© 2018 Cengage 1

Chapter 8
Managerial and
Organizational
Ethics

© 2018 Cengage 2
 Learning Outcomes
1. Identify and explain the different levels at which business ethics
may be addressed.
2. Enumerate and discuss the principles of managerial ethics and
ethical tests for guiding ethical decisions.
3. In terms of managing organizational ethics, identify the factors
affecting an organization’s ethical culture and provide examples of
these factors at work.
4. Describe the best practices that management may take to improve
an organization’s ethical culture.
5. Identify and explain concepts from “behavioral ethics” that affect
ethical decision making and behavior in organizations.
6. Explain the cascading effect of moral decisions, moral managers,
and moral organizations. © 2018 Cengage 3
 Chapter Outline
• Ethics Issues Arise at Different Levels
• Managerial Ethics and Ethical Principles
• Managing Organizational Ethics
• Best Practices for Improving an Organization’s Ethics
• Behavior Ethics—Toward a Deeper Understanding
• Moral Decisions, Managers, and Organizations
• Summary

© 2018 Cengage 4
Personal and Organizational Ethics
• Managers encounter day-to-day ethical
challenges in such areas as:
• conflicts of interest
• sexual harassment
• customer dealings
• pressure to compromise on personal standards,
and more
• Many managers have no training in ethics or
ethical decision making.
• Ethics is vital to business success.
© 2018 Cengage 5
 Ethics Issues
Arise at Different Levels
Personal level -
• Situations faced in our personal lives outside the
context of our employment.
Managerial and Organizational levels -
• Workplace situations faced by managers and
employees.
Industry or profession level -
• A manager or organization might experience business
ethics issues at the industry or professional level.
Societal and global levels -
• Managers acting in concert through their companies
and industries can bring about constructive changes.
© 2018 Cengage 6
 Managerial Ethics and Ethical
Principles
Three major approaches to ethical decision
making -
1. Conventional Approach -
• Discussed in chapter 7
2. Principles Approach -
• Managers desire to make decisions based on a
more solid foundation than is provided by the
conventional approach to ethics.
• A principle of business ethics is an ethical concept,
guideline, or rule that assists you in taking the
ethical course.
3. Ethical Tests Approach -
• Discussed later in this chapter.
© 2018 Cengage 7
 Types of Ethical Principles

Teleological theories -
• Focuses on consequences or results of an
action.
Deontological theories -
• Focuses on duties, without regard to
consequences.
Aretaic theories -
• Focuses on the virtue of an action.
© 2018 Cengage 8
 Principles Approach to Ethics
Major principles of ethics -
• Principle of Utilitarianism
• Kant’s Categorical Imperative
• Principle of Rights
• Principle of Justice
• Ethical Due Process
• Rawl’s Principle of Justice
• Ethics of care
• Virtue ethics
• Servant leadership
• The Golden Rule
© 2018 Cengage 9
Ethical Tests Approach to Decision Making
Test of Common Sense

Test of One’s Best Self

Test of Making Something Public

Test of Ventilation

Test of the Purified Idea

Test of The Big Four (greed, speed, laziness, or haziness)

Gag Test
© 2018 Cengage 10
 Managing Organizational Ethics
• Ethical decision making is at the heart of business
ethics.
• One must sharpen one’s decision-making skills to
avoid amoral thinking, and achieve moral
management.
• A manager must see the organization's ethical
climate as part of its corporate culture.
• An ethical climate is shaped through actions taken,
policies established, and examples set.

© 2018 Cengage 11
Factors Affecting the Morality of
Managers and Employees
Society’s Moral Climate
Business’s Moral Climate
Industry’s Moral Climate
Organization’s Moral Climate

Superiors
Superiors

Individual
Individual
One’s
One’sPersonal
Personal Policies
Policies
Situation
Situation

Peers
Peers

© 2018 Cengage 12
 Factors Affecting the
Organization’s Moral Climate

1. Behavior of superiors – the number one

influence on moral climate
2. Behavior of one’s peers – the second
influence; people do pay attention to what
their peers in the firm are doing
3. Industry or professional ethical practices –
ranked in the upper half; these context
factors are influential
4. Personal financial need – ranked last
© 2018 Cengage 13
 Improving the Organization’s
Ethical Culture
• The emphasis is on creating an ethical
organizational culture or climate, one in which
ethical behavior, values and policies are
displayed, promoted, and rewarded.
• Compliance vs. Ethics Orientation-
1. Ethics thinking is principles based; compliance
thinking is rule-bound and legalistic. A compliance
orientation can undermine ethical thinking.
2. Compliance can squeeze out ethics.
3. Managers many not consider tougher issues that a
more ethics-focused approach might require.
© 2018 Cengage 14
 Best Practices for Improving an
Organization’s Ethics
• Three key elements that must exist if an ethical
organizational culture is to be developed and
sustained:
1. The continuous presence of ethical leadership reflected
by the board of directors, senior executives and managers.
2. The existence of a set of core ethical values infused
throughout the organization by way of policies, processes
and practices; and
3. A formal ethics program which includes a code of ethics,
ethics training, and an ethics officer.

© 2018 Cengage 15
 Improving Ethical Culture
Board of Directors’ Ethics Audits and
Ethics Programs Oversight Risk Assessments
and Officers
Effective
Communication
Realistic Top
Objectives Management
Leadership Ethics Training
Ethical Decision- Moral
Making Processes Management Corporate
Transparency
Codes of
Conduct Discipline of Whistle-Blowing
Violators Mechanisms

© 2018 Cengage 16
 Top Management Leadership
(Moral Management) (1 of 2)
• This premise cannot be overstated:
• The moral tone of an organization is set by top
management.
• In a poll of communication professionals, more
than half believed that top management is an
organization’s conscience.
• Managers and employees look to their bosses at
the highest levels for their cues as to what
practices and policies are acceptable.
© 2018 Cengage 17
 Top Management Leadership
(Moral Management) (2 of 2)
• Weak Ethical Leadership – led an employee to embezzle
$20,000 over a 15 year period, explaining that she thought it
was OK because her boss used firm employees for personal
needs, took money from the firm’s petty cash box, raided the
soft drink machine, and used company stamps. Her boss said it
was all true, and that she should not be dealt with too harshly.
• Strong Ethical Leadership – When a batch of tubes in
production failed a critical safety test, leaving in question the
10,000 already manufactured, the VP, without hesitation, said
“scrap them.” That act set the tone for the corporation for years,
because everyone present knew of situations in which faulty
products had been shipped under pressure of time and budget.

© 2018 Cengage 18
 Two Pillars of Leadership
Ethical Leadership

Role
Traits
Modeling

Moral Manager
Moral Person

Ethics
Behaviors
Communication

Decision Effective Rewards

Making and Discipline

© 2018 Cengage 19
 Effective Communication
of Ethical Messages
Requires -
• Written and verbal communication
• Non-verbal communication
• Candor – forthright, sincere, and honest
• Fidelity – be faithful to detail, accurate, avoid
deception or exaggeration
• Confidentiality – exercise care in deciding
what information to disclose to others. Trust
can be shattered if confidences are breached.
© 2018 Cengage 20
Ethics and Compliance Programs and Officers
(1 of 2)

Ethics programs typically include:

• Written standards of conduct
• Ethics training
• Mechanisms to seek ethics advice or information
• Methods for reporting misconduct anonymously
• Inclusion of ethical conduct in the evaluation of
employee performance
• Disciplinary measures for employees who violate
ethical standards
• A set a guiding values or principles
© 2018 Cengage 21
Ethics and Compliance Programs and Officers
(2 of 2)

Compliance programs Compliance Officers

• Head up compliance
• Structure
programs
• Oversight
• Implement the array of
• Due Diligence
ethics and compliance
• Communication initiatives
• Monitoring
• Many hired after
• Promotion & Sarbanes-Oxley
Enforcement
• Response • Started with compliance
issues, ethics became
focal point later on

© 2018 Cengage 22
 Setting Realistic Objectives -
• Managers must be keenly sensitive to the possibility of
unintentionally creating situations in which others may
perceive a need or incentive to cut corners or do the wrong
thing.
• Unrealistic expectations are the primary driver of employees
perceiving excessive pressure to achieve goals.
• Example: A marketing manager set a sales goal of a 20%
increase for the next year when a 10% increase was all that
could be realistically and honestly expected, even with
outstanding performance. A subordinate might believe he or
she should go to any lengths to achieve the 20% goal.

© 2018 Cengage 23
Ethical Decision-Making Processes

© 2018 Cengage 24
 Ethics Check -

Ethics Check -
1. Is it legal?
2. Is it balanced?
3. How will it make me feel about myself?

© 2018 Cengage 25
 Ethics Quick Test -
1. Is the action legal?
2. Does it comply with our values?
3. If you do it, will you feel bad?
4. How will it look in the newspaper?
5. If you know it’s wrong, don’t do it.
6. If you’re not sure, ask.
7. Keep asking until you get an answer.

© 2018 Cengage 26
 Codes of Ethics or Conduct -
• A way of establishing standards of
behavior and communicating them to
managers and employees.
• The single most important element of an
ethics and compliance program.
• Virtually all major corporations have codes
of conduct today.
• Many have worldwide codes or standards.
• Some codes of conduct are designed
around stakeholders, others on conduct.
© 2018 Cengage 27
 Content of Codes of Conduct -
• Employment practices
• Employee, client, and vendor information
• Public information and communications
• Conflicts of interest
• Relationships with vendors
• Environmental issues
• Ethical management practices
• Political involvement

© 2018 Cengage 28
 Disciplining
Violators of Ethics Standards -
• Management must discipline violators of
accepted ethical norms and standards.
• One reason many question the sincerity of
business with regard to codes of conduct is
that many business are unwilling to
discipline violators, implicitly approving
their behavior.
• Before disciplining anyone, the firm needs
to have communicated its ethics standards
clearly and convincingly.
© 2018 Cengage 29
 Ethics “Hotlines”
and Whistle-Blowing Mechanisms
• An effective ethical culture is contingent on
employees having (with support of top
management) a mechanism for reporting
violations.
• Hotlines are the most common way to
report corporate fraud.
• Can be telephone, web, or email-based.

© 2018 Cengage 30
 Business Ethics Training -
Goals of training are to learn:

1. the fundamentals of business ethics

2. to solve ethical dilemmas
3. to identify causes of unethical behavior
4. about common managerial ethical issues
5. whistle-blowing criteria and risks
6. to develop a code of ethics and execute
an internal ethical audit

© 2018 Cengage 31
 Ethics Audits and Risk Assessments -

Ethics Audits -
• Intended to carefully review such ethics initiatives as
ethics programs, codes of conduct, hotlines, and
ethics training programs.
Sustainability Audit -
• Helps to identify sustainability issues within an
organization.
Fraud Risk Assessment -
• Review processes that identify and monitor
conditions that may pertain to the company’s
exposure to compliance/misconduct risk and to
review methods for dealing with concerns.
© 2018 Cengage 32
 Corporate Transparency
Corporate Transparency -
• A quality, characteristic, or state in which
activities, processes, practices, and decisions
that take place in companies become open
or visible to the outside world.
• The degree to which an organization:
• provides public access to information.
• accepts responsibility for its actions.
• makes decisions more openly.
• establishes incentives for leaders to uphold
standards.
© 2018 Cengage 33
 Board of Director Leadership
and Oversight -
• Leadership and oversight of ethical
initiatives by boards has not been a given.
The Sarbanes-Oxley Act
• Companies are required to protect whistle-
blowers without fear of retaliation.
• It is a crime to alter, destroy, conceal, cover
up, or falsify documents to prevent their use
in a federal government lawsuit.

© 2018 Cengage 34
Behavioral Ethics—Toward a Deeper
Understanding (1 of 3)
Behavioral Ethics helps us to understand many
of the behavioral processes that are taking place:
• Bounded ethicality – occurs when managers and
employees find that behaving ethically is difficult
because of various organizational pressures.
• Conformity bias – the tendency people have to
take their cues for ethical behavior from their
peers, rather than exercising their own,
independent judgment.
• Overconfidence bias –people may be more
confident of their moral character than they have
reason to be.
© 2018 Cengage 35
Behavioral Ethics—Striving Towards
a Deeper Understanding (2 of 3)
• Self-serving bias – people may process information in a
way that supports their preexisting beliefs & self-interest.
• Framing – ethical judgments are affected by how an issue
is posed; if posed as an “ethical” issue, they make more
ethical decisions.
• Incrementalism – a predisposition toward the “slippery
slope.”
• Role morality – a tendency to use different ethical
standards for different roles in life.
• Moral equilibrium – a tendency for people to keep an
ethical scoreboard in their heads, and use this
information when making future decisions, balancing
decisions, and avoiding a moral “surplus.”

© 2018 Cengage 36
Behavioral Ethics—Striving Towards
a Deeper Understanding (3 of 3)
• Ill-conceived goals – poorly set goals that encourage
negative behaviors.
• Motivated blindness – overlooking the questionable
actions of others when it is in one’s own best interest.
• Indirect blindness – one holds others less accountable for
unethical behaviors when they are carried out through
third parties.
• The slippery slope – causes people not to notice others’
unethical behavior when it gradually occurs in small
increments.
• Overcoming values – the act of letting questionable
behaviors pass if the outcome is good. This can occur
when managers put more emphasis on results rather than
on HOW the results are achieved.
© 2018 Cengage 37
 Moral Decisions, Managers,
and Organizations
• The goal of managers should be to create
moral decisions, moral managers, and
ultimately, moral organizations, while
recognizing that what we frequently observe
in business is the achievement of moral
standing at only one of these levels.
• The ideal is to create a moral organization
that is fully populated by moral managers,
making moral decisions (and practices,
policies, and behaviors), but this is seldom
achieved.
© 2018 Cengage 38
© 2018 Cengage 39
 Key Terms (1 of 2)
• Aretaic theories • Ethical leadership
• Behavioral ethics • Ethical tests
• Bounded ethicality • Ethics and compliance
• Categorical imperative officer
• Codes of conduct • Ethics audits
• Codes of ethics • Ethics of care
• Test of common sense • Ethics officer
• Compensatory justice • Ethics orientation
• Competing rights • Ethics programs
• Compliance officer
• Compliance orientation • Ethics screen
• Conflict of interest • Formal ethics program
• Conformity bias • Framing
• Core ethical values • Fraud risk assessments
• Corporate transparency • Golden Rule
• Deontological theories • Ill-conceived goals
• Distributive justice • Incrementalism
• Ethical due process • Indirect blindness
• Ethic of reciprocity • Legal rights
© 2018 Cengage 40
 Key Terms (2 of 2)
• Moral rights • Role morality
• Moral tone • Self-serving bias
• Motivated blindness • Servant leadership
• Moral equilibrium • Slippery slope
• Negative right • “Smell” test
• Opacity • Sustainability audit
• Overcoming values • Teleological theories
• Overconfidence bias • Transparency
• Positive right • Utilitarianism
• Principle of caring • Virtue ethics
• Principle of justice
• Principle of rights
• Principle of
utilitarianism
• Procedural justice
• Process fairness
• Rights
© 2018 Cengage 41