Chapter 4

Chapter 4
Ethics and
Ethical Reasoning
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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
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
Sources of Ethics
 Notions of right and wrong come from many sources
Religious beliefs
Family background
Media influences
 These experiences create a concept of ethics,
morality, and socially acceptable behavior in each
 Acts as a moral compass to guide an individual when ethical
dilemmas arise
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
Figure 4.1 Observations of Unethical Behavior at Work
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
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
U.S. Corporate Sentencing Guidelines
 Establish standards and procedures to reduce criminal
 Assign high-level officer(s) responsibility for compliance
 Not assign discretionary authority to “risky” individuals
 Effectively communicate standards and procedures through
 Take reasonable steps to ensure compliance—monitor and
audit systems, maintain and publicize reporting systems
 Enforce standards and procedures through disciplinary
 Following detection of offense, respond appropriately and
prevent reoccurrence
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 SarbanesOxley Act
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
Why Ethical Problems Occur in Business
 Four Primary Reasons
Personal gain and self-interest
Competitive pressure on profits
Conflicts of interest
Cross-cultural contradictions
Figure 4.3 Why Ethical Problems Occur in Business
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
Spirituality in the Workplace
 Personal belief in a supreme being, religious
organization, power of nature or some other life-guiding
 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
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
Figure 4.4
Stages of Moral Development and
Ethical Reasoning
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
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
Examples of basic human rights are right to life, safety, and due
 Justice
Means benefits and burdens are distributed equally, according to
some accepted rule
Figure 4.5
Four Methods of Ethical Reasoning
Applying Ethical Reasoning to Business Activities
 Can use the virtues, utility, rights, and justice
framework as a tool to analyze real business ethics
 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

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