1. What are Ethics Moral Values=beliefs about what is good vs bad, right vs. wrong E.g., it is wrong to lie Ethics = standards of behavior consistent with one’s moral values E.g., I should not lie Decision= Intention for behaving consistently with ethics I decide not to lie even if I am disadvantaged by lying Behavior= Action not lying

2. Type of EthicsRightness is defined by…Basis of actions End Results -effect/consequences it has -utility of ends --Actions are aimed to promote (collective) happiness, --Actions that promote more happiness are more right Duty -obligations to apply universal standards in all situations -intentions of actor rather than effects --Actions that promote virtue rather than pleasure --behaviour should be based on principles/rules Social Contract --Customs or norms of a community --Community defines morality which defines right & wrong --Duty binds individual to community --What is best for community is ultimate standard Personal-isitcOne’s conscience-stand up for what one believes -no absolute formulas for living

3. Sources determining Managerial Ethics 3

4. How sources affect Ethical Behavior - I Reward System –Anticipation of healthy reinforcement for following an unethical course of action, especially if no punishment is expected. Role conflict in Code of Conduct –“Bureaucratic” role as an organizational employee is at odds with one’s role as the member of a profession. Market: Competition –Stiff competition for scarce resources. –Temptation to make unethical decisions in situations in which essentially no competition exists.

5. Bias in judgments What increases biases in judgments Ambiguity Seeking Approval Attachment Familiarity Escalation Discounting Disclosure Type of Judgment

6. Ambiguity in accounting Study of approx 50 tax preparers shows 83%- 976% difference in how much a family owes in yearly taxes –Ambiguity in Income, deductibles, depreciation schedule Declaring items as revenue vs. expenses (early vs. later) has implications on how stockholders react Firms hire based on how auditors interpret accounting problems

7. Bias in Judgment Attachment Students role playing as plaintiffs (in an accident) predicted that they would receive larger awards from the judge than did those playing the role of defendants Self-serving Bias

8. Types of training & self-serving bias Bias in judgments Writing essays arguing for other side Learning about self- serving biases Reading case FIRST before being assigned the role of plaintiff or defendant 0 - 0

9. Seeking approval You are even more biased toward yourself when someone else is biased toward your opinion Implications for overly biased judgments –E.g., when auditors make judgments by themselves first vs. merely “endorsing” judgments that clients already made (they are even more biased toward their self- serving biases)

10. Copyright © 2011 Pearson Canada Inc. Organizational and Industry Culture –Aspects of an organization’s culture (and its subcultures) Corporate cultures that reward unethical behaviour. A culture of greed and a singular focus on positive financial results.  Stonewalling  Counter norms –Corporate codes of conduct might have an impact on culture and ethical decision making. How sources affect Ethical Behavior - II

11. Familiarity, discounting, escalation On-going relationships  Familiarity –Decide between negatively affecting company executives (clients) vs. company investors (not clients) Discounting –Favour immediate consequences vs. delayed uncertain consequences (see Margin Calls movie) E.g., damage to relationship, loss of contract, unemployment Escalation –Sum of small biases leads to large biases (i.e., corruption)– (see Margin Calls movie)

12. Study of buyer, seller, buyer auditor and seller auditor –Seller valued firm more than buyer –Auditors were more biased toward client interests –Sellers auditors valued firm more than buyer auditor –Reward for accuracy for auditors did not eliminate the bias they already had Auditor Attachment affects Bias in Judgment

13. Auditors who were hired by the company were more likely to conclude that the company complied with the GAAP rules rather than those auditors who were hired by the company’s business collaborator Experience of auditor did not decrease the bias Auditor Attachment affects Bias in Judgment

14. Bias in Judgment Disclosure of conflict of interest Estimator got paid for accurate judgments Advisor got paid for how high estimator’s estimate was (i.e., advisor had a incentive to make higher judgments) Study of Advisors vs. estimators of how much $$ in jar

15. Bias in Judgment Disclosure of conflict of interest Results Disclosure of advisor’s motive to estimator did not lead estimators to discount advisor’s advice and make lower judgments so advisors made more than estimators

16. Bias in Judgment Disclosure of conflict of interest Advisors who were given incentives to mislead estimators to make high judgments and whose motives were disclosed to estimators were more biased than those whose motives were not disclosed. Advisors seemed to adjust for estimator’s discounting and made even higher judgments Results: Continued

17. Reduce Bias in Judgment Legal Reform Increase DisclosureReduce Attachment ? + Legal reform in accounting should remove the incentive for being attached and should take into account the negative effects of disclosure to the organization

18. Copyright © 2011 Pearson Canada Inc. Personality & Values –Certain personality types are more prone to unethical behaviour (e.g., economic values, high need for personal power).  Bottom line mentality - financial success is the only value to be considered  Exploitative mentality - use people in a way that promotes stereotypes and undermines empathy and compassion  Madison Avenue mentality - anything is right if the public can be made to see it as right  Workers emulate the unethical behavior of their superiors How sources affect Ethical Behavior - III

19. Other individual factors –There are individual differences in the degree of sophistication that people use in thinking about moral issues. –Less disengagement and more attentiveness is associated with more ethical behaviour –Individual differences in cognitive moral development. How sources affect Ethical Behavior – IV

20. Copyright © 2013 Pearson Education, Inc., publishing as Prentice Hall 2-20 Copyright © 2013 Pearson Education, Inc., publishing as Prentice Hall 2-20 Copyright © 2013 Pearson Education, Inc., publishing as Prentice Hall Kohlberg’s Theory of Moral Development

21. 12-9 Guidelines for Determining Ethical Action Will the political tactics promote purely selfish interests (as opposed to also promoting organ- -izational goals?) Question 1 Does the political activity respect the rights of the individuals affected? Question 2 Does the activity conform to standards of equity and justice; is it fair? Question 3 Unethical YesNo Yes Ethical Yes