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CHAPTER
5
Business Ethics
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© 2014 Routledge, Inc., Taylor and Francis Group. All rights reserved.
Learning Outcomes
After studying this chapter, you should be able to:
1. Compare and contrast ethics, business ethics, and managerial ethics
2. Characterize the three levels of moral development
3. Identify reasons for unethical behavior and how people justify it
4. List general guides to ethical decision making
5. Compare and contrast virtues, deontological, and utilitarianism guides
to ethical decision making
6. Describe the 3-way ethics test
7. Explain how the 5 Is strategic analysis includes the stakeholder
approach and ethics
8. Define the key terms in the chapter
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Ethics Foundations
Ethics
The moral standard (or principles) of right and wrong
(or moral and immoral), and fairness that influences
behavior—what we do and say or our actions.
Honesty
The moral standard (or principles) of right and wrong
(or moral and immoral), and fairness that influences
behavior—what we do and say or our actions.
Values
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Important desired behaviors that help shape morals
or what is considered ethical and unethical.
Universal vs. Relativism Ethics
Universal Ethics
Ethical concepts are
impartial, they apply to
everyone, and morals
should take precedence
over self-interest.
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Relativism Ethics
Morals affecting ethical
behaviors can change
based on time, the
circumstances of the
situation, and personal
opinion.
Business Ethics Foundations
Personality
Traits and
Attitudes
Moral
Development
The
Situation
Ethical
Behavior
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Levels of Moral Development
Postconventional
(Principle-Centered)
Conventional
(Social-Centered)
Preconventional
(Self-Centered)
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5. Fairness ethics
6. Universal ethics
3. Social group norms
4. Societal norms
1. Punishment avoidance
2. Reward seeking
Figure 5.1
Levels of Moral Development
Level
Description of Motivation,
Behavior and Leadership
Examples
3. Postconventional
(Principle-Centered)
• Behavior is motivated by universal principles of
right and wrong, regardless of the expectations of
the leader or group and possible negative
consequences for the behavior.
• The common leadership style is participative; it is
leadership that is committed to serving others and
a higher cause while empowering followers to
reach this level.
“I don’t lie to
customers because
lying is wrong.”
2. Conventional
(Social-Centered)
• Behavior is motivated by the desire to live up to
others’ expectations, to copy the behavior of the
leaders or of those in one’s group. Peer pressure
is used to enforce group norms.
• It is common for lower-level managers to use a
similar leadership style of the higher-level
managers.
“I lie to customers
because the other
sales reps do it too.”
1. Preconventional
(Self-Centered)
• Behavior is motivated by the relativism ethics of
self-interest (get rewards and avoid punishment).
• The common leadership style is autocratic toward
others while using one’s position for personal
advantage.
“I lie to customers to
sell more products and
get higher commission
checks.”
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Business Ethics and Ethical Dilemmas
Business
ethics
Is the application of ethics to issues that arise in
business.
Ethical
dilemma
Occurs when a decision must be made in the midst
of conflicting interests; there is no simple right and
wrong answer and multiple ethical alternatives.
Managerial
ethics
Are responsibilities of managers for developing
moral standard policies and procedures to foster,
guide and ensure ethical employee behaviors.
Moral
management
Describes the ethical (or unethical ) behaviors of
moral, immoral, and amoral managers
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Business Ethics Myths
 Myth 1. Ethics is just a matter of opinion.
 Myth 2. There is no point in studying ethics because we
all know what is right; it’s just a matter of doing
what is ethical.
 Myth 3. Business ethics is simple; just follow a guide
such as “don’t do anything you wouldn’t want to
appear on the front page of the newspaper.”
 Myth 4. You can’t teach and learn business ethics.
 Myth 5. We learn ethics as kids and really can’t change
our behavior to be more ethical as adults.
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Why People Use Unethical Behavior
Personal Gain, Self-Interest,
and Conflict of Interest
External
Pressure
Cross-Cultural
Inconsistency
Unethical
Behavior
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Influences on Ethical Behavior
Personality
Traits
Competitive
Situations
Attitudes
Ethical
Behavior
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How People Justify Unethical Behavior
Ethical
rationalization
The process of determining motives,
reasons, explanations, and justifications
that lead to particular decisions and
behavior when faced with ethical dilemmas.
Justifying
unethical
behavior
The process of convincing oneself that a
decision is rational and ethical, when in fact
it really serves self-interest or provides an
easy way out of the ethical dilemma.
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Processes Used to Justify Unethical Behavior
Relativism
ethics
Displacement of
responsibility
Disregard or
distortion of
consequences
Moral
justification
Diffusion of
responsibility
Attribution
of blame
Conventional
justification
Advantageous
comparison
Euphemistic
labeling
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Figure 5.2
Ethical Rationalizations and Unethical Behavior
Ethical rationalization:
the process of determining
motives, reasons, explanations,
and justifications that lead to
particular decisions and behavior
when faced with ethical dilemmas
Justification for
unethical behavior:
relativism ethics, moral justification,
conventional justification,
displacement of responsibility,
diffusion of responsibility,
advantageous comparison, disregard
or distortion of consequences,
attribution of blame,
euphemistic labeling
Why people use
unethical behavior:
personal gain, self-interest,
conflict of interest, external
pressure, cross-cultural
inconsistency, personality and
attitudes, the situation
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Figure 5.5
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Guides to Ethical Decisions and Behavior
Golden rule
Advice
Four-way test
Five-question test
Comfort
Moral level
Common sense
Discloser
General Guides to Ethical Decisions
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Golden Rule
Advice
Moral level
Comfort
Rights
Disclosure
Justice
4-Way Test
Common sense
5-Question Test
Business Ethics Tests
Four-way Test
(Rotary International)
1. Is it the truth?
2. Is it fair to all concerned?
3. Will it build goodwill and
better friendship?
4. Will it be beneficial to all
concerned?
If you can answer yes to all
four questions, the action
may be ethical.
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Five-Question Test
(Sears, Roebuck and Co.)
1. Is it legal?
2. Is it within Sears’ shared
beliefs and policies?
3. Is it right/fair/appropriate?
4. Would I want everyone to
know it?
5. How will I feel about myself?
If you have positive answers to
all five questions, the action may
be ethical.
Virtues Ethics Guide
Character
Integrity
Relationships
Personal
Virtue Ethics
Ethical Dilemma Decisions
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Ethical Dilemma Questions to Ask Yourself
1. What character traits does the organization
value? Will the behavior of my decision be
consistent with the values of the firm?
2. Who do I want to be?
3. What type of person will I be defined as and
become if I choose a certain behavior?
4. How will the behavior affect my relationships?
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Deontological Ethics Guide
Right and
wrong
behaviors
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Standards
of Conduct
(norms)
Ethical
decisions
and actions
Deontological Questions to Ask Yourself?
1. Does the behavior in the situation violate a
standard of conduct or law?
2. Can I rationalize the action as ethical and
consistent based on the standards of conduct
of the firm, industry, and society, or am I just
justifying my unethical behavior?
3. If people find out about my behavior, could it
lead to action against me and/or my firm (e.g.,
lawsuits)?
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The Generalization Test:
Rationalizing Behavior as Being Ethical
• To pass the generalization test:
 The reasons for the action must be consistent with
commonly accepted standards of conduct.
 Everyone in the same situation with the same
reasons is likely to exhibit the same behavior.
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Utilitarianism Ethics Guide
• Utilitarianism
 Refers to making ethical decisions based on a cost-
benefits analysis of the consequences (end results)
of the behavior or action (means) taken.
• Questions to Ask Yourself
1. What is the purpose or objective to be accomplished?
2. What are the likely consequences and the cost–benefit
of each alternative action to meet the objective?
3. Do the ends justify the means?
4. How can we work together to benefit relevant
stakeholders in the long run?
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Figure 5.3
The 13 Guides to Ethical Decision Making and Behavior
Virtue
Test
10 General Guides
Generalization
Test
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1. Golden Rule
2. Moral Level
3. Rights
4. Justice
5. Common Sense
6. Advice
7. Comfort
8. Disclosure
9. 4-way test
10. 5-question test
Utilitarian
Test
Figure 5.4
The 3-Way Ethics Test
The 3-way ethics test is used to determine whether an action is
ethical. The test has three parts taking into account situational factors:
 To pass the virtues test, the behavior must be honest, be based on
good character traits, and maintain one’s integrity and relationships.
 To pass the generalization test, the reasons for the action must be
consistent, and everyone in the same situation with the same
reasons will use the same behavior.
 To pass the utilitarian test, one specific action will lead to more
favorable consequences than any alternative decision.
To be ethical, the behavior must pass all three tests.
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Figure 5.5
General Electric’s Code of Conduct
 Obey the applicable laws and
regulations governing our
business conduct worldwide.
 Foster an atmosphere in which
fair employment practices
extend to every member of the
diverse community.
 Be honest, fair, and trustworthy
in all your activities and
relationships.
 Strive to create a safe
workplace to protect the
environment.
 Avoid all conflict of interest
between work and personal
affairs.
 Through leadership at all
levels, sustain a culture where
ethical conduct is recognized,
valued, and exemplified by all
employees.
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Figure 5.6
Lockheed Martin’s Warning Signs of Unethical Behavior
 It doesn’t matter how it gets
done as long as it gets done.
 We didn’t have this
conversation.
 No one will ever know.
 It sounds too good to be true.
 Well, maybe just this once.
 Everyone does it.
 This will destroy the
competition.
 What’s in it for me?
 Shred that document.
 It’s okay if I don’t gain
personally.
 I deserve it.
 No one will get hurt.
 We can hide it.
 This is a non-meeting.
 It’s all for a good cause.
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Managing Ethics
Institute ethics codes,
training and
communication
Consult U.S.
Sentencing Guidelines
Get directors and
top management
commitment
Have realistic
objectives
Appoint ethics and
compliance officers
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Methods
for
Managing
Ethics
Set up ethics advice
helplines
Discipline ethics
violators
Conduct ethics
audits
Business Nonmarket and Market Strategies
and Ethics: 5 Is Strategic Analysis
Step 1
Step 2
Step 3
Step 4
Assess the range
of moral concerns
that strategic
stakeholders may
have about the
issue.
Determine the
reaction of
nonmarket
members to the
firm’s strategic
action concerning
the issue.
Conduct a cost–
benefit analysis to
gauge positive or
negative media
coverage or
publicity about the
issue.
Select the
alternatives that
represent rational
and appropriate
integrated
strategies.
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Key Terms
business ethics
justifying unethical behavior
deontological ethics
levels of moral development
ethical decision guides
relativism ethics
ethical dilemma
utilitarianism ethics
ethical rationalization
utilitarian test
ethics audit
universal ethics
ethics helpline
virtues ethics
generalization test
virtues ethics test
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