Business Ethics: Ethical Decision Making and Cases

Business Ethics: Ethical Decision Making and Cases

Authors

• O.C. Ferrell, Auburn University

• John Fraedrich, Southern Illinois University-Carbondale

• Linda Ferrell, Auburn University

Part Three: The Decision Making Process

Chapter 5: Ethical Decision Making

Learning Objectives

• Model for Ethical Decision Making: Provide a comprehensive framework for ethical decision-making in business.

• Ethical Intensity: Examine the role of ethical issue intensity as a significant factor in ethical decision-making processes.

• Individual Factors: Introduce and explore individual elements that influence business ethical decision-making.

• Organizational Factors: Discuss organizational influences on business ethical decision-making.

• Opportunity in Ethical Decisions: Analyze how opportunity affects ethical decision-making in business.

• Normative Considerations: Understand the normative aspects of ethical decision-making.

• Importance of Morals and Values: Recognize how morals and values play a critical role in ethical decision-making.

Framework for Ethical Decision Making in Business

Components of Ethical Decision Making

Ethical Awareness

• Definition: The capacity to recognize if a decision or circumstance carries an ethical implication.

Ethical Issue Intensity

• Definition: The significance or impact of a decision or event, as perceived by an individual or work group.

• Characteristics:

  • Personal and situational, reflective of values, beliefs, and pressures present at a given time.

Moral Intensity

• Definition: Relates to individuals' interpretations of social pressures and the anticipated harm from their decisions affects others.

Individual Factors in Ethical Decision Making

Key Influencing Factors

• Gender: There are often no significant differences in ethical decision-making between men and women. However, women are frequently perceived as more ethical, being more sensitive to ethical challenges and less tolerant of unethical behavior.

• Education: Those educated in ethical decision-making are likely to explore more options when faced with ethical dilemmas.

• Nationality: It is difficult to determine if ethical decision-making varies widely across different nationalities in organizations.

• Age:

  • Older employees usually have more experience in handling complex ethical issues.

  • Younger managers are often more susceptible to the influences of organizational culture.

• Locus of Control:

  • External Control: Belief that life events are dictated by external forces.

  • Internal Control: Belief in personal agency over life events through own efforts, often correlated with more ethical decision-making.

Organizational Factors

Characteristics

• Definition: Organizational conditions that either allow or restrict ethical and unethical behavior.

• Source of Conditions: These stem from either incentivizing ethical behavior or not preventing unethical behavior through lack of barriers.

• Internal Rewards: Personal fulfillment and self-worth derived from ethical conduct.

• External Rewards: Anticipated societal recognition, status, and esteem received for ethical behavior.

• Immediate Job Context:

  • Considers where an individual works, who they work with, and the work nature itself.

Opportunity in Ethical Decision Making

Conditions Leading to Ethical/Unethical Behaviors

• Definition: Organizational circumstances that either facilitate or inhibit ethical conduct.

• Examples: Lack of anti-bribery policies can create unethical behaviors.

• Job Context: The work environment plays a significant role in shaping individuals' ethical decisions, including motivational influences from superiors.

• Mitigation Strategies: Formal codes, protocols, regulations, and company policies can help eliminate opportunities for unethical acts.

• Information Exposure: Employees' access to official documents (i.e. policy guidance) increases organizational ethical standards.

Business Ethics: Intentions, Behavior, and Evaluations

Ethical Dilemmas

• Definition: Situations where ethical principles conflict, resulting in vague decision-making criteria.

• Natural Human Error: Business professionals often err despite good intentions due to the lack of clear ethical frameworks.

• Critical Reflection: Acknowledging guilt or discomfort may indicate unethical decisions—these feelings often compel individuals to rectify or reassess their decisions.

• Value Adjustment: Individuals may modify their moral compass either to rationalize decisions or change their decision-making style in similar future scenarios.

• Success Definitions: The perception of success is integral to individual business choices and ethos.

Ethical Decision-Making Model

Model Insights

• Uncertainty in Noise: The ethical decision-making model can provide perspective on decision-making, though it does not clarify right from wrong.

• Value Judgments: Ethical assessments involve collective agreements regarding acceptable behavioral patterns.

• Understanding Ethical Factors: Familiarity with ethical decision-making elements enables differentiation between ethical issues versus ethical dilemmas.

Normative Considerations in Ethical Decision Making

Understanding Normative Perspectives

• Definition: Normative examination illustrates what ethical standards should be pursued in decision-making.

• Comparison:

  • Normative Approach: Describes desired ethical standards.

  • Descriptive Approach: Examines current decision-making practices.

• Business Normative Standards: Normative principles pertain to the ethical bases observed within organizations and industries.

Normative vs Descriptive Statements

Examples

• Descriptive Statement:

  • “Low sugar consumption reduces risk of diabetes and heart failure.”

  • Nature: Accounts for reality without moral evaluation.

• Normative Statement:

  • “Everyone ought to reduce sugar consumption.”

  • Nature: Provides a moral evaluation (good or bad relative to a standard).

Normative Structures in Organizations

Role of Values

• Roots in Values: Based on individual moral values and collective organizational morals.

• General Ethical Values: Essential for establishing accountability and a fair ethical framework in business.

Importance of Fairness and Justice

• Constructs: Fairness and justice are crucial concepts in a normative structure that promote ethical decision-making.

• Correlation: Strong normative structures are positively associated with ethical decision-making outcomes.

Institutions as Foundations for Normative Values

Influential Institutions

• Governance: Government, religious entities, and educational institutions play significant roles in establishing values and norms.

• Industry Competition Factors:

  • Barriers to market entry.

  • Availability of substitute products.

  • Power dynamics between rivals and their customers.

Implementing Principles and Core Values

John Rawls' Philosophy on Justice

• Liberty Principle: Advocates equal basic rights for all, ensuring compatibility with others' liberties.

• Difference Principle: Affirms that economic/social inequalities should benefit the least advantaged members of society.

Application in Corporations

• Core Values: Organizations formulate principles into actual values guiding behaviors and practices.

• Sustainable Operations: Commitments to sustainability, team collaboration, and ethical practices like avoiding bribery are common core values.

Ethical Decision Making Framework

Overview

Figure 5-1

• Components:

  • Ethical issue intensity.

  • Individual factors.

  • Organizational factors.

  • Opportunity.

  • Evaluations and intentions leading to ethical or unethical behavior.

Support for Ethical Behavior

Importance of Leadership

• Top-Level Support: Leadership endorsement is key for fostering a culture of ethical behavior among employees.

• Normative Goals: Aims and standards define successful ethical practices an organization should strive for.

The Ethical Decision Tree

The Ethical Decision-Making Process

• Decision Tree Logic:

  • Step 1: Is the action ethical? - If yes, proceed to Step 2.

  • Step 2: Is it legal? - Again, if yes, proceed to Step 3.

  • Step 3: Does it maximize shareholder value? - If yes, do it. If no, do not take action.

• Ethical Consideration: Think about the effects on stakeholders versus shareholder advantage.

Case Study: Sunday Riley Skincare

Background

• Company Overview: High-end skincare products sold predominantly via Sephora.

• Issue: In 2016, CEO sought to boost product ratings from 4.2 to at least 4.8.

Ethical Decision Dilemma

• Options:

  • Reformulate products to enhance quality.

  • Utilize unethical practices like posting fake reviews.

Legal and Ethical Implications

• Legalities of Fake Reviews: Contravenes FTC regulations on deceptive marketing.

• Reformulation Costs: High costs for reformulating products can impede ROI potential.

Resulting Consequences

Brand Implication

• Employee Leak: In 2018, a former employee exposed the request for fake reviews.

• FTC Actions: The agency pursued accountability against Sunday Riley.

Ethical Reflection

• Corporate Response: Sunday Riley acknowledged the email's existence and sought to rationalize the actions while emphasizing the importance of client feedback.

Further Developments

• Sustained Scrutiny: Claims of similar unethical practices led to attorney inquiries by FTC and public compliance agreements.

City of Hamilton: Red Hill Expressway Concerns

Overview

• Traffic Issues: Noticed daily traffic was significantly lower than alternative routes.

• Safety Records: Higher accident rates compared to adjacent parkways; several fatalities reported.

• Audit Outcomes: In-depth audit revealed insufficient friction on road surfaces leading to safety risks.

Political Reactions

• Investigative Actions: Suggestions for investigations, leading to potential costs upwards of $7 million for a public inquiry.

Legal Consequences

• Class Action Lawsuit: Legal claims against the city for neglecting to address safety issues resulting in accidents.

Summary and Conclusion

Important Takeaways

• Ethical decisions are influenced by both individual and organizational factors.

• Leadership support encourages a proactive approach to ethical decision-making.

• Normative outlooks set aspirational goals for ethical conduct in business.

• The use of modeling frameworks enhances understanding of ethical issues, but does not dictate ethical correctness.

Recommendations for Practices

• Continuous education on ethical decision-making can promote better decisions in the business environment.

Next Steps

Assignments

• Complete Chapter 5 Quiz by February 26, 2026.

• Mid-Term Exam scheduled for February 26th at 10 am in Room I109.