Chapte

r 8
Making Ethical Decisions in
Business
This chapter sets forth a wide range of principles and methods
for making ethical decisions.

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

 Realtors in the Wilderness
Opening Case
 1984 – Client represented by realtor Tom Chapman is
offered $200 an acre by the National Park Service.
Chapman forced the park service up to $510 an acre.
 1992 – Chapman became an investor in TDX, bought 240
acres of inholdings, and coerced the U.S. Forest Service
into swapping TDX for land that TDX sold for a huge
profit.
 1999 – TDX once again bullied the National Park Service
into a bad deal near Black Canyon.
The story of TDX reveals an ethically complex situation. Its investors
exercise basic property rights, but rights are not absolute. Their
methods resonate with free market values, but markets exhibit flaws.
McGraw-Hill/Irwin 8-3 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 Principles of Ethical Conduct
 There are dozens, if not hundreds, of ethical
principles in the philosophical and religious
traditions of East and West.
 The following 14 principles are fundamental guides
or rules for behavior.
 These principles distill basic wisdom that spans 2,000
years of ethical thought.

McGraw-Hill/Irwin 8-4 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 The Categorical Imperative
 Origination: Immanuel Kant
 Basic premise: Act only according to that
maxim by which you can at the same time
will that it should become a universal law.
 Criticism: Theory is dogmatic and inflexible.

McGraw-Hill/Irwin 8-5 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 The Conventionalist Ethic
 Origination: Albert Z. Carr
 Basic premise: Business is like a game with
permissive ethics and any action that does not
violate the law is permitted.
 Criticism: Commerce defines the life changes
of millions and is not a game to be taken
lightly.

McGraw-Hill/Irwin 8-6 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 The Disclosure Rule
 Origination: Baxter International’s Global Business
Practice Standards
 Basic premise: Test an ethical decision by asking how
you would feel explaining it to a wider audience such
as newspaper readers, television viewers, or your
family.
 Criticism:
 Does not always give clear guidance for ethical
dilemmas in which strong arguments exist for several
alternatives.
 An action that sounds acceptable if disclosed may not,
upon reflection, be the most ethical.
McGraw-Hill/Irwin 8-7 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 The Doctrine of the Mean
 Origination: Aristotle
 Basic premise: Virtue is achieved through
moderation. Avoid behavior that is excessive
or deficient of a virtue.
 Criticism: The doctrine itself is inexact.

McGraw-Hill/Irwin 8-8 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 The Ends-Mean Ethic
 Origination: Ancient Roman proverb, but
often associated with Niccolò Machiavelli.
 Basic premise: The end justifies the means.
 Criticism:
 In solving ethical problems, means may be as
important, or more so, that ends.
 The process of ethical character development can
never be furthered by the use of expedient means.

McGraw-Hill/Irwin 8-9 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 The Golden Rule
 Origination: Found in the great religions and in
works of philosophy.
 Basic premise: Do unto others what you would have
them do unto you.
 Criticism:
 People’s ethical values differ, and they may mistakenly
assume that their preferences are universal.
 It is primarily a perfectionist rule for interpersonal
relations.

McGraw-Hill/Irwin 8-10 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 The Intuition Ethic
 Origination: Defined by G.E. Moore in Principia
Ethica.
 Basic premise: What is good or right is understood
by an inner moral sense based on character
development and felt as intuition.
 Criticism:
 The approach is subjective.
 Self-interest may be confused with ethical insight.
 No standard of validation outside the individual
is used.
 Intuition may fail to give clear answers.

McGraw-Hill/Irwin 8-11 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 The Might-Equals-Right Ethic
 Origination: Thracymachus
 Basic premise: Justice is the interest of the
stronger.
 Criticism:
 Confusion of ethics with force.
 Invites retaliation and censure, and is not
conducive to long-term advantage.

McGraw-Hill/Irwin 8-12 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 The Organization Ethic
 Origination: Not credited.
 Basic premise: Be loyal to the organization.
 Criticism: Many employees have such deep
loyalty to an organization that it transcends
self-interest.

McGraw-Hill/Irwin 8-13 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 The Principle of Equal
Freedom
 Origination: Herbert Spencer
 Basic premise: A person has the right to
freedom of action unless such action deprives
another person of a proper freedom.
 Criticism: Lacks a tie breaker for situations in
which two rights conflict.

McGraw-Hill/Irwin 8-14 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 The Proportionality Ethic
 Origination: Medieval Catholic theology
 Basic premise: A set of rules for making
decisions having both good and evil
consequences.
 Criticism: These are intricate principles,
requiring consideration of many factors.

McGraw-Hill/Irwin 8-15 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 The Rights Ethic
 Origination: Western Europe during the
Enlightenment
 Basic premise: Each person has protections and
entitlements that others have a duty to respect.
 Criticism:
 Rights are sometimes stretched into selfish demands or
entitlements.
 Rights are not absolute and their limits may be hard to
define.

McGraw-Hill/Irwin 8-16 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 The Theory of Justice
 Originator: Contemporary, John Rawls.
 Basic premise: Each person should act fairly
toward others in order to maintain the bonds
of community.
 Criticism: Rawl’s principles are resplendent
in theory and may even inspire some business
decisions, but they are best applied to an
analysis of broad societal issues.

McGraw-Hill/Irwin 8-17 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 The Utilitarian Ethic
 Origination: Line of English philosophers, including
Jeremy Bentham and John Stuart Mill.
 Basic premise: The greatest good for the greatest
number.
 Criticism:
 In practice it has led to self-interested reasoning.
 Because decisions are to be made for the greatest good
of all, utilitarian thinking has led to decisions that
permit the abridgement of individual or minority
group rights.

McGraw-Hill/Irwin 8-18 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 Reasoning with Principles
 The use of ethical principles, as opposed to the
intuitive use of ethical common sense, may improve
reasoning, especially in complex situations.
 Based on the application of utility, rights, and justice,
the manager’s decision in the text example to remain
silent is acceptable.
 Some judgment is required in balancing rights, but
the combined weight of reasoning with all three
principles supports the manger’s decision.

McGraw-Hill/Irwin 8-19 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 Character Development
 Character development is a source of ethical behavior
separate from the use of principles reasoning.
 The theory that character development is the
wellspring of ethical behavior can be called the virtue
ethic.
 Aristotle believed that by their nature ethical
decisions require choice, and we build virtue, or
ethical character, by habitually making the right
choices.

McGraw-Hill/Irwin 8-20 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 Practical Suggestions for Making
Ethical Decisions
 Learn to think about ethics in rational terms using
ideas such as universalizability, reversability, utility,
proportionality, or others.
 Consider some simple decision-making tactics to
illuminate alternatives.
 Sort out ethical priorities early.
 Be publicly committed on ethical issues.
 Set an example.
 Thoughts may be translated into action, and ethical
deeds often require courage.
 Cultivate sympathy and charity toward others.
McGraw-Hill/Irwin 8-21 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 Concluding Observations
 There are many paths to ethical behavior.
 Not all managers appreciate the repertoire of
principles and ideas that exist to resolve the
ethical problems of business life.

McGraw-Hill/Irwin 8-22 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.