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Unethical Behavior
in Organization
and Human Nature

Focus of the Chapter:

Insights on human nature
Daily occurrence unethical behavior
Cost associated with unethical behavior
Competitive advantages of ethical organizations
Six stages of moral development
Why good people occasionally behave unethically

Managers must manage their organizations ethical
environment. Due to imperfection in human nature and
inappropriate management control systems, many
organization are ethically challenged.
Therefore, managing ethics is essential for every
organization. Cost of unethical behaviors at work can be
organizations with many competitive advantages. Despite
these competitive advantages, however, unethical
behavior continue to occur because every person is
morally imperfect.
Thus different theories of human nature and the six
stages of moral development explores why good people

Unethical Behaviors at Work

People are unaware that every decision made during a
day has ethical consequences.
All decision are initiated by motive ands and result in
consequences. Were our motive good or bad, where the
consequences good or bad?
Unlike breathing and blinking which are automatics,
human being possess free will and can choose to behave
ethically or unethically in a particular situation. Even if the
decision maker believes he or she is being ethical,
someone harmed by the action may think otherwise.

Every organization is confronted with ethical and

unethical behaviors. Some employees are unsure about
being ethical at work and fail to learn from unethical

Types of Ethical Misconduct Mostly Observed in Organization:

Company resource abuse
Abusive or intimidating behavior toward employees
Lying to employees
Email or internet abuse
Conflict of interest
Lying to stakeholders
Employee benefit violation
Employee privacy breach
Improper hiring practices
Falsifying time or expenses

Unethical Behaviors at Work

Every profession and industry experience ethical
problems. For example in the accounting profession,
unethical activities among the auditors include falsifying
reimbursement or time report, working slowly without
concern for budget limit, and convey confidential or
private information. Another example is public relation and
sales profession where employee experience pressure to
misrepresent the truth. The common unethical issues
include make unrealistic promise on sale call and lying
about companys products and services.
Common ethical issues in OSH profession?
Different level of employees is also confronted with
ethical issues. For example unethical discriminatory
practices based on gender and over report revenue to
maximize profit and impress investors. Middle-level
manager sometime wrote fraudulent internal report and

Cost Associated with Unethical Behaviors

Managers often underestimate the costs associated with

unethical behaviors. The most direct cost is lost of
business. It take only one unethical behavior for an
organization to lose a key customer and been sued by
them. Cost associated with unethical behaviors include
legal cost, theft, recruitment and turnover costs,
monitoring costs, reputation cost, and abusive treatment
Legal cost Lawsuits are one of the most easily
quantifiable costs associated with unethical behaviors. An
organization can face lawsuit by other organization or their
employees. For example, many employment civil rights
cases were bring in courts and a tobacco company was
sued to pay damage to a smoker dying of lung cancer.
Employee theft Theft represent a cost directly incurred
by organization for hiring untrustworthy employees.
Employees can steal money, products, or time. For
example, the biggest source of retail industry theft is
employee, not customers. In addition, theft can occur at all

Cost Associated with Unethical Behaviors

Monitoring cost- Organization incur monitoring cost

when they employ, or do business with unethical
individuals. Once an employee has lied, he or she need to
be more closely monitored until trust is restored. An
unethical organization also face additional monitoring
costs from increased scrutiny and request by client. For
example the owners do not trust the contractors. The lack
of trust result in additional costs of new layer of rules and
regulation to prevent unethical behavior.
Reputation cost- An organizations reputation is one of
the most important assets. Employees, customers, and
investors consider organizational reputation when making
employment and purchase decision. Researcher report
strong correlation between Occupational Health and Safety
Administration violation and declines in organizational
Abusive treatment cost Employees managed by an
abusive boss respond in a variety of ways that result in
additional costs to organizational operations. Some

Cost Associated with Unethical Behaviors

Recruitment and turnover cost Unethical organization

cannot be trusted. Unethical organization incur greater
cost recruiting and they must provide some premium to
offset their ethical efficiencies. It will also result in reduce
loyalty among customer, supplier, and investors.

Competitive Advantages of Ethical

Whereas unethical behavior has a negative impact on
organizational operations, ethical behavior can have a
very positive impact on an organization. A growing amount
of research found ethical performance can contribute to
financial performance.

How much ethics enhance financial performance

depends on a wide range of issues and the link between
ethics and financial performance is multifaceted.
Organizations that are ethical able to attract high
quality employees, have higher level of employees
satisfaction, and greater employees commitment to
Ethical organization also lead the potential customer to
consistently choose the ethical organization over unethical
organization. They willing to pay a premium price for
products and services supplied by an ethical company.

An ethical organization attract also attract high quality
supplier and has high level of supplier satisfaction and
quality. Potential supplier will sell to the ethical
organization fair price and become a partner.
For investor, they will become attracted to ethical
Which lead to high level of investor
satisfaction and loyalty. Investor are drawn to organization
that adopt best practices in corporate governance such as
financial transparency.
Ethical organization honestly communicate with
stakeholders and pay their fair share or taxes. In return,
ethical organization earn respect of and gain access to
community leaders and government officials.

Human Nature
Managing ethics entails understanding human nature.
Human nature refer to the moral, psychological and social
characteristics of human beings. For example, people will
think that can other people be trusted and why human
being are morally imperfect.
Philosophers theorized that individuals are born with soul
consisting of mind, emotions, and desires that form
individuals inner essence. The soul is pure and sinless at
birth and seeks perfect goodness. E.g. Children are born
good and then learn the immoral behavior from morally
corrupt adults.
Others philosophers view that individuals are born
morally neutral. They believe people store moral rules and
knowledge based on life experience. Infant are born with
moral capacities but their moral principles is shape by
culture, parent and experience.

Stages of Moral Development

Everyone has the potential to be kind or cruel to others.
Children and adults from many cultures formed moral
judgment in response to series of ethical dilemmas.
Based on research, pattern emerged in terms of how
people reasoned through the ethical dilemmas. People
sequentially progress through a continuum of six stages of
moral development. The six stages are subdivided into
Preconventional At this stage, the individuals is not
perceived as being part of broad community with rules and
regulations. Instead the right things to do is that which
generates personal pleasure and avoids pains. Thus, moral
reasoning is based on what benefits the individuals. Only
my interest exist and matter. Moral determination is based
on my own needs and wants.

Stages of Moral Development

Conventional At this stage, societal roles and
agreement matters a great deal to the individual. The right
thing to do is to be a good role model and maintain
societal order. Thus, moral reasoning is based on applying
social role or group membership. The interest of other
people must be considered.
Postconventional - At this stage the individual explore
into the principle that govern societal roles and order. The
right things to do is to abide by abstract universal ethical
principles such as justice for everyone. Thus, moral
reasoning is based on abstract principles that all humanity
should follow.

Why Do Good People Behave Unethically

Ethics would be easy to manage if it were simply a

matter of detecting and dismissing evil people.
However, good people occasionally make ethical
mistakes, which at times can be very costly for an
There are four general reasons why good people
occasionally behave unethically:
Unintended unethical behavior Unintended unethical
behavior could result from insufficient knowledge,
situational ambiguity or misaligned management system.
Choosing between competing values Sometimes,
ethical dilemmas arise and the decision maker must
choose between two competing values, both of which are
morally appropriate. Upset person may claim that the
decision maker has behaved unethically even though the
decision maker believed he or she has made ethical

Why Do Good People Behave Unethically

Intentional Unethical Behavior - People provide a wide

range of reasons for behaving unethically. Common reason
is to avoid punishment and receive praise. Some good
people also attribute their occasional unethical behavior
on an organizational culture that either encourage or
tolerate them. Then, some good people behave unethically
as a result of feeling pressured to do so. Lastly, a good
person may behave unethically because the end goal is so
essential that the ends justify the means.
Failure to report unethical behavior Sometimes, good
people remain silent about unethical activities at work.
The top reasons for not informing a manager about
unethical behavior were fear of being labeled or view
negatively by others, fear of damaging relationship, and
fear of retaliation.