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Chapter 7
Business Ethics
Fundamentals
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Learning Outcomes
1. Describe how the public regards business ethics.
2. Define business ethics and appreciate the complexities of making
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ethical judgments.
Explain the conventional approach to business ethics. Differentiate
it from the principles approach and ethical tests approach.
Analyze economic, legal, and ethical aspects of a decision by using
a Venn Model.
Identify and explain three models of management ethics. Give
examples of each.
Describe and discuss Kohlberg’s three levels of developing moral
judgment.
Identify and discuss the elements of moral judgment.
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Chapter Outline
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The Public’s Opinion of Business Ethics
Business Ethics: Meaning, Types, Approaches
Ethics, Economics and Law - A Venn Model
Three Models of Management Ethics?
Making Moral Management Actionable
Developing Moral Judgment
Elements of Moral Judgment
Summary
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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
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greatly it is called “The Enron Effect.” But
then followed more scandals:
• 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.
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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, 2012,
revealed that only 21 % of the public thought
business executives had high or very high
ethics.
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The Public’s Opinion
of Business Ethics
(2 of 2)
National Business Ethics Survey Findings • Observed ethical misconduct at work has decreased
slightly, from 49% to 45%.
• Reporting bad behavior (whistle-blowing) is on the
rise. from 63% to 65%.
• Retaliation against those who report misconduct has
increased sharply, to 22% experienced retaliation.
• Pressure to compromise is near the all-time high.
• Weak ethical cultures – the percentage of companies
with weak ethics cultures increased to almost record
levels.
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Are the Media Reporting Business
Ethics More Vigorously?
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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 out of $50 billion.
Investigate reporting on ethics has been shown
on 60 Minutes, 20/20, Dateline NBC, Rock
Center and Frontline.
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Is Society Changing?
Former U.S. Treasury Secretary, Michael
Blumenthal•
“People in business have not suddenly become
immoral. What has changed are the contexts in
which corporate decisions are made, the
demands that are being made on business, and
the nature of what is considered proper
corporate conduct.”
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History shows that a good number of what are
now called unethical practices were at one time
considered acceptable.
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Or it may be that those practices never were
acceptable to the public, but because they were
not known, it seemed they were tolerated.
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Business Ethics Today versus Earlier
Periods
Expected and Actual Levels
of Business Ethics
Society’s Expectations
of Business Ethics
Ethical Problem
Actual
Business Ethics
Ethical Problem
1960s
Time
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Business Ethics:
Meaning, Types, Approaches (1 of 2)
Ethics – is the discipline that deals with moral
duty and obligation.
Moral Conduct - relates to principles of right,
wrong, and fairness in behavior.
Business Ethics •
Is concerned with morality and fairness in
behavior, actions, and practices that take place
within a business context.
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Is the study of practices in organizations and is a
quest to determine whether these practices are
acceptable or not.
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Business Ethics:
Meaning, Types, Approaches (2 of 2)
Descriptive Ethics •
Involves describing, characterizing, and studying
morality.
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Focuses on what is occurring.
Normative Ethics •
Focuses on what ought or should be occurring.
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Demands a more meaningful moral anchor than
just “everyone is doing it.”
Normative Ethics is our primary concern in this text
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Three Major Approaches
to Business Ethics
Conventional Approach •
Based on how the average person views
business ethics, and on common sense.
Principles Approach •
Based on the use of ethics principles to justify
and direct behavior, actions, and policies.
Ethical Tests Approach •
Based on short, practical questions to guide
ethical decision making and behavior and
practices.
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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,
or Practice
Prevailing Norms
of Acceptability
Ethical Egoism •
An ethical principle based on the idea that the individual
should seek to maximize his or her own self interests as a
legitimate factor.
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Sources of Ethical Norms
Fellow
Workers
Family
Friends
The Law
Local
Community
Regions of
Country
The Individual
Profession
One’s SelfInterest and
Conscience
Employer
Religious
Beliefs
Society at
Large
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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?
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Making Ethical Judgments
Behavior or act that has
been committed
Compared with
Prevailing norms of
acceptability
Value judgments and
perceptions of the observer
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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.
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Ethics, Economics, and Law –
A Venn Model
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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.
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Characteristics of Immoral ManagersThese Managers:
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Intentionally do wrong
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Are Self-centered and self-absorbed
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Care only about self or organization’s profits or
success
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Actively oppose what is right, fair, or just
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Exhibit no concern for stakeholders
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Are the “bad guys”
An ethics course probably would not help
them
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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
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Characteristics of Moral Managers
These Managers:
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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 decisionmaking.
7. They integrate ethics wisdom with
management wisdom.
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Positive Ethical Behaviors
of Moral Leaders •
Giving proper credit where it is due
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Being straightforward and honest with other
employees
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Treating all employees equally
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Being a responsible steward of company assets
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Resisting pressure to act unethically
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Recognizing and rewarding ethical behavior of
others
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Talking about the importance of ethics and
compliance on a regular basis
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Characteristics of Amoral ManagersIntentionally Amoral Managers
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Don’t think ethics and business should “mix.”
Business and ethics exist in separate spheres.
A vanishing breed.
Unintentionally Amoral Managers
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Don’t consider the ethical dimension of decisionmaking.
Don’t “think ethically.”
Have no “ethics buds.”
Well-intentioned, but morally casual or
unconscious.
Ethical gears are in neutral.
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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.
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Three Models of Management
Morality and Emphases on CSR
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Moral Management Models And Acceptance
or Rejection of Stakeholder Thinking
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Making Moral Management
Actionable •
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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.
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Kohlberg’s Model
of Moral Development
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Why Managers and Employees
Behave Ethically
1. To avoid some punishment
Most of Us
2. To receive some reward
Many of Us
3. To be responsive to family, friends,
or superiors
4. To be a good citizen
Very Few Of Us
5. To do what is right, pursue some ideal
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Ethics of Care as
Alternative to Kohlberg
Recognize their own needs
and needs of others
Level 2
Establish connections and
participate in social life
Self is Sole Object of Concern
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Level 3
Level 1
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External Sources of a Person’s Values
Religious values
Philosophical values
The Web
of Values
Cultural values
Legal values
Professional values
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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
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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
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Key Terms
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bottom-line mentality
Business ethics
Compliance strategy
Conventional approach to
business ethics
Conventional level of moral
development
Descriptive ethics
Ethical egoism
Elements of moral judgment
Ethical relativism
Ethical tests approach to
business ethics
Immoral management
Individual hypothesis
Integrity strategy
Intentional amoral
management
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Kohlberg’s levels of moral
development
Moral development
morality
Moral management
Normative ethics
Population hypothesis
Preconventional level of moral
development
Principles approach to
business ethics
Postconventional,
autonomous, principled level
of moral development
Unintentional amoral
management
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