Why Good Managers Make Bad Ethical Decisions

WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS?
BUSINESS ETHICS
BY
NAME: SACHIN M NIKAM
Sachin M Nikam Page 1

3. WHY DO GOOD MANAGERS MAKE BAD ETHICAL DECISIONS?..............4

4. MENTAL GYMNASTICS BEHIND UNETHICAL BEHAVIOUR........................9
5. MIND GAMES...................................................................................................10
1. INTRODUCTION
Incorporating values and ethics into business decisions have become increasingly
important to business people, universities, government, and the public in general. The
costs of unethical behavior in business are high and rising, possibly due to new
government regulation. Because of the scandalous last decade, the federal government
is listening to the public outrage and taking a stronger stance on unethical business
practices. Because of recent laws, it is vital for businesses to focus on securing and
monitoring sound ethical policies. In addition, pressure is being placed on business
schools to ensure that students graduate with a knowledge of ethical principles and the
critical thinking skills necessary to analyze and make sound ethical decisions. This paper
will examine the role of managers while making business decisions and the implications
this holds for organization and society at large. A brief discussion of different views
regarding business ethics will be presented including the stakeholder theory, stockholder
theory, instrumentalism, and the "invisible handshake." This study will focus on some
possible reasons why good managers make unethical decisions and how managers can
meet the challenge of making ethical decisions in adverse conditions.

2. WHAT IS BUSINESS ETHICS?
Business ethics can be thought of in many different lights, and part of the reason that
business ethics has become such a contemporary issue is because it cannot be defined
precisely. Although most people have different standards of what is morally justifiable,
society generally feels that there are certain values that should be set as the minimum
ethical behavior. Most people believe that in order to meet the minimum ethical
standards, a business must be honest, obey the law, and not directly infringe on the
rights that our society holds as inalienable human rights. This, however, does not
exhaust the definition of business ethics that many believe in. Some other ethical issues
involve compensation of employees, job security for employees, hiring practices, waste
management issues, pollution, and conflicts of interest. Sometimes companies face
situations where ethical choices are in opposition to their interests. An example of this
could be a logging company doing business in forests around the world. One ethical
consideration must be protecting the rain forest from destruction. Environmentalists may
propose that the company stop logging completely; however, this may bring up another
ethical issue such as the preservation of jobs for loggers. Except where otherwise
stated, this paper is primarily concerned with ethical issues that fit in the first category of
minimum ethical standards including honesty, compliance to the law, and fairness. This
is not to undermine the importance of evaluating the ethical implications of every
decision, but it is intended to simplify.

3. WHY DO GOOD MANAGERS MAKE BAD ETHICAL

DECISIONS?
Errors in corporate strategy are often self-inflicted, and a singular focus on shareholder
value is the "Bermuda Triangle" of strategy. Managers get into trouble when they
attempt to compete head-on with other companies. No one wins that kind of struggle.
Instead, managers need to develop a clear strategy around their company's unique
place in the market.
Most strategic errors are caused by external factors, such as consumer trends or
technological change.
3.1 DESTRUCTIVE COMPETETION
Bad strategy often stems from the way managers think about competition. Many
companies set out to be the best in their industry, and then the best in every aspect of
business, from marketing to supply chain to product development.
Managers who think there is one best company and one best set of processes set
themselves up for destructive competition. The worst error is to compete with your
competition on the same things which only leads to escalation, which leads to lower
prices or higher costs unless the competitor is inept. Companies should strive to be
unique. Managers should think how they can deliver a unique value to meet an
important set of needs for an important set of customers.
Another mistake managers make is relying on a flawed definition of strategy.

"'Strategy' is a word that gets used in so many ways with so many meanings that" it
can end up being meaningless. Often corporate executives will confuse strategy with
aspiration. For example, a company that proclaims its strategy is to become a
technological leader or to consolidate the industry has not described a strategy, but a

goal. Strategy has to do with what will make you unique. Companies also make the
mistake of confusing strategy with an action, such as a merger or outsourcing. Is that a
strategy? No. It doesn't tell what unique position you will occupy.
A company's definition of strategy is important, he said, because it predefines choices

that will shape decisions and actions the company takes. Vision statements and
mission statements should not be confused with strategy. Companies may spend
months negotiating every word, and the results may be valuable as a corporate
statement of purpose, but they do not substitute for strategy.
Companies have become increasingly confused about corporate goals. The only goal
that makes sense is for companies to earn a superior return on invested capital
because that is the only goal that aligns with economic value.
Recently, companies have developed "flaky metrics of profitability” pointing to

amortization of good will as an example. Some of these measures began as a way for
managers to stay a step ahead of the demands of Wall Street. "What starts as a game
for capital markets then starts to confuse the managers themselves. They [then] make
decisions that are not based on fundamental economics."
"Bermuda Triangle of strategy" is confusion over economic performance and

shareholder value. We have had this horrendous decade where people thought the
goal of a company is shareholder value. Shareholder value is a result. Shareholder
value comes from creating superior economic performance.
To think that stock price on any one day, or at any one minute, is an accurate reflection
of true economic value is dangerous. Research shows companies can be undervalued
for years. Conversely, during the Internet bubble, managers whose motivation and
compensation were tied to stock price began to believe and act as if the share price
determined the value of the company. Managers are now beginning to understand the
goal of their companies is to create superior economic performance that will be
reflected in financial results and eventually the stock price. "We know there's a lag and
it's ugly. But it's important that a good manager understands what the real goal is -- not
spend time pleasing the shareholders."

Corporate strategy cannot be done without strong quantitative analysis, said Porter,
adding that each year students take his strategy course thinking they will have at least
one class in which they don't have to worry about numbers. Not true. "Any good
strategy choice makes the connection between the income and the balance sheet."
3.2 RIGHT TIME, RIGHT PRICE
Companies hoping to build a successful strategy need to define the right industry and
the right products and services. Bad strategy often flows from a bad definition of the
business.
For e.g.:- Sysco Corp., the number-one foodservice supplier in North America.
Defining Sysco simply as a food distribution firm would eventually lead to a failed
strategy. The industry is actually two distinct sectors. One delivers food to small
restaurants and institutions that need help with finance and product selection. The
other has large, fast food franchise customers, like McDonald's, that are not interested
in any additional services. McDonald's just wants industrial-size containers delivered
on time at the best price. Sysco has developed two separate strategies for its two
customers.
Geographic focus is another type of business definition that can trip up strategy. He
gave the example of a U.S. lawn care company that developed a plan to grow through
international expansion. The business, however, was not suited to operating on a
global scale. The products were bulky and expensive to ship, and the company had to
deal with different retail channels in different regions.
One more mistake managers make is confusing operational effectiveness with

strategy. Operational effectiveness is, in essence, extending best practices. Good
operations can drive performance but the trouble with that is it's hard to sustain. If it's a
best practice, everybody will do it, too.

The real challenge of management is to do these things together at the same time.
Management has to keep up with best practices while solidifying, clarifying and
enhancing your unique positions.
Managers often tend to let incremental improvements in operations crowd out the
larger strategy of building a unique business that will retain its competitive advantage.
To bypass this problem, managers must keep the competitive strategy in mind at all
times. Every day, every meeting, every decision, has to be clear. Managers need to
confirm whether this is an operational best practice or is this something that's
improving on my strategic distinction.
The underpinnings of strategy are activities that fit together and reinvigorate each
other. Enterprise Rent-A-Car is an example of a company that stumbled onto its
strategy more or less by luck. The company started as an auto-leasing firm, but
customers frequently asked if they could rent cars for short periods. The rental car
industry was completely geared toward travelers, with pick-ups at airports and a price
structure suited to expense accounts or vacationers willing to splurge.
It is difficult to sustain the kind of strategic advantage Enterprise enjoys without a

patent. Hertz has tried to connect with this business but remains geared toward the
traveler and cannot compete with Enterprise in its specific market.
Continuity is critical to successful strategy. If you don't do it often, it's not strategy. If
you don't pursue a direction for two or three years, it's meaningless. Many companies
start out with a good strategy, but then grow their way into failure. Research shows
that among companies that fade in 10 years, many enjoyed phenomenal growth in the
beginning, but then put growth ahead of sticking to their strategy.
Dividends are one way to avoid the pressure to boost stock price with rapid growth.
Dividends also return capital to all investors, not just short-term investors who benefit
from trading on gains in share price.
3.3 LEADERSHIP AND STRATEGY
There are some capital market biases that result in barriers to strategy. First, Wall
Street tends to create pressure for companies to emulate their peers. Analysts often

anoint a star performer in each industry, which encourages others to follow that
company's game plan. Again, this leads to the no-win approach of companies
competing on the same dimensions, not on unique strategies.
Analysts also tend to choose metrics that are not necessarily aligned with true value or
meaningful for all strategies. Analysts apply pressure to grow fast and have a strong
bias toward deals, which lead to a quick bump in the stock early on. Managers are
made to feel like "Neanderthals" if they resist mergers and acquisitions or other
financial market tactics. What happened in a lot of companies was that the equity
compensation was [tied to share price] and people became crazed and very attentive
to these biases. All the corporate scandals came from pressure to do things that were
stupid.
Other barriers to strategy include industry conventional wisdom; labor agreements or

regulations that constrain choice; inappropriate cost allocation to products or services,
and rapid turnover of leadership. Strategy is not something that is done in a bottom-up
consensus process. The companies with really good strategy almost universally have
a very strong CEO, somebody who is not afraid to lead, to make choices, to make
decisions. Strategy is challenged every day, and only a strong leader can remain on
course when confronted with well-intentioned ideas that would deviate from the
company's strategy
Years ago, corporate strategy was considered a secret known only by top executives
for fear competitors might use the information to their advantage, said Porter. Now it is
important for everyone in the organization to understand the strategy and align
everything they do with that strategy every day. Openness and clarity even help when
coping with competition. "It's good for a competitor to know what the strategy is. The
chances are better that the competitor will find something else to be unique at, instead
of creating a zero-sum competition."

4. MENTAL GYMNASTICS BEHIND UNETHICAL BEHAVIOUR
In making ethical decisions, let virtuous values guide your judgments and beware of the
mental games that can undermine ethical decision making.
As the General Manager for an industrial distributor, you have recently learned that your
consistently top performing purchasing manager has violated company policy by
accepting an expensive gift from a supplier. Since you believe that this was likely a one-
time lapse in judgment, what would you say or do? Your response could range from
“looking the other way” to firing the manager.
In this situation, as in all ethical choices or dilemmas, the leader’s thought pattern
(cognitive process) will significantly influence what action he or she takes. People’s
patterns of thinking will be influenced by their values, what they say to themselves (self-
talk), and what they imagine will happen in response to their actions. At its most basic
level, ethical managerial leadership involves discerning right from wrong and acting in
alignment with such judgment.
Leaders with strong virtuous values are more likely to act ethically than are leaders who
are operating with a weak or non-existent value system. One set of values that seems to
be universally accepted includes wisdom, self-control, justice, transcendence, kindness,
and courage. When faced with challenging decisions, leaders who have not internalized
a value system that includes these values will probably respond with more variability
than will one who has such a system. It is primarily in the situation in which the leader
does not have an internalized value system that mental gymnastics or mind games may
cause an otherwise good person to make unethical decisions.

In this article we will review mind games that leaders may play when they face difficult
decisions and lack both a strong value system and a professional and ethical approach
to management. These leaders tend to react to circumstances on a situational basis.
Some suggestions on how managerial leaders can deal with challenging decisions are
offered throughout the following discussion.
5. MIND GAMES
Decision making can often result in managerial missteps, even those decisions that
involve ethical considerations. Many common themes emerge as we look at these
problematic decisions. Most significantly, various cognitive processes that leaders often
unwittingly employ and which may be called “mental gymnastics” or mind games may
serve to support and sustain unethical behavior.
5.1 MIND GAME #1: QUICKLY SIMPLIFY - “SATISFICING”
When we are confronted with a complicated problem, most of us react by reducing the
problem to understandable terms. We simplify.
Notwithstanding the considerable power of our human intellect, we are often unable to
cognitively process all of the information needed to reach an optimal decision. Instead,
we tend to make quick decisions based on understandable and readily available
elements related to the decision. We search for a solution that is both satisfactory and
sufficient. Full rationality gives way to bounded rationality, which finds leaders
considering the essential elements of a problem without taking into account all of its
complexities. Unfortunately, this process, called “satisficing,” can lead to solutions that
are less than optimal or even ethically deficient.
“Satisficing” leads the managerial leader to alternatives that tend to be easy to formulate,
familiar, and close to the status quo. When one grapples with complex ethical
considerations, this approach to decision making may not produce the best solutions.
Ethical dilemmas can often benefit from creative thinking that explores ideas beyond the

usual responses. If a decision maker uses satisficing when crafting a solution to an

ethical problem, the best alternative may be overlooked. David Messick and Max
Bazerman, researchers in decision making, tell us that when executives “satisfice,” they
often simplify, thereby overlooking low probability events, neglecting to consider some
stakeholders, and failing to identify possible long-term consequences.
One of the best ways to guard against oversimplifying and reaching less than optimal
solutions to ethical challenges is to discuss the situation with other trusted colleagues.
Have them play devil’s advocate. Ask them to challenge your decision. The resulting
dialogue can improve the quality of your ethical decision making.
Scholar and ethics consultant Laura Nash suggests twelve questions that can help
leaders avoid the mind game of over simplifying. The following questions may raise
ethical issues not otherwise considered, or help generate a variety of “out of the box”
alternatives. Before settling on a solution, ask yourself the following questions:
• Have I specified the problem accurately?

• How would I describe the problem if I were on the opposite side of the fence?
• How did this situation begin?
• To whom and to what do I give my loyalties as a person or group and as a
member of the organization?
• What is my intention in making this decision?
• How does this intention compare with the likely results?
• Whom could my decision or action harm?
• Can I engage those involved in a discussion of the problem prior to making a
decision?
• Am I confident that my position will be valid over the long term?
• Could I disclose without reservation my decision or action to my boss, our CEO,
the Board of Directors, my family, or society as a whole?
• What is the symbolic impact of my action if it is understood?
• Under what conditions would I allow exceptions to my position?
These questions initiate a thought process that underscores the importance of problem
identification and information gathering. Such a process can help leaders guard against
over simplifying an otherwise complicated ethical decision.

5.2 MIND GAME #2: THE NEED TO BE LIKED
Most people want to be liked. However, when this desire to be liked overpowers
business objectivity, ethical lapses can occur. For instance, when managers
witness ethical transgressions, the need to be liked may cause them to overlook these
transgressions. Such a situation is particularly acute for those recently promoted into
management from within the same organization. Because they want to be liked by their
former peers, they may have a difficult time saying, “No.” One of eleven irrational beliefs
that some people hold is the belief that one can or should always be liked. Its is stated
that people who are affected by this need carry around in their heads statements such
as, “I believe I must be approved by virtually everyone with whom I come in contact.”
Such an overriding desire to be liked can ultimately adversely affect the ethics of people
in an organization and thus can decrease the firm’s bottom line. For instance, a retail
store manager who wants her employees to like her may readily give them additional
hours when they request them to enable employees to earn more money. However, in
so doing, the manager contributes to the accumulation of too many hours of labor
relative to sales volume. Over time, excessive labor costs can then begin to eat into
profit margins.
After recognizing that she is playing this mind game, one way that the manager might
stem this problem is to distance herself from her subordinates (e.g., reduce unnecessary
socializing) until she can establish some objective boundaries. Another successful
approach would be to respond warmly and assertively toward employees while still going
forward with appropriate but possibly less popular decisions. (If necessary, the manager
could even take assertiveness training.) Finally, in such situations, the newly appointed
manager might want to read Alberti and Emmons’ book, Your Perfect Right. This book
provides excellent advice on how to say “no” while preserving a quality relationship.
5.3 MIND GAME #3: DILUTE AND DISGUISE
In trying to strike a diplomatic chord, leaders can disguise the offensiveness of unethical
acts by using euphemisms or softened characterizations. Words or phrases such as
“helped him make a career choice” are used to describe firing someone, or
“inappropriate allocation of resources” is used to describe what everyone knows is

stealing. Regardless of whether people want to be seen as kinder and gentler, or just
politically correct, this process merely helps wrongdoers and those associated with them
to get away with unethical behavior.
Such softened characterizations serve to reduce the anxiety of the leader, but these
euphemisms are dishonest. They serve to dilute and disguise unethical behavior. This
form of mental gymnastics defuses discomfort that may otherwise develop among those
involved in unethical “mischief,” but such an approach dilutes the necessary intensity of
ethical constraints that should be brought to bear in the situation. The antidote is for
leaders to talk straight and to avoid euphemistic labeling or recharacterizing unethical
behavior.
5.4 MIND GAME #4: “MAKING POSITIVE”
The mental gymnastic of comparing one’s own unethical behavior to more heinous
behavior committed by others serves only to avoid self-degradation. For example, the
salesperson who occasionally cheats when reporting his expenses may say to himself, “I
do this only a few times a year, while Tom, Dick, and Harry do it all the time.” Or, “If you
think I disregard my colleagues’ feelings, you ought to see Andy in action. He is a bona
fide bully!” Unethical behavior appears more ethical by comparing it to worse behavior.
Such justifications for unethical behavior are not valid. The tendency to diminish
misdeeds by making dishonest comparisons also contributes to sustaining unethical
conduct. To avoid this mind game, ask three questions about the comparison:
• Am I comparing apples to oranges?

• How self-serving is this comparison?
• What would three objective observers say about me and my objectivity regarding
this comparison?
While behavior may often legitimately be compared to that of others, when ethical
transgressions are involved, relativity does not excuse ethical lapses.
5.5 MIND GAME #5: OVERCONFIDENCE

Overconfident managers tend to perceive their abilities to be greater than they actually
are. Self-perception often does not match objective reality. By indulging in the mental
gymnastics of overconfidence, such leaders can discount others’ perceptions and thus
easily overlook the insights and talents of other people. Without benefit of input from
those around them, overconfident managerial leaders may be blind to the most
appropriate ethical choices in given circumstances and may consider only their own
ideas regarding the best course of action. Overconfident managers act as though they
are “above it all,” relegating their people, useful information, and learning opportunities to
the sidelines while pursuing their own courses of action.
Overconfident decision makers deny themselves fresh perspectives and thus perhaps
better solutions to ethical problems. The overconfident manager is typically perceived as
arrogant. Research tells us that the manager labeled thusly is headed for career
derailment. Arrogant managerial leaders who have performance problems, which may
include ignoring, overlooking, or causing ethical concern, are likely to receive less
understanding and support from others in their time of trouble. Their air of
overconfidence not only interferes with the practice of quality ethical decision making,
but it can also virtually wreck their careers.
One tool to counterbalance this unproductive and potentially deadly tendency is for the
overconfident managerial leader to catch himself or herself when preparing to make
declarative, “This is the way it is” statements, and replace them with more open ended,
“What do you think?” types of inquiries. If practiced conscientiously, this simple
communication tool can help the overly confident manager begin to consider others’
perspectives. Accepting input from other people will improve the manager’s decision
making ability generally, including those issues that involve ethical consideration.
Applied broadly, this practice will positively impact the ethical problem solving climate
within the entire organization.
These five mind games can influence an otherwise good leader to act unethically. Each
of the mental maneuvers provides an easy way around difficult decisions, with the likely
outcome that some of those decisions will result in unethical behavior. However, the
intrinsic benefit of pursuing an ethical course will be a source of motivation for leaders to
get on track ethically and stay there. By staying the course and behaving in a way that is

consistent with his or her virtuous values and attitudes, the ethical managerial leader will
have less need to play these types of mind games.
6. ETHICS THEORIES
6.1 STAKEHOLDER THEORY OF ETHICS

Another type of ethical reasoning is named the stakeholder view. This view states that
any person or group that comes into contact with an organization has something at
stake. Proponents of this theory believe that economic power is a function of many
things, including the relationship each of the stakeholders has with the company. The
organization can affect stakeholders positively or negatively. This view holds that instead
of focusing only on the needs of the shareholders, the ethical firm will take into account
all stakeholders when making decisions. Interest groups such as labor unions,
environmental groups, and consumers are drawn to this view because it validates their
interest as much as the interests of stockholders.
Stockholders and managers have been somewhat skeptical of this idea because it takes
money and power away from those who finance the company. Why should investors
give up their power to people who invest little or nothing in the company? Is the
stakeholder view fair? Evaluations have shown that large corporations have been able to
avoid undue or excessive control by stakeholders.
6.2 STOCKHOLDER THEORY OF ETHICS

The traditional idea of ethics in economics is the stockholder theory, which states that
Management’s largest responsibility is to the shareholders of the company. This theory
states that if management makes a decision that decreases shareholder's returns, then
management has acted unethically. This idea directly contradicts the stakeholder theory

of business ethics and may seem harsh, but it is important to note that the shareholders
make significant sacrifices for firms. Stockholders not only take financial risk, but in
doing so, make the business possible. Without stockholders, many companies would not
have the capital to operate. This theory is important in stressing that management needs
to be accountable to the shareholders, and it also stresses the needs of stockholders to
be compensated for their risk. It is possible that the stockholder view of ethics does not
place adequate emphasis on other factors that are important to the firm's success, and it
has recently been questioned by many people including conservative economists.
6.3 THE INVISIBLE HANDSHAKE

Woller (1996) states that it is necessary to read both of Smith's books, An Inquiry into
the Nature and Causes of the Wealth of Nations and The Theory of Moral Sentiments,
before attempting to analyze his theories. Woller (1996) believes that when these two
writings are taken into consideration together they contradict the idea that the term
invisible hand condones running a business with only self-interest as a concern. Smith
believed that people are influenced not only by self-interest, but also by the combination
of their moral sense and their self-interested side. ... all individuals possess a moral
sense as well as a self-interested side. He (Smith) believed that human behavior was
strongly influenced by this moral sense through certain naturally arising moral
sentiments and through the exercise of individual conscience. To Smith, it was these
moral tendencies of the individual, together with the moral connection to society that
made free markets possible in the first place. As humans' business managers also
possess this moral sense... The pervasive existence of managerial discretion and the
indeterminacy of the business environment mean that managers cannot avoid making
moral choices, even should we desire they not do so (Woller, 1996). Woller (1996)
stresses that firms do have ethical obligations to their owners including the obligation to
render profits. In fact, Woller states that it would often be unethical for managers to
allocate substantial amounts of money, even if it was for social good, if it significantly
reduced shareholders' wealth. "Firms are not charitable institutions or mutual aid
societies".
When managers make decisions regarding layoffs, plant closings, workplace safety,
product safety, or pollution, it is necessary to take more than the stockholders into

consideration. Studies of modern businesses support Woller's logic and suggest that
firms do not act solely out of pursuit of profits. Repeated studies have shown that firms
often forego some profit in order to pursue a variety of other goals including philanthropy
in the community, society, and world contends that purely selfish behavior is
incompatible with the market system, and that it is more efficient for firms to cooperate.
This idea was coined by the economist Arthur Okun as the "invisible handshake."
6.4 INSTRUMENTAL VIEW OF ETHICS

The instrumental view of ethics illustrates that a firm can comply with the highest ethical
standards and behave in such a way that would be economically rational. Instrumental
ethics states that a firm will contribute to the goal of profit maximization by being an
ethical, socially responsive firm. Thus a firm can serve both the stockholders and the
stakeholders (Kotter & Heskett, 1992). In fact, the instrumentalist view holds that being
unethical is ultimately very costly to the firm (Hill, 1990).
This can be seen in the examples presented in the beginning of this paper regarding
GM,Texaco, and Home Depot. For example, a firm that treats employees unethically
may deal with issues including high employee turnover. This turnover leads to expensive
training, a period of time where new employees are less efficient and make more
mistakes, and costly orientations for new employees. It will also see inflated human
resources and administrative costs that stem from excessive hiring. These firms will also
suffer from low employee morale, which often leads to lower productivity and possible
unethical behavior from the employees. This will increase the cost of monitoring
employees. Another example that supports the instrumentalist view occurs when a firm
practices extreme environmental degradation and suffers from protesters and bad press.
In 1998, a group led by the president of an environmental group in Des Moines, Iowa,
staged a two-day sit-in around the parking lot of Home Depot, in protest of their foresting
practices. This essentially closed the store for two days and gave the company bad
press to deal with. Incidents such as these can be seen in respect to other ethical issues
including worker safety, fraud, product safety, unfair hiring practices, and sexual

harassment. Firms such as Target, a division of Dayton Hudson Corporation, have

competitive earnings every quarter. They treat their employees well by giving lucrative
benefit package and discounts, as well as incorporating ideas such as profit sharing into
their employees' paychecks. Their service department is outstanding, they carry quality
products, and give over one percent of profits to charity. They have competitive profits
every quarter and are looked upon highly in the community. When firms have high
ethical standards in place, it saves them money on expensive audits. A recent
Study found that auditors do incorporate the strength of corporate governance in
decisions related to accepting new clients and performing audit testing. For example,
auditors reduced the amount of costly substantive testing procedures performed and
were more likely to accept a new client when they perceived that management and the
board of directors had exercised effective oversight of the reporting process. This
suggests that, even from a cost containment perspective, strong corporate governance
makes sense (Cohen & Hanno, 1997). Other goods that come from ethical practices
include free positive publicity, customer loyalty, a competitive advantage in recruiting the
best job applicants, and good morale in the workplace. Although there is little empirical
research on the benefits of instrumentalism, the above examples make it possible to see
that ethical business may indeed be good business.

7. CASE STUDIES
7.1 MANVILLE CORPORATION
A few years ago, Manville (then Johns Manville) was solid enough to be included among
the giants of American business. Today Manville is in the process of turning over 80% of
its equity to a trust representing people who have sued or plan to sue it for liability in
connection with one of its principal former products, asbestos. For all practical purposes,
the entire company was brought down by questions of corporate ethics.
More than 40 years ago, information began to reach Johns Manville’s medical
department—and through it, the company’s top executives implicating asbestos
inhalation as a cause of asbestosis, a debilitating lung disease, as well as lung cancer
and mesothelioma, an invariably fatal lung disease. Manville’s managers suppressed the
research. Moreover, as a matter of policy, they apparently decided to conceal the
information from affected employees. The company’s medical staff collaborated in the
cover up, for reasons we can only guess at.
Money may have been one motive. In one particularly chilling piece of testimony, a
lawyer recalled how 40 years earlier he had confronted Manville’s corporate counsel
about the company’s policy of concealing chest X-ray results from employees. The
lawyer had asked, “Do you mean to tell me you would let them work until they dropped
dead?” The reply was, “Yes, we save a lot of money that way.”
Based on such testimony, a California court found that Manville had hidden the asbestos
danger from its employees rather than looking for safer ways to handle it. It was less

expensive to pay workers’ compensation claims than to develop safer working

conditions. A New Jersey court was even blunter: it found that Manville had made a
conscious, cold blooded business decision to take no protective or remedial action, in
flagrant disregard of the rights of others.
How can we explain this behavior? Was more than 40 years’ worth of Manville
executives all immoral? Such an answer defies common sense. The truth, I think, is less
glamorous—and also less satisfying to those who like to explain evil as the actions of a
few misbegotten souls. The people involved were probably ordinary men and women for
the most part, not very different from you and me. They found themselves in a dilemma,
and they solved it in a way that seemed to be the least troublesome, deciding not to
disclose information that could hurt their product. The consequences of what they chose
to do—both to thousands of innocent people and, ultimately, to the corporation—
probably never occurred to them. The Manville case illustrates the fine line between
acceptable and unacceptable managerial behavior.
The Manville case illustrates the fine line between acceptable and unacceptable
managerial behavior. Executives are expected to strike a difficult balance to pursue their
companies’ best interests but not overstep the bounds of what outsiders will tolerate.
Even the best managers can find themselves in a bind; not knowing how far is too far. In
retrospect, they can usually easily tell where they should have drawn the line, but no one
manages in retrospect. We can only live and act today and hope that whoever looks
back on what we did will judge that we struck the proper balance. In a few years, many
of us may be found delinquent for decisions we are making now about tobacco, clean
air, the use of chemicals, or some other seemingly benign substance. The managers at
Manville may have believed that they were acting in the company’s best interests, or that
what they were doing would never be found out, or even that it wasn’t really wrong. In
the end, these were only rationalizations for conduct that brought the company down.
7.2 CONTINENTAL ILLINIOS BANK
Until recently the ninth largest bank in the United States, Continental Illinois had to be
saved from insolvency because of bad judgment by management. The government
bailed it out, but at a price. In effect it has been socialized: about 80% of its equity now
belongs to the Federal Deposit Insurance Corporation. Continental seems to have been
brought down by managers who misunderstood its real interests. To their own peril,

executives focused on a single-minded pursuit of corporate ends and forgot about the
means to the ends.
In 1976, Continental’s chairman declared that within five years the magnitude of its
lending would match that of any other bank. The goal was attainable; in fact, for a time,
Continental reached it. But it dictated a shift in strategy away from conservative
corporate financing and toward aggressive pursuit of borrowers. So Continental, with lots
of lendable funds, sent its loan officers into the field to buy loans that had originally been
made by smaller banks that had less money.
The practice in itself was not necessarily unsound. But some of the smaller banks had
done more than just lend money—they had swallowed hook, line, and sinker the
extravagant, implausible dreams of poorly capitalized oil producers in Oklahoma, and
they had begun to bet enormous sums on those dreams. Eventually, a cool billion
dollars’ worth of those dreams found their way into Continental’s portfolio, and a cool
billion dollars of depositors’ money flowed out to pay for them. When the price of oil fell,
a lot of dry holes and idle drilling equipment were all that was left to show for most of the
money.
Continental’s officers had become so entranced by their lending efforts’ spectacular

results that they hadn’t looked deeply into how they had been achieved. Huge sums of
money were lent at fat rates of interest. If the borrowers had been able to repay the
loans, Continental might have become the eighth or even the seventh largest bank in the
country. But that was a very big “if.” Somehow there was a failure of control and
judgment at Continental probably because the officers who were buying those shaky
loans were getting support and praise from their superiors. Or at least they were not
hearing enough tough questions about them.
At one point, for example, Continental’s internal auditors stumbled across the fact that
an officer who had purchased $800 million in oil and gas loans from the Penn Square
Bank in Oklahoma City had also borrowed $565,000 for himself from Penn Square.
Continental’s top management investigated and eventually issued a reprimand. The mild
rebuke reflected the officer’s hard work and the fact that the portfolio he had obtained
would have yielded an average return of nearly 20% had it ever performed as planned.

In fact, virtually all of the $800 million had to be written off. Management chose to
interpret the incident charitably; federal prosecutors later alleged a kickback.
On at least two other occasions, Continental’s own control mechanisms flashed signals
that something was seriously wrong with the oil and gas portfolio. A vice president
warned in a memo that the documentation needed to verify the soundness of many of
the purchased loans had simply never arrived. Later, a junior loan officer, putting his job
on the line, went over the heads of three superiors to tell a top executive about the
missing documentation. Management chose not to investigate. After all, Continental was
doing exactly what its chairman had said it would do: it was on its way to becoming the
leading commercial lender in the United States. Oil and gas loans were an important
factor in that achievement. Stopping to wait for paperwork to catch up would only slow
down reaching the goal.
Eventually, however, the word got out about the instability of the bank’s portfolio, which
led to a massive run on its deposits. No other bank was willing to come to the rescue, for
fear of being swamped by Continental’s huge liabilities. To avoid going under,
Continental in effect became a ward of the federal government. The losers were the
bank’s shareholders, some officers who lost their jobs, at least one who was indicted,
and some 2,000 employees (about 15% of the total) who were let go, as the bank scaled
down to fit its diminished assets.
Once again, it is easy for us to sit in judgment after the fact and say that Continental’s
loan officers and their superiors were doing exactly what bankers shouldn’t do: they
were gambling with their depositors’ money. But on another level, this story is more
difficult to analyze—and more generally a part of everyday business. Certainly part of
Continental’s problem was neglect of standard controls. But another dimension involved
ambitious corporate goals. Pushed by lofty goals, managers could not see clearly their
real interests. They focused on ends, overlooked the ethical questions associated with
their choice of means—and ultimately hurt themselves.
7.3 E.F. HUTTON

The nation’s second largest independent broker, E.F.Hutton & Company, recently
pleaded guilty to 2,000 counts of mail and wire fraud. It had systematically bilked 400 of
its banks by drawing against uncollected funds or in some cases against nonexistent
sums, which it then covered after having enjoyed interest-free use of the money. So far,
Hutton has agreed to pay a fine of $2 million as well as the government’s investigation
costs of $750,000. It has set up an $8 million reserve for restitution to the banks—which
may not be enough. Several officers have lost their jobs, and some indictments may yet
follow.
But worst of all, Hutton has tarnished its reputation, never a wise thing to do—certainly
not when your business is offering to handle other people’s money. Months after Hutton
agreed to appoint new directors—as a way to give outsiders a solid majority on the
board—the company couldn’t find people to accept the seats, in part because of the bad
publicity.
Apparently Hutton’s branch managers had been encouraged to pay close attention to
cash management. At some point, it dawned on someone that using other people’s
money was even more profitable than using your own. In each case, Hutton’s over drafts
involved no large sums. But cumulatively, the savings on interest that would otherwise
have been owed to the banks was very large. Because Hutton always made covering
deposits, and because most banks did not object, Hutton assured its managers that
what they were doing was sharp—and not shady. They presumably thought they were
pushing legality to its limit without going over the line. The branch managers were simply
taking full advantage of what the law and the bankers’ tolerance permitted. On several
occasions, the managers who played this game most astutely were even congratulated
for their skill.
Hutton probably will not suffer a fate as drastic as Manville’s or Continental Illinois’s.
Indeed, with astute damage control, it can probably emerge from this particular
embarrassment with only a few bad memories. But this case has real value because it is
typical of much corporate misconduct. Most improprieties don’t cut a corporation off at
the knees the way Manville’s and Continental Illinois’s did. In fact, most such actions are
never revealed at all—or at least that’s how people figure things will work out. And in
many cases, a willingness to gamble thus is probably enhanced by the rationalization—

true or not—that everyone else is doing something just as bad or would if they could;
that those who wouldn’t go for their share are idealistic fools.
8. ARE BUSINESS ETHICS IMPORTANT?
There is empirical evidence that illustrates that of the 500 largest corporations in the
U.S., two-thirds of them have committed some form of illegal behavior (Gellerman,
1986). This fact, combined with the many publicized accounts of illegal business
operations including fraud, insider trading, and unfair hiring practices, has caused
government, colleges, and businesses to increasingly focus on the role of ethics in
business. The following illustrates some of the steps that these institutions have taken to
ensure greater ethical considerations in the future. In response to the increasing
litigation concerning corporations accused of unethical behavior, the federal government
passed the Sentencing Guidelines for Organizations in 1991 (56 Federal Register
22762, November). The objective of the guidelines is to encourage ethical corporate
behavior by forcing all organizations to create ethics standards, convey these standards
to employees, monitor employees, and deal with employees who have violated their
corporate ethics standards. In order to help accomplish this goal, the government has
allocated funds for three large studies on the effectiveness of corporate compliance
programs. These studies should help businesses in researching and developing their
individual ethics training and compliance programs. In addition, the Federal Sentencing
Guidelines encourage businesses to provide strong and effective ethical policies by
taking those policies into account when prosecuting a violation. The message from the
federal government under these guidelines is clear: If your company is found to have
violated a federal law (regarding the environment, workplace safety, or discrimination),

the U.S.Attorney General may decide not to prosecute if you had policies and
procedures in place to prevent the violation that occurred. Additionally, if you are
prosecuted, you will suffer a smaller fine (Bordwin, 1998). Ethics are important to firms
for a variety of reasons, including the legal responsibilities of the executives, costs of
violations, and reputation. Executives and managers are often held liable for violations
that occurred below them even if they did not know about or condone the situation. This
is a major incentive for directors and top management to see that their organization
keeps ethical considerations in perspective while making decisions. In fact, a company
with an organized and efficient ethics management program will be treated more
leniently by prosecutors in the event of a violation. If the company had strong prevention
policies and procedures in place, its consequences will not be as harsh (Bordwin, 1998).
This essentially rewards directors and top management who are committed to creating
an ethical atmosphere, in the event that an unforeseen unethical situation arises.
Companies must commit themselves to a high standard of ethics because litigation is
very costly to an organization. Consider some recent examples. In July of 1999, there
was a judgment against GM of $4.9 billion due to its failure to recall some cars when GM
knew the gas tanks were potentially dangerous (Patricia Anderson et al. v. General
Motors Corp., Civ. No. B135147; Cal. Ct. App., 2nd Dist., August, 2001). One tank
exploded on impact, causing serious burns to the customer's face and body. GM had
documents that stated that its cost analysis showed that dealing with the lawsuits would
be cheaper than recalling all of the cars that were dangerous. The jury ruled that GM
had acted with extreme carelessness by sacrificing the health of its customers to save
money. This bad ethical decision cost GM two-thirds more than its total profit for 1998
(White, 1999). In addition to the cost of the judgment, there was the large expense of
hiring legal counsel, the loss of reputation, and the cost of hiring public relations
representatives to limit the damage. Several other large corporations have had similar
dilemmas that cost millions or billions of dollars because of ethical shortcomings. A
lawsuit alleging that Texaco practiced racial bias cost the company $176 million to settle
(Bari-Ellen Robert et al. v. Texaco, Inc., 979 F. Supp. 185; 94 Civ. 2015 [CLB] S. Dist.
N.Y., September, 1997). Home Depot spent $87.5 million as a result of penalties for not
promoting more women (Vicki Butler v. Home Depot, Inc., No. C-94-4335 S1; C-95-2182
S1; N. Dist. Cal., August, 1997). This negative press also causes immeasurable damage
to the company's reputation (Bordwin, 1998). The publicity may create ill will from the
public and cause a business to lose customers, revenues, and profits. Also, a company

seen as unethical may have problems recruiting good employees. As these scandals
unfold, many spectators blame the nation's business schools for allowing
students to enter the corporate world lacking an understanding of ethics (Pizzolatto &
Bevil, 1996). In the past five to ten years, business schools typically responded to this
pressure by requiring a separate business ethics class or by incorporating a study of
business ethics into several other required classes. The objective of integrating ethics
into a business school's curriculum is similar to the goals of most other colleges and
universities. Most business schools are striving to convince students that ethics are
important, cover a range of ethical topics, increase awareness of ethical issues, and
provide students with practice making decisions in difficult situations. It is debated that
by the time a person reaches college, there is little that can be done to shape their
values (Hanson,1987). The implication may be that some business schools are not
teaching a uniform code of ethics, but instead teaching the students how to apply their
own moral codes in the decision making process. This implies that college level students
must have a code of ethics in order to successfully utilize business ethics classes.

9. FOUR RATIONALIZATIONS
Below identified and analyzed are the roots of the misconduct managers confront across
different kinds of businesses and the practical recommendations and examples to
ensure ethical behavior.
The four commonly held rationalizations that explain why decision-makers

behave unethically:
(1) A belief that the activity is not “really” illegal or immoral.

(2) A belief that the activity is in the individual’s or the corporation’s best interest.
(3) A belief that the activity is “safe” because it will never be found out or
publicized.
(4) A belief that since the activity helps the company, the company will condone it
and even protect the person who engages in it.
Regarding the first rationalization, In order to avoid misunderstandings,

companies must establish ethical guidelines for all employees. When employees
face an ambiguous situation, some may conclude that whatever has not been
predetermined as wrong must be correct. When managers must operate in
murky borderlands, their most reliable guideline is: when in doubt, don’t.

In the second rationalization, ambition plays a key role. Ambitious managers look
for ways to attract auspicious attention by reaching the expected results, even if it
ultimately implies putting the organization at risk. Many managers have been
promoted on the basis of the results obtained in those ways because of the lack
of an objective review of their successes. The author suggests that one way to
avoid this is to hire an independent auditing agency that reports to outside
directors.
The third rationalization is perhaps the most difficult to deal with because much
of the restricted behavior escapes detection. How can we prevent wrongdoing
that is unlikely to be detected? Make it more likely to be detected. He proposes
increasing the frequency of audits and spot checks combined with other
techniques, such as scheduling unannounced audits.
The fourth rationalization – a belief that the company will condone actions that
are taken in its interest – is linked to the issue of company loyalty. While
executives have a right to expect loyalty from employees, they cannot expect
such loyalty to be against the law or against common morality. Organizations
should instead formally and regularly stress that loyalty to the company does not
excuse acts that jeopardize its reputation.
Most extreme examples of corporate misconduct were due to managerial

failures. Thus, clearer communication and better, more objective and more
frequent control mechanisms are effective ways to avoid unethical management
behavior.

10. INVESTING IN BUSINESS ETHICS
If, as stated previously, ethical business is good business, then when a company
decides to set and follow strong ethical policies, it can be looked upon as an investment.
According to basic principles in finance, an investment is good if the present value of the
cost of the investment is less than the present value of expected returns. The only time
an ethical business situation cannot be looked upon as an investment is if it is a one-
time deal that will have no effect on the future. In this case there are no future payoffs
resulting from ethical behavior and thus no economic incentives to invest in such
behavior. The classic example is the "snakeoil" salesperson who passes through town
only once. Since the ideas and goals of business ethics are very abstract, there is no
easy way to measure them, but Moeckel (1997) finds it useful and important to make the
attempt. The effects of ethics in dollar amounts could be measured in an attempt to get a
rough cost estimate and figures that everyone will understand. The costs are classified
into prevention costs, appraisal costs, internal failure costs, and external failure costs.
Prevention costs include the cost of designing the initial ethics system, the costs of
training each employee, process analysis, and design of monitoring. Appraisal costs
consist of the costs of hotlines, audits, and monitors. Internal failure costs measure the
cost of employees' failure to comply with ethical standards, lack of teamwork, and low
morale. External failure costs involve the costs of litigation, bad press, fines, and a
weakened reputation. Moeckel (1997) states that government is in effect manipulating
the external failure costs in an attempt to motivate organizations to dedicate more

resources into prevention and appraisal costs. Government is giving huge punishments
for external failure costs, and so companies must tackle internal controls to save dollars.
Moeckel (1997) suggests increasing appraisal costs, which will in turn increase internal
failure costs and decrease external failure costs significantly. The difficulty in measuring
ethical costs is that it is a very inexact science. Also, it is relatively new, and there are
few models to demonstrate effective cost analysis. It is possible that a company could
have barely any prevention, appraisal, and internal failure costs, and still avoid any
major external failure costs. The problem is, however, if there is an external failure in an
organization that has made few attempts to curb unethical behavior, the sentencing
guidelines will be strict and could basically ruin the organization. It is very dangerous for
an organization to focus on cost minimization at this point in time (Moeckel, 1997).
11. HOW TO TEACH AND ENCOURAGE ETHICS

Can ethics be taught to people who are 20, 30, or 50 years old? Harvard Business
School took the position that ethics can indeed be taught to students and business
people regardless of age. Piper (1993) stated that when an institution avoids teaching
ethics, it is committing a great wrong to the students, faculty, and society as a whole. A
university that refuses to take ethical dilemmas seriously violates its basic obligation to
society. A university that fails to engage its members in a debate on these issues and to
communicate with care the reasons for its policies gives an impression of moral
indifference that is profoundly dispiriting to large numbers of students and professors
who share a concern for social issues and a desire for their institutions to behave
responsibly (Piper, 1993). Professors attempted to measure where current business
students stand in regards to their feelings about the ethical responsibilities of themselves
and corporate America. In doing so, they asked a class to go through a series of
interviews concerning their views on ethics. They found that not only did the students
lack concrete ethical codes, they also did not fully comprehend the ways in which their
actions in the workplace would affect society. Piper (1993) believes that students in the
1990s were much less aware of how business ethics shape America. He also noted that
these same students had a much stronger grasp on complex theories, analytical
reasoning, and difficult quantitative models than past generations of students. Piper
(1993) believes that schools have replaced some of the emphasis they placed on
business ethics with a greater emphasis on quantitative and analytical skills. One factor
contributing to the decline in ethics among students is the light in which business is

viewed. In the past, people were hired by a company and often stayed there ten years,
twenty years, or more. In this situation, the firm was viewed as more than a business,
workers were loyal to the business, and businesses were loyal to their employees. It was
not uncommon for a company to describe itself as a "family" or "community." These
words connote an environment where each employee is respected and cared for by all
other members of the company. Essentially, the company that employed an individual
was a piece of his/her identity, and people took more pride in the company they worked
for because the actions and reputation of the company reflected on the employees to a
larger extent than it does today. Today colder terms such as "team" and "organization"
are used to describe the firm. Parks (1993) states that by using a game as a metaphor
for business, it may be easier to justify actions that are not necessarily ethical. The game
orientation, like the interpersonal orientation, presumes a limited frame of reference, a
circumscribed playing field in which only particular rules apply, and in which certain
behaviors may be tolerable that would otherwise be unacceptable. Game metaphors,
because they generally do not acknowledge the sobering consequences embedded in
most commercial and financial decisions and transactions, ironically serve to insulate the
"players" from the implications of their actions in the "real world" . The growing cultural
isolation occurring in the United States is possibly contributing to a decline in corporate
ethics. Divisions between social classes have gotten stronger with the rise of technology,
the lack of high paying manufacturing jobs, and the blooming suburbs. As families
move out to the wealthier suburbs, they become isolated from the poor and working
classes. They begin to forget that their existence is not independent from the wealthiest
CEOs and also the poorest laborers. When this occurs, people lose understanding of
those that are different from them. Without adequate understanding of and compassion
for the people an organization affects, it becomes difficult to consistently make ethical
policy decisions. What is increasingly shared across economic strata is a form of cultural
isolation and a consequent ignorance of one another, of the connections among people,
and how in fact, each economic class is interdependent with and profoundly affects the
lives of others, both within and beyond natural boundaries. This cultural isolation, which
may also be described as a form of provincialism, delimits compassion--the capacity to
see (and, if necessary, to suffer) through the eyes of another (Piper, 1993).
The increasing cultural split between commerce and social responsibility has also been
blamed for an increase in unethical actions in business. The United States tends to
separate religion, the humanities, and family from business. By dividing these subjects,

the typical business student sees an action that will increase profits as good business
decision independent of the ethical implications. The business sector often feels that
there are other institutions such as religious and humanizing groups that are responsible
for protecting the values of society. Some people feel that this somehow releases the
commercial sector from its obligation to consider the ethical implications
of some actions, and thus contributes to a decline in ethics. Generation X has been
characterized as a cynical generation that is unsure of its role in the world. According to
Parks (1993), many students in their mid-twenties do not believe that their
actions really make a difference. They feel that large social institutions such as
government, corporations, and universities are too big to be influenced by them. This
has been reflected in college-aged voter turnout, for example. Some of this cynicism can
be tied to political scandals such as Watergate and various scandals in the Clinton
administration. Distrust of businesses can be tied to events such as the junk bond
scandals, white-collar crime, and disasters such as the Exxon oil spills.
It is not that students in their young twenties do not care about society. In fact, a report
by the Carnegie Foundation cited that volunteerism is on the rise. Most young people
enrolled in colleges and universities are hopeful about their futures, but cynical about the
future of the United States in the aggregate. Therefore it appears to be in a relationship
to our connected-collective common public life, in contrast to their individual lives, that
these students have the least hope and feel the least sense of potential competence and
efficacy. They are confident about their personal futures, they are not indifferent to
"doing good," but most do not yet articulate a vision or strategy by which they believe
they could effect significant positive change in our collective life (Piper,
1993). It is possible that moral development can continue in young adulthood, and
especially during the course of professional studies. Parks (1993) recognizes several
ways to teach students to incorporate ethics into their lives and has compiled four
recommendations on how to address this complex subject in the classroom. Parks
endorses the use of the following four steps by colleges and universities to teach ethics
in a way in which the students will embrace the importance of acting ethically. Parks
suggests creating a "mentoring community" which could be in the form of a class.
This group would "welcome and affirm the competence and promise of young adults'
lives, while offering a vision on behalf of a larger possibility and an experience of acting
together in concert with that vision" (Piper, 1993). One purpose of this group is simply to
recognize that as potential business people, they must challenge the existing norms in

an attempt to practice ethically guided business. It will make the students aware that
when they enter into the corporate world, their decisions will impact many people in
either positive or negative ways. The goal is to show the students that they may face
opposition to acting ethically in the name of cutting costs and expanding profits, and
remind them that they still have a duty to evaluate every situation based on the ethical
dilemma that comes up. Parks feels that when students confront this task together it is
less overwhelming than if one person faced it alone. Parks (1993) second
recommendation is to allow the students to think critically. This allows students to reject
pieces of the current system and encourages them to make their own judgments
instead of relying on cultural assumptions. If students practice dissecting the ethical
implications of various situations, they will become more conscious of the various effects
of decisions. Encouraging them to make their own decisions and take a stand in class
will make it easier to discover and voice any ethical objections in the corporate world.
This stage encourages students to explore and strengthen their personal values.
Thirdly, Parks (1993) emphasizes being tolerant of the complexity of issues and using
the group to sort out the implications of different situations. Parks feels when an
individual is faced with conflicting ethical issues; they may be overwhelmed and unable
to fully recognize the intricacy of the situation. By working in a group, students can sort
out the issues without finding them too difficult to handle. Some so-called ethical thought
that is unnecessarily naive is maintained because individuals in isolation can only handle
so much. This is an instance in which the consciousness of a "we"-mentoring
community-becomes crucial. When the multifaceted ethical dimensions of managerial
decision-making begin to be recognized and engaged by an entire class of students, the
complexity that cannot be tolerated by an individual can be accommodated by the whole
(Piper, 1993). And last, Piper recommends that students cultivate diverse perspectives.
These new perspectives allow students to understand more clearly the ethical issues. If
one can see the situation from the eyes of another, one may be able to comprehend the
depth of the problem and take steps to remedy the situation or avoid greater problems.
This, Piper (1993) argues, is the primary factor in the formation of ethical and effective
business people. Students need to realize that every decision they may make in
business may have ethical undertones. In separating these in universities faculty are
failing to teach students that ethics is a part of business. It is important that schools
realize this. Harvard psychiatrist Robert Coles said: "What faculty is silent about and

what they omit send powerful signals to students. Omission is a powerful, even if
unintended, signal that these issues are unimportant" (Piper, 1993).
12. CONCLUSIONS
Firms and business people are being pressured to exemplify the highest ethical
standards and also to create the largest returns for shareholders. In some cases, these
goals go hand in hand, but other times businesses are choosing to reduce costs by
cutting corners. The dire effects of abandoning business ethics have been seen in the
rising number of class action lawsuits against major U.S. companies. These lawsuits are
expensive, embarrassing, and indicators that the current system of teaching business
ethics in schools and corporations could use some fine-tuning. When an organization
violates an ethical standard, it is judged not only by the circumstance of that violation,
but also on the design and management of its ethics training programs. This holds
strong implications for top management officials as they can be punished for unethical
actions that occur at any level of the organization. As ethical behavior becomes
increasingly important in business, there is a pressure on colleges and universities to
focus on ensuring their students leave with the highest ethical backgrounds. There are
conflicting studies about whether business students, and economic students in
particular, have incorporated levels of ethics that are consistent with their peers in liberal
arts schools. Regardless, students and faculty agree that additional studies in ethics
would be beneficial.

Why Good Managers Make Bad Ethical Decisions

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Why Good Managers Make Bad Ethical Decisions

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WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS?

WHY GOOD MANAGERS MAKE BAD ETHICAL DECISIONS?

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3. WHY DO GOOD MANAGERS MAKE BAD ETHICAL DECISIONS?..............4

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2. WHAT IS BUSINESS ETHICS?

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3. WHY DO GOOD MANAGERS MAKE BAD ETHICAL

3.1 DESTRUCTIVE COMPETETION

Another mistake managers make is relying on a flawed definition of strategy.

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A company's definition of strategy is important, he said, because it predefines choices

Recently, companies have developed "flaky metrics of profitability” pointing to

"Bermuda Triangle of strategy" is confusion over economic performance and

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3.2 RIGHT TIME, RIGHT PRICE

One more mistake managers make is confusing operational effectiveness with

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It is difficult to sustain the kind of strategic advantage Enterprise enjoys without a

3.3 LEADERSHIP AND STRATEGY

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Other barriers to strategy include industry conventional wisdom; labor agreements or

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4. MENTAL GYMNASTICS BEHIND UNETHICAL BEHAVIOUR

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5.1 MIND GAME #1: QUICKLY SIMPLIFY - “SATISFICING”

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usual responses. If a decision maker uses satisficing when crafting a solution to an

• Have I specified the problem accurately?

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5.2 MIND GAME #2: THE NEED TO BE LIKED

5.3 MIND GAME #3: DILUTE AND DISGUISE

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5.4 MIND GAME #4: “MAKING POSITIVE”

• Am I comparing apples to oranges?

5.5 MIND GAME #5: OVERCONFIDENCE

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6.1 STAKEHOLDER THEORY OF ETHICS

6.2 STOCKHOLDER THEORY OF ETHICS

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6.3 THE INVISIBLE HANDSHAKE

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6.4 INSTRUMENTAL VIEW OF ETHICS

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harassment. Firms such as Target, a division of Dayton Hudson Corporation, have

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7.1 MANVILLE CORPORATION

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expensive to pay workers’ compensation claims than to develop safer working

7.2 CONTINENTAL ILLINIOS BANK

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Continental’s officers had become so entranced by their lending efforts’ spectacular

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7.3 E.F. HUTTON

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8. ARE BUSINESS ETHICS IMPORTANT?

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The four commonly held rationalizations that explain why decision-makers