2) It is important that a shared vision of acceptable behavior develop from an organizational perspective to

cultivate consistent and reliable relationships with all concerned stakeholders despite differences in
CHAPTER 5 personal values.
3) Business ethics should relate to work environment decisions and should not control or influence personal
Business Ethics and Ethical Decision Making ethical issues.

III . Ethical Issues in Business

A. An ethical issue is a problem, situation, or opportunity requiring an individual, group, or organization to choose
I . The Nature of Business Ethics among several actions that must be evaluated as right or wrong, ethical or unethical
A. Ethics relates to choices and judgments about acceptable standards of conduct that guide the behavior of B. Abusive or intimidating behavior can mean anything from physical threats, false accusations, annoying a
individuals and groups. coworker, profanity, insults, yelling, harshness, and ignoring someone to being unreasonable, and the meaning of
B. Business ethics comprises the principles and standards that guide the behavior of individuals and groups in the these words can differ by person.
world of business. C. Lying relates to distorting the truth. There are three general types of lies. First, a so-called white lie is usually
1) Maintaining a balance between a company’s desire for profits and society’s wishes and needs often told to avoid hurting someone’s feelings. Second, lying by commission is creating a perception or belief by words
demands compromises or trade-offs. that intentionally deceives the receiver of the message. Third, lying by omission is intentionally not informing the
2) It is necessary to examine business ethics to understand decisions made in the context of an organizational receiver of material facts.
culture. D. A conflict of interest exists when an individual must choose whether to advance his or her own interests, those of
C. It is vital to recognize that business ethics goes beyond legal issues. his or her organization, or those of some other group.

D. Some businesspeople choose to behave ethically because of enlightened self-interest or the expectation that E. In general, fraud is any false communication that deceives, manipulates, or conceals facts in order to create a
“ethics pays.” false impression by which others are damaged or denied a benefit.

II . Foundations of Business Ethics 1) Despite the standards provided by a strict code of ethics, the accounting industry has been the source of
numerous fraud investigations in recent years.
A. Because it is difficult to draw a boundary between legal and ethical issues, all questionable issues need an 2) Communications that are false or misleading, or marketing fraud, can destroy customers’ trust in an
organizational mechanism for resolution. organization.
3) Consumer fraud is also a concern.
1) The legal ramifications of some issues and situations may be obvious, but more often, questionable
decisions and actions result in disputes that must be resolved through some type of negotiation or even F. Discrimination remains a significant ethical issue in business despite nearly forty years of legislation to outlaw it.
litigation. Affirmative action programs include efforts to recruit, hire, train, and promote qualified individuals from groups
2) To avoid the costs of litigation, companies should develop systems to monitor complaints, suggestions, that have traditionally been discriminated against on the basis of race, gender, or other characteristics.
and other feedback from stakeholders.
3) The identification of ethical issues and implementation of standards of conduct that incorporate both legal G. The final category of ethical issues relates to technology and the numerous advances made in the Internet and
and ethical concerns comprise the best approach to preventing crime and avoiding civil litigation. other forms of electronic communications in the last few years.
4) Although some ethical standards are assumed to be self-evident, both employees and managers need H. It can be difficult to recognize specific ethical issues in practice.
experience within a specific industry to understand how to operate in gray areas or to handle close calls in
evolving areas, such as Internet privacy. IV. Understanding the Ethical Decision-Making Process

B. Many people who have limited business experience suddenly find themselves making important business-related
decisions.
1) The personal values they learned through nonwork socialization from family, religion, and school may not
provide specific guidelines for these complex business decisions.
A. Individual Factors
1) Moral philosophies are principles or rules that individuals apply in deciding what is right or wrong.
2) Consequentialism is a class of moral philosophy that considers a decision right or acceptable if it
accomplishes a desired result such as pleasure, knowledge, career growth, the realization of self-interest,
or utility.
a) Egoism, one form of consequentialism, is a philosophy that defines right or acceptable
conduct in terms of the consequences for the individual. In a decision- making situation,
the egoist will probably choose the alternative that most benefits his or her self-interest.
 b) Utilitarianism is another consequentialist philosophy that is concerned with consequences, 1) Organizational, or corporate, culture can be defined as a set of values, beliefs, goals, norms, and rituals shared by
but utilitarians seek the greatest good for the greatest number of people. Using a cost- members or employees of an organization.
benefit analysis, a utilitarian decision maker calculates the utility of the consequences of all
possible alternatives and then chooses the one that achieves the greatest utility. a) Culture is both conveyed formally and expressed informally.
b) Ethical climate is the part of a corporate culture that relates to an organization’s expectations about
3) In contrast with consequentialism, ethical formalism is a class of moral philosophy that focuses on the rights of appropriate conduct.
individuals and on the intentions associated with a particular behavior rather than on its consequences.
2) Significant others include superiors, peers, and subordinates in the organization who influence the ethical
a) Ethical formalists regard certain behaviors as inherently right, and their determination of rightness focuses decision-making process.
on the individual actor, not on society.
b) Unlike utilitarians, ethical formalists contend that there are some things that people should not do, even to a) Most experts agree that the chief executive officer establishes the ethical tone for the entire firm.
maximize utility. b) Most businesspeople take their cues or learn from coworkers about how to solve problems—including
ethical dilemmas.
4) Justice theory is a class of moral philosophy that relates to evaluations of fairness, or the disposition to deal with c) Superiors and coworkers can create organizational pressure, which plays a key role in creating ethical
perceived injustices of others. issues.

a) Justice demands fair treatment and due reward in accordance with ethical or legal standards.
b) There are three types of justice that can be used to assess fairness in different situations.
1) Distributive justice evaluates the outcomes or results of a business relationship. For example, if an
employee feels that she is being paid less than her coworkers are for the same work, she has concerns
about distributive justice.
2) Procedural justice assesses the processes and activities employed to produce an outcome or results.
Procedural justice in terms of compensation would relate to the perception that salary and benefit
decisions were consistent and fair to all categories of employees.
3) Interactional justice evaluates the communication processes used in the business relationship. Being
untruthful about the reasons for missing work is an example of an interactional justice issue.
5) One reason that different people make different decisions when confronted with similar ethical situations may be
that they are in different stages of moral development (Kohlberg).
C . Opportunity is a set of conditions that limit barriers or provide rewards.
1) Together, organizational culture and the influence of coworkers may foster conditions that hinder or permit
misconduct.
2) Opportunity usually relates to employees’ immediate job context—where they work, with whom they work, and
the nature of the work.
a) Rewards, or positive reinforcers, include pay raises, bonuses, and public recognition.
b) Reprimands, pay penalties, demotions, and even firings act as negative reinforcers.
3) Opportunity to engage in unethical conduct is often a better predictor of unethical activities than of personal
values.

These stages include the following:

a) Punishment and obedience.

b) Individual instrumental purpose and exchange. CHAPTER 6
c) Mutual interpersonal expectation, relationships, and conformity.
Strategic Approaches to Improving Ethical Behavior
d) Social justice and conscience maintenance.
e) Prior rights, social contract, or utility.
f) Universal ethical principles.
LECTURE OUTLINE
6) Kohlberg’s theory suggests that people may change their moral beliefs and behavior as they gain education and
experience in resolving conflicts, which helps accelerate their progress along the moral development continuum. I. The Need for Organizational Ethics Programs

7) Kohlberg’s model also suggests that there are universal values by which people in the highest level of moral A. Some people will always do things in their own self-interest.
development abide.
B. Pressure to succeed can create opportunities that reward unethical behavior.
B. Organizational Relationships
C. Recent corporate ethics crises have destroyed the public’s trust.
Ethical choices in business are most often made jointly in committees and work groups or in conversations with
coworkers. 1) Consumers want CEOs who demonstrate trust as a priority.
2) Companies must meet the public’s demands for ethical decision-making.

D. There are two basic approaches to control in an ethics program.

 1) A compliance orientation creates order by requiring that employees identify with and commit to specific
required conduct. It uses legal terms, statutes, and contracts that teach employees the rules and penalties
for noncompliance.
2) The other type of system is a values orientation, which strives to develop shared values. Although
penalties are attached, the focus is more on an abstract core of ideals such as respect and responsibility.
II . Codes of Conduct
A. Most companies begin the process of establishing organizational compliance programs by developing codes of
conduct (also called codes of ethics), which are formal statements that describe what an organization expects of its
employees.
1) Codes of conduct do not have to be so detailed that they take into account every situation.
2) Codes of conduct should provide employee guidelines that provide a means of achieving organizational
ethical objectives in an accepted manner.
B. A code of conduct has to reflect the board of directors’ and senior management’s desire for an ethical climate.
C. Texas Instruments’ code of ethics is outlined as an example.
D. Core values of corporate codes of conduct:
1) Corporate codes of ethics often have five to seven core values that are suggested as desirable, which
include trustworthiness, respect, responsibility, fairness, caring, and citizenship.
A. An organizational compliance program requires instituting an ethics training program and communication system
to educate employees about the firm’s ethical standards.
B. The benefits for employees of ethics training and communication include:
1) Making employees aware of available resources, support systems, and people who can be of assistance in
ethical and legal matters.
2) Empowering employees to ask tough questions and make ethical decisions.
C. Effectiveness of Ethics Training
1) The effectiveness of ethics training depends on the understanding of employees as to why it is conducted,
how it fits into the organization, and their own role in implementing it.
2) Managers of all departments must be involved.
3) Ethics training should be related to actual situations that employees may experience.
a. For example, Lockheed Martin developed a training game called “Gray Matters.”
b. Behavioral simulation is a relatively new training device.
4) Refresher training can be offered to ensure employees’ continuing business ethics expertise.
D. The goal of ethics training is to ensure that an employee:
1) Recognizes when a situation requires ethical decision making.
2) Understands the values and culture of the organization.
3) Is able to evaluate the impact of ethical decisions on the company.
V . Establishing Systems to Monitor and Enforce Ethical Standards

A. An effective ethics program uses a variety of resources to monitor ethical conduct.

III . Ethics Officers
1) Ethical compliance can be measured through audits, surveys, reporting systems, and investigations.
A. Organizational ethics programs must also have oversight by a high-ranking person in the organization (typically
2) An ethics assistance line or ethics help line:
called an ethics officer) known to respect legal and ethical standards.
a. Offers assistance with ethical concerns.
1) Ethics officers have many responsibilities, including providing an anonymous and confidential service b. Assists with the interpretation of company policy and specific work-related issues.
(often a hotline) to answer questions about ethical issues. c. Should be easily accessible and serve as a safety net.
2) Ethics officers develop and distribute a code of conduct, investigate and/or take action on violations of the 3) Observation and feedback can be used to determine the ethical performance of a person.
code, advise employees, and meet with high-level managers and executives to ensure support for the a. Many businesses use role-playing in the training of salespeople and managers.
program and to guarantee compliance with governmental regulations. b. Questionnaires can reveal employees’ ethical perceptions of their company.

B. The Ethics and Compliance Officer Association (ECOA) is an organization for those who are at the front lines of B. Whistle-blowing is a consequence of a company’s missing ethical programs or its incapability to respond to
managing ethics programs. ethical concerns.

1) This group has over 1,200 members. 1) Historically, the outcome for whistle-blowers has not been very positive.
2) These officers are responsible for oversight of their organizations’ ethics and legal compliance programs a. Whistle-blowers often lose their jobs or are forced to retire.
and demonstrate professional commitment by being a member of an organization that shares best practices b. Sometimes whistle-blowers receive more personal consequences, such as threats to their
and provides programs to assist members. safety.
2) Harry Markopolos, Ted Beatty of Dynegy, Cynthia Cooper of WorldCom, Coleen Rowley of the FBI, and
Sherron Watkins of Enron are well-known whistle-blowers.
IV . Ethics Training and Communication

VI . Continuous Improvement of the Ethics Program

A. Implementation of ethics programs means the design of activities to achieve organizational objectives, using
available resources and given existing constraints.

B. The structure of the decision-making process (centralized versus decentralized) can influence whether the
decisions made are ethical.

VII . Implementing Organizational Ethics Programs

A. The Role of Leadership

1) Leadership influences the acceptance and adherence to organizational norms and values.
a. Transformational Leadership—Transformational leaders have a stronger influence on
building an ethical culture because they consider employees’ needs and aspirations.
b. Transactional Leadership—Transactional leaders produce employees who achieve a
negotiated level of required ethical performance because the interaction between leader and
employee is more important than ethical concerns. This type of leadership is effective when
quick changes in the ethical climate are required.

B. Leaders Influence Corporate Culture

There are five power bases from which one person may influence another: (1) reward power, (2)

coercive power, (3) legitimate power, (4) expert power, and (5) referent power. These five bases

of power can be used to motivate individuals either ethically or unethically.

1) The accountability and responsibility for the success of ethical programs lie in the hands of top
management.
a. An ethics program in a weak corporate culture is destined to fail.
b. An open and trusting organizational climate promotes ethical behavior.
C. A substantial amount of research indicates that there are significant differences in the values
and philosophies that influence how individuals in corporations make ethical decisions.
D. The 10-40-40-10 percentages in Table 6.6 demonstrate how employees use different
approaches when making ethical decisions.