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Chapter 4
Ethics and
Ethical Reasoning
McGraw-Hill/Irwin
Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
Ch. 4: Key Learning Objectives
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Defining ethics and business ethics
Evaluating why businesses should be ethical
Knowing why ethical problems occur in business
Identifying managerial values as influencing ethical
decision making
 Recognizing how people’s spirituality influences their
ethical behavior
 Understanding stages of moral reasoning
 Analyzing ethical problems using generally accepted
ethics theories
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The Meaning of Ethics
 Ethics
 A conception of right and wrong conduct
 Tells us whether our behavior is moral or immoral
 Deals with fundamental human relationships—how we think
and behave toward others and want them to think and
behave toward us
 Ethical Principles
 Guides to moral behavior
 Business Ethics
 Application of general ethical ideas to business behavior
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Sources of Ethics
 Notions of right and wrong come from many sources
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Religious beliefs
Family background
Education
Community/neighborhood
Media influences
 These experiences create a concept of ethics,
morality, and socially acceptable behavior in each
person
 Acts as a moral compass to guide an individual when ethical
dilemmas arise
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Ethical Relativism
 Concept which holds that ethical behavior should be
defined by various periods in time in history, a society’s
traditions, the special circumstances of the moment, or
personal opinion
 The meaning given to ethics would be relative to time, place,
circumstance, and the person/s involved
 There would be no universal ethical standards on which people
around the globe could agree
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Figure 4.1 Observations of Unethical
Behavior at Work
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Five Key Reasons Business
Should Be Ethical
 To meet demands of business stakeholders
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About three-fourths of employees surveyed in 2007 believe their
firms are considering the environment, employee well-being,
and the interests of society and the community.
Meeting demands of stakeholders is good business
 To enhance business performance
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Research shows linkage between ethically responsible
behavior and favorable corporate financial performance
Imparts trust, promoting positive alliances among
business partners
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Five Key Reasons Business
Should Be Ethical
 To comply with legal requirements
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Two legal requirements provide direction for companies
interested in being more ethical in their business operations
 U.S. Corporate Sentencing Guidelines
 Sarbanes-Oxley Act of 2002
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Although they apply only to U.S.-based firms, these legal
requirements also provide a model for firms that operate outside
the United States
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U.S. Corporate Sentencing Guidelines
 Establish standards and procedures to reduce criminal
conduct
 Assign high-level officer(s) responsibility for compliance
 Not assign discretionary authority to “risky” individuals
 Effectively communicate standards and procedures through
training
 Take reasonable steps to ensure compliance—monitor and
audit systems, maintain and publicize reporting systems
 Enforce standards and procedures through disciplinary
mechanisms
 Following detection of offense, respond appropriately and
prevent reoccurrence
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Sarbanes-Oxley Act of 2002
 Born from the ethics scandals at Enron, WorldCom, Tyco
 Seeks to ensure that firms maintain high ethical standards
in how they conduct and monitor business operations
 Requires executives to vouch for the accuracy of a firm’s
financial reports
 Requires executives to pay back bonuses based on
earnings that are later proved fraudulent
 Established strict rules fro auditing firms
 In 2006 and 2007 regulation loosening occurred when the
SEC provided more relaxed guidelines to parts of the
Sarbanes-Oxley Act
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Five Key Reasons Business
Should Be Ethical
 To prevent or minimize harm
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Overriding principle that business should
“do no harm”
Examples include not harming society with toxic
waste, protecting business from unethical employees
and unethical competitors
 To promote personal morality
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Knowing one works in a supportive ethical climate
contributes to sense of psychological security
People want to work for companies that do the right
thing
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Why Ethical Problems
Occur in Business
 Four Primary Reasons
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Personal gain and selfish interest
Competitive pressure on profits
Conflicts of interest
Cross-cultural contradictions
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Why
Ethical
Problems
Figure 4.3
Occur in Business
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Core Elements of Ethical Character:
Managers’ Values
 Managers are key to whether a company and its
employees will act ethically or unethically
 The values held my managers will serve as models for
others who work at the company
 Differences in ethical stances of U.S. versus European
managers and employees
 Younger generation of managers more concerned about
ethics/social responsibility
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A company’s CSR performance is a major factor when selecting a
new employer for today’s graduating MBAs
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Spirituality in the Workplace
 Personal belief in a supreme being, religious
organization, power of nature or some other life-guiding
force
 Organizations have responded to the increased attention
to spirituality and religion at work by attempting to
accommodate their employees
 Opponents of spirituality at work point to the myriad of
implementation issues as grounds for keeping spirituality
out of the workplace
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Issues include which religion should be promoted, and need for
recognizing diversity of religious beliefs
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Stages of Moral Development
 From childhood to mature adulthood people move up
in their moral reasoning
 Earliest stages of reasoning are ego-centered
 Most developed stages are principle-centered
 Most managers make decisions based on criteria in
levels 3 and 4
 Company executives’ reasoning has wide implications
both inside and outside the organization
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Stages of Moral Development
Figure 4.4
and Ethical Reasoning
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Analyzing Ethical Dilemmas
in Business
 Business managers and employees need a set of
decision guidelines that will shape their thinking when
on-the-job ethics issues occur
 These guidelines should help them
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Identify and analyze the nature of an ethical problem, and
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Decide which course of action is likely to produce an ethical
result
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Four Methods of Ethical Reasoning
 Virtues
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Values and character are critical determining factors
 Utilitarian
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Compares benefits and costs of a decision, policy or action
Costs and benefits can be economic, social or human
 Rights
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Person or group is entitled to something or to be treated in a
certain way
Examples of basic human rights are right to life, safety, and due
process
 Justice
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Means benefits and burdens are distributed equally, according to
some accepted rule
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Four Methods of
Figure 4.5
Ethical Reasoning
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Applying Ethical Reasoning
to Business Activities
 Can use the virtues, utility, rights, and justice
framework as a tool to analyze real business ethics
dilemmas
 Once the ethical analysis is complete, the decision
maker should ask the question: Do all of the above
ethics approaches lead to the same decision?
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If all the answers are “Yes”, the proposed action is ethical
If all the answers are “No”, the action is not ethical and needs
to be reconsidered
If “Yes” and “No” answers are mixed, you must decide which
takes priority
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