1. © 2015 Cengage Learning

2. Chapter 8 Personal and Organizational Ethics
© 2015 Cengage Learning

3. Learning Outcomes
Understand the different levels at which business ethics may be addressed.
Differentiate between consequence-based and duty-based principles of ethics.
Enumerate and discuss principles of personal ethical decision making and ethical tests for screening ethical decisions.
Identify the factors affecting an organization’s ethical culture and provide examples.
Describe and explain actions, strategies, or “best practices” to improve an organization’s ethical climate.
Identify and describe concepts from “behavior ethics” that affect ethical decision making and behavior in organizations.
© 2015 Cengage Learning

4. Chapter Outline Ethics Issues Arise at Different Levels
Personal and Managerial Ethics
Managing Organizational Ethics
Best Practices for Improving an Organization’s Ethical Culture
Behavior Ethics – Striving Towards a Deeper Understanding
Moral Decisions, Moral Managers, and Moral Organizations
Summary
© 2015 Cengage Learning

5. Personal and Organizational Ethics
Managers encounter day-to-day ethical challenges in such areas as:
conflicts of interest
sexual harassment
customer dealings
pressure to compromise on personal standards, and more
Many managers have no training in ethics or ethical decision making.
Ethics is vital to business success.
© 2015 Cengage Learning

6. Ethics Issues Arise at Different Levels
Personal level -
Situations faced in our personal lives outside the context of our employment.
Organizational level -
Workplace situations faced by managers and employees.
Industry or profession level -
A manager or organization might experience business ethics issues at the industry or professional level.
Societal and global levels -
Managers acting in concert through their companies and industries can bring about constructive changes.
© 2015 Cengage Learning

7. Personal and Managerial Ethics
Three major approaches to ethical decision making -
Conventional Approach -
Discussed in chapter 7
Principles Approach -
Managers desire to make decisions based on a more solid foundation than is provided by the conventional approach to ethics.
A principle of business ethics is an ethical concept, guideline, or rule that assists you in taking the ethical course.
Ethical Tests Approach -
Discussed later in this chapter.
© 2015 Cengage Learning

8. Types of Ethical Principles
Teleological theories -
Focuses on consequences or results of an action.
Deontological theories -
Focuses on duties, without regard to consequences.
Aretaic theories -
Focuses on the virtue of an action.
© 2015 Cengage Learning

9. Principles Approach to Ethics
Major principles of ethics -
Utilitarianism
Kant’s Categorical Imperative
Principle of Rights
Principle of Justice
Ethical Due Process
Rawl’s Principle of Justice
Ethics of care
Virtue ethics
Servant leadership
The Golden Rule
© 2015 Cengage Learning

10. 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
Test of The Big Four (greed, speed, laziness or haziness)
Gag Test
© 2015 Cengage Learning

11. Managing Organizational Ethics
Ethical decision-making is at the heart of business ethics.
One must sharpen one’s decision-making skills to avoid amoral thinking, and achieve moral management.
A manager must see the organization's ethical climate as part of its corporate culture.
An ethical climate is shaped through actions taken, policies established, and examples set.
© 2015 Cengage Learning

12. Factors Affecting the Morality of Managers and Employees
Society’s Moral Climate
Business’s Moral Climate
Industry’s Moral Climate
Individual One’s Personal Situation
Superiors
Policies
Peers
Organization’s Moral Climate
© 2015 Cengage Learning

13. Factors Affecting the Organization’s Moral Climate
Behavior of superiors – the number one influence on moral climate
Behavior of one’s peers – the second influence; people do pay attention to what their peers in the firm are doing
Industry or professional ethical practices – ranked in the upper half; these context factors are influential
Personal financial need – ranked last
© 2015 Cengage Learning

14. Improving the Organization’s Ethical Culture
The emphasis is on creating an ethical organizational culture or climate, one in which ethical behavior, values and policies are displayed, promoted and rewarded.
Compliance vs. Ethics Orientation-
Ethics thinking is principles based; compliance thinking is rule-bound and legalistic. A compliance orientation can undermine ethical thinking.
Compliance can squeeze out ethics.
Managers many not consider tougher issues that a more ethics-focused approach might require.
© 2015 Cengage Learning

15. Best Practices for Improving an Organization’s Ethical Culture
Three key elements that must exist if an ethical organizational culture is to be developed and sustained:
1. The continuous presence of ethical leadership reflected by the board of directors, senior executives and managers.
2. The existence of a set of core ethical values infused throughout the organization by way of policies, processes and practices; and
3. A formal ethics program which includes a code of ethics, ethics training and an ethics officer.
© 2015 Cengage Learning

16. Improving Ethical Culture
Top Management Leadership Moral Management
Ethics Programs and Officers
Realistic Objectives
Ethical Decision- Making Processes
Codes of Conduct
Effective Communication
Ethics Training
Corporate Transparency
Whistle-Blowing Mechanisms
Ethics Audits and Risk Assessments
Board of Directors’ Oversight
Discipline of
Violators
© 2015 Cengage Learning

17. Top Management Leadership (Moral Management) (1 of 2)
This premise cannot be overstated:
The moral tone of an organization is set by top management.
In a poll of communication professionals, more than half believed that top management is an organization’s conscience.
Managers and employees look to their bosses at the highest levels for their cues as to what practices and policies are acceptable.
© 2015 Cengage Learning

18. Top Management Leadership (Moral Management) (2 of 2)
Weak Ethical Leadership – led an employee to embezzle $20,000 over a 15 year period, explaining that she thought it was ok because her boss used firm employees for personal needs, took money from the firm’s petty cash box, raided the soft drink machine, and used company stamps. Her boss said it was all true, and that she should not be dealt with too harshly.
Strong Ethical Leadership – When a batch of tubes in production failed a critical safety test, leaving in question the 10,000 already manufactured, the VP, without hesitation, said “scrap them.” That act set the tone for the corporation for years, because everyone present knew of situations in which faulty products had been shipped under pressure of time and budget.
© 2015 Cengage Learning

19. Two Pillars of Leadership
Traits
Moral Person
Moral Manager
Ethical Leadership
Behaviors
Decision Making
Role
Modeling
Ethics Communication
Effective Rewards and Discipline
© 2015 Cengage Learning

20. Effective Communication of Ethical Messages
Requires -
Written and verbal communication
Non-verbal communication
Candor – forthright, sincere and honest
Fidelity – be faithful to detail, accurate, avoid deception or exaggeration
Confidentiality – exercise care in deciding what information to disclose to others. Trust can be shattered if confidences are breached.
© 2015 Cengage Learning

21. Ethics Programs and Ethics Officers
Ethics programs typically include:
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
© 2015 Cengage Learning

22. Setting Realistic Objectives -
Managers must be keenly sensitive to the possibility of unintentionally creating situations in which others may perceive a need or incentive to cut corners or do the wrong thing.
Unrealistic expectations are the primary driver of employees perceiving excessive pressure to achieve goals.
Example: A marketing manager set a sales goal of a 20% increase for the next year when a 10% increase was all that could be realistically and honestly expected, even with outstanding performance. A subordinate might believe he or she should go to any lengths to achieve the 20% goal.
© 2015 Cengage Learning

23. Ethical Decision-Making Processes
© 2015 Cengage Learning

24. Ethics Check - Ethics Check - Is it legal? Is it balanced?
How will it make me feel about myself?
© 2015 Cengage Learning

25. Ethics Quick Test - Is the action legal?
Does it comply with our values?
If you do it, will you feel bad?
How will it look in the newspaper?
If you know it’s wrong, don’t do it.
If you’re not sure, ask.
Keep asking until you get an answer.
© 2015 Cengage Learning

26. Codes of Conduct -
A way of establishing standards of behavior and communicating them to managers and employees.
The single most important element of an ethics and compliance program.
Virtually all major corporations have codes of conduct today.
Many have worldwide codes or standards.
Some codes of conduct are designed around stakeholders, others on conduct.
© 2015 Cengage Learning

27. Content of Codes of Conduct -
Employment practices
Employee, client, and vendor information
Public information and communications
Conflicts of interest
Relationships with vendors
Environmental issues
Ethical management practices
Political involvement
© 2015 Cengage Learning

28. Disciplining Violators of Ethics Standards -
Management must discipline violators of accepted ethical norms and standards.
One reason many question the sincerity of business with regard to codes of conduct is that many business are unwilling to discipline violators, implicitly approving their behavior.
Before disciplining anyone, the firm needs to have communicated its ethics standards clearly and convincingly.
© 2015 Cengage Learning

29. Ethics Hotlines and Whistle Blowing -
An effective ethical culture is contingent on employees having (with support of top management) a mechanism for reporting violations.
78% of companies have anonymous reporting systems (Hotlines).
Among firms subject to Sarbanes-Oxley, 91% have such systems.
Hotlines are the most common way to report corporate fraud.
Can be telephone, web, or -based.
© 2015 Cengage Learning

30. Business Ethics Training -
Goals of Training are to learn:
the fundamentals of business ethics
to solve ethical dilemmas
to identify causes of unethical behavior
about common managerial ethical issues
whistle-blowing criteria and risks
to develop a code of ethics and execute an internal ethical audit
© 2015 Cengage Learning

31. Ethics Audits and Risk Assessments -
Intended to carefully review such ethics initiatives as ethics programs, codes of conduct, hotlines, and ethics training programs.
Sustainability Audit -
Helps to identify sustainability issues within an organization.
Fraud Risk Assessment -
Review processes that identify and monitor conditions that may pertain to the company’s exposure to compliance/misconduct risk and to review methods for dealing with concerns.
© 2015 Cengage Learning

32. Corporate Transparency
A quality, characteristic, or state in which activities, processes, practices, and decisions that take place in companies become open or visible to the outside world.
The degree to which an organization:
Provides public access to information.
Accepts responsibility for its actions.
Makes decisions more openly.
Establishes incentives for leaders to uphold standards.
© 2015 Cengage Learning

33. Board of Director Leadership and Oversight -
Leadership and oversight of ethical initiatives by boards has not been a given.
The Sarbanes-Oxley Act
Companies are required to protect whistle- blowers without fear of retaliation.
It is a crime to alter, destroy, conceal, cover up, or falsify documents to prevent their use in a federal government lawsuit.
© 2015 Cengage Learning

34. Behavioral Ethics – Striving Towards a Deeper Understanding (1 of 3)
Behavioral Ethics helps us to understand many of the behavioral processes that are taking place:
Bounded ethicality – occurs when managers and employees find that behaving ethically is difficult because of various organizational pressures.
Conformity bias – the tendency people have to take their cues for ethical behavior from their peers, rather than exercising their own, independent judgment.
Overconfidence bias –people may be more confident of their moral character than they have reason to be.
© 2015 Cengage Learning

35. Behavioral Ethics – Striving Towards a Deeper Understanding (2 of 3)
Self-serving bias – people may process information in a way that supports their preexisting beliefs & self-interest.
Framing – ethical judgments are affected by how an issue is posed; if posed as an “ethical” issue, they make more ethical decisions.
Incrementalism –a predisposition toward the “slippery slope.”
Role morality – a tendency to use different ethical standards for different roles in life.
Moral equilibrium – a tendency for people to keep an ethical scoreboard in their heads, and use this information when making future decisions, balancing decisions, and avoiding a moral “surplus”.
© 2015 Cengage Learning

36. Behavioral Ethics – Striving Towards a Deeper Understanding (3 of 3)
Ill-conceived goals – poorly set goals that encourage negative behaviors.
Motivated blindness – overlooking the questionable actions of others when it is in one’s own best interest.
The slippery slope – causes people not to notice others’ unethical behavior when it gradually occurs in small increments.
Overcoming values – the act of letting questionable behaviors pass if the outcome is good. This can occur when managers put more emphasis on results rather than on HOW the results are achieved.
© 2015 Cengage Learning

37. Moral Decisions, Moral Managers, and Moral Organizations
The goal of managers should be to create moral decisions, moral managers, and ultimately, moral organizations, while recognizing that what we frequently observe in business is the achievement of moral standing at only one of these levels.
The ideal is to create a moral organization that is fully populated by moral managers, making moral decisions (and practices, policies, and behaviors), but this is seldom achieved.
© 2015 Cengage Learning

38. © 2015 Cengage Learning

39. Key Terms (1 of 2) Aretaic theories Behavioral ethics
Bounded ethicality
Categorical imperative
Codes of conduct
Codes of ethics
Compensatory justice
Compliance orientation
Conformity bias
Core ethical values
Corporate transparency
Deontological theories
Distributive justice
Ethical due process
Ethical leadership
Ethical tests
Ethic of reciprocity
Ethics audits
Ethics of care
Ethics officer
Ethics orientation
Ethics programs
Ethics screen
Formal ethics program
Framing
Fraud risk assessments
Golden Rule
Ill-conceived goals
Incrementalism
Indirect blindness
Legal rights
© 2015 Cengage Learning

40. Key Terms (2 of 2) Legal rights Moral equilibrium Moral rights
Motivated blindness
Negative rights
Opacity
Organizational Sentencing Guidelines
Overcoming values
Overconfidence bias
Positive rights
Principle of justice
Principle of rights
Principle of utilitarianism
Procedural justice
Process fairness
Rights
Role morality
Self-serving bias
Servant leadership
Slippery slope
“smell” test
Sustainability audit
Teleological theories
Transparency
Utilitarianism
Virtue ethics
© 2015 Cengage Learning