Chapter 7

Report
Business & Society
Ethics, Sustainability, and Stakeholder
Management
Eighth Edition
Archie B. Carroll
Ann K. Buchholtz
© 2012 South-Western, a part of Cengage Learning
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Chapter 7
Business Ethics
Fundamentals
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Learning Outcomes
1. Describe how the public regards business ethics.
2. Define business ethics and appreciate the complexities of
3.
4.
5.
6.
7.
8.
making ethical judgments.
Explain the conventional approach to business ethics.
Analyze economic, legal, and ethical aspects by using a
Venn Model.
Enumerate and discuss the four important ethics questions.
Identify and explain three models of management ethics.
Describe Kohlberg’s three levels of developing moral
judgment.
Identify and discuss the elements of moral judgment.
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Chapter Outline
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The Public’s Opinion of Business Ethics
Business Ethics: Meaning, Types, Approaches
Ethics, Economics and Law: A Venn Model
Four Important Ethics Questions
Three Models of Management Ethics
Making Moral Management Actionable
Developing Moral Judgment
Elements of Moral Judgment
Summary
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Business Ethics
• The public’s interest in business ethics is at
an all-time high, spurred by headlinegrabbing scandals.
• The Enron scandal impacted business to
greatly it is called “The Enron Effect.”
• Business will never be the same.
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High-Profile Ethics Scandals
Enron Era
• Worldcom
• Tyco
• Arthur Andersen
Wall Street Financial Scandals Era
• AIG
• Bear Stearns
• Lehman Brothers
• Fannie Mae/Freddy Mac
• Bernard Madoff
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Inventory of Ethical Issues in
Business
Employee-Employer Relations
Employer-Employee Relations
Company-Customer Relations
Company-Shareholder Relations
Company-Community/Public Interest
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The Public’s Opinion of Business
Ethics
The Marist College Institute for Public
Opinion Study Survey Findings
• Over 3/4ths said the moral compass of Corporate
America is pointing in the wrong direction. (58% of
business executives feel the same.)
• A majority gave corporate America D or F grades for
honesty and ethics. (Business leaders gave C and B
marks.)
• Around 53% of Americans and two-thirds of executives
gave a grade of D or F to the financial sector for
honesty and ethical conduct.
• Around 90 percent of Americans and executives see
career advancement, personal financial gain, increasing
profits, or gaining competitive advantage as the primary
factors driving business decisions.
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The Public’s Opinion of Business
Ethics (continued)
National Business Ethics Survey Findings
• Observed ethical misconduct at work has decreased
(from 56% to 49%).
• Whistle-blowing is on the rise (from 58% to 63%).
• Ethical cultures have strengthened post-2008 (from
53% to 62%).
• Pressure to cut corners has decreased (from 10% to
8%).
• But, retaliation against those who report
misconduct has increased.
 Business ethics tend to improve in tough economic
times.
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Media Reporting on Business
Ethics
• News media outlets are reporting ethical
problems more frequently and fervently.
• In-depth investigative reporting of business
ethics on TV shows as 60 Minutes, 20/20,
Dateline NBC, and Frontline.
• Internet coverage in the form of webpages
and blogs has expanded.
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Is Society Changing?
Former U.S. Treasury Secretary, Michael
Blumenthal, believes
• People are not less moral.
• The context in which corporate decisions
are made has changed.
• Greater demands on businesses.
• Shifts in what is considered appropriate
conduct.
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Business Ethics Today versus Earlier
Periods
Expected and Actual Levels
of Business Ethics
Society’s Expectations
of Business Ethics
Ethical Problem
Actual
Business Ethics
Ethical Problem
1960s
Time
2010
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Business Ethics: Meaning, Types,
Approaches
Ethics
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The discipline that deals with moral duty and
obligation.
Moral Conduct
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Relates to principles of right, wrong, and fairness
in behavior.
Business Ethics
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Concerned with morality and fairness in behavior,
actions, and practices that take place within a
business context.
Is the study of practices in organizations and is a
quest to determine whether these practices are
acceptable or not.
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Business Ethics: Meaning, Types,
Approaches (continued)
Descriptive Ethics
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Involves describing, characterizing, and
studying morality.
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Focuses on what is occurring.
Normative Ethics
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Concerned with supplying and justifying a
coherent moral system of thinking and
judging.
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Focuses on what ought or should be occurring.
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Three Approaches to Business
Ethics
Conventional Approach
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Based on how common society today views
business ethics and on common sense.
Principles Approach
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Based upon the use of ethics principles to
justify and direct behavior, actions, and
policies.
Ethical Tests Approach
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Based on short, practical questions to guide
ethical decision making and behavior and
practices.
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Conventional Approach
The conventional approach to business ethics
involves a comparison of a decision or
practice to prevailing societal norms.
Decision, Behavior,
or Practice
Prevailing Norms
of Acceptability
Ethical Egoism
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An ethical principle based on the idea that the
individual should seek to maximize his or her
own self interests as a legitimate factor.
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Sources of Ethical Norms
Fellow
Workers
Family
Friends
The Law
Local
Community
Regions of
Country
The Individual
Profession
One’s SelfInterest and
Conscience
Employer
Religious
Beliefs
Society at
Large
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Ethics and the Law
• The law and ethics can overlap in many
respects.
• The law is a reflection of what society
thinks are minimal standards of conduct
and behavior.
• Research focuses on two questions:
1. Why do firms do illegal things?
2. What are the consequences of engaging
in illegal behavior?
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Making Ethical Judgments
Behavior or act that has
been committed
Compared with
Prevailing norms of
acceptability
Value judgments and
perceptions of the
observer
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The Conventional Approach to
Business Ethics
1. What is the true nature of the practice,
behavior, or decision that occurred?
2. What are society’s (or business’s)
prevailing norms of acceptability?
3. What value judgments are being made by
someone about the practice or behavior,
and what are that person’s perceptions of
applicable norms?
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Ethical Relativism
Ethical Relativism
• Picking and choosing which source of
norms one wishes to use based on what
will justify current actions or maximize
freedom.
 A serious danger of the conventional
approach to making ethical judgments.
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Ethics, Economics, and Law
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Four Important Ethical Questions
1.
What is?
2.
What ought to be?
3.
How do we get from what is to what
ought to be?
4.
What is our motivation in all this?
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Five Levels for Questions
1.
Level of the individual
2.
Level of the organization
3.
Level of the industry or profession
4.
Societal level
5.
Global or international level
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What Is?
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What are your personal ethics?
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What are your organization's ethics?
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What are the ethics practice in your
industry?
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What are society’s ethics?
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What global ethics are in practice today?
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What Ought to Be?
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How ought we treat our aging
employees?
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How safe ought we make this product?
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How clean an environment should we
aim for?
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Should we outsource aspects of
production to China or India?
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Getting From What Is to What Ought
to Be
What are we able
to accomplish?
What circumstances
permit us to accomplish?
What do we intend
to accomplish?
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Three Models of Management
Ethics
Immoral Management
• An approach devoid of ethical principles and an
active opposition to what is ethical.
• The operating strategy of immoral management is
focused on exploiting opportunities for corporate
or personal gain.
Moral Management
• Conforms to high standards of ethical behavior or
professional standards of conduct.
Amoral Management
• Intentional: Does not consider ethical factors.
• Unintentional: Casual or careless about ethical
factors.
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Characteristics of Immoral
Managers
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Intentionally do wrong
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Self-centered and self-absorbed
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Care only about self or organization’s
profits/success
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Actively oppose what is right, fair, or just
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Exhibit no concern for stakeholders
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An ethics course probably would not help
them
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The “bad guys”
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Examples of Immoral Management
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Stealing petty cash
Cheating on expense reports
Taking credit for another’s accomplishments
Lying on time sheets
Coming into work hungover
Telling a demeaning joke
Taking office supplies for personal use
Showing preferential treatment toward certain
employees
• Rewarding employees who display wrong
behaviors
• Harassing a fellow employee
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Characteristics of Moral Managers
• Conform to high level of:
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Ethical or right behavior
Personal and professional standards
• Ethical leadership is commonplace
• Goal is to succeed within confines of sound
ethical precepts
• High integrity is displayed
• Embrace letter and spirit of the law
• Possess an acute moral sense and moral
maturity
• The “good guys”
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Habits of Moral Leaders
1. They have a passion to do right.
2. They are morally proactive.
3. They consider all stakeholders.
4. They have a strong ethical character.
5. They have an obsession with fairness.
6. They undertake principled decision
making.
7. They integrate ethics wisdom with
management wisdom.
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Positive Ethical Behaviors
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Giving proper credit where it is due
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Being straightforward and honest with other
employees
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Treating all employees equally
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Being a responsible steward of company assets
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Resisting pressure to act unethically
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Recognizing and rewarding ethical behavior of
others
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Talking about the importance of ethics and
compliance on a regular basis
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Integrity Strategy
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Related to moral management; is characterized
by a conception of ethics as the driving force
of an organization.
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Guiding values and commitments make sense and
are clearly communicated.
Company leaders are personally committed,
credible, and willing to take action on values.
Espoused values are integrated into normal
channels of management decision making.
The organization’s systems support and reinforce
its values.
All managers have the skills, knowledge, and
competencies to make ethically sound decisions
daily.
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Characteristics of Amoral Managers
Intentionally Amoral Managers
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Don’t think ethics and business should “mix.”
Business and ethics exist in separate spheres.
A vanishing breed.
Unintentionally Amoral Managers
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Don’t consider the ethical dimension of decision
making.
Don’t “think ethically.”
Have no “ethics buds.”
Well-intentioned, but morally casual or
unconscious.
Ethical gears are in neutral.
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Hypotheses Regarding Moral
Management Models
Population hypothesis
• The distribution of the three models
approximate a normal curve, with the
amoral group occupying the large middle
part of the curve and the moral and
immoral categories occupying the tails.
Individual hypothesis
• Within the individual manager, these three
models may operate at various times and
under various circumstances.
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Three Models of Management
Morality and Emphases on CSR
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Moral Management Models And Acceptance
or Rejection of Stakeholder Thinking
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Making Moral Management
Actionable
Senior management leads the transition
from amoral to moral management
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Business ethics training
Codes of conduct
Mission/Vision statements
Ethics officers
Tighter financial controls
Ethically sensitive decision-making processes
Leadership by example
Recognize that immoral and amoral
management exist and can be remedied.
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Kohlberg’s Model of Moral
Development
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Why Managers and Employees
Behave Ethically
1. To avoid some punishment
Most of Us
2. To receive some reward
Many of Us
3. To be responsive to family, friends,
or superiors
4. To be a good citizen
Very Few Of Us
5. To do what is right, pursue some ideal
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Ethics of Care Alternative to Kohlberg
Recognize their own needs
and needs of others
Level 3
Level 2
Establish connections and
participate in social life
Level 1
Self is Sole Object of Concern
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External Sources of a Person’s Values
Religious values
Philosophical values
The Web
of Values
Cultural values
Legal values
Professional values
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Internal Sources of a Person’s
Values
Norms prevalent in business include
 Respect for the authority structure
 Loyalty to bosses and the organization
 Conformity to principles and practices
 Performance counts above all else
 Results count above all else
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Elements of Moral Judgment
• Moral imagination
• Moral identification and ordering
• Moral evaluation
• Tolerance of moral disagreement and
ambiguity
• Integration of managerial and moral
competence
• A sense of moral obligation
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Key Terms
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Amoral management
Business ethics
Compliance strategy
Conventional
approach to business
ethics
Descriptive ethics
Ethical egoism
Ethical relativism
Ethics
Immoral
management
• Integrity strategy
• Intentional amoral
management
• Kohlberg’s levels of
moral development
• Moral development
• Moral management
• Normative ethics
• Unintentional amoral
management
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