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Chapter 7
Business Ethics Fundamentals
LEARNING OUTCOMES
After studying this chapter, you should be able to:
1.
2.
3.
4.
5.
6.
7.
8.
Describe how the public regards business ethics.
Define business ethics and appreciate the complexities of making ethical judgments.
Explain the conventional approach to business ethics.
Analyze economic, legal, and ethical aspects by using a Venn model.
Enumerate and discuss the four important ethics questions.
Identify and explain three models of management ethics.
Describe Kohlberg’s three levels of developing moral judgment.
Identify and discuss the elements of moral judgment.
TEACHING SUGGESTIONS
INTRODUCTION – Chapter 7 introduces concepts and background that are essential to
understanding business ethics. The authors explore a wide range of topics that combine to form
a network within which business decisions are made, how they are made, and how managers
develop their abilities to make them.
KEY TALKING POINTS – Unless students previously have taken a course in moral philosophy,
most will have given little thought to the whole issue of ethical decision-making. Although they
certainly will have opinions regarding what constitutes moral behavior (often very strong
opinions), the majority will have little insight into how they make those decisions. One effective
way to introduce this element of moral decision-making is to show a video clip or read a short
passage that presents a clear moral dilemma (e.g., Case 10, Phantom Expenses) and then ask the
students how they would make a decision about that scenario—without allowing them to say
what their decisions are. Many will get frustrated with this exercise but will soon recognize the
point being made—that they go through a process to get to their decisions, but rarely do they pay
any attention to that process. Note that when students describe how they would make their
decision, some will describe the use of an ethical principle (i.e., the principles approach);
however, many will discuss the use of societal norms in their decision-making process (i.e., the
conventional approach). Consequently, this exercise also is an opportunity to introduce the three
major approaches to business ethics as well as Kohlberg’s three levels of moral judgment.
This chapter focuses on two primary topics—the environment within which business ethics
decisions are made and how managers go about making those decisions. By maintaining a clear
focus on moral judgment, the authors provide students with a strong explanation of that process.
However, by doing so, they also fall into the trap to which most moral philosophers succumb:
neglect of other elements of moral behavior. James Rest, a contemporary of Lawrence
Kohlberg, developed what he termed a Four Component Model of Moral Behavior, which
outlines the psychological steps that must occur for moral action to occur. As Rest says,
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Chapter Notes
“…there is more to moral development than moral judgment development…” (Moral
Development in the Professions, 1994, page 22). Rest’s four components include:
1.
Moral sensitivity – awareness that a moral situation exists
2.
Moral judgment – judging which action is morally right/wrong
3.
Moral motivation – prioritizing moral values relative to other values
4.
Moral character – courage to carry out the morally right action
There is no question that judgment is a critical element in moral behavior, but it is only one
element. Without recognition of the other components, students will not gain a full
understanding of moral behavior within organizations.
Using the Venn diagram, instructors can demonstrate how economics, ethics and the law affect
managerial decisions. Further, the model of ethics employed by management is reflected by the
emphasis placed on each of these responsibilities: (1) immoral managers focus on the firm’s
economic responsibilities to the exclusion of all else, (2) moral managers balance the firm’s
economic, ethical and legal responsibilities, and (3) amoral managers pursue economic profits
while failing to consider ethical, and, potentially, legal factors (although they may passively
comply with the law).
PEDAGOGICAL DEVICES – In this chapter, instructors may utilize a combination of:
Cases:
The Waiter Rule: What Makes for a Good CEO?
Using Ex-Cons to Teach Business Ethics
To Hire or Not to Hire
The Travel Billing Expense Controversy and the False Claims Act
Phantom Expenses
Family Business
Chiquita: An Excruciating Dilemma Between Life and Law
McDonald's: The Coffee Spill Heard ‘Round the World
Safety? What Safety?
The Betaseron Decision (A)
A Moral Dilemma: Head Versus Heart
Wal-Mart and Its Associates: Efficient Operator or Neglectful Employer?
The Case of the Fired Waitress
After-Effects of After-Hours Activities: The Case of Peter Oiler
Is Hiring on the Basis of “Looks” Discriminatory?
The Case of Judy
Ethics in Practice Cases:
Ethics in the Mailroom
What They Don’t Know Won’t Hurt Them
Flowers vs. Eyes: When Would You Have Paid?
Spotlight on Sustainability:
Ray Anderson’s Epiphany
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Chapter Notes
Power Point slides:
Visit http://academic.cengage.com/management/carroll for slides related to this and other
chapters.
LECTURE OUTLINE
I.
THE PUBLIC’S OPINION OF BUSINESS ETHICS
A.
B.
Are the Media Reporting Business Ethics More Vigorously?
Is It That Society Is Actually Changing?
II.
BUSINESS ETHICS: MEANING, TYPES, APPROACHES
A. Descriptive versus Normative Ethics
B. Three Major Approaches to Business Ethics
C. The Conventional Approach to Business Ethics
D. Ethics and the Law
E.
Making Ethical Judgments
III.
ETHICS, ECONOMICS, AND LAW: A VENN MODEL
IV.
FOUR IMPORTANT ETHICS QUESTIONS
A. What Is? - The Descriptive Question
B. What Ought to Be? - The Normative Question
C. How to Get from What Is to What Ought to Be - The Practical Question
D. What Is Our Motivation? - A Question of Authenticity
V.
THREE MODELS OF MANAGEMENT ETHICS
A. Immoral Management
1. Operating Strategy of Immoral Management
2. Illustrative Cases of Immoral Management
a. Enron
b. Bernie Madoff
c. Ashleymadison.com
d. Proctor & Gamble
e. Survey Results
B. Moral Management
1. Operating Strategy of Moral Management
2. Illustrative Cases of Moral Management
a. McCullough
b. Navistar
c. Merck
C. Amoral Management
1. Intentional Amoral Management
2. Unintentional Amoral Management
3. Operating Strategy of Amoral Management
4. Illustrative Cases of Amoral Management
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Chapter Notes
a. Early Examples
b. Nestlé
c. Sears
5. Two Hypotheses Regarding the Models of Management Morality
a. Population Hypothesis
b. Individual Hypothesis
c. Amoral Management Is a Serious Organizational Problem
VI.
MAKING MORAL MANAGEMENT ACTIONABLE
VII. DEVELOPING MORAL JUDGMENT
A. Levels of Moral Development
1. Level 1: Preconventional Level
2. Level 2: Conventional Level
3. Level 3: Postconventional, Autonomous, or Principled Level
4. Ethics of Care Alternative to Kohlberg
B. Different Sources of a Person’s Values
1. Sources External to the Organization: The Web of Values
a. Religious Values
b. Philosophical Values
c. Cultural Values
d. Legal Values
e. Professional Values
2. Sources Internal to the Organization
VIII. ELEMENTS OF MORAL JUDGMENT
A. Moral Imagination
B. Moral Identification and Ordering
C. Moral Evaluation
D. Tolerance of Moral Disagreement and Ambiguity
E.
Integration of Managerial and Moral Competence
F.
A Sense of Moral Obligation
IX.
SUMMARY
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
Students should recognize that their answers to these discussion questions should be well
reasoned and supported with evidence. Although some answers will be more correct than others,
students should be aware that simplistic answers to complex questions, problems, or issues such
as these will never be “good” answers.
1.
Ethical business behavior does not mean that no harm is done to anyone. Rather, ethical
business behavior entails being aware of the possible consequences of the firm’s actions
before they take place, making reasoned moral judgments about those consequences, and
choosing the actions that are the most “right” or do the least harm. Chapter 8 will
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Chapter Notes
investigate some of the criteria used to decide “right” from “wrong,” but this chapter
provides a series of important ethics questions, including “what is?” “what ought to be?”
“how do we get from what is to what ought to be?” and “what is our motivation?”
Contemplating theses questions will help managers make decisions that encourage ethical
behavior, especially the normative question of “what ought to be?” Students should come
up with a wide variety of examples that demonstrate the difficulties of making moral
judgments. Instructors may want to provide personal examples of situations that they have
observed where students have struggled with making moral decisions. Further, sharing
relevant personal experiences often increases instructor credibility in the classroom;
consequently, when appropriate, instructors may want to discuss their own ethical
dilemmas with the class.
2.
Immoral management entails knowingly deciding to engage in “wrong” actions, often ones
that harm others in some way. Moral management, on the other hand, consists of making
moral judgments to do the “right” thing. Immoral management often concentrates on
measures of profitability to the exclusion of other criteria, while moral management
incorporates profit as one of several criteria in making a decision. Finally, amoral
management views managers’ actions as having no moral consequence—that business
operations are somehow outside the boundaries of morality. Examples of immoral
management include Enron’s use of special purpose entities to hide corporate debt and the
waiver of the code of conduct provisions by Enron’s board which permitted Andy Fastow
to serve as the CFO of Enron and the General Partner of certain special purpose entities
that were doing business with Enron. Bernie Madoff’s use of a sophisticated Ponzi scheme
to defraud investors of over $50 billion is another example of immoral management.
Examples of amoral management might include a police department that puts height and
weight restrictions in place for police officers. While the department may believe that it
has a legitimate reason to use height and weight requirements and does not intend to
discriminate in its employment practices, it may fail to recognize the inherent ethical issues
with this practice. The management at Starbucks could be considered moral management.
The company pursues economic goals, while striving to operate within the confines of the
law and focusing on activities that will improve the well-being of its employees, suppliers
and the community in general.
Shepard, Shepard, Wimbush and Stephens (1995) wrote an article entitled “The Place of
Ethics in Business: Shifting Paradigms,” in which they argue that business operates in a
paradigm of amorality. I would agree that amoral management is a serious problem in
business operations. Business has a great deal of power over individuals’ lives, and if that
power is wielded without consideration of its effects, the likelihood that people will be
harmed is greatly enhanced. Furthermore, it is easier for management to say that ethics has
no place in business; hence the saying “It’s not personal, it’s just business.” If
management is free to make decisions based on purely economic motivations, then they
can avoid the difficult decisions that they may face as a result of legal and ethical issues.
3.
Level 1, the preconventional level, focuses on self gratification, and can be seen in
virtually any infant or young child. Unfortunately, adults often display characteristics of
the preconventional level as well. An example of Level 1 would be when a child takes a
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Chapter Notes
certain course of action to avoid a parental punishment (such as “time out”) or to seek a
parental reward (such as permission to do something the child wants to do). The
conventional level is characterized by awareness of and concern for others. The locus of
analysis of consideration of others widens as a person develops morally, from friends and
family to society. An example of Level 2 would be not cutting line in a public place.
While cutting line is not illegal, individuals recognize that cutting line is socially
unacceptable and their awareness and concern for others usually discourages such actions.
In the postconventional level, concern for humankind as a whole is manifest, and decisions
about right and wrong are based on universal ethical principles rather than societal norms.
An example of this level may be individuals who sacrifice a certain percentage of their
personal income for charitable causes. Reasoning that the money can be used for the
betterment of humankind, individuals may use their resources to support these objectives
rather than for their personal gratification.
4.
Figure 7-14 is basically a recasting of Kohlberg’s three levels of moral development. I
personally agree that most people are morally motivated by the “negative” aspect of
avoiding punishment, while conceding that many people seek the more “positive” aspect of
doing the right thing or acting constructively toward others. Very few people reach the
postconventional level, as evidenced by the honor accorded to people such as Mother
Teresa or Desmond TuTu.
5.
The six elements of moral judgment include moral imagination, moral identification and
ordering, moral evaluation, tolerance of moral disagreement and ambiguity, integration of
managerial and moral competence, and a sense of moral obligation. The instructor may
want to relate these six elements to Rest’s Four Component Model. Moral sensitivity is
equivalent to moral imagination; moral judgment is the same as moral evaluation; moral
motivation is similar to moral identification and ordering; and moral character is analogous
to a sense of moral obligation. Students will have a variety of stories to tell in response to
this question.
GROUP ACTIVITY
Have students review the following Venn Diagram Model (this exercise and diagram are an
extension of Figure 7-6 in the book and are based on the following article: Mark S. Schwartz
and Archie B. Carroll, “Corporate Social Responsibility: A Three-Domain Approach,” Business
Ethics Quarterly (Vol. 13, Issue 4, October 2003), 503–530, the Venn Diagram Model).
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Economic/Ethical/Legal
Chapter Notes
Purely Ethical
MORAL
MANAGEMENT
Legal/Ethical
Purely Legal
Economic/Legal
Economic/Ethical
Purely Economic
IMMORAL AND/OR
AMORAL MANAGEMENT
AMORAL
MANAGEMENT
Divide students into groups of four to five students and ask them to (1) identify the following
activities as moral, immoral or amoral and (2) categorize the activities as ethical, economic
and/or legal as appropriate:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
Enron’s actions of deceiving shareholders by shifting debts from their balance sheet
Arthur Andersen’s ordering the shredding of documents related to their transactions
with Enron
Height and weight requirements for a police force candidate
Tobacco company warnings on labels
Chic-Fil-A’s policy of being closed on Sunday
The creation of a website where users can download music for free by sharing files
with other users
Provision of HIV/AIDS drugs below cost in 3rd world countries
Installation of an anti-pollution device
Smith and Wesson’s addition of safety features to its handguns
Ben & Jerry’s distribution of free ice cream in a community
Prostitution in the state of Nevada
Moving a company overseas because another country has weaker environmental or
employment laws
Pulling a product from a shelf when it is discovered that there is a product defect
Specifically, students should recognize which responsibilities are being pursued by management
in each activity and the management style implicated by the pursuit of certain responsibilities.
After each group has had time to make its determination, the instructor may want to survey all
the groups to determine the assessments made by each group. Differences in categorization
among the groups should be discussed by the entire class.
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Chapter Notes
INDIVIDUAL ASSIGNMENT
Distribute the following instructions to each student:
Describe an ethical dilemma that you faced in the workplace and the course of action that you
took. Analyze whether your decision was economically, legally and ethically responsible and
defend your response. If you determine that your course of action did not meet all three
responsibilities, evaluate whether any alternative course(s) of action would have done so.
Finally, ascertain whether you would choose the same course of action again or if you would act
differently; explain your response.