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BUSINESS ETHICS WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS?
BY NAME: SACHIN M NIKAM
Sachin M Nikam
WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS?
3. WHY DO GOOD MANAGERS MAKE BAD ETHICAL DECISIONS?..............4 4. MENTAL GYMNASTICS BEHIND UNETHICAL BEHAVIOUR........................9 5. MIND GAMES...................................................................................................10
Incorporating values and ethics into business decisions have become increasingly important to business people, universities, government, and the public in general. The costs of unethical behavior in business are high and rising, possibly due to new government regulation. Because of the scandalous last decade, the federal government is listening to the public outrage and taking a stronger stance on unethical business practices. Because of recent laws, it is vital for businesses to focus on securing and monitoring sound ethical policies. In addition, pressure is being placed on business schools to ensure that students graduate with a knowledge of ethical principles and the critical thinking skills necessary to analyze and make sound ethical decisions. This paper will examine the role of managers while making business decisions and the implications this holds for organization and society at large. A brief discussion of different views regarding business ethics will be presented including the stakeholder theory, stockholder theory, instrumentalism, and the "invisible handshake." This study will focus on some possible reasons why good managers make unethical decisions and how managers can meet the challenge of making ethical decisions in adverse conditions.
Sachin M Nikam
WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS?
2. WHAT IS BUSINESS ETHICS?
Business ethics can be thought of in many different lights, and part of the reason that business ethics has become such a contemporary issue is because it cannot be defined precisely. Although most people have different standards of what is morally justifiable, society generally feels that there are certain values that should be set as the minimum ethical behavior. Most people believe that in order to meet the minimum ethical standards, a business must be honest, obey the law, and not directly infringe on the rights that our society holds as inalienable human rights. This, however, does not exhaust the definition of business ethics that many believe in. Some other ethical issues involve compensation of employees, job security for employees, hiring practices, waste management issues, pollution, and conflicts of interest. Sometimes companies face situations where ethical choices are in opposition to their interests(Dharmasankat). An example of this could be a logging company doing business in forests around the world. One ethical consideration must be protecting the rain forest from destruction. Environmentalists may propose that the company stop logging completely; however, this may bring up another ethical issue such as the preservation of jobs for loggers. Except where otherwise stated, this paper is primarily concerned with ethical issues that fit in the first category of minimum ethical standards including honesty, compliance to the law, and fairness. This is not to undermine the importance of evaluating the ethical implications of every decision, but it is intended to simplify.
Sachin M Nikam
WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? 3. Companies should strive to be unique. from marketing to supply chain to product development. and then the best in every aspect of business. 3. WHY DO GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? Errors in corporate strategy are often self-inflicted. Sachin M Nikam Page 4 . Many companies set out to be the best in their industry. Managers should think how they can deliver a unique value to meet an important set of needs for an important set of customers.1 DESTRUCTIVE COMPETETION Bad strategy often stems from the way managers think about competition. Managers get into trouble when they attempt to compete head-on with other companies. Managers who think there is one best company and one best set of processes set themselves up for destructive competition. Most strategic errors are caused by external factors. The worst error is to compete with your competition on the same things which only leads to escalation. managers need to develop a clear strategy around their company's unique place in the market. such as consumer trends or technological change. No one wins that kind of struggle. which leads to lower prices or higher costs unless the competitor is inept. Instead. and a singular focus on shareholder value is the "Bermuda Triangle" of strategy.
They [then] make decisions that are not based on fundamental economics. Companies also make the mistake of confusing strategy with an action. managers whose motivation and compensation were tied to stock price began to believe and act as if the share price determined the value of the company. The only goal that makes sense is for companies to earn a superior return on invested capital because that is the only goal that aligns with economic value. or at any one minute. Some of these measures began as a way for managers to stay a step ahead of the demands of Wall Street. To think that stock price on any one day.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? Another mistake managers make is relying on a flawed definition of strategy. Managers are now beginning to understand the Sachin M Nikam Page 5 ." "Bermuda Triangle of strategy" is confusion over economic performance and shareholder value. companies have developed "flaky metrics of profitability” pointing to amortization of good will as an example. For example. Strategy has to do with what will make you unique. Conversely. Shareholder value is a result. but a goal. Companies have become increasingly confused about corporate goals. and the results may be valuable as a corporate statement of purpose. Vision statements and mission statements should not be confused with strategy. Is that a strategy? No. Companies may spend months negotiating every word. A company's definition of strategy is important. is an accurate reflection of true economic value is dangerous. because it predefines choices that will shape decisions and actions the company takes. "'Strategy' is a word that gets used in so many ways with so many meanings that" it can end up being meaningless. Often corporate executives will confuse strategy with aspiration. a company that proclaims its strategy is to become a technological leader or to consolidate the industry has not described a strategy. Recently. "What starts as a game for capital markets then starts to confuse the managers themselves. Shareholder value comes from creating superior economic performance. but they do not substitute for strategy. during the Internet bubble. It doesn't tell what unique position you will occupy. he said. Research shows companies can be undervalued for years. such as a merger or outsourcing. We have had this horrendous decade where people thought the goal of a company is shareholder value.
said Porter.not spend time pleasing the shareholders.2 RIGHT TIME. The business.:. McDonald's just wants industrial-size containers delivered on time at the best price. For e. however. He gave the example of a U." Corporate strategy cannot be done without strong quantitative analysis. Sysco has developed two separate strategies for its two customers.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? goal of their companies is to create superior economic performance that will be reflected in financial results and eventually the stock price." 3. Sachin M Nikam Page 6 .g. was not suited to operating on a global scale. RIGHT PRICE Companies hoping to build a successful strategy need to define the right industry and the right products and services. and the company had to deal with different retail channels in different regions. that are not interested in any additional services. The industry is actually two distinct sectors. Defining Sysco simply as a food distribution firm would eventually lead to a failed strategy. adding that each year students take his strategy course thinking they will have at least one class in which they don't have to worry about numbers.Sysco Corp. the number-one foodservice supplier in North America. The other has large. One delivers food to small restaurants and institutions that need help with finance and product selection. "We know there's a lag and it's ugly. But it's important that a good manager understands what the real goal is -.S. like McDonald's.. Not true. "Any good strategy choice makes the connection between the income and the balance sheet. The products were bulky and expensive to ship. Bad strategy often flows from a bad definition of the business. Geographic focus is another type of business definition that can trip up strategy. fast food franchise customers. lawn care company that developed a plan to grow through international expansion.
Good operations can drive performance but the trouble with that is it's hard to sustain. Enterprise Rent-A-Car is an example of a company that stumbled onto its strategy more or less by luck. Managers often tend to let incremental improvements in operations crowd out the larger strategy of building a unique business that will retain its competitive advantage. clarifying and enhancing your unique positions. Continuity is critical to successful strategy. but then grow their way into failure. with pick-ups at airports and a price structure suited to expense accounts or vacationers willing to splurge. managers must keep the competitive strategy in mind at all times. Managers need to confirm whether this is an operational best practice or is this something that's improving on my strategic distinction. has to be clear. many enjoyed phenomenal growth in the beginning. too. The rental car industry was completely geared toward travelers. The company started as an auto-leasing firm. it's not strategy. Management has to keep up with best practices while solidifying. If you don't do it often. If it's a best practice. Dividends also return capital to all investors. extending best practices. The underpinnings of strategy are activities that fit together and reinvigorate each other.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? One more mistake managers make is confusing operational effectiveness with strategy. but customers frequently asked if they could rent cars for short periods. not just short-term investors who benefit from trading on gains in share price. Dividends are one way to avoid the pressure to boost stock price with rapid growth. Every day. Hertz has tried to connect with this business but remains geared toward the traveler and cannot compete with Enterprise in its specific market. Many companies start out with a good strategy. If you don't pursue a direction for two or three years. It is difficult to sustain the kind of strategic advantage Enterprise enjoys without a patent. but then put growth ahead of sticking to their strategy. Research shows that among companies that fade in 10 years. everybody will do it. To bypass this problem. every meeting. Operational effectiveness is. it's meaningless. every decision. Sachin M Nikam Page 7 . The real challenge of management is to do these things together at the same time. in essence.
to make choices. instead of creating a zero-sum competition.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? 3. Again. What happened in a lot of companies was that the equity compensation was [tied to share price] and people became crazed and very attentive to these biases. The companies with really good strategy almost universally have a very strong CEO. The chances are better that the competitor will find something else to be unique at. First. and rapid turnover of leadership. labor agreements or regulations that constrain choice. Analysts often anoint a star performer in each industry. said Porter. somebody who is not afraid to lead. All the corporate scandals came from pressure to do things that were stupid.3 LEADERSHIP AND STRATEGY There are some capital market biases that result in barriers to strategy. Strategy is challenged every day. and only a strong leader can remain on course when confronted with well-intentioned ideas that would deviate from the company's strategy Years ago. which encourages others to follow that company's game plan. Wall Street tends to create pressure for companies to emulate their peers." Sachin M Nikam Page 8 . Now it is important for everyone in the organization to understand the strategy and align everything they do with that strategy every day. Strategy is not something that is done in a bottom-up consensus process. not on unique strategies. this leads to the no-win approach of companies competing on the same dimensions. Analysts also tend to choose metrics that are not necessarily aligned with true value or meaningful for all strategies. "It's good for a competitor to know what the strategy is. inappropriate cost allocation to products or services. to make decisions. Other barriers to strategy include industry conventional wisdom. corporate strategy was considered a secret known only by top executives for fear competitors might use the information to their advantage. which lead to a quick bump in the stock early on. Analysts apply pressure to grow fast and have a strong bias toward deals. Managers are made to feel like "Neanderthals" if they resist mergers and acquisitions or other financial market tactics. Openness and clarity even help when coping with competition.
what they say to themselves (selftalk). transcendence. let virtuous values guide your judgments and beware of the mental games that can undermine ethical decision making. what would you say or do? Your response could range from “looking the other way” to firing the manager. MENTAL GYMNASTICS BEHIND UNETHICAL BEHAVIOUR In making ethical decisions. you have recently learned that your consistently top performing purchasing manager has violated company policy by accepting an expensive gift from a supplier. self-control. ethical managerial leadership involves discerning right from wrong and acting in alignment with such judgment. As the General Manager for an industrial distributor.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? 4. and courage. the leader’s thought pattern (cognitive process) will significantly influence what action he or she takes. One set of values that seems to be universally accepted includes wisdom. When faced with challenging decisions. Since you believe that this was likely a onetime lapse in judgment. Leaders with strong virtuous values are more likely to act ethically than are leaders who are operating with a weak or non-existent value system. justice. At its most basic level. kindness. People’s patterns of thinking will be influenced by their values. and what they imagine will happen in response to their actions. leaders who have not internalized a value system that includes these values Sachin M Nikam Page 9 . as in all ethical choices or dilemmas. In this situation.
We search for a solution that is both satisfactory and sufficient. MIND GAMES Decision making can often result in managerial missteps. which finds leaders considering the essential elements of a problem without taking into account all of its complexities. Most significantly. Notwithstanding the considerable power of our human intellect. this process. Some suggestions on how managerial leaders can deal with challenging decisions are offered throughout the following discussion. even those decisions that involve ethical considerations. 5. It is primarily in the situation in which the leader does not have an internalized value system that mental gymnastics or mind games may cause an otherwise good person to make unethical decisions. Unfortunately. Full rationality gives way to bounded rationality. Instead.“SATISFICING” When we are confronted with a complicated problem. various cognitive processes that leaders often unwittingly employ and which may be called “mental gymnastics” or mind games may serve to support and sustain unethical behavior. we are often unable to cognitively process all of the information needed to reach an optimal decision.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? will probably respond with more variability than will one who has such a system. Many common themes emerge as we look at these problematic decisions. 5.” can lead to solutions that are less than optimal or even ethically deficient. In this article we will review mind games that leaders may play when they face difficult decisions and lack both a strong value system and a professional and ethical approach to management. These leaders tend to react to circumstances on a situational basis. Sachin M Nikam Page 10 . most of us react by reducing the problem to understandable terms. We simplify.1 MIND GAME #1: QUICKLY SIMPLIFY . called “satisficing. we tend to make quick decisions based on understandable and readily available elements related to the decision.
WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? “Satisficing” leads the managerial leader to alternatives that tend to be easy to formulate. researchers in decision making. The following questions may raise ethical issues not otherwise considered. and close to the status quo. my family. or help generate a variety of “out of the box” alternatives. or society as a whole? What is the symbolic impact of my action if it is understood? Under what conditions would I allow exceptions to my position? Sachin M Nikam Page 11 . Ask them to challenge your decision. When one grapples with complex ethical considerations. Before settling on a solution. The resulting dialogue can improve the quality of your ethical decision making. Ethical dilemmas can often benefit from creative thinking that explores ideas beyond the usual responses. the best alternative may be overlooked. neglecting to consider some stakeholders. Have them play devil’s advocate.” they often simplify. If a decision maker uses satisficing when crafting a solution to an ethical problem. thereby overlooking low probability events. the Board of Directors. our CEO. ask yourself the following questions: • • • • • • • • • • • • Have I specified the problem accurately? How would I describe the problem if I were on the opposite side of the fence? How did this situation begin? To whom and to what do I give my loyalties as a person or group and as a member of the organization? What is my intention in making this decision? How does this intention compare with the likely results? Whom could my decision or action harm? Can I engage those involved in a discussion of the problem prior to making a decision? Am I confident that my position will be valid over the long term? Could I disclose without reservation my decision or action to my boss. David Messick and Max Bazerman. this approach to decision making may not produce the best solutions. Scholar and ethics consultant Laura Nash suggests twelve questions that can help leaders avoid the mind game of over simplifying. One of the best ways to guard against oversimplifying and reaching less than optimal solutions to ethical challenges is to discuss the situation with other trusted colleagues. and failing to identify possible long-term consequences. familiar. tell us that when executives “satisfice.
For instance. “I believe I must be approved by virtually everyone with whom I come in contact. Over time.3 MIND GAME #3: DILUTE AND DISGUISE Sachin M Nikam Page 12 .” One of eleven irrational beliefs that some people hold is the belief that one can or should always be liked. 5. For instance. After recognizing that she is playing this mind game. reduce unnecessary socializing) until she can establish some objective boundaries. when this desire to be liked overpowers business objectivity.2 MIND GAME #2: THE NEED TO BE LIKED Most people want to be liked. 5. Your Perfect Right. the manager contributes to the accumulation of too many hours of labor relative to sales volume. However. “No. a retail store manager who wants her employees to like her may readily give them additional hours when they request them to enable employees to earn more money. they may have a difficult time saying. the manager could even take assertiveness training.) Finally. the newly appointed manager might want to read Alberti and Emmons’ book.” Such an overriding desire to be liked can ultimately adversely affect the ethics of people in an organization and thus can decrease the firm’s bottom line.g. when managers witness ethical transgressions. Such a process can help leaders guard against over simplifying an otherwise complicated ethical decision. Such a situation is particularly acute for those recently promoted into management from within the same organization.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? These questions initiate a thought process that underscores the importance of problem identification and information gathering. excessive labor costs can then begin to eat into profit margins. This book provides excellent advice on how to say “no” while preserving a quality relationship. in so doing. the need to be liked may cause them to overlook these transgressions. However. Another successful approach would be to respond warmly and assertively toward employees while still going forward with appropriate but possibly less popular decisions. in such situations.. Because they want to be liked by their former peers. one way that the manager might stem this problem is to distance herself from her subordinates (e. ethical lapses can occur. (If necessary. Its is stated that people who are affected by this need carry around in their heads statements such as.
They serve to dilute and disguise unethical behavior. this process merely helps wrongdoers and those associated with them to get away with unethical behavior. For example. “If you think I disregard my colleagues’ feelings. the salesperson who occasionally cheats when reporting his expenses may say to himself. but these euphemisms are dishonest. Words or phrases such as “helped him make a career choice” are used to describe firing someone. This form of mental gymnastics defuses discomfort that may otherwise develop among those involved in unethical “mischief. when ethical transgressions are involved. Such softened characterizations serve to reduce the anxiety of the leader. you ought to see Andy in action.4 MIND GAME #4: “MAKING POSITIVE” The mental gymnastic of comparing one’s own unethical behavior to more heinous behavior committed by others serves only to avoid self-degradation. The tendency to diminish misdeeds by making dishonest comparisons also contributes to sustaining unethical conduct. 5. Regardless of whether people want to be seen as kinder and gentler. ask three questions about the comparison: • • • Am I comparing apples to oranges? How self-serving is this comparison? What would three objective observers say about me and my objectivity regarding this comparison? While behavior may often legitimately be compared to that of others. Such justifications for unethical behavior are not valid. and Harry do it all the time.” Or. or just politically correct.” but such an approach dilutes the necessary intensity of ethical constraints that should be brought to bear in the situation. He is a bona fide bully!” Unethical behavior appears more ethical by comparing it to worse behavior. leaders can disguise the offensiveness of unethical acts by using euphemisms or softened characterizations. while Tom. relativity does not excuse ethical lapses. The antidote is for leaders to talk straight and to avoid euphemistic labeling or recharacterizing unethical behavior. “I do this only a few times a year. Sachin M Nikam Page 13 . Dick.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? In trying to strike a diplomatic chord. or “inappropriate allocation of resources” is used to describe what everyone knows is stealing. To avoid this mind game.
Overconfident managers act as though they are “above it all. with the likely outcome that some of those decisions will result in unethical behavior. However. The overconfident manager is typically perceived as arrogant. the intrinsic benefit of pursuing an ethical course will be a source of motivation for leaders to Sachin M Nikam Page 14 . this practice will positively impact the ethical problem solving climate within the entire organization. and learning opportunities to the sidelines while pursuing their own courses of action.5 MIND GAME #5: OVERCONFIDENCE Overconfident managers tend to perceive their abilities to be greater than they actually are. Each of the mental maneuvers provides an easy way around difficult decisions.” relegating their people.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? 5. By indulging in the mental gymnastics of overconfidence. “What do you think?” types of inquiries. If practiced conscientiously. but it can also virtually wreck their careers. Overconfident decision makers deny themselves fresh perspectives and thus perhaps better solutions to ethical problems. Accepting input from other people will improve the manager’s decision making ability generally. overlooking. are likely to receive less understanding and support from others in their time of trouble. including those issues that involve ethical consideration. These five mind games can influence an otherwise good leader to act unethically. and replace them with more open ended. Self-perception often does not match objective reality. Research tells us that the manager labeled thusly is headed for career derailment. Their air of overconfidence not only interferes with the practice of quality ethical decision making. which may include ignoring. Arrogant managerial leaders who have performance problems. this simple communication tool can help the overly confident manager begin to consider others’ perspectives. Without benefit of input from those around them. such leaders can discount others’ perceptions and thus easily overlook the insights and talents of other people. overconfident managerial leaders may be blind to the most appropriate ethical choices in given circumstances and may consider only their own ideas regarding the best course of action. or causing ethical concern. Applied broadly. “This is the way it is” statements. One tool to counterbalance this unproductive and potentially deadly tendency is for the overconfident managerial leader to catch himself or herself when preparing to make declarative. useful information.
Why should investors give up their power to people who invest little or nothing in the company? Is the stakeholder view fair? Evaluations have shown that large corporations have been able to avoid undue or excessive control by stakeholders. the ethical firm will take into account all stakeholders when making decisions. 6.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? get on track ethically and stay there. By staying the course and behaving in a way that is consistent with his or her virtuous values and attitudes. Stockholders and managers have been somewhat skeptical of this idea because it takes money and power away from those who finance the company. This theory states that if management makes a decision that decreases shareholder's returns. and consumers are drawn to this view because it validates their interest as much as the interests of stockholders. including the relationship each of the stakeholders has with the company. The organization can affect stakeholders positively or negatively. Interest groups such as labor unions. Proponents of this theory believe that economic power is a function of many things. This view states that any person or group that comes into contact with an organization has something at stake. This view holds that instead of focusing only on the needs of the shareholders. then Sachin M Nikam Page 15 .1 STAKEHOLDER THEORY OF ETHICS Another type of ethical reasoning is named the stakeholder view. 6. which states that Management’s largest responsibility is to the shareholders of the company. ETHICS THEORIES 6. environmental groups.2 STOCKHOLDER THEORY OF ETHICS The traditional idea of ethics in economics is the stockholder theory. the ethical managerial leader will have less need to play these types of mind games.
and it also stresses the needs of stockholders to be compensated for their risk. "Firms are not charitable institutions or mutual aid societies".. and it has recently been questioned by many people including conservative economists.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? management has acted unethically. In fact. He (Smith) believed that human behavior was strongly influenced by this moral sense through certain naturally arising moral sentiments and through the exercise of individual conscience. before attempting to analyze his theories. but in doing so. Stockholders not only take financial risk. if it significantly reduced shareholders' wealth. even should we desire they not do so (Woller. The pervasive existence of managerial discretion and the indeterminacy of the business environment mean that managers cannot avoid making moral choices. 1996). but it is important to note that the shareholders make significant sacrifices for firms. An Inquiry into the Nature and Causes of the Wealth of Nations and The Theory of Moral Sentiments.. all individuals possess a moral sense as well as a self-interested side. it was these moral tendencies of the individual. This idea directly contradicts the stakeholder theory of business ethics and may seem harsh. together with the moral connection to society that made free markets possible in the first place. Woller states that it would often be unethical for managers to allocate substantial amounts of money. . 6.. make the business possible. As humans' business managers also possess this moral sense.3 THE INVISIBLE HANDSHAKE Woller (1996) states that it is necessary to read both of Smith's books. many companies would not have the capital to operate. Woller (1996) believes that when these two writings are taken into consideration together they contradict the idea that the term invisible hand condones running a business with only self-interest as a concern. but also by the combination of their moral sense and their self-interested side.. Woller (1996) stresses that firms do have ethical obligations to their owners including the obligation to render profits. Sachin M Nikam Page 16 . This theory is important in stressing that management needs to be accountable to the shareholders. To Smith. Smith believed that people are influenced not only by self-interest. It is possible that the stockholder view of ethics does not place adequate emphasis on other factors that are important to the firm's success. even if it was for social good. Without stockholders.
product safety. the instrumentalist view holds that being unethical is ultimately very costly to the firm (Hill. These firms will also suffer from low employee morale." 6. a period of time where new employees are less efficient and make more mistakes. it is necessary to take more than the stockholders into consideration. society. Thus a firm can serve both the stockholders and the stakeholders (Kotter & Heskett. 1992).WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? When managers make decisions regarding layoffs. Iowa. Repeated studies have shown that firms often forego some profit in order to pursue a variety of other goals including philanthropy in the community. a firm that treats employees unethically may deal with issues including high employee turnover. and Home Depot. This turnover leads to expensive training. and that it is more efficient for firms to cooperate. a group led by the president of an environmental group in Des Moines. This idea was coined by the economist Arthur Okun as the "invisible handshake. and costly orientations for new employees. Another example that supports the instrumentalist view occurs when a firm practices extreme environmental degradation and suffers from protesters and bad press. It will also see inflated human resources and administrative costs that stem from excessive hiring. Instrumental ethics states that a firm will contribute to the goal of profit maximization by being an ethical. This will increase the cost of monitoring employees. staged a two-day sit-in around the parking lot of Home Depot. workplace safety. For example. socially responsive firm. This essentially closed the store for two days and gave the company bad Sachin M Nikam Page 17 . 1990).Texaco. and world contends that purely selfish behavior is incompatible with the market system. which often leads to lower productivity and possible unethical behavior from the employees. or pollution. plant closings. In 1998. In fact. Studies of modern businesses support Woller's logic and suggest that firms do not act solely out of pursuit of profits. in protest of their foresting practices.4 INSTRUMENTAL VIEW OF ETHICS The instrumental view of ethics illustrates that a firm can comply with the highest ethical standards and behave in such a way that would be economically rational. This can be seen in the examples presented in the beginning of this paper regarding GM.
even from a cost containment perspective. a competitive advantage in recruiting the best job applicants. have competitive earnings every quarter. A recent Study found that auditors do incorporate the strength of corporate governance in decisions related to accepting new clients and performing audit testing. Their service department is outstanding. auditors reduced the amount of costly substantive testing procedures performed and were more likely to accept a new client when they perceived that management and the board of directors had exercised effective oversight of the reporting process. fraud.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? press to deal with. the above examples make it possible to see that ethical business may indeed be good business. and give over one percent of profits to charity. a division of Dayton Hudson Corporation. customer loyalty. it saves them money on expensive audits. They have competitive profits every quarter and are looked upon highly in the community. For example. Incidents such as these can be seen in respect to other ethical issues including worker safety. This suggests that. They treat their employees well by giving lucrative benefit package and discounts. they carry quality products. Sachin M Nikam Page 18 . and good morale in the workplace. 1997). product safety. unfair hiring practices. as well as incorporating ideas such as profit sharing into their employees' paychecks. strong corporate governance makes sense (Cohen & Hanno. Firms such as Target. Other goods that come from ethical practices include free positive publicity. When firms have high ethical standards in place. Although there is little empirical research on the benefits of instrumentalism. and sexual harassment.
the company’s top executives implicating asbestos inhalation as a cause of asbestosis. The company’s medical staff collaborated in the cover up.1 MANVILLE CORPORATION A few years ago. The lawyer had asked. Moreover. an invariably fatal lung disease. More than 40 years ago. as well as lung cancer and mesothelioma. the entire company was brought down by questions of corporate ethics. For all practical purposes. Manville’s managers suppressed the research. information began to reach Johns Manville’s medical department—and through it. Today Manville is in the process of turning over 80% of its equity to a trust representing people who have sued or plan to sue it for liability in connection with one of its principal former products. for reasons we can only guess at. “Do you mean to tell me you would let them work until they dropped dead?” The reply was. CASE STUDIES 7.” Sachin M Nikam Page 19 . “Yes.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? 7. Money may have been one motive. a debilitating lung disease. asbestos. In one particularly chilling piece of testimony. a lawyer recalled how 40 years earlier he had confronted Manville’s corporate counsel about the company’s policy of concealing chest X-ray results from employees. we save a lot of money that way. they apparently decided to conceal the information from affected employees. Manville (then Johns Manville) was solid enough to be included among the giants of American business. as a matter of policy.
The government bailed it out. It was less expensive to pay workers’ compensation claims than to develop safer working conditions. but no one manages in retrospect.2 CONTINENTAL ILLINIOS BANK Until recently the ninth largest bank in the United States. The Manville case illustrates the fine line between acceptable and unacceptable managerial behavior. in flagrant disregard of the rights of others. clean air. Continental Illinois had to be saved from insolvency because of bad judgment by management. Executives are expected to strike a difficult balance to pursue their companies’ best interests but not overstep the bounds of what outsiders will tolerate. these were only rationalizations for conduct that brought the company down. How can we explain this behavior? Was more than 40 years’ worth of Manville executives all immoral? Such an answer defies common sense. or that what they were doing would never be found out. or even that it wasn’t really wrong. Even the best managers can find themselves in a bind. and they solved it in a way that seemed to be the least troublesome. a California court found that Manville had hidden the asbestos danger from its employees rather than looking for safer ways to handle it. deciding not to disclose information that could hurt their product. is less glamorous—and also less satisfying to those who like to explain evil as the actions of a few misbegotten souls. In retrospect. The people involved were probably ordinary men and women for the most part. They found themselves in a dilemma. The Manville case illustrates the fine line between acceptable and unacceptable managerial behavior. not very different from you and me. to the corporation— probably never occurred to them. In effect it has been socialized: about 80% of its equity now Sachin M Nikam Page 20 . The truth. the use of chemicals. A New Jersey court was even blunter: it found that Manville had made a conscious. many of us may be found delinquent for decisions we are making now about tobacco. they can usually easily tell where they should have drawn the line. I think. not knowing how far is too far. The consequences of what they chose to do—both to thousands of innocent people and. 7. but at a price. cold blooded business decision to take no protective or remedial action. ultimately.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? Based on such testimony. The managers at Manville may have believed that they were acting in the company’s best interests. In a few years. or some other seemingly benign substance. In the end. We can only live and act today and hope that whoever looks back on what we did will judge that we struck the proper balance.
But it dictated a shift in strategy away from conservative corporate financing and toward aggressive pursuit of borrowers. a cool billion dollars’ worth of those dreams found their way into Continental’s portfolio. in fact. Or at least they were not hearing enough tough questions about them. with lots of lendable funds. The goal was attainable.000 for himself from Penn Square. Huge sums of money were lent at fat rates of interest. sent its loan officers into the field to buy loans that had originally been made by smaller banks that had less money. But some of the smaller banks had done more than just lend money—they had swallowed hook.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? belongs to the Federal Deposit Insurance Corporation. Continental’s officers had become so entranced by their lending efforts’ spectacular results that they hadn’t looked deeply into how they had been achieved. and they had begun to bet enormous sums on those dreams. Continental’s chairman declared that within five years the magnitude of its lending would match that of any other bank. The mild rebuke reflected the officer’s hard work and the fact that the portfolio he had obtained Sachin M Nikam Page 21 . Eventually. for example. Continental’s top management investigated and eventually issued a reprimand. executives focused on a single-minded pursuit of corporate ends and forgot about the means to the ends. At one point. In 1976. The practice in itself was not necessarily unsound. Continental’s internal auditors stumbled across the fact that an officer who had purchased $800 million in oil and gas loans from the Penn Square Bank in Oklahoma City had also borrowed $565. line. To their own peril. and sinker the extravagant.” Somehow there was a failure of control and judgment at Continental probably because the officers who were buying those shaky loans were getting support and praise from their superiors. implausible dreams of poorly capitalized oil producers in Oklahoma. for a time. Continental seems to have been brought down by managers who misunderstood its real interests. a lot of dry holes and idle drilling equipment were all that was left to show for most of the money. When the price of oil fell. and a cool billion dollars of depositors’ money flowed out to pay for them. But that was a very big “if. If the borrowers had been able to repay the loans. Continental might have become the eighth or even the seventh largest bank in the country. So Continental. Continental reached it.
Certainly part of Continental’s problem was neglect of standard controls. A vice president warned in a memo that the documentation needed to verify the soundness of many of the purchased loans had simply never arrived. putting his job on the line. Management chose not to investigate. went over the heads of three superiors to tell a top executive about the missing documentation. But on another level. To avoid going under. it is easy for us to sit in judgment after the fact and say that Continental’s loan officers and their superiors were doing exactly what bankers shouldn’t do: they were gambling with their depositors’ money. Continental was doing exactly what its chairman had said it would do: it was on its way to becoming the leading commercial lender in the United States. But another dimension involved ambitious corporate goals. In fact. a junior loan officer. The losers were the bank’s shareholders. On at least two other occasions. Continental in effect became a ward of the federal government. federal prosecutors later alleged a kickback.000 employees (about 15% of the total) who were let go. overlooked the ethical questions associated with their choice of means—and ultimately hurt themselves. 7.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? would have yielded an average return of nearly 20% had it ever performed as planned. Pushed by lofty goals. at least one who was indicted. Oil and gas loans were an important factor in that achievement. as the bank scaled down to fit its diminished assets. and some 2. which led to a massive run on its deposits. HUTTON Sachin M Nikam Page 22 . for fear of being swamped by Continental’s huge liabilities. Management chose to interpret the incident charitably. however. some officers who lost their jobs. Continental’s own control mechanisms flashed signals that something was seriously wrong with the oil and gas portfolio. Stopping to wait for paperwork to catch up would only slow down reaching the goal. the word got out about the instability of the bank’s portfolio. this story is more difficult to analyze—and more generally a part of everyday business. No other bank was willing to come to the rescue. Later. After all. managers could not see clearly their real interests. virtually all of the $800 million had to be written off.3 E.F. Eventually. Once again. They focused on ends.
it can probably emerge from this particular embarrassment with only a few bad memories. Hutton has tarnished its reputation. most such actions are never revealed at all—or at least that’s how people figure things will work out. Hutton probably will not suffer a fate as drastic as Manville’s or Continental Illinois’s. Hutton has agreed to pay a fine of $2 million as well as the government’s investigation costs of $750. which it then covered after having enjoyed interest-free use of the money. with astute damage control. the savings on interest that would otherwise have been owed to the banks was very large.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? The nation’s second largest independent broker. At some point. Several officers have lost their jobs. and because most banks did not object. Hutton’s over drafts involved no large sums. But worst of all. On several occasions. And in many cases. Because Hutton always made covering deposits. E. in part because of the bad publicity. Most improprieties don’t cut a corporation off at the knees the way Manville’s and Continental Illinois’s did. never a wise thing to do—certainly not when your business is offering to handle other people’s money.000 counts of mail and wire fraud. recently pleaded guilty to 2. and some indictments may yet follow. Indeed. It has set up an $8 million reserve for restitution to the banks—which may not be enough. But cumulatively. They presumably thought they were pushing legality to its limit without going over the line. In fact.Hutton & Company. In each case. But this case has real value because it is typical of much corporate misconduct. It had systematically bilked 400 of its banks by drawing against uncollected funds or in some cases against nonexistent sums. Months after Hutton agreed to appoint new directors—as a way to give outsiders a solid majority on the board—the company couldn’t find people to accept the seats. Apparently Hutton’s branch managers had been encouraged to pay close attention to cash management. a willingness to gamble thus is probably enhanced by the rationalization— Sachin M Nikam Page 23 . Hutton assured its managers that what they were doing was sharp—and not shady. So far. the managers who played this game most astutely were even congratulated for their skill. The branch managers were simply taking full advantage of what the law and the bankers’ tolerance permitted. it dawned on someone that using other people’s money was even more profitable than using your own.000.F.
the Federal Sentencing Guidelines encourage businesses to provide strong and effective ethical policies by taking those policies into account when prosecuting a violation. The following illustrates some of the steps that these institutions have taken to ensure greater ethical considerations in the future. and deal with employees who have violated their corporate ethics standards. the government has allocated funds for three large studies on the effectiveness of corporate compliance programs. or discrimination). and businesses to increasingly focus on the role of ethics in business. In addition. The message from the federal government under these guidelines is clear: If your company is found to have violated a federal law (regarding the environment. and unfair hiring practices. November). 8. the federal government passed the Sentencing Guidelines for Organizations in 1991 (56 Federal Register 22762. These studies should help businesses in researching and developing their individual ethics training and compliance programs. two-thirds of them have committed some form of illegal behavior (Gellerman. In order to help accomplish this goal. 1986). ARE BUSINESS ETHICS IMPORTANT? There is empirical evidence that illustrates that of the 500 largest corporations in the U. has caused government. This fact. Sachin M Nikam Page 24 . The objective of the guidelines is to encourage ethical corporate behavior by forcing all organizations to create ethics standards.S. workplace safety. convey these standards to employees. that those who wouldn’t go for their share are idealistic fools. insider trading.. combined with the many publicized accounts of illegal business operations including fraud.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? true or not—that everyone else is doing something just as bad or would if they could. monitor employees. In response to the increasing litigation concerning corporations accused of unethical behavior. colleges.
Executives and managers are often held liable for violations that occurred below them even if they did not know about or condone the situation. and profits.. In fact. in the event that an unforeseen unethical situation arises. 1999). v. A lawsuit alleging that Texaco practiced racial bias cost the company $176 million to settle (Bari-Ellen Robert et al. Texaco. No. No. Consider some recent examples. Home Depot spent $87. if you are prosecuted... September. 94 Civ.. GM had documents that stated that its cost analysis showed that dealing with the lawsuits would be cheaper than recalling all of the cars that were dangerous.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? the U. Ethics are important to firms for a variety of reasons. N. and the cost of hiring public relations representatives to limit the damage. App.Y. a company Sachin M Nikam Page 25 .. causing serious burns to the customer's face and body. and reputation. 2nd Dist. a company with an organized and efficient ethics management program will be treated more leniently by prosecutors in the event of a violation. Cal. One tank exploded on impact.. including the legal responsibilities of the executives. Supp. Several other large corporations have had similar dilemmas that cost millions or billions of dollars because of ethical shortcomings. Companies must commit themselves to a high standard of ethics because litigation is very costly to an organization. Cal. In July of 1999. Ct. Dist. the loss of reputation. This negative press also causes immeasurable damage to the company's reputation (Bordwin. Inc. N. The publicity may create ill will from the public and cause a business to lose customers. Civ. costs of violations. This bad ethical decision cost GM two-thirds more than its total profit for 1998 (White. 1997). 1998). The jury ruled that GM had acted with extreme carelessness by sacrificing the health of its customers to save money. August. v. Also. This is a major incentive for directors and top management to see that their organization keeps ethical considerations in perspective while making decisions. 1998). 1997). there was the large expense of hiring legal counsel. August. you will suffer a smaller fine (Bordwin. Dist.Attorney General may decide not to prosecute if you had policies and procedures in place to prevent the violation that occurred. Home Depot. 2001).S. B135147. General Motors Corp. Inc. 1998).9 billion due to its failure to recall some cars when GM knew the gas tanks were potentially dangerous (Patricia Anderson et al. revenues. 2015 [CLB] S. C-94-4335 S1.5 million as a result of penalties for not promoting more women (Vicki Butler v. Additionally. 979 F. C-95-2182 S1. its consequences will not be as harsh (Bordwin.. This essentially rewards directors and top management who are committed to creating an ethical atmosphere. If the company had strong prevention policies and procedures in place. In addition to the cost of the judgment. there was a judgment against GM of $4. 185.
In the past five to ten years. there is little that can be done to shape their values (Hanson. The implication may be that some business schools are not teaching a uniform code of ethics. cover a range of ethical topics. 1996). increase awareness of ethical issues. Sachin M Nikam Page 26 . As these scandals unfold.1987).WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? seen as unethical may have problems recruiting good employees. It is debated that by the time a person reaches college. and provide students with practice making decisions in difficult situations. many spectators blame the nation's business schools for allowing students to enter the corporate world lacking an understanding of ethics (Pizzolatto & Bevil. This implies that college level students must have a code of ethics in order to successfully utilize business ethics classes. Most business schools are striving to convince students that ethics are important. business schools typically responded to this pressure by requiring a separate business ethics class or by incorporating a study of business ethics into several other required classes. The objective of integrating ethics into a business school's curriculum is similar to the goals of most other colleges and universities. but instead teaching the students how to apply their own moral codes in the decision making process.
Regarding the first rationalization. (4) A belief that since the activity helps the company. (2) A belief that the activity is in the individual’s or the corporation’s best interest. In order to avoid misunderstandings. FOUR RATIONALIZATIONS Below identified and analyzed are the roots of the misconduct managers confront across different kinds of businesses and the practical recommendations and examples to ensure ethical behavior. Sachin M Nikam Page 27 . When employees face an ambiguous situation. (3) A belief that the activity is “safe” because it will never be found out or publicized. The four commonly held rationalizations that explain why decision-makers behave unethically: (1) A belief that the activity is not “really” illegal or immoral. some may conclude that whatever has not been predetermined as wrong must be correct. their most reliable guideline is: when in doubt. When managers must operate in murky borderlands. don’t. companies must establish ethical guidelines for all employees. the company will condone it and even protect the person who engages in it.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? 9.
Organizations should instead formally and regularly stress that loyalty to the company does not excuse acts that jeopardize its reputation. The fourth rationalization – a belief that the company will condone actions that are taken in its interest – is linked to the issue of company loyalty. even if it ultimately implies putting the organization at risk. The third rationalization is perhaps the most difficult to deal with because much of the restricted behavior escapes detection. Most extreme examples of corporate misconduct were due to managerial failures. more objective and more frequent control mechanisms are effective ways to avoid unethical management behavior. such as scheduling unannounced audits. The author suggests that one way to avoid this is to hire an independent auditing agency that reports to outside directors. Thus. How can we prevent wrongdoing that is unlikely to be detected? Make it more likely to be detected. He proposes increasing the frequency of audits and spot checks combined with other techniques. ambition plays a key role. While executives have a right to expect loyalty from employees. Sachin M Nikam Page 28 .WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? In the second rationalization. Many managers have been promoted on the basis of the results obtained in those ways because of the lack of an objective review of their successes. they cannot expect such loyalty to be against the law or against common morality. clearer communication and better. Ambitious managers look for ways to attract auspicious attention by reaching the expected results.
the costs of training each employee. The effects of ethics in dollar amounts could be measured in an attempt to get a rough cost estimate and figures that everyone will understand. then when a company decides to set and follow strong ethical policies. Internal failure costs measure the cost of employees' failure to comply with ethical standards. bad press. Since the ideas and goals of business ethics are very abstract. Moeckel (1997) states that government is in effect manipulating the external failure costs in an attempt to motivate organizations to dedicate more Sachin M Nikam Page 29 . process analysis. Appraisal costs consist of the costs of hotlines. Prevention costs include the cost of designing the initial ethics system. The costs are classified into prevention costs.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? 10. In this case there are no future payoffs resulting from ethical behavior and thus no economic incentives to invest in such behavior. According to basic principles in finance. appraisal costs. an investment is good if the present value of the cost of the investment is less than the present value of expected returns. ethical business is good business. and design of monitoring. and monitors. internal failure costs. fines. INVESTING IN BUSINESS ETHICS If. and external failure costs. and low morale. lack of teamwork. External failure costs involve the costs of litigation. The only time an ethical business situation cannot be looked upon as an investment is if it is a onetime deal that will have no effect on the future. it can be looked upon as an investment. audits. but Moeckel (1997) finds it useful and important to make the attempt. as stated previously. there is no easy way to measure them. The classic example is the "snakeoil" salesperson who passes through town only once. and a weakened reputation.
Piper (1993) believes that students in the 1990s were much less aware of how business ethics shape America. Also. They found that not only did the students lack concrete ethical codes. and internal failure costs. Piper (1993) believes that schools have replaced some of the emphasis they placed on business ethics with a greater emphasis on quantitative and analytical skills. It is very dangerous for an organization to focus on cost minimization at this point in time (Moeckel. One factor contributing to the decline in ethics among students is the light in which business is Sachin M Nikam Page 30 . and there are few models to demonstrate effective cost analysis. 11. HOW TO TEACH AND ENCOURAGE ETHICS Can ethics be taught to people who are 20. faculty. they also did not fully comprehend the ways in which their actions in the workplace would affect society. and difficult quantitative models than past generations of students. 1993). The problem is. 1997). 30. In doing so. Piper (1993) stated that when an institution avoids teaching ethics. the sentencing guidelines will be strict and could basically ruin the organization. it is relatively new. if there is an external failure in an organization that has made few attempts to curb unethical behavior. or 50 years old? Harvard Business School took the position that ethics can indeed be taught to students and business people regardless of age. The difficulty in measuring ethical costs is that it is a very inexact science.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? resources into prevention and appraisal costs. and still avoid any major external failure costs. and so companies must tackle internal controls to save dollars. A university that refuses to take ethical dilemmas seriously violates its basic obligation to society. analytical reasoning. however. A university that fails to engage its members in a debate on these issues and to communicate with care the reasons for its policies gives an impression of moral indifference that is profoundly dispiriting to large numbers of students and professors who share a concern for social issues and a desire for their institutions to behave responsibly (Piper. appraisal. it is committing a great wrong to the students. He also noted that these same students had a much stronger grasp on complex theories. Professors attempted to measure where current business students stand in regards to their feelings about the ethical responsibilities of themselves and corporate America. Government is giving huge punishments for external failure costs. and society as a whole. they asked a class to go through a series of interviews concerning their views on ethics. It is possible that a company could have barely any prevention. Moeckel (1997) suggests increasing appraisal costs. which will in turn increase internal failure costs and decrease external failure costs significantly.
of the connections among people. or more. Without adequate understanding of and compassion for the people an organization affects. twenty years. a circumscribed playing field in which only particular rules apply. the lack of high paying manufacturing jobs. ironically serve to insulate the "players" from the implications of their actions in the "real world" . it becomes difficult to consistently make ethical policy decisions. Essentially. people lose understanding of those that are different from them." These words connote an environment where each employee is respected and cared for by all other members of the company. which may also be described as a form of provincialism. This cultural isolation. Game metaphors. to suffer) through the eyes of another (Piper. if necessary. What is increasingly shared across economic strata is a form of cultural isolation and a consequent ignorance of one another. both within and beyond natural boundaries. When this occurs. presumes a limited frame of reference. each economic class is interdependent with and profoundly affects the lives of others. and people took more pride in the company they worked for because the actions and reputation of the company reflected on the employees to a larger extent than it does today. the humanities. They begin to forget that their existence is not independent from the wealthiest CEOs and also the poorest laborers. they become isolated from the poor and working classes. Sachin M Nikam Page 31 . and in which certain behaviors may be tolerable that would otherwise be unacceptable. like the interpersonal orientation. The game orientation. The growing cultural isolation occurring in the United States is possibly contributing to a decline in corporate ethics. and how in fact. and family from business. people were hired by a company and often stayed there ten years. In the past. In this situation. and businesses were loyal to their employees. The United States tends to separate religion. By dividing these subjects. Divisions between social classes have gotten stronger with the rise of technology. and the blooming suburbs. workers were loyal to the business. delimits compassion--the capacity to see (and. Today colder terms such as "team" and "organization" are used to describe the firm. it may be easier to justify actions that are not necessarily ethical. the firm was viewed as more than a business. Parks (1993) states that by using a game as a metaphor for business. the company that employed an individual was a piece of his/her identity. It was not uncommon for a company to describe itself as a "family" or "community.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? viewed. As families move out to the wealthier suburbs. 1993). The increasing cultural split between commerce and social responsibility has also been blamed for an increase in unethical actions in business. because they generally do not acknowledge the sobering consequences embedded in most commercial and financial decisions and transactions.
Parks endorses the use of the following four steps by colleges and universities to teach ethics in a way in which the students will embrace the importance of acting ethically. Generation X has been characterized as a cynical generation that is unsure of its role in the world. Most young people enrolled in colleges and universities are hopeful about their futures. white-collar crime. This has been reflected in college-aged voter turnout. Some of this cynicism can be tied to political scandals such as Watergate and various scandals in the Clinton administration. Parks (1993) recognizes several ways to teach students to incorporate ethics into their lives and has compiled four recommendations on how to address this complex subject in the classroom. Parks suggests creating a "mentoring community" which could be in the form of a class. but cynical about the future of the United States in the aggregate. They feel that large social institutions such as government. It is not that students in their young twenties do not care about society. and universities are too big to be influenced by them. The business sector often feels that there are other institutions such as religious and humanizing groups that are responsible for protecting the values of society. while offering a vision on behalf of a larger possibility and an experience of acting together in concert with that vision" (Piper. One purpose of this group is simply to recognize that as potential business people. 1993). According to Parks (1993). they are not indifferent to "doing good. and disasters such as the Exxon oil spills. and especially during the course of professional studies. It is possible that moral development can continue in young adulthood. corporations. Therefore it appears to be in a relationship to our connected-collective common public life.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? the typical business student sees an action that will increase profits as good business decision independent of the ethical implications. In fact. for example. 1993). many students in their mid-twenties do not believe that their actions really make a difference. and thus contributes to a decline in ethics. a report by the Carnegie Foundation cited that volunteerism is on the rise. they must challenge the existing norms in Sachin M Nikam Page 32 . Distrust of businesses can be tied to events such as the junk bond scandals. They are confident about their personal futures. Some people feel that this somehow releases the commercial sector from its obligation to consider the ethical implications of some actions. that these students have the least hope and feel the least sense of potential competence and efficacy. in contrast to their individual lives. This group would "welcome and affirm the competence and promise of young adults' lives." but most do not yet articulate a vision or strategy by which they believe they could effect significant positive change in our collective life (Piper.
This. Parks (1993) emphasizes being tolerant of the complexity of issues and using the group to sort out the implications of different situations. students can sort out the issues without finding them too difficult to handle. the complexity that cannot be tolerated by an individual can be accommodated by the whole (Piper. Encouraging them to make their own decisions and take a stand in class will make it easier to discover and voice any ethical objections in the corporate world. and remind them that they still have a duty to evaluate every situation based on the ethical dilemma that comes up. Parks (1993) second recommendation is to allow the students to think critically. It will make the students aware that when they enter into the corporate world. one may be able to comprehend the depth of the problem and take steps to remedy the situation or avoid greater problems. Harvard psychiatrist Robert Coles said: "What faculty is silent about and Sachin M Nikam Page 33 . When the multifaceted ethical dimensions of managerial decision-making begin to be recognized and engaged by an entire class of students. Thirdly. This is an instance in which the consciousness of a "we"-mentoring community-becomes crucial. 1993). By working in a group. These new perspectives allow students to understand more clearly the ethical issues. they will become more conscious of the various effects of decisions.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? an attempt to practice ethically guided business. is the primary factor in the formation of ethical and effective business people. Piper recommends that students cultivate diverse perspectives. This stage encourages students to explore and strengthen their personal values. If students practice dissecting the ethical implications of various situations. Parks feels when an individual is faced with conflicting ethical issues. Some so-called ethical thought that is unnecessarily naive is maintained because individuals in isolation can only handle so much. In separating these in universities faculty are failing to teach students that ethics is a part of business. Students need to realize that every decision they may make in business may have ethical undertones. And last. they may be overwhelmed and unable to fully recognize the intricacy of the situation. Piper (1993) argues. If one can see the situation from the eyes of another. This allows students to reject pieces of the current system and encourages them to make their own judgments instead of relying on cultural assumptions. It is important that schools realize this. their decisions will impact many people in either positive or negative ways. The goal is to show the students that they may face opposition to acting ethically in the name of cutting costs and expanding profits. Parks feels that when students confront this task together it is less overwhelming than if one person faced it alone.
companies. This holds strong implications for top management officials as they can be punished for unethical actions that occur at any level of the organization. signal that these issues are unimportant" (Piper. In some cases. Omission is a powerful. There are conflicting studies about whether business students. but also on the design and management of its ethics training programs. students and faculty agree that additional studies in ethics would be beneficial. CONCLUSIONS Firms and business people are being pressured to exemplify the highest ethical standards and also to create the largest returns for shareholders. Regardless. These lawsuits are expensive. 12.WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS? what they omit send powerful signals to students. and indicators that the current system of teaching business ethics in schools and corporations could use some fine-tuning. but other times businesses are choosing to reduce costs by cutting corners.S. Sachin M Nikam Page 34 . these goals go hand in hand. As ethical behavior becomes increasingly important in business. and economic students in particular. even if unintended. there is a pressure on colleges and universities to focus on ensuring their students leave with the highest ethical backgrounds. 1993). The dire effects of abandoning business ethics have been seen in the rising number of class action lawsuits against major U. embarrassing. have incorporated levels of ethics that are consistent with their peers in liberal arts schools. it is judged not only by the circumstance of that violation. When an organization violates an ethical standard.
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