Chapter 5

Ethics

The emphasis on ethics is related to:

The world is changing rapidly.

Unethical decisions by managers are receiving more attention.

Managers are moral agents.

Ethics

A set of principles or moral
standards that differentiate right
from wrong.

Management Ethics

The study of moral standards and
how they influence managers’
actions.
BUSINESS ETHICS
• ‘Principles of conduct within
organizations that guide
decision making and
behavior’ (David 2008)
• Good business ethics is a
prerequisite for good
strategic management
• ‘The study of business
situations, activities, and
decisions where issues of
right and wrong are
addressed’ (Crane & Matten
2004)
 ETHICAL VALUES, ISSUES AND CHOICES
Ethical values: shared beliefs about right
and wrong, good and bad
• Govern the behaviour of a person or a
group

Ethical issues: problems or dilemmas

which present a conflict of values
• Pay a ‘living wage’ or personal financial
gain

Ethical choices: decisions about which

option to take in response to a dilemma
• Difficult decisions, because each option
has its own drawbacks
Some business practices always considered unethical
and often illegal

Misleading advertising

Misleading labeling

Poor product or service safety

Harming the environment

Insider trading

Padding expense accounts

Dumping flawed products on foreign markets

But in many other cases, the law is unclear and all choices have elements of both
‘right’ and ‘wrong’
 Free
Law Ethics Choice

Legal Social Personal

Standard Standard Standard
A personal responsibility?
1. Sources where a manager may get their moral standards
2. The moral-point-of-view that a manager follows
3. The process a manager uses to make decisions that are ethical
4. The influence of ethics on how managers practice the four
management functions
A. Informal/Public

Work experiences, peers, managers,
social norms, media

Ethical climate

The informal shared perceptions of
what are appropriate practices and
procedures

B. Informal/private

Examples set by the behavior of
immediate family members

Family, friends, peer groups, society,
and unspoken universal human norms
C. Formal/public

Educational background

Ethics Training

D. Formal/private

Personal philosophies, family
maxims, religious teachings

E.g. Maxims – Time is money

Maturing person has process of
thinking and developing own
principles – Moral Development

Pre-conventional

Ethical judgements are influenced by rewards and
punishments

Self-interest: “What’s in it for me?”

Conventional

Ethical judgements are influenced by social
norms or external standards

By others: “What is everyone else doing?”

Post-conventional

Ethical judgements are influenced by Universal
principles established through conscience and
reason

“What are timeless truths?”

Never Stealing or deceiving others are universal
principles

How does religious belief or lack of religious belief influence
behavior?

Why are there differences between ethics of people who belong to
the same religion?

Should the study of management ethics include studying religious
ethics?

Moral-Point-of-View

A framework of values used to develop internally consistent and
logically justified principles and standards of right and wrong

The key to studying managerial ethics is to think about how a
manager’s moral-point-of-view will influence the manager’s
behavior.

Overarching Goals

To maximize productivity, efficiency, profitability, and competitiveness,

General Rationale

Asserts that encouraging and rewarding increases in individual
material wealth is the best generic way to improve overall societal
well-being

Variation of consequentialist utilitarianism

Key Practices

Effective management focuses the functions of management on
promoting measurable improvements in productivity or profits

Consequentialist Theory

Considers the consequences of an action in
determining what is ethical

Utilitarianism

Holds that ethical managers strive to produce “the greatest
good for the greatest number

Benefits minus the costs

Results-oriented

Egoism

Utility of an option depends on the consequences for the
decision maker in deciding which option “benefits me the
most”

Mainstream moral-point-of-view assumptions:

What is “the greatest good.”

Best “generic” measure of good is wealth or money

How can wealth be maximized?

Through individualism—the greatest good for the greatest
number (larger community) is achieved when organization
profits are maximized by rewarding people (shareholders)
for investing their resources into economic activity

Is philanthropy more ethical if it
does not benefit the financial
interests of the giver?

Is philanthropy more ethical if
comes from profits that were
generated in a socially responsible
manner?

Do the “ends” (giving money to
charity) justify the “means”
(whether the money was generated
in a socially responsible manner)?

Mainstream Process:
Recognize ethical issues that
threaten or promote owner’s
wealth
Ethical
awareness
(define)
Implement ethical
decisions that
Gather
change norms
information
Whistleblowers – Ethical Ethical and develop
organization courage wisdom alternatives
insiders who (deliver) (discover) consistent
identify unethical with facts and
behavior and have
courage to report it
policies

Ethical
judgment
(discern)
Make ethical choices that
maximize legal profits

General Rules-of-Thumb:
1. Performance is what really counts, so make your numbers.
2. Be loyal and demonstrate that you are a team player.
3. Don’t break the law.
4. Don’t over-invest in ethical behavior

Planning: Goals and Responsibilities

Seek to maximize organizational profits for owners

Managers are ethically obliged to serve the interest
of the organization’s owners

Utilitarian perspective, managers to maximize
profiles because it maximizes the greatest good for
the greatest number in the society

Organizing: Structures and Systems

Use the deterrent approach to reinforce ethical
behavior

Create formal positions devoted to ethics

Provide ethics training

Leading: Implicit and Explicit Action

Demonstrate appropriate conduct through personal actions and
interpersonal relationships

Managers as role models

Rewards system used for ethical behavior and punishment for the
opposite behavior

Controlling: Formal and Informal

Control the ethical behavior of organizational members

Code of ethics – formal written statement of an organization’s primary
values and the ethical rules it expects its employees to abide by.

Organizational culture

Set of informal shared values, norms, standards and expectations that
influence the ways which individuals, teams and groups interact with
one another toward company goals

Organization’s set of unwritten codes of conduct

Overarching Goals

To maximize productivity,
efficiency, profitability, and
competitiveness,

General Rationale

Asserts that encouraging and
rewarding increases in
individual material wealth is
the best generic way to
improve overall societal well-
being

Key Practices

Functions of management on
promoting measurable
improvements in productivity or
profits

Overarching Goals

To provide meaningful work

To operate sustainably

To be attentive to internal and
external stakeholders

To facilitate servant leadership

General Rationale

Grounded on Virtue Theory

Acting virtuously is the best
“generic” way to improve
overall societal well-being.

Key Practices

Functions of management on
promoting overall well-being in
the community

Overarching Goals

To provide meaningful work

To operate sustainably

To be attentive to internal and external stakeholders

To facilitate servant leadership

Virtue Theory

Focuses on character and the ways in which people practice and
facilitate the practice of virtues in community, thereby facilitating
happiness

Virtues are good ways of acting that are noble or have value
regardless of the end result of consequences

Key Virtues

Serving others

Fostering human development through work

Nurturing community by including all stakeholders

Balancing human and ecological concerns (sustaincentrism)

Mainstream Process:
Recognize ethical issues that
threaten or promote owner’s
wealth
Ethical
awareness
(define)
Implement ethical
decisions that
Gather
change norms
information
Whistleblowers – Ethical Ethical and develop
organization courage wisdom alternatives
insiders who (deliver) (discover) consistent
identify unethical with facts and
behavior and have
courage to report it
policies

Ethical
judgment
(discern)
Make ethical choices that
maximize legal profits

Multistream Process:
Recognize issues related to
overall well-being
Ethical
awareness
(define) Consider
Implement ethical alternatives
decisions, some will by listening to
be courageous others
experiments Ethical Ethical
courage wisdom
(deliver) (discover)

Ethical
judgment
(discern)
Evaluate information and make ethical
choices that nurture overall well-being
Moral-Rights View Asserts that managers should strive
of low-materialist, high- to maintain and protect the
individualist managers fundamental rights and privileges of
individuals.

Justice Approach Involves evaluating decisions and

of high-materialist, low– behaviors with regard to how
individualist managers benefits and harms are distributed
among individuals and groups.

Planning: Goals and Responsibilities

Focus on both financial and multiple
stakeholder needs to avoid teleopathy

Teleopathy

a disease that entails addiction to the
unbalanced pursuit of a single purpose or goal

Mainstream : Organization Specific
Responsibility – obligation to ensure that
plans serve the financial interests and goals
of the organization’s owners versus

Multistream : Corporate Social
Responsibility – obligation to act in ways
that protect and improve welfare of society
over and above owners’

Most large companies now feature CSR reports, managers,
departments, and the subject is increasingly promoted as a core
area of management - next to marketing & accounting

Social Audit

A systematic analysis of the effect that an organization is having on
its stakeholders and society as a whole.

Four primary areas covered:

Assessing the organization’s economic responsibility – is it profitable?

Is it meeting all its legal responsibilities?

Are its ethical responsibilities being met?

Is it contributing to the broader community?

Organizing: Structures and Systems

Focus on promoting positive behavior rather than in drawing
attention to unethical behavior and punishments

What to do when faced with “Do not touch” or ”Do not open”
package?

Encouraging “safety climates” by valuing and rewarding safe
behavior in the work place can promote ethical behavior

Leading: Implicit and Explicit Action

Model a servant leadership style that promotes other forms of
well-being as co-equal with financial well-being

Servant Leader – active, purposeful and self-controlled in
working towards others’ growth, gain and esteem

King Wangchuck of Bhutan instituted Gross – National
Happiness instead of Gross National Product Metric

Controlling: Formal and Informal

Participation of members in developing code of ethics
(inclusive)

Includes expectations for stakeholders

Is balanced in promoting positive behaviors and avoidance of
negative behaviors

Is the result of an inclusive process

Formalize positive behavior by including it in the
organization’s calendar (setting aside time for employees to
dedicate ethical activity)

Use the informal control of an organizational culture to
reinforce:

Integrity in all actions

Commitment to satisfying customers

Ethical development of employees

Responsible leadership
Mainstream Multistream
Recognize as ethical (awareness) Recognize as ethical (awareness)
issues those which threaten or promote issues those which threaten or
owner’s wealth promote overall well-being

Gather information and develop Gather information and develop

alternatives that are consistent alternatives that are consistent with
with facts and policies listening to others

Evaluate information and make ethical Evaluate information and make

choices that maximizes ethical choices that nurture overall
profit within legal bounds well-being

Implement ethical decisions, Implement ethical decisions, which

which may require courageously often take the form of courageous
challenging norms experiments
 Mainstream Function Multistream
Focuses on organizational Focuses corporate social
specific responsibilities Plan responsibilities

Emphasizes deterrence Emphasizes promotion

of negative behavior in its Organize of positive behavior
structures and systems

Utilizes a transactional form Promotes and models

of leadership to evoke ethical Lead servant leadership
behavior

Stresses compliance to Stresses commitment to

formal and informal codes Control growth and empowerment
and rules of behavior

Cambridge Analytica:
https://www.youtube.com/watch?v=Q91nvbJSmS4

Facebook Scandal:
https://www.youtube.com/watch?v=I0oL4MAOku8&t=80s