Chapter 5

Ethical Decision Making and

Ethical Leadership

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 Understanding the Ethical
Decision-Making Process

The first step in ethical-decision

making is to recognize that an ethical
issue requires an individual or work
group to choose among several
actions that various stakeholders
inside or outside the firm will ultimately
evaluate as right or wrong.

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 Framework for Understanding
Ethical Decision-Making in Business

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 Ethical Issue Intensity
Ethical issue intensity is the perceived relevance or
importance of an ethical issue in the eyes of the
individual, work group, and/or organization.
– Reflects the ethical sensitivity of the individual or
work group and triggers the ethical decision process
Positive or negative incentives can affect the perceived
importance of an ethical issue.
Employees need education regarding potential
problem areas.

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 Individual Factors
How people resolve ethical issues in their daily
lives is often based on values and principles
learned through family socialization.
In the workplace, ethical issues involve honesty,
conflicts of interest, discrimination, nepotism
(favoritism), and theft.
The individual’s stage of cognitive development
can affect conduct.
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 Individual Factors

Individual factors include:

– Gender
– Education
– Work experience
– Nationality
– Age
– Locus of control

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 Organizational Factors
Corporate culture: a set of values, beliefs, goals,
norms and ways to solve problems that members
(employees) of an organization share
– Some corporate cultures support and reward unethical
behavior.
– Ethical climate is a component of corporate culture.

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 Ethical Climate
The character or decision processes used to determine
whether actions are ethical or unethical
Consists of corporate codes of ethics, top management
actions, ethical policies, coworker influence, and the
opportunity for unethical behavior
The perceived ethics of the immediate work group has
been found to be a major factor influencing ethical
behavior.

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 Significant Others
The work group, which includes people such as
peers, managers, and subordinates
Help on a daily basis with unfamiliar tasks and
provide advice and
information formally
and informally
Have more influence
on daily decisions
than any other factor
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 Obedience to Authority
An aspect of influence that significant others can
exercise
Helps us explain why many employees resolve
business issues by simply following the
directives of a superior

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 Opportunity
Relates to permitting ethical or unethical
behavior
Results from rewards and punishment and it
plays a key role
Relates to the employee’s immediate job context
,where they work? Whom they work with? Nature of work?
Unethical behavior can be eliminated by
establishing formal codes, policies, and rules
that are enforced
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 Business Ethics Evaluations
and Intentions
Ethical dilemmas involve problem-solving situations in which
decision rules are often vague or in conflict.
Critical thinking plays a key role for solving problems.
A person’s intentions along with the final decision on what
action to take is the last step in the ethical decision-making
process.
If intentions and behavior are not consistent with ethical
judgments, the individual may feel guilt.
Most businesspeople will make ethical mistakes.

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 The Role of Leadership in
Corporate Culture
Leadership is the ability or authority
to guide and direct others toward
achievement of a goal.
Leaders are key to influencing an
organization’s corporate culture and
ethical posture.
Leadership styles influence many
aspects of organizational behavior,
including employees’ acceptance of
and adherence to organizational
norms and values.

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 The Role of Leadership in
Developing an Ethics Plan

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 Leadership Styles

Coercive leaders: demand obedient and focus on

achievement
Authoritative leaders: The most effective styles.
Affiliative leaders : Relies on friendship
Democratic leaders: Relies on participation
Pacesetting leaders: relies on standards and
rules ,procedures
Coaching leaders: Developing skills, delegate
responsibilities.
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 Leadership

The most successful leaders do not rely on one

style of leadership but alternate their technique
based on the characteristics of the situation.

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 Types of Leaders

Transactional leaders attempt to create employee

satisfaction through negotiation, or bartering for desired
behaviors or levels of performance.
Transformational leaders strive to raise employees’ level of
commitment and to foster trust and motivation.
Transformational ethical leadership is best suited for
organizations that have higher levels of ethical commitment
among employees and strong stakeholder support for an
ethical culture.

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 Habits of Strong Ethical Leaders

1. Ethical leaders have a strong personal character.

2. Ethical leaders have a passion to do right.
3. Ethical leaders are proactive.
4. Ethical leaders consider stakeholders’ interests.
5. Ethical leaders are role models for the organization’s
values.
6. Ethical leaders are transparent and actively involved in
organizational decision-making.
7. Ethical leaders are competent managers who take a
holistic view of the firm’s ethical culture.
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