© 2018 Cengage 1

Chapter 7
Business Ethics
Essentials

© 2018 Cengage 2
 Learning Outcomes
1. Describe the public’s opinion of business ethics.
2. Define business ethics, explain the conventional approach to
business ethics and identify the sources of ethical norms in
individuals.
3. Analyze economic, legal, and ethical aspects of a decision by
using a Venn model.
4. Identify, explain, and illustrate three models of management
ethics.
5. In terms of making moral management actionable, describe
and discuss Kohlberg’s three levels of moral development and
Gilligan’s ethics of care.
6. Identify and discuss six major elements of moral judgment. 3
© 2018 Cengage
 Chapter Outline

• The Public’s Opinion of Business Ethics

• Business Ethics: Some Basic Concepts
• Ethics, Economics and Law—A Venn Model
• Three Models of Management Ethics
• Making Moral Management Actionable
• Developing Moral Judgment
• Elements of Moral Judgment
• Summary

© 2018 Cengage 4
 Business Ethics Scandals
• The public’s interest in business ethics is at an
all-time high, spurred by scandals.
• The Enron scandal impacted business so
greatly it is called “The Enron Effect.” But
more scandals followed:
• Worldcom, Tyco, Arthur Andersen
• And then the Wall Street financial scandals:
• AIG, Bear Stearns, Lehman Bros, Fannie Mae,
Freddie Mac, and Bernie Madoff
• Business will never be the same.
© 2018 Cengage 5
© 2018 Cengage 6
 The Public’s Opinion
of Business Ethics (1 of 2)
• The public’s view of business ethics has never
been very high.
• Anecdotal evidence suggests that many
people see business ethics as an oxymoron,
and think that there’s only a fine line
between a business executive and a crook.
• A Gallup poll taken in December, 2015
revealed that only 17% of the public thought
business executives had high or very high
ethics. (Down from 21% in 2012.)
© 2018 Cengage 7
 The Public’s Opinion
of Business Ethics (2 of 2)

National Business Ethics Survey Findings -

• Observed ethical misconduct at work has decreased
slightly, from 45% to 41%.
• Reporting bad behavior (whistle-blowing) is down
slightly, from 65% to 63%.
• Retaliation against those who report misconduct has
stayed about the same at 21%.
• Pressure to compromise is down to 9%.

© 2018 Cengage 8
 Are the Media Reporting Business
Ethics More Vigorously?
• It is sometimes difficult to tell whether business ethics
have really deteriorated or whether the media is doing
a more thorough job of reporting ethics violations.
• There is no doubt that news media outlets are
reporting ethical problems more frequently and
fervently.
• The media had a field day with the Bernie Madoff Ponzi
scheme, which defrauded thousands of investors of
$50 billion.
• Investigate reporting on ethics has been shown on 60
Minutes, 20/20, Dateline NBC, Rock Center and
Frontline.
© 2018 Cengage 9
 Is It Society That Is Changing?
• History shows that a good number of what are
now called unethical practices were at one
time considered acceptable.
• Or it may be that those practices never were
acceptable to the public, but because they
were not known, it seemed they were
tolerated.
• It is difficult to say whether business ethics
are getting better, worse, or staying the
same, but perceptions and expectations are
significantly driving businesses’ reputations.
© 2018 Cengage 10
 Business Ethics Today versus Earlier Periods

Society’s Expectations
of Business Ethics
Expected and Actual Levels
of Business Ethics

Ethical Problem

Actual
Ethical Problem Business Ethics

1960s Time 2010

© 2018 Cengage 11
 Business Ethics:
Some Basic Concepts(1 of 2)
Ethics – are standards of conduct, which originate from
some external group or source such as society, in general,
or business, in particular.
Morals – standards of conduct that originate within the
individual
Business Ethics –
• Is concerned with rightness, wrongness, fairness or
justice of actions, decisions, policies, and practices that
take place within a business context or in the workplace.
• Is the study of practices in organizations and is a quest
to determine whether these practices are acceptable or
not.
© 2018 Cengage 12
 Business Ethics:
Some Basic Concepts (2 of 2)

Descriptive Ethics -
• Involves describing, characterizing, and studying
morality.
• Focuses on what is occurring.
Normative Ethics -
• Focuses on what ought or should be occurring.
• Demands a more meaningful moral anchor than
just “everyone is doing it.”
Normative Ethics is our primary concern in this
text.
© 2018 Cengage 13
 The Conventional Approach
to Business Ethics

The conventional approach to business ethics involves a

comparison of a decision or practice to prevailing societal
norms.

Decision, Behavior, Prevailing Norms

or Practice of Acceptability

© 2018 Cengage 14
 Sources of Ethical Norms

Fellow Local Regions of

Workers Community Country

Family The Individual Profession

One’s Self-
Interest and
Friends Conscience
Employer

The Law Religious Society at

Beliefs Large

© 2018 Cengage 15
 Ethics and the Law
• The law and ethics can overlap in many
respects.
• The law is a reflection of what society thinks
are minimal standards of conduct and
behavior.
• Research of illegal corporate behavior
focuses on two questions:
1. What leads firms to behave illegally?
2. What are the consequences of engaging
in illegal behavior?
© 2018 Cengage 16
 Making Ethical Judgments

Behavior or act that has Compared with Prevailing norms of

been committed acceptability

Value judgments and

perceptions of the observer

© 2018 Cengage 17
The Danger of Ethical Relativism
• A serious danger of using the
conventional approach to business
ethics is:
Ethical Relativism -
• One picks and chooses which source of
norms one wishes to use based on what
will justify current actions or maximize
freedom.

© 2018 Cengage 18
Ethics, Economics, and Law –
A Venn Model

© 2018 Cengage 19
 Three Models of
Management Ethics
Immoral Management -
• An approach devoid of ethical principles and an
active opposition to what is ethical.
• The operating strategy of immoral management is
focused on exploiting opportunities for corporate or
personal gain.
Moral Management -
• Conforms to highest standards of ethical behavior
or professional standards of conduct.
Amoral Management –
• Different in nature from the others, it has two kinds:
• Intentional: Does not consider ethical factors.
• Unintentional: Casual or careless about ethical
factors.
© 2018 Cengage 20
Characteristics of Immoral Managers-

These Managers:
• Intentionally do wrong
• Are Self-centered and self-absorbed
• Care only about self or organization’s profits or
success
• Actively oppose what is right, fair, or just
• Exhibit no concern for stakeholders
• Are the “bad guys”
• An ethics course probably would not help them
© 2018 Cengage 21
 Examples of Immoral Management -

• Stealing petty cash

• Cheating on expense reports
• Taking credit for another’s accomplishments
• Lying on time sheets
• Coming into work hungover
• Telling a demeaning joke
• Taking office supplies for personal use
• Showing preferential treatment toward certain
employees
• Rewarding employees who display wrong behaviors
• Harassing a fellow employee
© 2018 Cengage 22
Characteristics of Moral Managers
These Managers:
• Conform to the highest standards of ethical
behavior or professional standards of conduct.
• Ethical Leadership is commonplace.
• Their goal is to succeed within the confines of
sound ethical precepts.
• Demonstrate high integrity in thinking,
speaking and doing.
• Follow both the letter and the spirit of the law.
• Possess an acute moral sense and moral
maturity.
• Moral managers are the “good guys.”
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 Habits of Moral Leaders -
1. They have a passion to do right.
2. They are morally proactive.
3. They consider all stakeholders.
4. They have a strong ethical character.
5. They have an obsession with fairness.
6. They undertake principled decision-
making.
7. They integrate ethics wisdom with
management wisdom.
© 2018 Cengage 24
 Positive Ethical Behaviors
of Moral Leaders -

• Giving proper credit where it is due

• Being straightforward and honest with other
employees
• Treating all employees equally
• Being a responsible steward of company assets
• Resisting pressure to act unethically
• Recognizing and rewarding ethical behavior of
others
• Talking about the importance of ethics and
compliance on a regular basis
© 2018 Cengage 25
Characteristics of Amoral Managers-
Intentionally Amoral Managers
• Don’t think ethics and business should “mix.”
• Business and ethics exist in separate spheres.
• A vanishing breed.
Unintentionally Amoral Managers
• Don’t consider the ethical dimension of decision-
making.
• Don’t “think ethically.”
• Have no “ethics buds.”
• Well intentioned, but morally casual or unconscious.
• Ethical gears are in neutral.
© 2018 Cengage 26
© 2018 Cengage 27
 Two Hypotheses Regarding
Moral Management Models
Population hypothesis
• The distribution of the three models
approximate a normal curve, with the amoral
group occupying the large middle part of the
curve and the moral and immoral categories
occupying the tails.
Individual hypothesis
• Within the individual manager, these three
models may operate at various times and
under various circumstances.
© 2018 Cengage 28
Three Models of Management Morality and
Emphases on CSR

© 2018 Cengage 29
Moral Management Models And Acceptance
or Rejection of Stakeholder Thinking

© 2018 Cengage 30
 Making Moral Management
Actionable -
• The characteristics of immoral, moral and amoral
management provide benchmarks for managerial
self-analysis, and help managers recognize the need
to move from the immoral or amoral ethic to the
moral ethic.
• Amoral management is a morally vacuous condition
that can easily be disguised as an innocent,
practical, bottom-line philosophy. But it is the bane
of the management profession.
• Most managers are not “bad guys,” but managerial
decision-making cannot be ethically neutral. Both
immoral and amoral management must be
discarded and the process of developing moral
judgment begun.
© 2018 Cengage 31
Developing Moral Judgement
Kohlberg’s Levels of Moral Development

© 2018 Cengage 32
 Why Managers and Employees
Behave Ethically
1. To avoid some punishment
Most of Us
2. To receive some reward

3. To be responsive to family, friends,

or superiors
Many of Us
4. To be a good citizen

Very Few Of Us 5. To do what is right, pursue some ideal

© 2018 Cengage 33
 Ethics of Care as
Alternative to Kohlberg

Recognize their own needs Level 3

and needs of others

Establish connections and Level 2

participate in social life

Level 1
Self is Sole Object of Concern

© 2018 Cengage 34
Different Sources of a Person’s Values
External sources:

Religious values

Philosophical values

The Web
Cultural values
of Values

Legal values

Professional values
© 2018 Cengage 35
Sources Internal to the Organization

Norms prevalent in business include -

• Respect for the authority structure
• Loyalty to bosses and the organization
• Conformity to principles and practices
• Performance counts above all else
• Results count above all else

© 2018 Cengage 36
 Elements of Moral Judgment -
• Moral imagination
• Moral identification and ordering
• Moral evaluation
• Tolerance of moral disagreement and
ambiguity
• Integration of managerial and moral
competence
• A sense of moral obligation

© 2018 Cengage 37
 Key Terms
• amoral management
• bottom-line mentality
• Business ethics
• Compliance strategy
• Conventional approach to
business ethics
• Conventional level of moral
judgment (level 2)
• Descriptive ethics
• Elements of moral judgment
• Ethical relativism
• Ethical tests approach
• Ethics
• Gilligan’s ethics of care
• Immoral management
• Individual hypothesis
• Integrity strategy
• Intentional amoral
management © 2018 Cengage
• Individual hypothesis
• Integrity strategy
• Intentional amoral
management
• Kohlberg’s levels of moral
development
• Moral development
• Moral management
• Normative ethics
• Population hypothesis
• Preconventional level of moral
judgment (level 1)
• Principles approach
• Postconventional level of
moral development
• Unintentional amoral
management
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