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What are Ethics
• Moral Values=beliefs about what is good vs
bad, right vs. wrong
• E.g., it is wrong to lie
• Ethics = standards of behavior consistent with
one’s moral values
• E.g., I should not lie
• Decision= Intention for behaving consistently
with ethics
• I decide not to lie even if I am disadvantaged by lying
• Behavior= Action
• not lying
Type of Ethics Rightness is defined by…
Basis of actions
End Results
-effect/consequences it has --Actions are aimed to promote
-utility of ends
(collective) happiness,
--Actions that promote more
happiness are more right
Duty
Social
Contract
-obligations to apply
universal standards in all
situations
-intentions of actor rather
than effects
--Customs or norms of a
community
Personal-isitc
One’s conscience
--Actions that promote virtue rather
than pleasure
--behaviour should be based on
principles/rules
--Community defines morality which
defines right & wrong
--Duty binds individual to community
--What is best for community is
ultimate standard
-stand up for what one believes
-no absolute formulas for living
Sources determining Managerial Ethics
Org. Culture –
Rituals, slogans,
symbols, etc.
External
Stakeholders –
Government,
clients, market,
etc.
Personal ethics –
Beliefs, moral
development, etc.
Org. Systems –
Code, reward
system, rules, etc.
Managerial
Ethics
3
How sources affect Ethical Behavior - I
• Reward System
– Anticipation of healthy reinforcement for following an
unethical course of action, especially if no punishment
is expected.
• Role conflict in Code of Conduct
– “Bureaucratic” role as an organizational employee is at
odds with one’s role as the member of a profession.
• Market: Competition
– Stiff competition for scarce resources.
– Temptation to make unethical decisions in situations in
which essentially no competition exists.
What increases biases in judgments
Type of Judgment
Ambiguity
Attachment
Familiarity
Bias in
judgments
Seeking
Approval
Discounting
Escalation
Disclosure
Ambiguity in accounting
• Study of approx 50 tax preparers shows 83%976% difference in how much a family owes in
yearly taxes
– Ambiguity in Income, deductibles, depreciation
schedule
• Declaring items as revenue vs. expenses (early
vs. later) has implications on how stockholders
react
• Firms hire based on how auditors interpret
accounting problems
Self-serving Bias
Attachment
Bias in
Judgment
Students role playing as
plaintiffs (in an accident)
predicted that they would
receive larger awards from
the judge than did those
playing the role of
defendants
Types of training & self-serving bias
Learning
about selfserving
biases
Writing
essays
arguing for
other side
0
0
Bias in
judgments
-
Reading
case FIRST
before
being
assigned the
role of
plaintiff or
defendant
Seeking approval
• You are even more biased toward yourself when
someone else is biased toward your opinion
• Implications for overly biased judgments
– E.g., when auditors make judgments by themselves first
vs. merely “endorsing” judgments that clients already
made (they are even more biased toward their selfserving biases)
How sources affect Ethical Behavior - II
• Organizational and Industry Culture
– Aspects of an organization’s culture (and its
subcultures)
• Corporate cultures that reward unethical behaviour.
• A culture of greed and a singular focus on positive
financial results.
 Stonewalling
 Counter norms
– Corporate codes of conduct might have an impact
on culture and ethical decision making.
Copyright © 2011
Pearson Canada Inc.
Familiarity, discounting, escalation
• On-going relationships Familiarity
– Decide between negatively affecting company
executives (clients) vs. company investors (not clients)
• Discounting
– Favour immediate consequences vs. delayed uncertain
consequences (see Margin Calls movie)
• E.g., damage to relationship, loss of contract, unemployment
• Escalation
– Sum of small biases leads to large biases (i.e.,
corruption)– (see Margin Calls movie)
Auditor Attachment affects Bias in Judgment
• Study of buyer, seller, buyer auditor and seller
auditor
–
–
–
–
Seller valued firm more than buyer
Auditors were more biased toward client interests
Sellers auditors valued firm more than buyer auditor
Reward for accuracy for auditors did not eliminate
the bias they already had
Auditor Attachment affects Bias in Judgment
• Auditors who were hired by the company
were more likely to conclude that the
company complied with the GAAP rules
rather than those auditors who were hired
by the company’s business collaborator
• Experience of auditor did not decrease the
bias
Study of
Advisors vs. estimators of how much $$ in jar
Disclosure of
conflict of
interest
Bias in
Judgment
•Estimator got paid for
accurate judgments
•Advisor got paid for how high
estimator’s estimate was (i.e.,
advisor had a incentive to
make higher judgments)
Results
•Disclosure of advisor’s motive to
Disclosure of
estimator did not lead estimators
conflict of
to discount advisor’s advice and
interest
make lower judgments so
advisors made more than
estimators
Bias in
Judgment
Results: Continued
Disclosure of
conflict of
interest
Bias in
Judgment
•Advisors who were given
incentives to mislead
estimators to make high
judgments and whose
motives were disclosed to
estimators were more biased
than those whose motives
were not disclosed.
•Advisors seemed to adjust
for estimator’s discounting
and made even higher
judgments
Legal reform in accounting should remove the
incentive for being attached and should take
into account the negative effects of disclosure to
the organization
Legal Reform
?
Increase Disclosure
+
Reduce Attachment
Reduce Bias in Judgment
How sources affect Ethical Behavior - III
• Personality & Values
– Certain personality types are more prone to unethical
behaviour (e.g., economic values, high need for
personal power).
Bottom line mentality - financial success is the only value
to be considered
Exploitative mentality - use people in a way that promotes
stereotypes and undermines empathy and compassion
Madison Avenue mentality - anything is right if the public
can be made to see it as right
Workers emulate the unethical behavior of their superiors
Copyright © 2011
Pearson Canada Inc.
How sources affect Ethical Behavior – IV
• Other individual factors
– There are individual differences in the degree of
sophistication that people use in thinking about moral
issues.
– Less disengagement and more attentiveness is
associated with more ethical behaviour
– Individual differences in cognitive moral development.
Kohlberg’s Theory of Moral Development
Copyright © 2013 Pearson Education, Inc., publishing as Prentice Hall
Copyright © 2013 Pearson Education, Inc.,
publishing as Prentice Hall
2-202-20
12-9
Guidelines
for
Determining
Ethical Action
Ethical
Yes
Question 3
Does the activity conform
to standards of equity and
justice; is it fair?
Yes
Question 2
Does the political activity
respect the rights of the
individuals affected?
Question 1
Will the political tactics
promote purely selfish
interests (as opposed to
also promoting organ-izational goals?)
No
Yes
No
Unethical
No