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Ethical Decision Making in
Business
The Big Question
Whether to teach ethics in the business
curriculum or not?
 Friedman (1970)
 Drucker (1981)
 Knee-jerk reaction to recent spate of
scandals
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Distinguish between the concepts
of “morality” and “ethics”
 Morality – refers to the standards of behavior
by which people are judged (particularly in
their relationships with others).
“moral standards of behavior”
 Ethics – encompasses the system of beliefs
that supports a particular view of morality.
“ethical systems of belief”
(Hosmer, 2003)
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Moral developmental theory
(Rest, Piaget, Kohlberg)
Four Components of Morality:
What constitutes moral behavior?
Theory of Cognitive Disequilibrium:
How does a person’s understanding of the
world change?
Moral Development Progression:
How does a person’s morality change?
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The Four Components of Morality
(Rest et al, 1999).
1. Moral sensitivity
2. Moral judgment
3. Moral motivation
4. Moral character
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Piaget’s Theory of cognitive
disequilibrium
“When new experiences cannot be assimilated into
existing categories of experience or when
expectations are violated, humans attempt to revise
their categories and expectations so that experience
will once again make sense and be predictable.
Change in one’s cognition then comes from
experiences that do not fit one’s earlier (and simpler)
conceptions. Cognitive disequilibrium is the condition
for development.”
(Piaget, 1965)
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Stages of Moral Development
STAGE
(Preconventional Level)
Stage 1:
Punishment and Obedience
Orientation
Stage 2:
Instrumental Relativist Orientation
(Conventional Level)
Stage 3:
“Good Boy-Good Girl” Orientation
(Kohlberg)
CHARACTERISTICS
Right and wrong, good and bad are clearly
defined and known by Adult authorities who
hold Truth. Physical consequences of an
action determine its goodness or badness
therefore “right” is a matter of obedience.
Right and good are what satisfies one’s own
needs while being aware of others’ needs.
Fairness is defined as reciprocity.
Adult authority sometimes holds Truth
Right and good are what help others in one’s
group. One earns approval for “right” behavior
by being “nice,” therefore morality is defined in
terms of cooperation with one’s peers.
Right must involve feelings of others .
Stage 4:
“Law and Order”
Orientation
(Postconventional Level)
Stage 5:
Universal Ethical
Principle Orientation
Stage 6:
Social Contract
Orientation
Right is doing one’s duty in maintaining the
given social order, respect for authority. Society’s laws
replace those of the peer group. Laws of the society
are followed without question and breaking the law is
never justified.
Principles are abstract and ethical (e.g., Golden Rule),
not specific moral prescriptions (e.g., Ten
Commandments). Laws and values of any particular
society are somewhat arbitrary and particular to
that society. Laws are seen as necessary to preserve
social order and ensure basic rights of life and liberty.
Right is defined in terms of general individual rights and
standards that have been agreed upon by the
whole society. Ethical principles are self-chosen and
based on abstract concepts such as justice and the
equality and value of individual human rights. Laws
that violate these principles can and should be
disobeyed.
So how do we make decisions in
situations involving ethical matters?
The same way we make decisions
involving non-ethical matters.
We look at the situation, assess
alternative courses of action,
evaluate outcomes and probabilities,
and choose a course of action.
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Steps in making a judgment
1. Problem recognition
2. Identification of alternative courses of action
3. Evaluation of alternative courses of action
4. Estimation of outcome probabilities
5. Calculation of expected values
6. Justification of course of action chosen
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do we
StepsHow
in making
a judgment
EVALUATE
alternatives
?
1. Problem recognition
2. Identification of alternative courses of action
3. Evaluation of alternative courses of action
4. Estimation of outcome probabilities
5. Calculation of expected values
6. Justification of course of action chosen
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We use evaluation TOOLS.
In management decisions we use tools such as:
 cost-benefit analysis
 feasibility analysis
 time-to-market analysis
 net present value
 strategic prioritization
 etc.
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We also use evaluation tools in
ethical analysis:
 Deontology – analysis of universal duties
Kant’s categorical imperative
 Teleology – comparison of good vs. bad outcomes
Bentham & Mill’s utilitarianism
 Conventional Rules and Mores – conventional cultural
moral rules
The Golden Rule, laws, etc.
 Virtue Theory – characteristics of a good person
Bravery, temperance, generosity,
justice, pride, and honesty.
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Universal Duty (Kant, 1785)
 Universal = categorical
Duty = imperative
 One should act only on that maxim
whereby it should become a
universal law of nature applicable
to everyone.
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To test an action:
1. Define the action under consideration;
2. Derive the underlying rule (maxim) for
the action;
3. Test the rule as a universal law.
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Kant’s second formulation of the
categorical imperative
Act in such a way that you always
treat humanity, whether yourself or
someone else, never simply as a
means to an end, but always at the
same time as an end.
Based on the innate dignity of human
free will.
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Utilitarian Theory (Mill, 1863)
 …the “greatest happiness principle” holds
that actions are right in proportion as they
tend to promote happiness; wrong as they
tend to produce the reverse of happiness.
 The utilitarians writers in general have placed
the superiority of mental over bodily
pleasures chiefly in the greater permanency,
safety, uncostliness, etc.
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Act vs. Rule Utilitarianism
 The act utilitarian believes that each
individual action is to be evaluated directly in
terms of the utility principle, i.e., consider the
consequences of each action.
 Will your action generate the greatest amount
of happiness for the greatest number of
people involved?
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Act vs. Rule Utilitarianism
 The rule utilitarian believes that behavior is
best evaluated by rules that, if universally
followed would lead to the greatest good for
the greatest number. We must consider the
consequences of a rule if it were applied
universally.
 If the act in question were made a universal
rule, would it result in the greatest good for
the greatest number of people?
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Conventional Moral Rules
 Conventional moral rules are classic moral
rules that have withstood the test of time and
are commonly accepted by society.



The Golden Rule
Thou shall not kill
Thou shall not steal
 These rules derive from rule utilitarian theory.
Why?
 Because they work within a society to promote
common good throughout that society.
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Personal Virtue Ethics (Aristotle)
 One should live one’s life virtuously.
 Virtues of honesty, openness, pride, and
generosity.
 Personal characteristics your mother would
be proud of! Why?
 Because these types of behaviors, when
practiced in one’s life, will make it easier for
one to know the right thing to do in situations
of moral conflict.
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A Framework for
Moral Decision Making
1. Problem recognition – identification of the basic
•Categorical
situation, the actors,
andimperative
discernment between
•Utilitarianism
issues vs. dilemmas
2. Identification
•Virtue theory
•Conventional
of
alternativerules
courses
of action
3. Evaluation of alternative courses of action and
ramifications on all actors from ethical perspective
4. Estimation of outcome probabilities and values
5. Calculation of expected values
6. Justification of course of action chosen
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a) Which alternative respects the rights
and dignity of the stakeholders and
can be universally applied?
For each decision alternative, identify the
ramifications if everyone were to follow the
principle that underlies that alternative. For each
decision alternative, determine if you are
respecting the stakeholders and not treating
them merely as objects.
b) Which alternative will produce the
most good and the least harm?
For each alternative, identify the cost/benefits.
Weigh the cost-benefits of each alternative to
each stakeholder and determine if there is a
solution that promotes the greatest good for the
all of people.
If there is no alternative that results only in good
and no harm, choose the alternative that
produces the most benefits and causes the
least harm to the stakeholders.
c) Do any of the alternatives violate
a conventional moral rule?
These are the types of rules that we find in
many great religious traditions, such as rules
against killing, stealing, and lying. Others are
more local and particular to specific cultures
such as rules about proper dress, relations
between the sexes, respect for established
authority, and so on.
d) Which alternative can you
personally live with?
1. Will adopting this decision allow you to be at
peace with yourself and develop your
character in a way that will improve your
relationships with others?
2. How would you feel when you share your
decision with your most respected mentors,
family members, friends?
3. How would you feel if your actions were
reported on the front page of The Wall
Street Journal?
Pat is being interviewed by Ken as a possible consultant to the City in
negotiating a new water contract. Pat asks for a fee of $600 per day for
an estimated 10 days of consulting work, for a total fee of $6,000.
Ken counters with an offer of a $20,000 fee, for political reasons, and
requests Pat to give back $14,000 to the “flower fund.” He explains that
the flower fund helps the mayor deal with hardship cases among City
employees, whom he says are underpaid and receive meager fringe
benefits. The mayor wishes to be perceived as a caring and
compassionate politician. Pat asks Ken if this contribution of $14,000 is
an absolute requirement for her to get the consulting assignment. Ken’s
reply is deliberately unclear.
Pat is torn in two directions as she considers her decision. On the one
hand, she wants the consulting experience and sees that it can get her
started as a successful consultant. The fee will also be welcome, to ease
her financial pressures. On the other hand, Pat feels uncomfortable with
Ken's request for the flower fund contribution, even though it may be a
good cause. She also feels used to help deceive the public by proposing
a $20,000 fee to further the Mayor's political purposes, when it is clear
that her actual fee will only be about $6,000.