ETHICAL

BREAKDOWN

GROUP 9
SECTION F
 NEED FOR ETHICS IN BUSINESS

• Good people often let bad things happen

• Some leaders direct the misconduct from the top

• Employees bend the rules in their favor

• Those in charge are blind to unethical behavior

• Company have poured time and money into ethics training and compliance
programs, but unethical behavior in business is nevertheless widespread
 ETHICAL FADING

– When ethical fading occurs a person does not realize that the
decision he or she is making has ethical implications and ethical
criteria do not enter into the decision.
– The lesson is clear – When employees behave in undesirable ways,
it’s a good idea to look at what you’re encouraging them to do.
Five Barriers To An Ethical
Organization
ILL-CONCEIVED GOALS

MOTIVATED BLINDNESS

INDIRECT BLINDNESS

THE SLIPPERY SLOPE

OVERVALUING
OUTCOMES
 ILL-CONCEIVED GOALS

Inadvertently setting goals that

promote a negative behavior
Incentives that encourage such
actions
ILL-CONCEIVED GOALS: EXAMPLES

– Sears, Roebuck giving a sales goal to its mechanics

encouraged these mechanics to indulge into
unethical practices like Overcharging and Repairing
things that did not need repairing.
– President Bill Clintons obsession with
homeownership rate lead to sub prime lending
– Maximizing billable hours in consulting and
accounting leads to unconscious falsifying or
padding
ILL-CONCEIVED GOALS: REMEDIES

– Brainstorming unintended
consequences when devising
goals and incentives
– Management should also
consider alternative goals that
may be more important to
reward
 MOTIVATED BLINDNESS

• Refers to a systemic failure to notice unethical

behavior in others when it's not in our interest
to do so

• People see what they want to see and easily

miss contradictory information

• The condition affects virtually everyone

MOTIVATED BLINDNESS: EXAMPLES
– The Ford Pinto case – Senior
Management-
 Failed to see the unethical dimension of their own
decision.
 Failed to recognize their subordinates’ unethical
behaviour as well

– Credit rating agencies rating AAA to some

below average and poor quality
organization
– Players’ Union and MLB failed to fully
investigate – The Barry Bonds case
MOTIVATED BLINDNESS: REMEDIES

– Managers need to understand that

mere awareness of conflict of interest
doesn’t necessarily reduce their impact
on decision making
– Integrity alone can’t help as well
– Managers should be mindful that
conflicts of interest are often not
readily visible
– Conflicts of interest must be
consciously rooted out.
 INDIRECT BLINDNESS

– People and organisations are held less

accountable for unethical behaviour if
it is carried out through third parties.

– The strategy works because people

have a cognitive bias that blinds them
to the unethicality of outsourcing
dirty work

 Outsourcing of unethical “dirty work”

 Examples
Cancer Drug Prices
– A drug company deflected attention from a
price increase by selling its rights to another
company, which imposed the increase.
– The drug company Merck which sold two
cancer drugs to the company Ovation
– Soon after the sale, Ovation raised the prices
on the two cancer drugs by “about 1000%”
while Merck actually kept producing the two
drugs
– Merck sold the two drugs to Ovation so that
Ovation could raise the price and Merck
could deflect the negative publicity.
Max Bazerman Study
– Assess the ethicality of situation A and situation B.
– Situation A: The major pharmaceutical X firm
raised the price of the drug from $3/pill to $9/pill.
– Situation B: The major pharmaceutical sold the
rights to a smaller pharmaceuticals. In order to
recoup cost, the company increased the price of
the drug to $15/pill.
– Participants who read version A judged the
company more harshly than participants who read
version B
– A third group was asked to read both versions and
chose Scenario B to be more ethical
 REMEDIES

– Due Diligence: When

outsourcing the work, ask
ask whether the assignment
invites any unethical
behavior
– Take Ownership: Be
responsible for the actions
delegated to the third
parties.
 THE SLIPPERY SLOPE

– We are likely to accept

increasingly major infractions
as long as each violation is
only incrementally more
serious than the preceding
one.

 Boiling water Vs Warm water??!

 EXAMPLES
The Auditors & Estimators
– Auditors were asked to decide whether to
approve guesses provided by “estimators” of
the amount of money in jars
– The auditors could earn a percentage of the
jar’s content if they approve, but would be
fined if approved an exaggerated amount
– The slippery slope change blinded them to
the estimator’s dishonesty
Scenario 1 Vs 2
– Scenario1: If company commits some clear
transgressions in its financial statements,
even breaking few laws
– Scenario2: If the company doesn’t break
any law on an immediate basis, rather it
slowly violates law over certain period of
time
– According to the previous experiment, the
auditor will reject the financial statements
of the first scenario
 REMEDIES

Managers should be on alert for

even trivial seeming infractions
and address them
And if something seems amiss,
they should consider inviting a
colleague to take a look on the
situation – in effect of creating an
abrupt situation and therefore a
clearer analysis of the ethical
infractions.
 OVERVALUING OUTCOMES
Rewarding unethical behaviour because they
are having a good outcome.
Managers are guilty of rewarding results than
high quality decisions
People who do bad but get great results get
rewarded
– People who do good but don’t get results may get punished

Usually the unethical means of doing a job are

the easiest
EXAMPLES – OVERVALUING OUTCOMES
1. The person who aims to kill but misses the 2. A researcher’s fraudulent method of clinical
target Vs. the person who only wishes to trial that saves lives and earns profits is
threaten but accidentally kills considered to be ethical.
REMEDIES – OVERVALUING OUTCOMES

Clearly distinguish between

“wrong” and “right”
Reward the thought process, not
just the results
Encourage ethical thinking
Embed the spirit of integrity and
आशाया ये दासास्ते दासाः सर्वलोकस्य ।
recognize it आशा येषां दासी तेषां दासायते लोकः ॥
 आशाया ये दासास्ते दासाः सर्वलोकस्य ।
आशा येषां दासी तेषां दासायते लोकः ॥

It means:
The one who is a servant to his desires,
is a servant to the world.
The one who keeps his desires as his
servant, has the whole world as his
servant!!
 MORAL THEORIES
Ill-conceived goals – Goals that reward unethical behaviour
Overhauling outcomes – Overlooking unethical decisions when
outcome is good
 Based on Teleology/consequentialist theory

Recommendations
• Kant’s maxim (deontology based)
• Principle of universalizability
• Never treat humanity as a means- distinction between things and
persons
• Focus on will rather than goals achieved
• Outcomes/Consequences do not matter
• Business leaders must understand the incentive systems which their
company has in place and the effect that it has on the workforce.
 Motivated blindness- Conflicts of interest that motivates people to ignore bad
behaviour when they have their own vested interests.

• Focus on maximizing utility of a group of people is the problem.

• Neglect the principle of greatest good for the greatest number of people.
• Theory of Utilitarianism needs to be understood as a broader concept and not selfishly.

 Slippery slope- Inability to notice when behaviour deteriorates gradually

• Minor Misdeeds Lead to Major Ones

• Listen to your instincts
• Employees need to recognize when they’ve committed a minor transgression and check
themselves.
 CONCLUSION
 Avoid forcing ethics through surveillance and sanctioning systems.
 Make sue that managers and employees are aware of biases that can lead to
unethical behaviour.
 Awareness of one’s own blind spots as a leader.
 Leaders setting goals should take the perspective of people whose behaviour
they are trying to influence.
 “Should" self " rather than “want self”
 Organizations should monitor how they are creating institutions, structures, and
incentives that increase the likelihood of unethical actions.
 Aristotelian approach- focus not just on profits but that provide a morally
rewarding environment where people can develop not only their skills but, also
their virtues.
THANK YOU