ETHICS: MANAGING FOR MORAL EXCELLENCE

CHAPTER 5
ETHICS: MANAGING FOR MORAL EXCELLENCE
INTRODUCTION
Does business have issues? The answer is yes. As with any other type of organization, business and
the managers working in organizations face a wide variety of ethical problems, dilemmas, and issues
for which there is not one clear answer. Should I fire an older employee because he or she is
performing less consistently, or should I keep that person as a reward for all the years served to the
company? Should I close the deal with that cigarette company in spite of knowing that their products
kill millions of people? Should I recommend a marketing campaign of unhealthy food products to
children for its profit potential? Business ethics is about doing the right thing in such ethical issue
situations and dilemmas and about realizing ethical opportunities to do good. In these situations,
managers first have to understand that there is an issue, then decide what is the right alternative, and
finally, act accordingly. The more managers and employees who do the right thing and separate the
acceptable from the unacceptable, the higher will be the whole organizations ethical performance.
The management tool for achieving such performance is ethics management, the management of
ethical issues.

CHAPTER OBJECTIVES
After reading this chapter, students should be able to
. . . .solve moral dilemma situations by applying the three main theories of moral philosophy.
. . . analyze why people do right or wrong things.
. . . apply ethics management instruments to help people make the right decisions and
take the right actions when facing ethical issues and opportunities.

CHAPTER OUTLINE
I.
Origins of Business Ethics: While ethics in the form of moral philosophy has a
long history, business ethics is a rather young discipline that has exceeded its purely
philosophical roots. Business ethics is a fascinating multidisciplinary mix of concepts
that have long been institutionalized.
A.
Roots of Business Ethics: Before business ethics was established as its own
branch of applied ethics, the field of ethics went through a pre-philosophical and a
philosophical phase. Applied ethics are disciplines where ethical theories have been
applied to a specific type or area of decision making.
B.
The Discipline of Business Ethics
Phases in the development of the business ethics discipline:

ETHICS: MANAGING FOR MORAL EXCELLENCE

In the first phase before 1960, Ethics in business, there was no accepted
field of business ethics. General ethical principles, derived from classic
moral philosophy, were applied to the field of business.
In the second phase, Social issues in business, the criticism moved from a
theological basis to a broader societal movement of countercultures, such as
anti-consumerism, environmentalism, or anti-business attitudes.
In the third phase from the 1970s on, business ethics began to emerge as a
field. First conferences, publications, and business school courses allowed
for a discourse that led to the development of business ethics as an academic
discipline, and then increasingly the ideas were picked up by companies and
translated into practice. This process led to the still valid understanding of
business ethics as the interdisciplinary study of ethical problems in business.

Institutionalization, Status Quo, and Future: This section provides

examples of salient institutions and developments, such as the proliferation of
codes of ethics, organizations such as the ethics and compliance officers
association (ECOA), or rankings like Worlds Most Ethical (WME)
Companies. The section also highlights that in spite of the solid institutional
infrastructure, there is a general perception that businesses themselves have not
become more ethically advanced.
C.

II.

Basic Concepts of Business Ethics

A.
Defining Business Ethics: Business ethics is the interdisciplinary study of ethical
problems in business.
B.

Levels of Application
Individual ethics is the study of moral issues as encountered by single individuals.
Organizational ethics is the study of moral issues on an organizational level.
Economic ethics is the study of systemic moral issues of the economy.

C.
Moral Dilemmas and the Relationship to Law and Compliance: A moral
dilemma is a situation where right or wrong is questioned through a set of alternative actions
that are likely to have significant effects on oneself and others. To find out if an organization
is experiencing a moral dilemma one can ask the following three questions:
Is the decision to be made likely to have significant effects on others?
Does the decision to be made provide choices and alternative actions?
Is the decision perceived as ethically relevant about moral right or wrong?
In practice, often the field of law (What is legally required?) and compliance (Which norms
do we have to obey?) are managed together with the field of business ethics. The three fields
are overlapping.
D.
Morality and Values: Morality describes norms, values, and beliefs that define
right and wrong for a specific individual or group in certain situations. Values are aspired
ideal goals, beliefs, and concepts that shape thinking and actions. Both values and morality
are mutually dependent. Values often are the basis for what is deemed morally right and the
morality is an important factor, forming values.

ETHICS: MANAGING FOR MORAL EXCELLENCE

E.
Interpreting Business Ethics: The understanding of and attitude toward
business ethics varies greatly. Opposing views on business ethics (e.g. absolutism versus
relativism, philosophy versus social sciences) form a nexus of different views. The two most
extreme forms of those views can be described as the traditional, narrow perspective and as
a more progressive, broad perspective.

III.

Domains of Business Ethics: Business ethics consists of three main domains:

normative ethics, descriptive ethics, and ethics management.

A.
Domain 1: Normative EthicsEvaluate Right or Wrong: Normative
ethics can be subdivided into three big ethical theories. The tripartite approach to ethical
theories assumed in this chapter acknowledges both advantages and disadvantages of all
three theories, and stresses their complementary character:
Virtue ethics: The one who lives a virtuous life, based on a virtuous character and
virtuous habits, will make right decisions.
Deontology (Ethics of duty): Importance of duties and rules, and higher moral
principles to be applied among human beings.
Consequentialism: Judges by the consequences of ones actions and aims at
creating the biggest value possible for all involved actors.
Integrating and Operationalizing Traditional Theories: Making decision makers in business
understand how ethical theories interact and can be used to make better decisions is crucial for
business ethics.
B.
Domain 2: Descriptive EthicsExplain Right and Wrong Actions:
Descriptive ethics fulfills the important function for business ethics of describing,
understanding, influencing, and predicting ethical behavior of individuals and groups whose
ethical performance is influenced by individual and situational factors. The underlying
ethical decision and action model can be divided into the four phases of 1) awareness 2)
judgment 3) motivation, and 4) behavior. Individual factors contain demographic and
psychological factors. Situational factors include external factors, both issue-related and
context-related.

Domain 3: Ethics ManagementApply Management Tools for Right

Actions: The subject to be managed by ethics management is moral performance, which, if
C.

managed well, can be called moral excellence. Fostering moral excellence is the goal of
ethics management. Three salient moral performance assessment approaches are through 1)
moral development (dilemma method), 2) implemented ethics (inventory of practices), and
3) observed ethics (quantitative survey).
Ethics management can be divided into three main types:
Specialized ethics management: Using specialized ethics management tools (e.g. code
of ethics) to manage moral performance (normative leadership, organizational structure,
and feedback mechanisms).
Departmental ethics management: Using tools of a mainstream business department
(e.g. ethical sourcing policy) to manage moral performance.
Ethical management: Doing your mainstream management job ethically.

Principles of Ethics: Managing for Moral Excellence (SUMMARY)

I.

Business ethics is the interdisciplinary study of moral issues and opportunities in business. It can be applied on the levels of individual, organizational, and economic ethics.

ETHICS: MANAGING FOR MORAL EXCELLENCE

II.

Business ethics overlaps with the fields of law and compliance. It is related to morality,
as ethics provides the rules for deciding what is right or wrong, while morality explicitly
describes right or wrong for a specific group and situation.

III.

Interpretations of business ethics vary greatly and can be subdivided into a narrow and
a broad perspective.

IV.

The three domains of business ethics are normative ethics, based on moral philosophy;
descriptive ethics, based on behavioral psychology; and ethics management, based on
management studies.

V.

The three major theories of moral philosophy, inside the domain of normative ethics,
are virtue ethics, based on a virtuous life; deontology, based on rules; and consequentialism, based on achieving the best-possible outcome.

VI.

Descriptive ethics aims to describe, understand, influence, and predict ethical behavior
of individuals and groups. It is based on the ethical decision-making process, which revolves around the four stages of ethical awareness, judgment, motivation, and behavior and takes both individual and situational factors into account.

VII.

Ethics management is the process of managing ethical problems through management

tools with the goal of improving ethics performance.

VIII.

Ethics performance can be assessed through the three approaches of moral development, implemented ethics, and observed behavior.

IX.

Ethics management tools to achieve ethics performance fall into the categories of ethical management, departmental ethics management, and specialized ethics management. If applied well, those tools serve to create a self-reinforcing ethical organizational culture.