The Ethics of MBO

Author(s): Charles D. Pringle and Justin G. Longenecker

Source: The Academy of Management Review, Vol. 7, No. 2 (Apr., 1982), pp. 305-312
Published by: Academy of Management
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 ?Academy of Management Review 1982, Vol. 7, No. 2, 305-312

The Ethics of MBO

CHARLES D. PRINGLE

University of Houston at Clear Lake City

JUSTIN G. LONGENECKER

Baylor University

Despite the widespread adoption of Management by Objectives (MBO)

and its extensive coverage in the literature, few questions have been raised

regarding the ethical issues involved in this form of management. Points in

the MBO process that are particularly likely to create ethical problems for

organizational members are identified, and some means that management

can use to increase the likelihood that its MBO program will be conducted

in an ethical manner are suggested.

Since Drucker (1954) first coined the term "Man-

to performance and to demonstrate objectivity,

agement by Objectives" (MBO), a wide variety of

fairness, and a meaning to rating differences.

organizations-profit and nonprofit, large and

Is MBO Inherently Ethical?

small-have adopted this planning technique in

Despite the widespread adoption of MBO and its

various forms. One writer, Odiorne, estimates that

extensive coverage in the literature, few explicit

"MBO is the dominant form of management in

questions have been raised about the ethical issues

large corporations and in government" (1979, p. v).

involved in this form of management. A review of

Although the MBO concept encompasses plan-

the academic literature and material written for

ning, motivation, management development, con-

practitioners suggests that most writers assume that

trol, and performance appraisal, it is the last ap-

MBO, properly implemented, is inherently ethical;

plication that provides much of the impetus for cur-

few of them address the issue. But precisely what

rent organizational adoptions of MBO. A number

constitutes proper implementation is subject to

of court rulings and decisions of the Equal Employ-

some debate (McConkie, 1979). Furthermore, com-

ment Opportunity Commission emphasize that per-

ments from scores of engineers, nurses, teachers,

formance appraisals must be based on clear, job re-

and other professionals enrolled in night division

lated standards that are nondiscriminatory. One

MBA courses lead to the disturbing conclusion that

U.S. Supreme Court ruling (Albemarle Paper Com-

MBO is quite capable of posing ethical problems

pany v. Moody, 1975), for example, held that sub-

for organizational members.

jective supervisory ratings were an insufficient

Unethical acts in organizational life typically are

defense against charges of discrimination because

viewed as individual failures to conform to some

such ratings failed to evaluate employees against

moral principle. And, indeed, they are. Such a view

specific job performance criteria.

is incomplete, however, in failing to recognize the

An incentive for federal agencies to adopt MBO

systemic forces (including cultural norms) that also

came from the Civil Service Reform Act of 1978.

influence such behavior. Allen has pointed out the

Among its provisions, this act requires that actual

weakness of concentrating exclusively on individual

job performance-rather than length of service-be

behavior in evaluating ethical performance:

used to grant or deny merit pay raises to certain

Blaming individual victims is more or less

categories of government employees. The National

pointless.... It would be much more helpful to focus a

Aeronautics and Space Administration, for exam-

significant percentage of our energies on finding out

ple, replaced its subjective performance appraisal

what in the situation had encouraged the behavior

system with MBO in 1980 in an attempt to link pay

that concerned us (1980, p. 32).

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 Managerial systems are significant parts of orga-
of participative management. In many of their

nizational cultures. They may stimulate or discour-

organizations, which purport to practice MBO, ob-

age ethical performance. Because MBO is a widely

jectives are formulated at the top and passed down

used managerial system, its impact on organiza- with little or no discussion. These objectives then

tional ethics may be far reaching. It is appropriate,

become "theirs," and they are evaluated on how

therefore, to examine its moral dimensions. well they attain them.

Ethical problems in MBO programs are most

Carroll and Tosi (1973) report on an unpublished

likely to arise as a result of the goal setting and per-

study by Stein who, after interviewing several hun-

formance appraisal processes. These "clearly con-

dred managers in an MBO program, concluded that

stitute the heart and flow of Management by Objec-

managers may feel forced to accept objectives that

tives" (McConkie, 1979, p. 29). Hence, this ex-

they honestly feel are unrealistic or undesirable

amination will concentrate on these particular pro-

because they are unable to argue effectively against

cesses.
them. If the objectives are to be used to evaluate

subordinates' performance, and pay and progress

up the organizational ladder are based primarily on

Setting Objectives

the degree to which the objectives are attained, then

In the goal setting phase of MBO, two areas are

is it not ethical at least to involve the subordinates

particularly likely to create ethical problems for

in formulating those objectives?

organizational members: the process of determining

The answer to this question by ardent supporters

the actual objectives for subordinates and various

of MBO is not clear. McConkey believes, at one ex-

characteristics of the objectives themselves.

treme, that "the real value of MBO is participation

in the objective-setting process, not the objectives

Subordinates' Objectives

themselves" (1976, p. 169). But, if the objectives

The goal setting process of MBO is often concep- are not important, then the entire process is a sham

tualized as a form of participative management in

to be taken seriously by no one. As Pinder puts it:

which the superior and subordinate first discuss and

MBO programs are often simply legitimized systems

of phony participation, in which the fiction is main-

then jointly establish objectives for the subordinate.

tained that the subordinate is making a real input in-

McConkie indicates that only 2 of the 40 authorities

to planning work objectives and procedures. Such

on MBO whose works he surveyed "suggest any-

situations smack of Machiavellianism and are quickly

thing other than involving subordinates in goal set-

self-defeating (1977, p. 388).

ting from the initial stages" (1979, p. 32). Recent

At the other extreme, Odiorne, a major advocate

studies of MBO participants (Hollmann, 1976;

of MBO as a system of management, aruges that

Stein, 1979) also emphasize the importance subor-

whether participative or autocratic means are used

dinates place on participation. Certainly, in view of

to establish the subordinates' objectives is im-

the value attached to individual worth by society, a

material because "the system is really neutral to

management system that gives organizational mem-

such value judgments" (1979, p. 286).

bers a greater voice in setting their own goals seems

These days some managers and professionals seem to

ethical and congruent with societal values.

expect to be invited to participate in goal setting. If

Obviously, individual differences among subor-

you have no reason to think subordinates will with-

hold effort or try to deceive the organization, then let

dinates must be considered. Not all employees

them participate. In those rare cases where you

desire to participate equally. Although a minor

suspect some serious foot-dragging, don't let any

problem may exist in forcing participation on un-

false lust for participative management deter you

willing participants, the larger issue concerns the ex-

from imposing goals. Breaking a general rule about

tent to which individuals who wish to partici-

allowing participation can be done if there is good

reason (Odiorne, 1979, p. 113).

pate-and are led to believe that MBO is a partici-

pative system-are denied a voice in establishing But management systems are not neutral to value

their own objectives. The present authors' ex- judgments. If MBO is to be introduced properly in-

perience indicates that part time MBA students in- to an organization, the reasons for the system (i.e.,

volved in MBO programs at work express some the benefits to the organization and its employees)

cynicism when MBO is presented in class as a form and the effects of the system on the participants

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 should be fully discussed with all organizational
about them may eventually find themselves sacrific-

members. Once the appropriate groundwork has

ing their idealism as the pressure to meet more

been laid and the employees have learned to set ob-

quantifiable goals intensifies and consumes most of

jectives, then it seems unethical not to permit them

their working hours. Over time, as the major

to participate in establishing their objectives,

motivation for their career becomes displaced, they

because participation is an integral part of MBO. If

may be plagued by guilt feelings as they grow in-

the MBO process is to be ethical, it must concern

creasingly disillusioned over the directions their

itself not only with the objectives themselves, but

lives have taken. For instance, human service pro-

the means by which they are set.

fessionals who are faced with heavy case workloads

find it more difficult to maintain their idealism,

Characteristics of Subordinates' Goals

commitment, and compassion and are more likely

The problems resulting from management

to experience "burnout" than are workers with

pressures on subordinates to quantify objectives in

lighter caseloads (Cherniss, 1980, pp. 161-163).

order to make them measurable and verifiable are

Compounding the problem is the emphasis that

well known. In a survey of 428 lower and middle

quantitative goals are likely to place on subordinate

level managers in 10 organizations in business and

job performance, while little, if any emphasis is giv-

government, Stein (1979) found that the most oft-

en the employee's personal goals. Performance ob-

mentioned problem in these MBO programs was the

jectives stress activities related to the subordinate's

pressure to write measurable objectives even if

job assignment; personal goals focus on improving

unrealistic quantitative goals resulted.

the individual's interpersonal skills, technical skills,

Forcing subordinates to quantify their objectives,

and preparation for advancement (Carroll & Tosi,

however, requires them to be evaluated on some-

1973). When the former are emphasized at the ex-

thing decidedly less than their full performance. As

pense of the latter, the subordinate may conclude

Levinson states: "The greater the emphasis on

that he or she is being used by the organization to

measurement and quantification, the more likely

further its goals. "Why should an individual be ex-

the subtle, nonmeasurable elements of the task will

pendable for someone else and sacrifice himself for

be sacrificed" (1970, p. 127). The "subtle, non-

something that is not part of his own cherished

measurable elements" that may be sacrificed in-

dreams?" (Levinson, 1970, p. 130).

clude such qualities as concern for others, ad-

In their analysis of Tenneco's goal setting pro-

herence to moral principles, and commitment to

gram, Ivancevich, McMahon, Streidl, and Szilagyi

fair play. Quantification per se does not require a

(1978) caution that personal development goals

neglect of other factors. However, a system such as

must not be relegated to a "second-class citizen-

MBO that stresses quantitative goals turns the

ship" because they may play an important role in

spotlight on the numbers and leaves other values in

improving the quality of work life for organiza-

the shadows.

tional members. Subordinates themselves feel this

Quantitative goals all too easily give rise to

need. Interviews with 48 managers in one MBO pro-

"Catch-22" situations in which the subordinate

gram indicated that one-third believed the program

who meets his or her goals is informed that next

would be improved by the inclusion of personal ob-

year's objectives must be even higher. As Muczyk

jectives in addition to performance goals (Carroll &

pointedly asks: "How many managers will accept

Tosi, 1973).

as a satisfactory goal the maintenance of last year's

Goals that emphasize only part of the

level?" (1979, p. 54). Although progress is expected

individual's job, then, may not be considered fair

in most jobs, subordinates may feel that the highly

by the subordinate. But, the fairness question has

lauded MBO program gives their superiors an

yet another dimension. In most organizational

unethical ratchet.

systems, one's job performance reflects more than

Those who feel pressured to meet quantitative

the efforts and ability of that person. The more an

goals by neglecting important values also may ex-

individual's effectiveness depends on the perfor-

perience guilt in their personal lives. Individuals

mance of others, the less that individual can be held

who enter certain professions or careers hoping to

responsible for the outcome of her or his efforts

enrich the lives of others and improve the world

(Levinson, 1970). For this reason, some theorists

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 have suggested that the manager and subordinates Levinson terms the typical method of practicing

act as a team in setting, first, group objectives and performance appraisal under MBO a "reward-pun-

then individual objectives to increase cooperation

ishment psychology that serves to intensify the

and helping behavior within the unit (Likert & Fish-

pressure on the individual" (1970, p. 134). Once the

er, 1977). The extent to which this mode of objec-

employee's goals have been approved by the supe-

tive setting has been adopted is not clear.

rior, the goals then become the subordinate's

Even if all of these problems can be overcome

"own." As Levinson so colorfully puts it: "Pre-

and the subordinate, in collaboration with his or

sumably, he has committed himself to what he

her superior, is able to formulate an acceptable,

wants to do. He has said it and he is responsible for

comprehensive, fair set of objectives, appropriate

it. He is thereafter subject to being hoisted on his

behavior will not necessarily follow. Odiorne main-

own petard" (1970, p. 128).

tains that "activity will follow goals at the same

There are myriad instances of employees using

level of excellence. Bad goals produce worthless ac-

unethical means to attain goals regarded as ex-

tivity. Good goals produce rewarding activity"

tremely important by their superiors. Three ex-

(1979, p. 110). But "good" goals such as higher

amples will suffice:

profits, increased sales, greater market share, or a

(1) The infamous Equity Funding scandle in the

job promotion can be attained through patently un-

early 1970s revolved around a situation in which a

ethical means.

chief executive established such high growth objec-

Performance Appraisal

tives that subordinates began to falsify records and

create fictitious insurance policies for nonexistent

Emphasis on ends rather than means is, at once,

people.

MBO's greatest potential strength and weakness.

(2) Plant supervisors at a Chevrolet truck plant in

Concentration on goal attainment contributes to

Michigan who were having problems meeting their

the fairness of the system by lending an air of ra-

weekly production goals complained to their

tional objectivity to performance appraisal. As an

superior that the goals were predicated on the

added plus, emphasis on specific goals helps subor-

unrealistic assumption that everything would go

dinates know exactly what is expected of them and

perfectly. Their superior replied: "I don't care how

in what direction to channel their efforts. This

you do it-just do it." To "do it," the supervisors

knowledge may well decrease job ambiguity, a

installed a secret control box that sped up the

source of stress for some individuals.

assembly line and increased production. The

Concentration on ends rather than means in per-

assembly line workers, however, discovered the

formance appraisal also is commendable because of

secret mechanism. The supervisors were temporari-

the greater autonomy granted to members of the

ly suspended and later transferred, and the com-

organization. Any system that permits and en-

pany had to award $1 million in back pay to the

courages maturity and independence on the part of

United Auto Workers (Getschow, 1979, p. 26).

organizational members shows practical respect for

(3) A scandal erupted at H. J. Heinz Company in

the worth and dignity of people. The greater free-

1979 when middle managers chose to falsify reports

dom accorded by MBO, therefore, represents an

in the "pressure-cooker" atmosphere of the com-

advancement in the attainment of this important

pany's U.S.A. division. As one former marketing

value.

official stated it: "When we didn't meet our growth

On the other hand, appraisal based primarily on

targets, the top brass really came down on us. And

ends may produce overwhelming pressure on subor-

everybody knew that if you missed the targets

dinates to attain the objectives.

enough, you were out on your ear" (Getschow,

The practice of setting very difficult goals and then

1979, p. 1).

applying pressure to reach these goals creates condi-

Surveys report similar conclusions. Carroll found

tions favorable to producing unethical behavior. Is it

always clear to personnel that they are expected to at-

that over 64 percent of the 238 American business

tain goals only within the confines of ethical perfor-

executives he surveyed across a number of indus-

mance? Or, is the emphasis upon goals so intense

tries "agreed" or "somewhat agreed" with the

that attention is directed to the goals and not to

statement that "managers today feel under pressure

means of achieving those goals? (Longenecker &

Pringle, 1981, p. 89). to compromise personal standards to achieve com-

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pany goals" (1975, p. 77). An in-house survey of
Broader Implications

Pitney Bowes (1977) managers revealed that 59 per-

Although MBO involves some positive ethical

cent of them regarded pressure to compromise per-

values, it can, potentially, produce ethical problems

sonal ethics to achieve corporate goals as a prob-

of two types: (1) the process of setting objectives

lem.

and various characteristics of the objectives

The behavior of superiors is the most important

themselves give rise to important ethical implica-

factor influencing unethical decisions in organiza-

tions for subordinates; and (2) performance ap-

tions, according to a survey of 1,227 Harvard

praisals that heavily emphasize goal attainment can

Business Review readers (Brenner & Molander,

1977). Hence, it may be that a strong, ethical stand create pressures that encourage subordinates to

reach their goals regardless of the means they

by the chief executive officer (CEO) is a necessary,

employ. There is an even larger issue. An MBO pro-

but insufficient, condition for ethical behavior

among subordinates. A survey of presidents and gram that is not well planned, thoroughly

CEOs of the Fortune 500 companies revealed that discussed-in advance-with all participants, and

34 percent of the 237 respondents felt that the best ethically conducted is simply a unilateral attempt by

way a president can have a real impact on the top management to increase worker productivity.

ethical climate of the corporation is through setting Such charades are doomed to failure. Furthermore,

reasonable goals "so that subordinates are not the failure itself has ethical implications.

Failed-and failing-MBO programs are likely

pressured into unethical actions" (Dagher &

Spader, 1980, p. 56). Of course, a CEO may state to create or enhance adversary relationships be-

that he or she subscribes to a rigid code of ethics tween superior and subordinate, thereby increasing

and expects such behavior from all members of the distrust and job dissatisfaction. Participants

organization. At the same time the CEO may be set- understandably become skeptical of management

ting goals for his or her subordinate manager "that theory and leery of any new program that manage-

cannot be achieved without deviating from that ment attempts to foist upon them in the future.

standard. The executive can further state that if Such skepticism leads to self-fulfilling prophecies

these goals can't be achieved, it is because the that doom even sound, well-conceived efforts. Car-

manager does not know how to manage" (Dagher roll and Tosi report such a problem at one com-

& Spader, 1980, p. 56). pany:

Ethical performance appraisal requires a concern Many managers at Black & Decker did not initially

have a positive reaction to the new MBO program

for the means of attaining the objectives as well as

and felt that it was simply another fad that would be

the degree to which they are reached.

soon forgotten, because they had experienced new

The means used to accomplish goals must be

programs in the past that were later abandoned. Our

evaluated. It is obviously of great importance that

interview results suggested that this negative reaction

the organization not reward behavior that is

based on past experiences may have significantly in-

unethical, illegal, or that creates future or other cur-

fluenced the manner in which certain managers car-

rent problems for the organization. A manager might

ried out the goal-setting and performance-review

achieve his goals at the expense of creating ill will or

process (1973, pp. 126-127).

future problems for the organization or by con-

tributing to the nonaccomplishment of the goals of

Is Ethical MBO Attainable?

others (Carroll & Tosi, 1973, p. 118).

Donaldson and Waller (1980) point out that no

Recognizing the problem, McConkey recom-

behavioral act is necessarily free of moral implica-

mends that results-oriented evaluations not be for-

tions. Certainly, the adoption and implementation

mally introduced until two or three years after

of MBO comprise a series of acts fraught with

MBO has been implemented. "This helps keep

ethical considerations. MBO has serious and power-

positive emphasis on the system as a way of manag-

ful effects on the lives of its participants. How,

ing rather than having it generate distrust and fear

then, is it possible for management to ensure that its

because the manager is worrying about being

MBO program is conducted in an ethical manner?

evaluated while he is learning how to apply the

system" (1976, p. 152). But, it must be added, even

Organizational Priorities

these results-oriented evaluations must be concern-

ed with the means used to attain the results. The first action management must take is to

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 create and foster a climate in which ethical behavior
managers demonstrate through their daily behavior

is not only encouraged but expected. All too often,

adherence to ethical norms, lower level participants

technical and economic matters take priority over

are likely to conform. Conformity to ethical norms

ethical behavior, frequently through simple lack of

can be strengthened further through the reinforce-

any managerial statement regarding ethical stan- ment of ethical behavior.

dards. Top management must make it clear that the

Behavioral Reinforcement

manner in which goals are established, the charac-

teristics of those goals, and the means used to attain

Without enforcement, no code is likely to be

the goals must be within ethical guidelines. Fletcher

taken seriously. Fred T. Allen, Chairman and CEO

L. Byrom, Chairman of the Board of Koppers

of Pitney Bowes, urges rigorous application of

Company, commented as follows on his efforts to

ethical codes:

clarify organizational priorities:

How should the corporation respond to the in-

dividual who is guilty of violating its ethical code?

The thing we as a corporation wanted to do was to

From the pinnacle of the corporate pyramid to its

remove what might be considered by some to be an

base, immediate punitive action, commensurate with

ambiguity between economic performance and

the degree of transgression, is the only choice. The

ethical conduct....And we wanted to make it clear

corporation thus says in the clearest terms that it will

that we did not expect anybody to do something that

not tolerate corporate wrongdoing of any kind by

was inconsistent with their ethical standards under

anyone (Allen, n.d., p. 23).

the guise that it was for the benefit of the Company

(Steiner, 1978).
Punishment of a manager for unethical actions is

Weber refers to this process of clarifying the role

quickly communicated throughout the organiza-

of ethics within the organization as "institutionaliz-

tion. Payne suggests that "organization members

ing" ethics, a process he defines as "getting ethics

learn vicariously from the ways in which deviates

formally and explicitly into daily business life, mak-

are reinforced" (1980, p. 413).

ing it a regular and normal part of business" (1981,

In the opposite vein, highly ethical behavior

p. 47). This process begins with policy making at

should be positively reinforced. This process can be

the top managment level and ultimately integrates

accomplished m-ost effectively by making judg-

ethics "into all daily decision making and work

ments of adherence to the organization's ethical

practices for all employees (1981, p. 47). One means

code a regular part of the performance appraisal

of accomplishing this end is to develop and dis-

process. The means used by subordinates to attain

seminate a code of ethics to organizational

their goals should be an integral part of appraisals.

members.
On a broader scale, Hegarty and Sims, in an in-

triguing laboratory experiment, demonstrated that

Code of Ethics

"individual behavior is controlled not only by the

Ethical codes often are criticized as ineffective consequences of the behavior (reinforcement), but

and immaterial. When properly used, they can pro- by the stimulus environment present prior to the oc-

vide an explicit statement of behavioral expecta- currence of the behavior" (1978, p. 54). They

tions. A well conceived code of ethics can be used to hypothesize, based on their findings, that if top

express the standards supported by organizational management's statement of ethical policy is strong

leaders. These standards should include clear state- and explicit, ethical behavior within the organiza-

ments of top management's expectations regarding tion will increase, which will reduce the need to

the ethics of establishing and attaining goals. engage in heavy "after-the-fact" control activities.

A majority of the respondents to the Harvard

A Suggested Ethical Criterion

Business Review survey (Brenner & Molander,

1977) believed that an ethical code would help ex-

As the ethical criterion of organizational relation-

ecutives define the limits of acceptable conduct and

ships, Donaldson and Waller (1980) offer the tradi-

refuse unethical requests. For such a code to be ef-

tional Golden Rule-do unto others as you would

fective, organizational members must be convinced

have them do unto you. (If the Golden Rule ter-

that top management takes the code seriously, and

minology is objectionable to some, then Donaldson

the code should be made a part of the orientation

and Waller suggest calling it the "Prescriptive

program for new employees. Over time, as top

Groundrule.")

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 This criterion can be operationalized through
Conclusion

psychological role-reversal to test the ethical

legitimacy of behavioral relationships between A (a The foregoing analysis indicates that the goal set-

superior) and B (a subordinate). ting and performance appraisal processes involved

The legitimacy of the relationship does not depend in MBO are susceptible to ethical problems. Hence,

on A's imagining himself in B's position with A's

the first step in developing an ethical MBO program

own values; it does depend on A's imagining himself

is an awareness of this susceptibility. The MBO pro-

in B's position with B's values. We transfer B's

cesses that are particularly vulnerable to unethical

values to A, and vice versa, because their respective

behavior have been examined.

values are part of the structure of the situation. This

can be generalized to an indefinitely large number of To reduce the likelihood that unethical behavior

people (Donaldson & Waller, 1980, p. 50).

will occur, it is suggested that top management:

This conceptual framework certainly provides a

place ethical behavior high on its list of organiza-

starting point. Few managers, for instance, would

tional priorities, develop a clear statement of

appreciate: being placed under an MBO system that

behavioral expectations, and appropriately rein-

was not previously discussed with them, having

force employee behavior.

"their" objectives dictated to them, being

MBO is not inherently ethical, but ethical MBO is

evaluated solely on the attainment of goals that are

attainable. It is hoped that academicians, con-

quantifiable, and having overwhelming pressure

sultants, and practitioners will become more con-

placed on them to reach their objectives regardless

scious of-and responsive to-the ethics of MBO.

of the means used.

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ERRATUM

In the article "Predicting Worker Performance in Inequitable Settings" by Robert

P. Vecchio (Academy of Management Review, 1982, Vol. 7, No. 1, 103-110), equa-

tions 2 and 4 contain typesetting errors. The denominators of the ratios in equation

2 should not contain absolute value signs, while the denominators of the ratios in

equation 4 should contain absolute value signs.

312

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