Business Ethics 1

What is Ethics NOT?

• based on whether we feel smth is right or wrong

• solely related to religion

• always abiding by the law 100%

• always aligned w/what everyone else does/is socially acceptable

• an exact science 

Ethics concerns

The moral behavior of individuals based on an established and expressed standard of the group, which is and of itself a collection of individual values

What is business ethics?

Applies a value structure to how businesses should be run

3 Levels of Ethical Decisions

• individual

• government

• organization

Individual Level of Ethical Decisions

• employee

• manager

• entrepreneur

• customer

Organization Level of Ethical Decisions

• company

• corp

• start-up

• small business

• non-profit

Government Level of Ethical Decisions

• regulator

• incorporator

• enforcer

• customer

“Pyramid” of Business Ethics

• micro

• meso

• macro

Micro

Groups & individuals

Meso

Institutions and Organizations

• working standards/conds

• diversity and opportunity 

• outsourcing

• human rights

Macro

Global Issues

• Climate change

• public health

• immigration

• etc 

5 Theories of Moral/Ethical Reasoning

1. Universalism

2. Utilitarianism 

3. Rights-Based

4. Fairness & Justice

5. Character & Virtue 

Universalism

• “do the right thing”

• “rule-based morality” - Kant

• best moral choices are those that you would want others to make, based on a sense of principle, and respecting others 

Utilitarianism

• cost/benefit analysis

• will this decision create more benefits than harm?

• long term effects?

Rights-Based

• are human rights at stake?

• Are core freedoms/welfare issues being violated?

• positive vs negative rights

Positie Rights

• education

• decent standard of living

• security and safety

Negative Rights

• life

• liberty

• personal respect

• to be left alone

Positive and Negative Rights according to philosophy

NR restrains other persons or governments by limiting their actions toward/against the right holder. PR provide the right holder with a claim against another person/ state for some good, service, or treatment.

Fairness & Justice

• Which option treats people equally or proportionally?

Character & Virtue

• Do you live the life you want to live?

• how would a virtuous person/org make this decision?

• is this a pos or neg precedent?

• based on Aristotle

Culture of Integrity

• Organizational and External Influences

• Business Processes

• Individual Ethical Decision Making

Organizational and External Influences

• leadership style

• compensation structure

• incentives

• internal/external pressures 

= set context for behavior 

Business Processes

Strong business process and strict system of controls = discourage unethical behavior

Individual Ethical Decision Making

Ppl make decisions and rationalize behavior according to personal code of ethics

Link between ethics, compliance, and risk

compliance is what keeps many companies in line, as well as risk aversion

Role of Ethics: Proactive vs Reactive 

• proactive: finding preventative measures so situations can be avoided.

• reactive: reacting to something that has already happened

Compliance

objective - external - singular

Compliance really is

a disposition to yield to others

Ethics

Subjective - internal - plural

Ethics really are

A guiding philosophy

Sarbanes-Oxley (SOX) Act

• Whistleblower Hotline

• CEO, CFO certification

• Criminal Penalties 

Cultural Influences

• Family

• education

• religion

• media/entertainment

Organizational Influences

• ethical codes

• organizational culture

• role models

• perceived pressure for results

• rewards/punishment system

Political/Legal/Econ Influences

• Laws

• Rules

• etc 

Individual

• Personality

• Values

• moral principles

• history

• gender

Ethical behavior is derived from

Cultural/Org/Pol/Legal influences + Role Expectations + Stage of Moral Development > filtered through the Individual

Moderaters for Behavior

• Individual Characteristics

• Issue Intensity

• Structural Variables

• Organizational Culture

Determinants of Issue Intensity

• greatness of harm

• consensus of wrong

• probability of harm

• immediacy of consequences

• proximity to victim(s)

• concentration of effect

Questions to ask for ethical decision making

• what are the relevant facts?

• what are the ethical issues??

• who are the primary and secondary stakeholders?

• what are the possible alternatives and their ethcis?

• what are the practical constraints?

• what actions should be taken?

4 Steps of Ethical Decision Making

1. AWARENESS of an ethical problem

2. ability to REASON about ethical issues

3. having the MOTIVATION to act ethically

4. having the PERSISTANCE to implement ethical action in the face of obstacles

Misc Current Business Ethics Issues

• Whistleblowing

• Ethical Investment

• Lobbying/political donations

• Exec Pay

• Work/home balance

• Sustainability

• Conflicts of Interest

• Corruption

• etc 

ShareHolder-Managerial Model

• shareholders as most important priority for manager’s decision making

• “creating value for shareholders” as a means of dealing with complexity of today

Milton Friedman’s Perspective

Only social responsibility of business is to use its resources and engage in activities designed to increase profits, so long as it engages in open and free competition without deception or fraud

Managerial Model as a

Hierarchical View

Challenge of Managerial Model

Managers tend to focus internally to firm, are not aware/attentive enough of other interests that could be sources of innovation/growth and are ultimately traded against the interests of shareholders

Managerial Model with an Inward Focus

Separation Fallacy

It is useful to believe that sentences like “x is a business decision” have no ethical content or any implicit ethical point of view.

And, it is useful to believe that sentences like “x is an ethical decision, the best thing to do all things considered” have no content or implicit view about value creation and trade

Stakeholder model demonstrates

how business is embedded in a complex set of social and econ networks

in Stakeholder model: Business affects and is affected by

individuals, organizations, and communities

Stakeholder Model says that businesses

have responsibilities to all stakeholders (anyone it affects/is affected by)

Stakeholders and Shareholders as ____ in Stakeholder model

equal 

Stakeholder model says that profitability is

just 1 element of more complex econ model that vitally includes ethical decision making

Primary Stakeholders

• Suppliers

• Financiers

• Communities

• Customers

• Employees

Secondary Stakeholders

• Consumer advocate groups

• Special Interest Groups

• Competitors 

• Government 

5 Barriers to an Ethical Organization

1. Ill-Conceived Goals

2. Motivated Blindness 

3. Indirect Blindness

4. Slippery Slope

5. Overvaluing Outcomes

Ill-Conceived Goals

We set goals and incentives to promote a desired behavior, but they encourage a neg one

Remedy: Ill-Conceived Goals

brainstorm unintended consequences when making goals/incentives

Motivated Blindness

Overlooking unethical behavior when its in our interest to remain ignorant

Remedy: Motivated Blindness

Root out conflict of interest

Indirect Blindness

Holding others less accountable of unethical behavior if its carried through 3rd parties

Remedy: Indirect Blindness

When outsourcing/handing off work, ask whether the assignment might invite unethical behavior and take ownership of implications

Slippery Slope

Less able to see others’ unethical behavior when it develops gradually

Remedy: Slippery Slope

Be alert of even trivial ethical infractions and address them ASAP

Overvaluing Outcomes

We give a pass to unethical behavior when the outcome is good

Remedy: Overvaluing Outcomes

• Examine both “good” and “bad” decisions for ethical implications

• reward decision processes not just outcomes

Treating Ethics as a Design Problem

“Creating policies that encourage ethical behavior requires an accurate understanding of what drives such behavior.

Myths: Ethics are a property of people

Unethical behavior is largely due to individuals rather than the broader context in which behavior operates

Policy Implication: Ethics are a property of people

Policymakers overestimating stability of ethical behavior and focus on finding/fixing/etc “unethical individuals” overlooking systemic unethical behavior 

Myth: Intentions Guide Ethical Action

Good intentions lead to ethical acts, and unethical intentions lead to unethical acts.

Policy Implication: Intentions Guide Ethical Action

Codes of ethics seen as unnecessary for ethical ppl, even if at times good intentions can lead to unethical actions

Myth: Ethical Reasoning Drives Ethical Behavior

Ethical behavior is guided by deliberative reasoning based on ethical principles.

Policy Implication: Ethical Reasoning Drives Ethical Behavior

overestimation of effectiveness of ethics training programs while underestimating imp. of contextual changes for behavior alteration

4 Pillars of Ethical Culture

• Explicit Values

• Thoughts during judgement

• Incentives

• Cultural Norms