Ethical Decision Making and Ethical Leadership (Chapter 5) - LWC1 - Business Ethics

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What are the components of a comprehensive framework for ethical decision making in business?

The ethical decision-making process in business includes ethical-issue intensity, individual factors, and organizational factors such as corporate culture and opportunity. All of these interrelated factors influence the evaluations of and intentions behind the decisions that produce ethical or unethical behavior.

Ethical issue intensity can be defined as the relevance or importance of an ethical issue in the eyes of the individual, work group, and/or organization.

Moral intensity relates to a person's perception of social pressure and the harm the decision will have on others.

How can knowledge about ethical decision making be used to improve ethical leadership?

Gaining an understanding of typical ethical decision making in business organizations will reveal several ways that such decision making could be improved. With more knowledge about how the decision process works, you will be better prepared to analyze critical ethical dilemmas and to provide ethical leadership regardless of your role in the organization. One important conclusion that should be taken from our framework is that ethical decision making within an organization does not rely strictly on the personal values and morals of individuals. Organizations take on a culture of their own, which, when combined with corporate governance mechanisms, have a significant influence on business ethics.

What are leadership styles and habits that promote an ethical culture in a business?

Leadership styles influence many aspects of organizational behavior, including employees' acceptance of and adherence to organizational norms and values. Styles that focus on building strong organizational values among employees contribute to shared standards of conduct. They also influence the organization's transmittal and monitoring of values, norms, and codes of ethics.

Six leadership styles that are based on emotional intelligence—the ability to manage ourselves and our relationships effectively—have been identified by Daniel Goleman:
1. The coercive leader demands instantaneous obedience and focuses on achievement, initiative, and self-control. Although this style can be very effective during times of crisis or during a turnaround, it otherwise creates a negative climate for organizational performance.
2. The authoritative leader—considered to be one of the most effective styles—inspires employees to follow a vision, facilitates change, and creates a strongly positive performance climate.
3. The affiliative leader values people, their emotions, and their needs and relies on friendship and trust to promote flexibility, innovation, and risk taking.
4. The democratic leader relies on participation and teamwork to reach collaborative decisions. This style focuses on communication and creates a positive climate for achieving results.
5. The pace-setting leader can create a negative climate because of the high standards that he or she sets. This style works best for attaining quick results from highly motivated individuals who value achievement and take the initiative.
6. The coaching leader builds a positive climate by developing skills to foster long-term success, delegates responsibility, and is skillful in issuing challenging assignments.

Another way to consider leadership styles is to classify them as transactional or transformational. Transactional leaders attempt to create employee satisfaction through negotiating, or "bartering," for desired behaviors or levels of performance.
Transformational leaders strive to raise employees' level of commitment and to foster trust and motivation. Both transformational and transactional leaders can positively influence the corporate culture.

Education

Education, the number of years spent in pursuit of academic knowledge, is also a significant factor in the ethical decision-making process. The important thing to remember about education is that it does not reflect experience. Work experience is defined as the number of years within a specific job, occupation, and/or industry. Generally, the more education or work experience that one has, the better he or she is at ethical decision making. The type of education has little or no effect on ethics.

Nationality

Nationality is the legal relationship between a person and the country in which he/she is born.

Locus of control

Locus of control relates to individual differences in relation to a generalized belief about how one is affected by internal versus external events or reinforcements. In other words, the concept relates to where people view themselves in relation to power.

External control

Those who believe in external control (that is, externals) see themselves as going with the flow because that's all they can do. They believe that the events in their lives are due to uncontrollable forces. They consider what they want to achieve depends on luck, chance, and powerful people in their company. In addition, they believe that the probability of being able to control their lives by their own actions and efforts is low.

Internal control

Those who believe in internal control (that is, internals) believe that they control the events in their lives by their own effort and skill, viewing themselves as masters of their destinies and trusting in their capacity to influence their environment.

Corporate culture

A corporate culture can be defined as a set of values, beliefs, goals, norms, and ways of solving problems that members (employees) of an organization share. As time passes, stakeholders come to view the company or organization as a living organism, with a mind and will of its own.

Ethical culture

The ethical culture reflects whether the firm also has an ethical conscience. Ethical culture is a function of many factors, including corporate policies on ethics, top management's leadership on ethical issues, the influence of coworkers, and the opportunity for unethical behavior. Within the organization as a whole, subclimates can develop within individual departments or work groups, but they are influenced by the strength of the firm's overall ethical culture, as well as the function of the department and the stakeholders it serves.

Significant other

Those who have influence in a work group, including peers, managers, coworkers, and subordinates, are referred to as significant others. They help workers on a daily basis with unfamiliar tasks and provide advice and information in both formal and informal ways.

Obedience to authority

Obedience to authority is another aspect of the influence that significant others can exercise. Obedience to authority helps to explain why many employees resolve business ethics issues by simply following the directives of a superior.

Opportunity

Opportunity describes the conditions in an organization that limit or permit ethical or unethical behavior. Opportunity results from conditions that either provide rewards, whether internal or external, or fail to erect barriers against unethical behavior.

Immediate job context

Opportunity relates to individuals' immediate job context—where they work, whom they work with, and the nature of the work. The immediate job context includes the motivational "carrots and sticks" that superiors use to influence employee
behavior. Pay raises, bonuses, and public recognition act as carrots, or positive reinforcements, whereas demotions, firings, reprimands, and pay penalties act as sticks, the negative reinforcements.

Leadership

Leadership, the ability or authority to guide and direct others toward achievement of a goal, has a significant impact on ethical decision making because leaders have the power to motivate others and enforce the organization's rules and policies as well as their own viewpoints. Leaders are key to influencing an organization's corporate culture and ethical posture.

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