GEN502-BUSINESS ETHICS/Session 6-7/M-3/2019-2020/4-1@Online 10 March 2020

Making decisions in Business Ethics

 Descriptive ethical theory

 Modelling the ethical decision-making process
 Influence on ethical decision-making
 The Case

Aravind Yelery ( 葉文 ), PhD

aravind.y@phbs.pku.edu.cn
#609
 Structure

PART I – Backgrounder
PART II – Theoretical Classification – the Matrix
PART III – What is an ethical decision?
PART IV – Ethical decision-making process
PART V – Influences on ethical decision-making
PART VI – The Case – Abuse in ethical decision-making

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 PART I

Backgrounder

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 In Class three, we explained/discussed:

In a business context, there is often a need for these decisions to be based on

a systematic, rational, and widely understandable argument
so that they can be
adequately defended, justified, and explained to relevant stakeholders

GEN502-BUSINESS ETHICS/Session 6-7/M-3/2019-2020/4-4@Online

 » The role of ethical theory » Normative Ethical theories » Other contending
ethical theories » Limits of Western Modernist theories » Alternative
perspectives on Ethical theory » Towards a pragmatic use of ethical theory

Key concepts
 Ethical absolutism, Ethical relativism, and Ethical pluralism
 Normative Ethical theory
 Non-consequentialist and consequentialist ethics
 Alternative approaches to BE – understand and apply alternative ethical
theories, i.e. virtue ethics, feminist ethics, discourse ethics and
postmodernism
 Conduct a pluralist business ethics evaluation

Skills
 Utilitarian analysis
 Applying the categorical imperative test

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 PART II

Theoretical Classification – the Matrix

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 The matrix of ethical theories (in context of business)

Normative (prescriptive) ethics: How should people act?

Descriptive ethics: What do people think is right?

Applied ethics: How do we take moral knowledge and put it into practice?

Meta-ethics: What does “right” even mean?

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 PART III

What is an Ethical decision?

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 Decrypting the behaviour

Descriptive ethical theories provide an important addition to the normative

theories.

Rather than telling us what business people should do (which is the

intention of normative theory) - descriptive theories tell what business
people actually do—and more importantly, they will help to explain why they
do it.

IS a decision ethical - a number of factors we might identify:

★ The decision is likely to have significant effects on others

★ The decision is likely to be characterized by choice, in that alternative
courses of action are open
★ The decision is perceived as ethically relevant by one or more parties

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 What comprises Ethical decision?

> Descriptive and pluralist theories explain - six key ethical values can help one
build character to deal business ethical issues

• Trustworthiness
• Respect
• Responsibility
• Fairness
• Caring
• Citizenship

GEN502-BUSINESS ETHICS/Session 6-7/M-3/2019-2020/4-10@Online

 Doing the right thing?

> An effective ethics and compliance program, by definition, translates into ethical
business decisions.

> Ethical decision-making is a discipline. It is an approach to identifying and

resolving issues in the business context. 

> Ethical business decisions often require a careful discussion among interested
parties. The dialogue is important to conduct and evaluate.

> Hence, Nor can ethical business decision-making be boiled down to just “doing
the right thing.”
There is more to it than that.

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 Standard flow of decisions in Businesses

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 Dynamics of business decisions - contextualized

So assume that the company has an important strategic decision to make – e.g. entering a new market, or leaving a
market, or discontinuing a product line.

Here are some suggested questions to unearth and examine the ethical considerations of a specific decision.

1. What are the relevant facts of the issue? What do we know and what do we not know? Do we have
enough facts to make a decision?

2. What are the options? Have we identified all relevant options and examined all possible
options?

3. Will the company’s decision damage someone, some group or stakeholder(s)? How important are
these concerns?

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 Dynamics of DM - contextualized

4. Does the decision present positive and negative alternatives resulting in a trade off?

5. Does the issue involve more than legal compliance or economic efficiency?

6. Which option will result in the greatest benefits with the least harm? What option best serves
the company’s interest?

7. Which option is most consistent with our corporate values?

8. Considering all of the above factors, which option best addresses the situation?

9. If reported in the media tomorrow, what would public reaction be?

10. Assuming we decide on a specific option, how do we implement the decision with due regard for
our stakeholders’ interests?

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 PART IV

The Process - Ethical decision-making

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 Four Component Model in Ethical decision-making

One way to make ethical decisions is to employ the four-component model,

which was devised by James Rest (1984), a professor at the University of
Minnesota. The model involves the following four processes:

Recognize Make a fair Establish Engage in

moral issue judgement moral intent moral behavior

Moral sensitivity Moral judgment

Moral motivation Moral character

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 Four Component Model in Ethical decision-making

These stages are intended to be conceptually distinct, such that although

one might reach one stage in the model, this does not mean that one will
necessarily move onto the next stage.

Hence, the model distinguishes between knowing what the right thing to do
is and actually doing something about it; or between wanting to do the right
thing, and actually knowing what the best course of action is.

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 PART V

Influences on ethical decision-making

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 Two broad categories of influences

• Individual factors
These are the unique characteristics of the individual, making the relevant
decision.

Include factors that are given by birth (such as age and gender) and those
acquired by experience and socialization (such as education, personality,
and attitudes).

• Situational factors
These are the particular features of the context that influence whether the
individual will make an ethical or an unethical decision.

Include factors associated with the work context (such as reward systems,
job roles, and organizational culture) and those associated with the issue
itself (such as the intensity of the moral issue or the ethical framing of the
issue). ETHICS/Session 6-7/M-3/2019-2020/4-19@Online
GEN502-BUSINESS
 Two broad categories of influences

Individual factors

Recognise Engage in
Make moral Establish
moral moral
judgement moral intent
issue behaviour

Situational factors

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 Individual influences

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 Situational influences

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 How ethical decisions are justified: rationalization tactics

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 PART VI

The Case – Abuse in ethical ethical decision-

making

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 > He was a former Chairman of the NASDAQ stock exchange

> Enjoyed an exemplary reputation in the financial community

> Some of illustrious investors included a charitable organization

funded by Steven Spielberg, actor Kevin Bacon and the owners of
the New York Mets. Large banks and pension funds such as Spanish
bank Banco Santander; HSBC; Royal Bank of Scotland.

> Practice seemed legitimate and was even praised by many Wall
Street investors, despite the fact that his numbers simply didn’t add
up.

> Set up his portfolios to look like he was matching the returns of
the S&P 500
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 Bernard Madoff

> Bernard Madoff, investment banker, is serving a 150-year

prison sentence for orchestrating the biggest Ponzi scheme in
history.

> One of the biggest business ethics scandals of recent years

> Harvard Business School Professor Eugene Soltes interview

Madoff.
“In hindsight, when I look back, it wasn’t as if I couldn’t have
said no,” 
“It wasn’t like I was being blackmailed into doing something,
or that I was afraid of getting caught doing it,” he continues.
“I, sort of, you know, I sort of rationalized that what I was
doing was OK, that it wasn’t going to hurt anybody.”

> Trust abuse

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 Bernard Madoff  

> Madoff’s story raises the questions whether unethical behaviour is simply a
matter of individual human ingenuity to do wrong, or whether we can put such
problems down to external factors.

> Eugene Soltes call with Madoff -  knowing the difference between right and
wrong is not sufficient to avoid falling into the behavioural traps people can face
when under pressure to succeed.

> Madoff - best known for pioneering the controversial but legal practice of
payment for order flow. Shorting!

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 Bernard Madoff  

> “It’s like a comedy of errors,” “I allowed myself—and

I really have to say ‘allowed,’ since no one put a gun to
my head—to keep taking in more money. I kept on
waiting for the environment to change and of course it
never did….It turned into a total fiasco.”

Soltes - The “slippery slope” that enables a small

transgression to grow into a bigger one

Soltes says –

“Within entrepreneurial cultures, there’s often a feeling

that it’s OK to ignore or bend some regulation,”
“Sometimes regulations are legitimately outdated or
potentially too restrictive to let innovation flourish. But
the challenge for entrepreneurs is that the line between
appropriate and illicit is often quite murky.”
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 Bernard Madoff  

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 Bernard Madoff  

Just because Madoff is in jail does not mean you can’t

be fooled again

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 So .. What is an ethical decision?

> A look at the Ethical decision-making in organizations is critical – which may lead
to uncover questions related to the causes of misbehaviour

> It is important to use tools to explain why some businesspeople make what
appear to be the right ethical choices, whilst others do things that are unscrupulous
or even illegal

> Whether people, who make these unethical decisions are inherently bad, or
whether there are other reasons that can explain the incidence of actually made in
business, and what influences the process and outcomes of those decisions.

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 Q&A

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