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Chapter 8
Making
Ethical
Decisions in
Business
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
David Geffen
o David Geffen the son of poor Russian immigrants
o Geffen was coming of age as an entrepreneur, he still
had to face school
o Geffen graduated from high school wanting to get
rich in show business
o From the mailroom a 21-year-old Geffen launched
the career that made him “the richest man in
Hollywood”
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David Geffen
o Irrespective of moral admonitions Geffen was now on
his way
o His extraordinary qualities in a business that rewards
such traits
o Geffen’s achievements and atonements can be
weighed against his early indiscretions
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Principles of Ethical Conduct
o The following 14 principles are fundamental guides
or rules for behavior
o These principles distill basic wisdom that spans 2,000
years of ethical thought
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The Categorical Imperative
o Origination: Immanuel Kant
o Basic premise: Act only according to that maxim by
which you can at the same time will that it should
become a universal law
o Criticism: Theory is dogmatic and inflexible
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The Conventionalist Ethic
o Origination: Albert Z. Carr
o Basic premise: Business is like a game with
permissive ethics and any action that does not violate
the law is permitted
o Criticism: Commerce defines the life changes of
millions and is not a game to be taken lightly
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The Disclosure Rule
o Basic premise: Test an ethical decision by asking how
you would feel explaining it to a wider audience such
as newspaper readers, television viewers, or your
family
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The Disclosure Rule
o Criticism:
o Does not always give clear guidance for ethical
dilemmas in which strong arguments exist for several
alternatives
o An action that sounds acceptable if disclosed may not,
upon reflection, be the most ethical
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The Doctrine of the Mean
o Origination: Aristotle
o Basic premise: Virtue is achieved through moderation
o Avoid behavior that is excessive or deficient of a virtue
o Criticism: The doctrine itself is inexact
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The Ends-Mean Ethic
o Origination: Ancient Roman proverb, but often
associated with Niccolò Machiavelli
o Basic premise: The end justifies the means
o Criticism:
o In solving ethical problems, means may be as
important, or more so, that ends
o The process of ethical character development can
never be furthered by the use of expedient means
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The Golden Rule
o Origination: Found in the great religions and in works
of philosophy
o Basic premise: Do unto others what you would have
them do unto you
o Criticism:
o People’s ethical values differ, and they may mistakenly
assume that their preferences are universal
o It is primarily a perfectionist rule for interpersonal
relations
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The Intuition Ethic
o Origination: Defined by G.E. Moore in Principia
Ethica
o Basic premise: What is good or right is understood by
an inner moral sense based on character development
and felt as intuition
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The Intuition Ethic
o Criticism:
o Ethical intuition is reliable, but not infallible
o Self-interest may be confused with ethical insight
o No standard of validation exists outside the individual
o Intuition may fail to give a clear answer when ethical
norms are in conflict
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The Might-Equals-Right Ethic
o Origination: Thracymachus
o Basic premise: Justice is the interest of the stronger
o Criticism:
o Confusion of ethics with force
o Invites retaliation and censure, and is not conducive to
long-term advantage
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The Organization Ethic
o Origination: Not credited
o Basic premise: Be loyal to the organization
o Criticism: Many employees have such deep loyalty to
an organization that it transcends self-interest
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The Principle of Equal Freedom
o Origination: Herbert Spencer
o Basic premise: A person has the right to freedom of
action unless such action deprives another person of a
proper freedom
o Criticism: Lacks a tie breaker for situations in which
two rights conflict
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The Proportionality Ethic
o Origination: Medieval Catholic theology
o Basic premise: A set of rules for making decisions
having both good and evil consequences
o Criticism: These are intricate principles, requiring
consideration of many factors
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The Rights Ethic
o Origination: Western Europe during the
Enlightenment
o Basic premise: Each person has protections and
entitlements that others have a duty to respect
o Criticism:
o Rights are sometimes stretched into selfish demands or
entitlements
o Rights are not absolute and their limits may be hard to
define
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The Theory of Justice
o Originator: Contemporary, John Rawls
o Basic premise: Each person should act fairly toward
others in order to maintain the bonds of community
o Criticism: Rawl’s principles are resplendent in theory
and may even inspire some business decisions, but
they are best applied to an analysis of broad societal
issues
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Figure 8.1 - Three Spheres of Justice
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The Utilitarian Ethic
o Origination: Line of English philosophers, including
Jeremy Bentham and John Stuart Mill
o Basic premise: The greatest good for the greatest
number
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The Utilitarian Ethic
o Criticism:
o In practice it has led to self-interested reasoning
o Because decisions are to be made for the greatest good
of all, utilitarian thinking has led to decisions that
permit the abridgement of individual or minority group
rights
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Reasoning with Principles
o The use of ethical principles, as opposed to the
intuitive use of ethical common sense, may improve
reasoning, especially in complex situations
o Based on the application of utility, rights, and justice,
the manager’s decision in the text example to remain
silent is acceptable
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Reasoning with Principles
o Some judgment is required in balancing rights, but
the combined weight of reasoning with all three
principles supports the manger’s decision
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Character Development
o Character development is a source of ethical behavior
separate from the use of principles reasoning
o Virtue ethic: Ethical behavior stems from character
virtues built up by habit
o Aristotle believed that by their nature ethical
decisions require choice, and we build virtue, or
ethical character, by habitually making the right
choices
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The Neural Basis of Ethical Decisions
o A fast, unconscious, and automatic process in neural
circuits causes ethical judgments to appear in our
awareness without any feeling of having gone
through a reasoning process
o There is no specific part of the brain that makes
ethical decisions
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The Neural Basis of Ethical Decisions
o Functional magnetic resonance imaging: A method
used to map activity in neural networks during ethical
decision making
o Emotions have a central role in ethical thought
because of their importance to adaptive behavior
o Moral intuition creates awareness of a moral
judgment without any memory of having gone
through a step-by-step reasoning process
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The Neural Basis of Ethical Decisions
o Moral intuition is a form of social intuition that is
adaptive to the social environment and predominates
in individual ethical decisions
o There is considerable individual variation in
perceptions of right and wrong
o Neuroscience, as it removes physiological mysteries,
reinforces the ethical teachings of centuries
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Practical Suggestions for Making Ethical
Decisions
o Pay attention to your ethical intuition
o Consider tactics that illuminate alternatives
o Critical questions approach: A method of ethical
reasoning in which insight comes from answering a
list of questions
o Sort out ethical priorities early
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Practical Suggestions for Making Ethical
Decisions
o Set an example
o Thoughts must be translated into action, and ethical
deeds often require courage
o Cultivate sympathy and charity toward others
o Ethical perfection is illusory
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Concluding Observations
o There are many paths to ethical behavior
o Not all managers appreciate the repertoire of
principles and ideas that exist to resolve the ethical
problems of business life
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