Chapter 4

Ethics and
Ethical Reasoning
 Ch. 4: Key Learning Objectives
 Defining ethics and business ethics
 Evaluating why businesses should be ethical
 Knowing why ethical problems occur in business
 Identifying managerial values as influencing ethical
decision making
 Recognizing how people’s spirituality influences their
ethical behavior
 Understanding stages of moral reasoning
 Analyzing ethical problems using generally accepted
ethics theories

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4-2

The Meaning of Ethics
 Ethics
 A conception of right and wrong conduct
 Tells us whether our behavior is moral or immoral
 Deals with fundamental human relationships—how we think
and behave toward others and want them to think and
behave toward us

 Ethical Principles
 Guides to moral behavior

 Business Ethics
 Application of general ethical ideas to business behavior

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4-3

Sources of Ethics
 Notions of right and wrong come from many sources
 Religious beliefs
 Family background
 Education
 Community/neighborhood
 Media influences

 These experiences create a concept of ethics,

morality, and socially acceptable behavior in each
person
 Acts as a moral compass to guide an individual when ethical
dilemmas arise

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4-4

Ethical Relativism

 Concept which holds that ethical behavior should be

defined by various periods in time in history, a society’s
traditions, the special circumstances of the moment, or
personal opinion
 The meaning given to ethics would be relative to time, place,
circumstance, and the person/s involved
 There would be no universal ethical standards on which
people around the globe could agree

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4-5

Figure 4.1 Observations of Unethical Behavior at Work

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4-6

Five Key Reasons Business Should be Ethical

To meet demands of business stakeholders

 About three-fourths of employees surveyed in 2007 believe their
firms are considering the environment, employee well-being,
and the interests of society and the community.
 Meeting demands of stakeholders is good business

To enhance business performance

 Research shows linkage between ethically responsible
behavior and favorable corporate financial performance
 Imparts trust, promoting positive alliances among
business partners

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4-7

Five Key Reasons Business Should be Ethical

To comply with legal requirements

 Two legal requirements provide direction for
companies interested in being more ethical in their
business operations
 U.S. Corporate Sentencing Guidelines
 Sarbanes-Oxley Act of 2002

 Although they apply only to U.S.-based firms, these

legal requirements also provide a model for firms that
operate outside the United States
© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4-8
U.S. Corporate Sentencing Guidelines
 Establish standards and procedures to reduce criminal
conduct
 Assign high-level officer(s) responsibility for compliance
 Not assign discretionary authority to “risky” individuals
 Effectively communicate standards and procedures through
training
 Take reasonable steps to ensure compliance—monitor and
audit systems, maintain and publicize reporting systems
 Enforce standards and procedures through disciplinary
mechanisms
 Following detection of offense, respond appropriately and
prevent reoccurrence

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4-9

Sarbanes-Oxley Act of 2002
 Born from the ethics scandals at Enron, WorldCom, Tyco
 Seeks to ensure that firms maintain high ethical standards in
how they conduct and monitor business operations
 Requires executives to vouch for the accuracy of a firm’s
financial reports
 Requires executives to pay back bonuses based on earnings
that are later proved fraudulent
 Established strict rules fro auditing firms
 In 2006 and 2007 regulation loosening occurred when the SEC
provided more relaxed guidelines to parts of the Sarbanes-
Oxley Act

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4 - 10

Five Key Reasons Business Should be Ethical
To prevent or minimize harm
 Overriding principle that business should
“do no harm”
 Examples include not harming society with toxic
waste, protecting business from unethical employees
and unethical competitors

To promote personal morality

 Knowing one works in a supportive ethical climate
contributes to sense of psychological security
 People want to work for companies that do the right
thing

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4 - 11

Why Ethical Problems Occur in Business

 Four Primary Reasons

 Personal gain and self-interest
 Competitive pressure on profits
 Conflicts of interest
 Cross-cultural contradictions

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4 - 12

Figure 4.3 Why Ethical Problems Occur in Business

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4 - 13

Core Elements of Ethical Character:
Managers’ Values
 Managers are key to whether a company and its
employees will act ethically or unethically
 The values held my managers will serve as
models for others who work at the company
 Differences in ethical stances of U.S. versus
European managers and employees
 Younger generation of managers more concerned
about ethics/social responsibility
 A company’s CSR performance is a major factor when
selecting a new employer for today’s graduating MBAs

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4 - 14

 Spirituality in the Workplace
 Personal belief in a supreme being, religious
organization, power of nature or some other life-guiding
force
 Organizations have responded to the increased attention
to spirituality and religion at work by attempting to
accommodate their employees
 Opponents of spirituality at work point to the myriad of
implementation issues as grounds for keeping spirituality
out of the workplace
 Issues include which religion should be promoted,
and need for recognizing diversity of religious beliefs

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4 - 15

Stages of Moral Development
 From childhood to mature adulthood people move
up in their moral reasoning
 Earliest stages of reasoning are ego-centered
 Most developed stages are principle-centered
 Most managers make decisions based on criteria in
levels 3 and 4
 Company executives’ reasoning has wide
implications both inside and outside the
organization

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4 - 16

Figure 4.4 Stages of Moral Development and
Ethical Reasoning

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4 - 17

Analyzing Ethical Dilemmas in Business
 Business managers and employees need a set of
decision guidelines that will shape their thinking when
on-the-job ethics issues occur
 These guidelines should help them
 Identify and analyze the nature of an ethical problem, and

 Decide which course of action is likely to produce an ethical

result

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4 - 18

Four Methods of Ethical Reasoning
 Virtues
 Values and character are critical determining factors
 Utilitarian
 Compares benefits and costs of a decision, policy or action
 Costs and benefits can be economic, social or human
 Rights
 Person or group is entitled to something or to be treated in a certain
way
 Examples of basic human rights are right to life, safety, and due
process
 Justice
 Means benefits and burdens are distributed equally, according to
some accepted rule

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4 - 19

Figure 4.5 Four Methods of Ethical Reasoning

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4 - 20

Applying Ethical Reasoning to Business Activities
 Can use the virtues, utility, rights, and justice
framework as a tool to analyze real business ethics
dilemmas
 Once the ethical analysis is complete, the decision
maker should ask the question: Do all of the above
ethics approaches lead to the same decision?
 If all the answers are “Yes”, the proposed action is ethical
 If all the answers are “No”, the action is not ethical and needs
to be reconsidered
 If “Yes” and “No” answers are mixed, you must decide which
takes priority

© 2011 The McGraw-Hill Companies, Inc. All rights reserved. 4 - 21