Decisions Moral Managers Moral Organizations Figure 8-10 Maximize these Ultimate goal

45  Aretaic theories  Categorical imperative  Codes of conduct  Codes of ethics  Compensatory justice  Corporate transparency  Deontological theories  Distributive justice  Ethic of care  Ethical due process  Ethical tests  Ethics audits  Ethics officer  Ethics programs  Golden Rule  Legal rights Key Terms  Moral rights  Negative right  Opacity  Positive right  Principle of justice  Principle of rights  Principle of utilitarianism  Procedural justice  Rights  Risk assessments  Servant leadership  Teleological theories  Transparency  Utilitarianism  Virtue ethics