Download Value Based Decision Making

Ethics should be distinguished from
‘prudence’ (self-interest narrowly
defined), ‘legality’(following the law
in letter and spirit) and professional
guidelines and codes of conduct.
Ethics is more than that and fills the
gaps in perception and
pronouncements.
Value Based Decision Making
Management by Values
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There are four major rationales used by professional
managers to justify unethical behavior ( not paying heed to
values)
Belief that the activity is within the reasonable ethical and
legal limits– not really illegal or immoral
A belief that the activity is in the individual’s or
organization’s best interest
A belief that the activity is safe and would not be found out
or publicized
A belief that the activity helps the organization and the
management will condone even when detected.
Organizational Traps- why we ignore ethics in
corporate decision making?
• We are social animals and our judgments are influenced by
environment
• The judgment of some is influenced by (i) the desire to
please others, (ii) to avoid conflict, to be in step with others
and avoid future criticism
• Groupthink has a potential side effect of strong team
identity and strives at consensus
• Problems generate undue optimism. Responses to be on
factual basis.
• Groups decisions are generally more acceptable than
individuals.
• The ethical value system of the members of the group
could be at wide variance
Smart and Ethical Decision
• Improved decisions by the employees at every level can
have a major impact on the value of the business. Even
small improvements make a big difference
• To improve decisions, adopt a rational decision process,
train personnel to use the process and the tools, and
improve implementation of the process through repeated
use.
• When introducing a new decision process, start small and
expand the process as it demonstrates its value. Enlist top
management support, but localize control and
responsibility
• Encourage improvement and value added judgment.
Rationality Flowchart (Value Based)
The problem is clear and unambiguous
A single well
defined goal
All alternatives and consequences are
known
Preferences are clear and (value) based
Preferences are (ethical) stable and constant
No time
or cost constraints
Final choice will (optimize)
maximize economic payoff
Lead To
Value based Rational Decision Making
Current Management Thought
Manager
Subordinates
Peers / Suppliers
Technology
Resources
Profits sole criteria
Value Based Management Thought
People
Producers
Consumers
Ethical action
(CSR)
Technology &
resources
Profits with joy
Value based management looks at the concept of management differently
and may be defined as ‘a series of ethical actions done by people, using
technology and resources, to achieve a state of joy and happiness in the
minds of both producers and consumers’.
Organizational Types based on Ethical Consideration
Ethics built into the decision making process
Ethics said to be important but not institutionalized
Problem of ethics recognized after the decision is made;
Ethics briefly considered but considered irrelevant
No consideration of ethics at all
Value Analysis
Value has been defined as ‘that is desired’. It has reality only in its
fulfillment, and therefore, needs to be actualized before it can truly
become value (instrumental). It is not always the end results, but
also the means to realize it (intrinsic). Value based actions and
decisions ensure the welfare of all people belonging of the society.
A set of basic values can help people to make decisions even in the
face of uncertainty and in new situations that he has never
encountered before. Values enhances the quality of life of the
individuals and the society.
For the last 1000 yrs, man has attempted to establish the ethical
value systems to regulate their conduct; none of them are
perfect.
The Ethical Theories
• Ethics is a normative study, that is, an
investigation that attempts to reach normative
conclusions. It aims to identifying good or bad or
right or wrong.
• There are different normative perspectives and
principles that often contradict each other. In
organizational context we can identify some of the
ethical theories that have an impact on the manner
in which ethics or lack of it could be identified in
a business organization.
Normative Theories
Consequentialist –Teleological
Utilitarianism
Non consequentialist –Deontological
Universalism
Egoism
Kantian theories
Classification of Normative Theories
Teleological Theories - (Utilitarianism)
• Actions are justified by the virtue of the end they achieve,
(concept of goodness is fundamental in teleological theories)
rather some features of actions themselves. Also referred to as
“Utilitarianism”, our obligation or duty to perform in any
situation will be guided by the result in the greatest possible
balance of good over evil. (Ethics of welfare)
• Advantages: They are in accord with our ordinary moral
reasoning and are relatively precise and objective for moral
decision making. (Speaking the truth, honoring the contract,
giving away the food for some other person to the beggars).
• Disadvantages: The concepts of rights and justice pose a
difficult challenge (rights of free speech, donations to the
orphanage vs the money to be spent on your own children)
The Two Giants of Utilitarianism
• Jeremy Bentham version relates that the consequences be
measured in some way (pain or pleasure) and arrive at a
mathematical figure. For this he outlined a procedure called the
hedonistic calculus. Called as ‘pig philosophy’ as it failed to
differentiate between the levels of pleasure (fulfillment of
hunger, friendship aesthetic enjoyment). Stretched a little it
would say “It is better to live the life of a satisfied pig than that
of a dissatisfied Socrates”
• John Stuart Mill brought the concept of quality into being and
claimed that human beings are capable of enjoying higher
pleasures than those experienced by swine. He concluded better
to be Socrates dissatisfied than a fool satisfied. And if the fool
or the pig, are of a different opinion, it is because they know
only their side of the question
Problems of calculating utility
• Classical utilitarianism requires that we be able to determine
the amount of utility (pleasure minus pain) both for the
individual as well as for the whole society. A difficult job
indeed. The methods could be used as CB analysis, assigning
monetary values to the parameters, should all values be
monetised, and ancillary considerations (requirements of the
analyst).
• However, Utilitarianism is a powerful and widely accepted
ethical theory that has special relevance to problems in
business. Not only does it enable us to justify many of the
obligations of individuals and corporations, it also provides
strong foundation for rights and justice
Egoism
The view that associates morality with self interest is
referred as egoism. They assert that all actions are motivated
by self interest and there is nothing like unselfish action. To
them even the self sacrificial acts like whistle blowing is either
to take revenge or become a celebrity. The criticism are:
• Egoism as an ethical theory is not really a moral theory at all
(subjective self interest)
• Is not a sound theory in as much as it assumes that all actions
are motivated by self interest (ignores the intrinsic goodness of
human beings)
• Ignores blatant wrong doings (does not take clear stand against
corruption, bribery etc)
Deontological Theories - (Universalism)
• Two people give large sums in charity – one to impress his
friends and the other out of genuine concern to alleviate
sufferings. Deontologists generally hold that the rightness of
actions depends wholly on or part of the motives from which
they are performed and not the consequences implying
categorical imperatives (act according to the maxim which
you think should become universal, treat humanity with
respect) and not on hypothetical imperatives (if you want to
improve your serve, work hard).
• All moral judgments must be universalizable (what is good
has to be good for everybody unless under excruciating
circumstances). This insists that we must be consistent in the
judgments that we make. (Tax evasion – what if everyone did
that?) The primary difficulty with this approach is its
inflexibility
Kantianism
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Immanuel Kant (1724 – 1804) is widely regarded as the most
pragmatic business ethician in modern times. He said that for
an action to be morally worth it should reflect goodwill. By
goodwill he meant the unique human capacity to act from
principles, must not be sought in the nature of man or in the
circumstances in which he is placed, but sought a priori solely
in the concepts of pure reason.
For Kant, reason is the final authority for morality. Blind
beliefs or rituals cannot be foundations for morality. No matter
how much good it might result from the act, lying is always
wrong. The two corner stones of this theory are:
To act only in ways that one would wish others to act when
faced with similar circumstances
Always treat other people with dignity
Virtue Ethics
• Aristotle described ‘virtue’ as a character trait that manifests
itself in habitual action. Honesty, for example, can not consist
in telling the truth only once. It is integrally related to
practical wisdom – is the whole of what a person needs in
order to live well – as a trait of character that is essential for
leading a satisfying life (amassing wealth and power through
ruthlessness or a successful life of crime and lechery be
considered virtuous?). Aristotle lists justice among the
virtues. A virtuous person not only has a sense of fair
treatment but can also determine what constitutes fairness.
• The virtues are not merely means to happiness but are
themselves constituents of it. Happiness does not consist
solely on what we get in life but also includes who we are.
(joy of parenting comes out of parental traits)
Virtue Ethics in Business
• The role of ethics is to enable us to lead successful and
rewarding lives – the kind of life we call good life. The good
life in Aristotle’s sense is possible only for virtuous persons
– that is, persons who develop the traits of character that we
call virtues.
• Virtue ethics could be applied to business directly by holding
that the virtues of a good businessperson are the same as a
good person. However, business people face situations that
are peculiar to business and so they may need certain
business related character traits
A Classical Example
• In the Indian epic Mahabharata, on the eve of the battle
that is the central episode of the epic, the invincible
warrior, Arjuna, expresses his profound doubts about
leading the fight which will result in so much killing. He is
told by his advisor, Krishna, that he must give priority to
his duties, that is to fight, irrespective of the consequences.
That famous debate is often interpreted as one about
deontology versus consequentialism (utilitarianism), with
Krishna the deontologist, urging Arjuna to do his duty,
while Arjuna, the alleged consequentialist, worries about
the terrible consequences of war.
Niti and Nyaya
• Niti stands for organizational propriety and behavioral
correctness while Nyaya stands for a comprehensive concept of
realized justice.
• A realization focused perspective highlights the importance of
the prevention of manifest injustice in the world, rather than
seeking the perfectly just.
• When people agitated for the abolition of slavery in the 18th
and 19th centuries, they were not laboring under the illusion
that abolition of slavery would make the world perfectly just. It
was their claim, rather, that society with slavery was totally
unjust. It was the diagnosis of an intolerable injustice in slavery
that made abolition an overwhelming priority, and this did not
require a consensus on how a perfectly just world would look
like
A Practical Guide – Niti vs Nyaya
• In the battle of Mahabharata, Arjuna is concerned not only
about the fact that, leading the charge on the side of propriety
and justice, a lot of people, many of whom he has personal
relations with and of the same family would get killed. His
worries goes well beyond the process independent view of
consequences. An appropriate understanding of the social
realization – central to the justice as Nyaya – has to take the
comprehensive form of a process inclusive broad account. It
would be hard to dismiss is on grounds that it is narrowly
consequentionalist and ignores the reasoning underlying
deontological concerns.
Some More Normative Theories Of Business Ethics
(Business Friendly Theories)
• Businessmen are neither philosophically inclined nor are
trained philosophers. They are interested in solving the
specific problems that confront them directly, rather than
indulging in abstractions that look like road to nowhere. It is
imperative, therefore, that business ethicist should produce a
set of ethical principles that are both lucid and easy to
comprehend by the business folks, who can place them in
context of their day to day business and see whether they have
any practical relevance.
• Presently there are three normative theories of business ethics
that have evolved over a period of time
Some More Normative Theories Of Business Ethics
Normative Theories Of Business Ethics
Stockholder
Theory
More or
Less obsolete
Stakeholder
Theory
Social Contract
Theory
Primary and
Secondary stakeholders
1.Benefit consumers to maximize their wants
2.Benefit employee to maximize perks and remuneration
3.Ensure least damage to the environment
The Concept of Right
• Rights play an important role in business ethics, they can be
conflicting, supportive or discriminatory ( debate over abortion,
euthanasia).
• Rights can also be understood as entitlements
• Several kinds of rights can be distinguished viz (1) Legal and
moral rights, (2) Specific and general rights (3) Negative and
positive rights (4) One prominent foundation for rights focuses
on “natural rights” or as now called “Human Rights”
characterized by universality and unconditionality. Slavery,
apartheid and torture are wrong as they violate minimal
conditions for rational action or dignity and respect
Types of Ethical Value System -1
 Utilitarianism: This approach comes from Teleology, which
is concerned not with the act itself but with the consequences
as well. A special version of teleology is Utilitarianism,
which aims at creating the greatest degree of benefits for the
largest number of people ( difficult, trade off ?) while
incurring the least amount of harm possible. (does not
provide the balance between the benefits to the majority and
the sacrifice of the minority)
 Universalism: It is based on the duties and obligations of an
individual (Deontology) and says that the moral worth of an
action of an individual should be judged by the intentions of
the action, and not by the outcomes. Do unto others….
(difficult to be implemented in the organizations)
Types of Ethical Value System - 2
 The system of Distributive Justice and Social
Contracts: Justice is thought to be the most likely
outcome of an of an ethical process of decision
making. All laws, rules and regulations must,
necessarily, first and foremost be just. Groups can
either be collaborative (synergetic) or conflicting
(the distributive system be such as to compensate
the least fortunate members – greater equality).
The essential feature of this system is
transparency and full participation of the
stakeholders in the decision making
process.(individual efforts downplayed)
Types of Ethical Value System - 3
 Individual Freedom of Choice: Individuals at
perfect liberty to make enlightened (legal) choices
without being curbed by other individual or
society. Freedom should be available not only at
the entry stage but at all levels.
 The legal System and Professional Code: The
value of action can also be determined through the
legal systems, professional codes and value based
norms of particular profession.
Though apparently simplistic, suffers from serious
limitations of interpretations. Ethics is more than
mere rules and regulations.
Nash’s Criteria of Ethical Decision Making 1
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Have you defined the problem accurately.
How would you define the problem if you stood on the other
side of the fence
How did the situation occur in the first place
To whom and to what you give your loyalty as a person and
as a member of the organization
What is your intention in making the decision
How does this intention compare with the probable results
Whom could your decision or action injure
Can you discuss the decision with the affected parties before
you make the decision
Nash’s Criteria of Ethical Decision Making - 2
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Are you confident that your problem will be valid over a long
period of time, as it seems now
10. Could you discuss the qualms of your decision or action with
others
11. What would be the symbolic action of your decision, if
understood / misunderstood
12. Under what conditions would you allow exceptions to your
stand
However, the approach may be irksome to the managers
who have not been able to clarify their own values or who
work in an unsympathetic climate. A guiding criteria is “is
the action needs to be kept secret”.
Ethical Decision Making Models
Ferrel and Gresham (1985) developed a multi stage
contingency model with three principal causatives
(cognitive process) of ethical decision making
 Individual Factors (actual cognitive map of the individual
and his value system)
 Organizational Settings (environment which promotes or
hinders ethical action)
 Opportunity for action (possibility of acting unethically)
Four constructs which affect decision making process
through their moderating effect on ethical problems :
 Personal experience
 Organizational norms
 Industry norms
 Cultural norms
Ethical Decision Making
Effective managers are action oriented, resolve conflicts,
tolerant to ambiguity, stress and change, and have strong sense
of purpose for themselves and their organizations. However,
they should be aware of the following dimensions of decision
making and a process of ethical enquiry will help.
 In a given situation, a certain course of action is imminent
 Some sensitivity to the potential harm and benefits for others
 A systemic method for determining and annexing the ethical
issues involved
 Adding a needed dimension of ethics to the deliberation
involved in decision making
The Ethical Decision Maker
1. Every manager wants to prove himself and be successful.
This growth can be achieved either by holding to the
principles and ethics or completely abandoning them.
2. Organizations need to train managers for their inner growth
and skill development for effective and ethical decision making.
The training should include conscious imbibing of compassion,
charity, goodwill, transparency to get over the negative feelings
of jealousy, pride, ego, hatred etc
3. A decision maker requires a calm and poised mind which is
attained through karma, samskara and guna.
4. With the help of meditation, one acquires an increasing power
to process one’s experience and information into durable and
wider-perspective decisions
Bibliography
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Ethical Management – Satish Modh
Business Ethics – Shyam L Kaushal
Values for Managers – Prof S.K.Chakraborty
Ethics and the Conduct of Business – John R Boatright
Ethical Choices in Business – R.C. Sekhar