1. Ethical Decision Making in Business
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Ethical Decision Making in Business

2. The Big Question
Whether to teach ethics in the business curriculum or not?
Friedman (1970)
Drucker (1981)
Knee-jerk reaction to recent spate of scandals

3. Distinguish between the concepts of “morality” and “ethics”
Morality – refers to the standards of behavior by which people are judged (particularly in their relationships with others) “moral standards of behavior”
Ethics – encompasses the system of beliefs that supports a particular view of morality. “ethical systems of belief”
(Hosmer, 2003)
Moral behavior – a person alone in the desert, isolated from everyone else, might act in a way that was immature, demeaning, or stupid, but he or she could not truly be said to have acted immorally since the behavior could have no impact upon others, unless it were to waste water or some other resource needed by travelers in the future.
Ethics – If I believe that a person should not smoke in a crowded room, it is because I have accepted the research findings of most scientists and the published statements of the Surgeon General that tobacco smoke is harmful to health. My acceptance of those findings is my ethic for that particular situation.

4. Moral developmental theory (Rest, Piaget, Kohlberg)
Four Components of Morality: What constitutes moral behavior?
Theory of Cognitive Disequilibrium: How does a person’s understanding of the world change?
Moral Development Progression: How does a person’s morality change?
Introduce these as concepts that are taught to students to make them aware of the moral reasoning processes that are utilized by human beings.

5. The Four Components of Morality (Rest et al, 1999).
Moral sensitivity
Moral judgment
Moral motivation
Moral character
Moral sensitivity (interpreting the situation, role taking how various actions would affect the parties concerned, imagining cause-effect chains of event, and being aware that there is a moral problem when it exists)
Moral judgment (judging which action would be most justifiable in a moral sense)
Moral motivation (the degree of commitment to taking the moral course of action, valuing moral values over other values, and taking personal responsibility for moral outcomes)
Moral character (persisting in a moral task, having courage, overcoming fatigue and temptations, and implementing subroutines that serve a moral goal).
Morality consists of ALL of these components (capacities).
If one is missing, the individual will not behave morally except by chance.

6. Piaget’s Theory of cognitive disequilibrium
“When new experiences cannot be assimilated into existing categories of experience or when expectations are violated, humans attempt to revise their categories and expectations so that experience will once again make sense and be predictable. Change in one’s cognition then comes from experiences that do not fit one’s earlier (and simpler) conceptions. Cognitive disequilibrium is the condition for development.”
(Piaget, 1965)

7. Stages of Moral Development (Kohlberg)
CHARACTERISTICS
(Preconventional Level)
Stage 1:
Punishment and Obedience
Orientation
Right and wrong, good and bad are clearly
defined and known by Adult authorities who
hold Truth. Physical consequences of an
action determine its goodness or badness
therefore “right” is a matter of obedience.
Stage 2:
Instrumental Relativist Orientation
Right and good are what satisfies one’s own
needs while being aware of others’ needs.
Fairness is defined as reciprocity.
Adult authority sometimes holds Truth
(Conventional Level)
Stage 3:
“Good Boy-Good Girl” Orientation
Right and good are what help others in one’s
group. One earns approval for “right” behavior
by being “nice,” therefore morality is defined in
terms of cooperation with one’s peers.
Right must involve feelings of others .
Moral reasoning is developed through maturity. Mature adults can naturally progress to about stage 4. Education will help individuals advance through the later stages because of cognitive disequilibrium (cognitive dissonance).

8. (Postconventional Level) Principle Orientation
Stage 4:
“Law and Order”
Orientation
Right is doing one’s duty in maintaining the
given social order, respect for authority. Society’s laws
replace those of the peer group. Laws of the society
are followed without question and breaking the law is
never justified.
(Postconventional Level)
Stage 5:
Universal Ethical
Principle Orientation
Principles are abstract and ethical (e.g., Golden Rule),
not specific moral prescriptions (e.g., Ten
Commandments). Laws and values of any particular
society are somewhat arbitrary and particular to
that society. Laws are seen as necessary to preserve
social order and ensure basic rights of life and liberty.
Stage 6:
Social Contract
Right is defined in terms of general individual rights and standards that have been agreed upon by the
whole society. Ethical principles are self-chosen and
based on abstract concepts such as justice and the
equality and value of individual human rights. Laws
that violate these principles can and should be
disobeyed.

9. So how do we make decisions in situations involving ethical matters?
The same way we make decisions involving non-ethical matters.
We look at the situation, assess alternative courses of action, evaluate outcomes and probabilities, and choose a course of action.

10. Steps in making a judgment
Problem recognition
Identification of alternative courses of action
Evaluation of alternative courses of action
Estimation of outcome probabilities
Calculation of expected values
Justification of course of action chosen

11. Steps in making a judgment
How do we EVALUATE alternatives?
Problem recognition
Identification of alternative courses of action
Evaluation of alternative courses of action
Estimation of outcome probabilities
Calculation of expected values
Justification of course of action chosen

12. We use evaluation TOOLS.
In management decisions we use tools such as:
cost-benefit analysis
feasibility analysis
time-to-market analysis
net present value
strategic prioritization
etc.

13. We also use evaluation tools in ethical analysis:
Deontology – analysis of universal duties
Teleology – comparison of good vs. bad outcomes
Conventional Rules and Mores – conventional cultural moral rules
Virtue Theory – characteristics of a good person
Kant’s categorical imperative
Bentham & Mill’s utilitarianism
The Golden Rule, laws, etc.
There are two basic kinds of ethical judgments. The first have to do with duty and obligation. For example: "Thou shalt not kill, lie, or steal." "You just keep your promises."
These judgments often uphold minimal standards of conduct and (partly for that reason) assert or imply a moral ‘ought.’
The second kind of judgment focuses on human excellence and the nature of the good life. These judgments employ as their most general terms "happiness," "excellence," and perhaps "flourishing" (in addition to "the good life").
For example: "Happiness requires activity and not mere passive consumption." "The good life includes pleasure, friendship, intellectual development and physical health." I take these to be the two general types of ethical judgment, and all particular ethical judgments to be examples of these.
The first three approaches to ethics on this slide are the theories that deal with what we “ought” to behave. The last deals with personal characteristics of excellence.
Bravery, temperance, generosity, justice, pride, and honesty.

14. Universal Duty (Kant, 1785) Universal = categorical Duty = imperative
One should act only on that maxim whereby it should become a universal law of nature applicable to everyone.

15. To test an action: 1. Define the action under consideration;
2. Derive the underlying rule (maxim) for the action;
3. Test the rule as a universal law.

16. Discuss Kant’s example of someone making a promise to repay a loan without the intention of keeping the promise.
Define the action under consideration: Borrow the money with the promise to repay it, but with no intention of doing so.
2. Derive the underlying rule (maxim) for the action: Because the man needs the money, he will borrow it under the false pretense that he intends to repay it.
3. Test the rule as a universal law. If everyone made promises with no intention of keeping them, promises would become worthless and useless. The idea of a PROMISE would become a contradiction in logic.

17. Kant’s second formulation of the categorical imperative
Act in such a way that you always treat humanity, whether yourself or someone else, never simply as a means to an end, but always at the same time as an end.
Based on the innate dignity of human free will.

18. Corporate management can treat workers as factors of production (means to an end), but must also treat each worker with dignity and respect (ends in themselves).
This becomes a dilemma when talking about laying off workers and giving their jobs to outsourced workers overseas.
The question of whether corporate management is treating these laid-off workers with innate dignity and respect (ends in themselves) comes into question and it is NOT an easy ethical decision to make using Kant’s second formulation of the categorical imperative.

19. Utilitarian Theory (Mill, 1863)
…the “greatest happiness principle” holds that actions are right in proportion as they tend to promote happiness; wrong as they tend to produce the reverse of happiness.
The utilitarians writers in general have placed the superiority of mental over bodily pleasures chiefly in the greater permanency, safety, uncostliness, etc.

20. Act vs. Rule Utilitarianism
The act utilitarian believes that each individual action is to be evaluated directly in terms of the utility principle, i.e., consider the consequences of each action.
Will your action generate the greatest amount of happiness for the greatest number of people involved?
Someone goes to the doctor. The person is ill, experiences pain and dysfunction. The doctor performs a series of test and examinations. The person returns to the doctor's office to learn of the results, the diagnosis and prognosis. The doctor is aware that the tests all show that the person has a disease that is incurable and life threatening. In fact even under the most aggressive treatment option there is a survival rate of less than 15% for two years. The doctor is considering what would be GOOD to tell the person. Should the person know the truth or should the person be told something other than the truth? Which is better? Which is the right thing to do? What would be GOOD to do? The act utilitarian might calculate that in telling the truth there will be a great deal of pain and hardly any pleasure at all The person will be upset, their family will be upset, the doctor will be upset in informing the ill person that there is nothing that the doctor can do to alter their condition. The doctor's staff will be upset seeing the person come in for whatever treatment there may be. On the other hand if the doctor makes up a story concerning the diagnosis and prognosis that is not true but that gives the ill person more time to enjoy life before the illness makes it obvious that the end is near, well then the results are different. The doctor is not so upset in seeing the person, the doctor's staff is not upset . The family and friends of the person have some more time with that person to enjoy things instead of being morose and depressed. So the ACT utilitarian might calculate that the GOOD is to lie. 
The rule utilitarian would need to consider what would the long term consequences be if doctors were to lie to those who come to them and have life threatening, incurable illnesses. The rule utilitarian might calculate that people would no longer be able to trust their doctors and this would break down the confidence they need for their therapies to be effective. The RULE utilitarian might calculate that there is far more harm in lying and so the GOOD is to tell the truth. 

21. Act vs. Rule Utilitarianism
The rule utilitarian believes that behavior is best evaluated by rules that, if universally followed would lead to the greatest good for the greatest number. We must consider the consequences of a rule if it were applied universally.
If the act in question were made a universal rule, would it result in the greatest good for the greatest number of people?

22. Discuss the physician example: Cutting up healthy people to use their organs for unhealthy people.

23. Conventional Moral Rules
Conventional moral rules are classic moral rules that have withstood the test of time and are commonly accepted by society.
The Golden Rule
Thou shall not kill
Thou shall not steal
These rules derive from rule utilitarian theory. Why?
Because they work within a society to promote common good throughout that society.

24. Personal Virtue Ethics (Aristotle)
One should live one’s life virtuously.
Virtues of honesty, openness, pride, and generosity.
Personal characteristics your mother would be proud of! Why?
Because these types of behaviors, when practiced in one’s life, will make it easier for one to know the right thing to do in situations of moral conflict.

25. The important point to remember is that "virtue ethics" is primarily concerned with human excellence, not with human dutifulness.
The virtue ethicist contends that, by living a virtuous life focused on human excellence and all its characteristics, one will also make morally correct decisions.
Maybe, maybe not.

26. A Framework for Moral Decision Making
Problem recognition – identification of the basic situation, the actors, and discernment between issues vs. dilemmas
Identification of alternative courses of action
Evaluation of alternative courses of action and ramifications on all actors from ethical perspective
Estimation of outcome probabilities and values
Calculation of expected values
Justification of course of action chosen
Categorical imperative
Utilitarianism
Virtue theory
Conventional rules
Refer to Wilhelm essay and discuss each step.
Use Pat’s consulting case.

27. a) Which alternative respects the rights and dignity of the stakeholders and can be universally applied?
For each decision alternative, identify the ramifications if everyone were to follow the principle that underlies that alternative. For each decision alternative, determine if you are respecting the stakeholders and not treating them merely as objects.

28. b) Which alternative will produce the most good and the least harm?
For each alternative, identify the cost/benefits. Weigh the cost-benefits of each alternative to each stakeholder and determine if there is a solution that promotes the greatest good for the all of people.
If there is no alternative that results only in good and no harm, choose the alternative that produces the most benefits and causes the least harm to the stakeholders.

29. c) Do any of the alternatives violate a conventional moral rule?
These are the types of rules that we find in many great religious traditions, such as rules against killing, stealing, and lying. Others are more local and particular to specific cultures such as rules about proper dress, relations between the sexes, respect for established authority, and so on.

30. d) Which alternative can you personally live with?
1. Will adopting this decision allow you to be at peace with yourself and develop your character in a way that will improve your relationships with others?
2. How would you feel when you share your decision with your most respected mentors, family members, friends?
3. How would you feel if your actions were reported on the front page of The Wall Street Journal?

31. Pat is being interviewed by Ken as a possible consultant to the City in negotiating a new water contract. Pat asks for a fee of $600 per day for an estimated 10 days of consulting work, for a total fee of $6,000.
Ken counters with an offer of a $20,000 fee, for political reasons, and requests Pat to give back $14,000 to the “flower fund.” He explains that the flower fund helps the mayor deal with hardship cases among City employees, whom he says are underpaid and receive meager fringe benefits. The mayor wishes to be perceived as a caring and compassionate politician. Pat asks Ken if this contribution of $14,000 is an absolute requirement for her to get the consulting assignment. Ken’s reply is deliberately unclear.
Pat is torn in two directions as she considers her decision. On the one hand, she wants the consulting experience and sees that it can get her started as a successful consultant. The fee will also be welcome, to ease her financial pressures. On the other hand, Pat feels uncomfortable with Ken's request for the flower fund contribution, even though it may be a good cause. She also feels used to help deceive the public by proposing a $20,000 fee to further the Mayor's political purposes, when it is clear that her actual fee will only be about $6,000.

32. The important point to remember is that a "virtue ethics" which defines virtues as stable dispositions to act according to duty is essentially deontological in content, if not in form.
Such theories are not primarily concerned with human excellence, but with human dutifulness.
A true eudaimonist ethical theory, contrarily, is concerned with human excellence and the good life.
It does not define the good life as the dutiful life, even if it (falsely) equates the two, or (more plausibly) sees dutifulness as a necessary component of the good life.