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3-BUSINESS ETHICS &

CORPORATE GOVERNANCE.
Ethics And Decision Making.

Field Dependence. The other two dimensions are Economics and Law. Decision Making And Morality: The main feature of the Decision Process Model include Personal Traits. A discussion of Business Ethics then becomes a discussion of the Ethics of the Individuals who make Business Decisions. . Values may be based on Rules and are referred to as Deontological or Rule Based Beliefs or Values may be based on the Perceived outcomes and are known as Teleological Beliefs. Thus Ethical Values are Prescriptive Beliefs about what is Right and What is Wrong. Moral Application and also by the Culture of the Organization. and the Decision Making Process. Personal Traits: Business Decisions are made by Individuals or by Committees . A persons Ethics are influenced by his personal Values. Stage of Moral Development. Locus of Control. Ego Strength.thus the Ethics of Business in reality is the Ethics of the Individuals who make Business Decisions.Ethics And Decision Making In Firms • • • • • • • • • Ethics is one of the dimensions of the Decision Making Process. It becomes relevant. The Individual’s Attitudes are based on the Personal Value System of the Decision Maker. Ethics is absent when no Moral Issue is involved. A Value is a Prescriptive Belief. A Value is a Belief on which a man acts by preference. when a Moral Issue surfaces. Organizational Traits.

. Ego Strength is associated with Personal Beliefs. Field Dependence and Locus of Control. Ego Strength is another term for Self Confidence. • • • • • • • • • Values can be divided into Two Classes-Terminal and Instrumental. Decisions made by Field-Independent Persons are more likely to be based on their Personal Values and are likely to deviate less from similar Decisions they would make outside the Organization. while Instrumental Values refer to Beliefs about desirable Modes Of Behavior that are Instrumental to the Attainment of Ultimate Goals. Terminal Values refer to Beliefs about Ultimate Goals.Ethics And Decision Making In Firms (Cont’d). Three Personal Traits act as Moderators of an Individual’s Personal Values in Decision Making Activities. They are: Ego Strength. Field-Independent Persons tend to rely on the Information they possess. Individuals with High Field Dependence make greater use of Information provided by others to clarify Issues when situations are Ambiguous. A Person with High Ego Strength would be expected to rely more on his own Personal Values and Beliefs of what is Right and what is Wrong and be less influenced by others.

An “External” is less likely to feel Personal Responsibility for the Consequences of Behavior and thus is more likely to be influenced by the forces within the Organization. All Six Stages provide Rationale for Moral Action.Ethics And Decision Making In Firms (Cont’d). Fate or Luck. There are Six Stages of Moral Development and an Individual develops sequentially through the Stages.Actions taken to Abide by Social Contracts and Stage Six. Stage Five. An “External” believes that Life’s Events are controlled by Destiny. Stage ThreeActions that Gain Approval from others. An Internal is more likely to feel a sense of Responsibility for Results and thus is more likely to rely on Personal Values and Beliefs of Rights and Wrongs. Stage Two-Actions that serve one’s Needs. An “ Internal” believes that Life’s Events are controlled by his own actions. Stage Four.Supported by Universal Principles. The Criteria are: Stage One-Actions that avoid Punishment. • • • • • • • Locus Of Control reflects an Individual’s understanding of the Control they have over Life’s Events. The Criteria for determining Morally Correct action differ for each Stage.Actions that Abide Laws and Authority. .

and Extent of Pressure to Comply. Social. The Greater the Freedom. The Degree of Moral Ambiguity in a Situation is referred to as Certitude of Evil. Certitude of Evil. the Greater the Moral Responsibility of the Actor. The Moral Responsibility of an Individual is Greater. The Greater the Net Harm associated with the Act. The Moral Responsibility of a Person is directly related to his Degree of Involvement in the Act. the Greater the Moral Responsibility. It Motivates Individuals to gain Moral Approval from others and to avoid Moral Disapproval. Degree of Complicity.• • • • • • • • • Moral Approbation. The Need may be Biological. External Pressure may take the shape of Economic. Moral Approbation is the Desire to avoid Moral Disapproval. Human Beings have a Need to be Moral. when an Act is clearly Immoral than when it is Morally Ambiguous. . The Degree of Complicity describes the extent of Personal Involvement in causing or failing to Prevent an Immoral Act. Finally the Extent of Pressure to comply refers to the Degree of Freedom an Individual Possessed when engaged in any Immoral Act. or Religious. Moral Approbation Theory is based on Four Components of an ActMagnitude of Consequences. The Magnitude of Consequences of an Action is the Sum of all Harms and Benefits associated with the Act. Physical or Psychological Pressures.

Beliefs and Values that has developed within the Organization to cope with the Internal and External Environment. second. due to the Desire of the Decision Maker to be judged as a Morally Good Person. Culture provides for Stability of the Organizational Social System and Lastly. it provides Rationale and Direction for Behavior. . Unethical Behavior is much more likely. High Moral Responsibility tends to be associated with Moral Action.Moral Approbation (Cont’d). and which is passed on to New Members to guide their actions within these Environments. • • • • • • According to Moral Approbation Theory. Culture has several important Functions. third. it promotes a Commitment of the Members to the Organization. the Risk of being judged Immoral is less and thus Motivation to Act Morally is reduced. it provides a Sense Of Identity among Organizational Members. When Moral Responsibility is Low. First. Organization Culture: Organization Culture is the common set of Assumptions. when Moral Responsibility is Low rather than when it is High.

Policy may take the form of Codes of Conduct or Operating Policy by Top Management. Achieve common objectives through Team Work. • 1) 2) 3) 4) 5) •) •) •) •) •) •) •) •) The underlying Organizational Values are the Core of Firm’s Culture: Trust and Respect for Individuals. Organizational Goals: Organizational Goals are also likely to influence the Ethical Dimension of Decision Making. Personal Morality. Company Interest. and Laws and Professional Codes. Friendship. Efficiency. There are Nine Ethical Climates within a Firm.Organization Culture (Cont’d). Organizational Climate: Organizational Climate may be referred as a shared and enduring perception of important aspects of Work Environment. Rules and Operating Procedures. Team Interest. Organizational Climate and Organizational Goals are Parts of Organizational Culture. The Ethical Climate within an Organizational Unit may have a strong impact on the way a Decision Maker approaches the Ethical Dimensions of Business Problems. Social Responsibility. Reward Structure also affects the Ethical Aspects of Decision Making. Encourage Flexibility and Innovation. and they are: Self Interest. Certain Types of Organizational Policy can significantly affect the Ethical Behavior of Managers within the Firm. Conduct Business with Integrity. . Focus on a high level of Achievement and Contribution.

Corporate Norms affect an Individuals attitude and performance from a number of different perspectives. impervious to individual pressure. Team Work is encouraged. they are bound to get stuck badly and they better find a new job or adapt themselves to the existing Culture. in some Organizations Competition is encouraged and even Rivalries are encouraged. They are generally not written down in any formal Policy and they are not discussed by people within the Culture. For Example. or even group pressure to change. Let us call this as “A” type Culture. These Cultural Norms grow and evolve over a period of time. The first thing the young people should do when they enter an Organization is to determine what type of Environment they have become a part of. In another type of Corporate Culture. Corporate Cultures are built upon Behavioral Norms. such as when the Boss finds your ideas highly objectionable.• • • • • • • • Corporate Culture. which are defined as a set of expectations of how people will behave in a given situation. . A Corporate Culture is a powerful force. Let us call this as “B” type Culture. If they are type “A” in a type “B” Environment or vice-versa.

Closed Corporate Culture: In this type of Culture. Industrial Psychologists have identified Two Basic types of Cultures: Closed Corporate Culture and Adaptive Corporate Culture. find that their Days are numbered. Those who are patient and clever enough to go through the motions can survive until they can find a position with another company in which the Culture is more in tune with their own Work Habits. Mavericks who think they can Buck or Change the System. They protect themselves at all times. Employees actively support each other’s Efforts to identify problems and reach Solutions.Corporate Culture (Cont’d). minimizing Risk Taking and generally exhibiting extreme caution. Individuals who do not tune in quickly to many Nuances of their Corporation’s Culture. • • 1) 2) •) •) •) •) •) They occur in such areas as Information Sharing (Either it is a Norm or it is not). Adaptive Culture: An Adaptive Culture requires both Risk and Trust. . Self Expression and Socialization wit One’s Work Group. Innovation (It is encouraged or it is not). Work Units guard their Fiefdoms carefully and share little Information. usually find themselves in deep trouble. Attitudes and Style.

But before you probe a particular Culture. you have got to probe within yourself to discover your own particular Work Place Needs. in an Organization. • Give below are three potential trouble spots: 1) Levels of Autonomy: An important thing to consider how well your Personal Style matches with the Organization’s way of Delegation of Work.Corporate Culture (Cont’d). 2) Preciseness of Job Responsibility: 3) Attitude towards Disagreement: . • Culture Shock Starts Here: It will not be wise to accept a Job. without first doing some serious Anthropological Investigation.

when you are not. •Speak with people about your Firm. •Do not disagree with your Boss in Public. •Do not share Information with other groups. •Encourage People in Innovating. •Initiate Changes. Closed Culture. •Enjoy your Wok. •Do not be Bearer of Bad News. Adaptive Culture. •Do not enjoy your work. . •Do complain for small things quite often. •Feel free to Disagree with your Boss or Others in the Group. •Bring Un-Comfortable Issues out in the open. •Do not come to meetings on time. •Look Busy. •Be willing to take Responsibilities. •Do not be the first to come up with new ideas. •Do not rock the Boat.Corporate Culture (Cont’d). •Do not associate with any failure. •Treat everybody with respect.

• • • • • • • • • Management Problems may be divided into Strategic and Tactical Ones. Professional Code of Conduct of the Organization. Tactical Problems involve Short Term Resource deployments supporting Strategic Decisions. will tend to eliminate Unethical Decision alternatives. Effective Corporate Policy that encourages Ethical Behavior and discourages Unethical Behavior. . An Organization’s Policy can have a significant influence on the Decision Making alternatives considered by the Decision Maker. Conversely. ineffective Policy will tend to encourage the inclusion of Questionable alternatives in the set of Solutions being considered. Positive reward Structures and effective Policy tend to eliminate the opportunity to engage in Unethical Behavior. Tactical Decisions are made by lower level Managers. A Decision of either type resulting in Unethical Behavior is not to be condoned. for example. while Strategic Decisions are made by upper level Managers. Strategic Problems involve Long Term Commitments of Resources.Decision Processes. where to locate a New Plant. such as how many Production Lines to operate in the Plant next month.

. The impact of Business Decisions on Society is important. Employee Crime. • • 1) 2) 3) 4) 5) 6) 7) Once the set of Decision alternatives has been set up. Unethical Behavior Of Individuals in Organizations. Greed. Political. Social and Ethical Issues. Free-Riding. Bribery.Decision Processes (Cont’d). each one is evaluated on the basis of the following relevant CriteriaEconomic. because Economic Units operate at the pleasure of the Society. Technological. White Collar Crime. Lying. Embezzlement and Fraud.

Modern Concept Of Professional Behavior. by their Ethical and Professional Behavior should set an example for the staff down the line to behave similarly. which lubricates the Organizational Machinery and ensures smooth and frictionless operation. 1) 2) 3) 4) Responsibility towards Customers. Responsibility towards the Organization. Professional Ethics in Public and Private Firms: 5) Managers in both Public and Private Organizations should act in a Professional way to minimize the effects of Dysfunctional Behavior in the Organizations. Responsibility towards the Profession itself. Responsibility Towards the Society. 6) Managers. 7) Free and open Communication between Managers and Staff builds Trust. .