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MGT 4334 Exam 1

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Importance of Ethics
oSocrates: we are discussing no small matter; but how we out to live
oThomas Hobbes: Without ethics life would be solitary, poor, nasty, brutish, and short
Why We Cheat
(David Callahan)
➢New pressures
➢Bigger rewards for winning
➢Temptations
➢Trickle-down corruption
➢Sense of entitlement
Why We Cheat
Michael Martinez
➢Desires
➢Incentives
➢Pressures
➢Lack of Deterrence
➢Organizational Culture
➢ "Thrill of the Taboo"
Contexts That Promote Wrongdoing
Timothy Devinney
➢Greater stress and time pressure
➢Greater power differentials
➢Expectations of Anonymity
How to Support Ethical Behavior Timothy Devinney
➢Examine stress and time pressure
➢Evaluate power differentials/Establish protections for the powerless
➢Enhance transparency
➢Encourage people to think of themselves in a different role
MBA Ethics Oath: Preamble
As a business leader I recognize my role in society.
• My purpose is to lead people and manage resources to create value that no single individual can create alone.
• My decisions affect the well-being of individuals inside and outside my enterprise, today and tomorrow.
WHAT ARE ETHICS?
➢Agreed upon rules for governing behavior.
➢How we decide to behave when we
decide we belong together.
Business Ethics
➢Ethics is a part of decision making at all levels of work and management
•As important as functional areas of business
•Questions whether practices are acceptable
•There are no universally accepted approaches for resolving issues
Business Ethics Defined
➢Comprises organizational principles, values, and norms that may originate from individuals, organizational statements, or from the legal system that primarily guide individual and group behavior in business
•Ethical decisions occur when accepted rules no longer serve and decision makers must weigh values and reach a judgment
➢Values and judgments play a critical role when we make ethical decisions
Morals
Principles
Values
•Morals: Refer to a person's personal philosophies about what is right or wrong
➢Morals are personal and singular
•Principles: Specific and pervasive boundaries for behavior that should not be violated
➢Human rights, freedom of speech and justice
•Values: Enduring beliefs and ideals that are socially enforced
➢Teamwork, trust and integrity
A Crisis in Business Ethics
➢Nearly half of employees observe at least one form of misconduct in the workplace
•After the financial crisis, business decisions and activities have come under scrutiny
•The financial sector has not fully regained stakeholder trust
Observed Misconduct In the Workplace
•Misuse of company resources
•Abusive behavior
•Harassment
•Accounting fraud
•Conflicts of interest
•Defective products
•Bribery
•Employee theft
Before 1960: Ethics in Business
➢Theological discussions of ethics emerged
•Catholic social ethics were concerned with morality in business, workers' rights, and living wages
•The Protestant work ethic encouraged individuals to be frugal, work hard and attain success in the capitalistic system
•These traditions provided a foundation for the future field of business ethics
➢1960s: The Rise of Social Issues in Business
➢Social consciousness emerged
•Increased anti-business sentiment
•JFK's Consumer Bill of Rights— a new era of consumerism
➢Right to safety, to be informed, to choose, and to be heard
•Consumer protection groups fought for legislation changes
➢Ralph Nader
1970s: Business Ethics as an Emerging Field
➢Corporate social responsibility - an organization's obligation to maximize positive impact and minimize negative impact on stakeholders
•Philosophers increased their involvement
•Businesses concerned with public image
•Conferences held and centers developed
•Issues:
Bribery Deceptive advertising
Price
collusion
Product
safety
Environment
1980s: Consolidation
•Business ethics became an acknowledged field of study and firms established ethics committees
•Ethics centers provided publications, courses, conferences, and seminars
•Defense Industry Initiative on Business Ethics and Conduct (DII)
➢Foundation for the Federal Sentencing Guidelines for Organizations to come in the 1990's
•President Reagan introduced self-regulation that changed the rules of business
1990s: Institutionalization of Business Ethics
➢Continued support for self-regulation and free trade
•Health-related issues more regulated
•The Federal Sentencing Guidelines for Organizations (FSGO) in 1991
➢Set tone for compliance
➢Preventative actions against misconduct
➢A company could avoid/minimize potential penalties
21st Century of Business Ethics
➢Continued corporate non-compliance
•Increased public/political demand for improved ethical standards
•Sarbanes-Oxley Act (2002)
➢Increased accounting regulations
•FSGO reforms
➢Requires governing authorities to be informed of business ethics programs
•Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)
➢Aimed at making the financial industry more transparent/responsible
Organizational Ethical Culture
➢Ethical culture: acceptable behavior as defined by the company and industry
•Creates shared values and support for ethical decisions - driven by top management
➢Goal:
➢Minimize need for enforced compliance
➢Maximize utilization of principles/ethical reasoning in difficult or new situations
Global Ethical Culture
➢Collaborative efforts to establish goals and set minimum levels of ethical behavior
➢ European Union
➢ NAFTA
➢ MERCOSUR
➢ WTO
•Companies can demonstrate their commitment to social responsibility through adopting international standards like the United Nations Global Compact
*Know role of organizational ethics in performance
Ethics Contributes to Employee Commitment
➢Commitment comes from employees who are invested in the organization and willing to make personal sacrifices for the organization
➢The more company dedication to ethics, the greater the employee dedication
➢Concerns include a safe work environment, competitive salaries and benefits packages, and fulfillment of contractual obligations
Ethics Contributes to Investor Loyalty
•Investors are increasingly interested in a company's reputation and recognize how:
➢ethical culture provides a foundation for efficiency, productivity, and profitability
➢negative publicity, lawsuits, and fines threaten a company's long-term viability
•Gaining investors' trust and confidence is vital to sustaining financial stability
Ethics Contributes to Customer Satisfaction
•Customer satisfaction is an important factor in a successful business strategy
➢Companies seen to be socially responsible increase customer trust and satisfaction
➢Trust is essential for long-term customer relationships
➢A strong organizational ethical climate places customers' interests first
•Ethical conduct toward customers builds a strong competitive position shown to positively affect performance and innovation
Ethics Contributes to Profits
•Companies need profits in order to meet their responsibilities
•Corporate concern for ethical conduct is being integrated with strategic planning
➢Maximizing profitability
•Ethics has moved from being a compliance standard to becoming an integral part of achieving a competitive advantage
Misconceptions About Business Ethics
1.Simplism
2.Legalism
3.Cynicism: Profit and Morality Incompatibility
4.Idealism: Profit and Morality Identity
5.Dualism
6.Relativism
a.Albert Einstein
b.Relativity applies to physics, not ethics."
Ethical Relativism
➢Ethical relativism dictates tat morality is relative to some personal, social or cultural standard
Propmore Corporation Case: seven step process for ethical decision making
•The facts
•The ethical Issues
•The alternatives
•The stakeholders
•The ethics of the alternatives: Use ethical theories
•The practical Constraints
•Actions to take
Guidelines for resolving ethical decision-making
•Rationality
•Generalizability
•Impartiality
Cooke: Three Methods for making Ethical Decisions
•Kantian/rights-based ethics: every person has basic rights and we have the duty to respect those rights
•The golden rule: treat others in the same way you would want to be treated
•Enlightened self-interest: maximize net benefits to yourself in a way that minimizes the harm to others
Chapter 5
...
A Framework for Ethical Decision Making in Business
•In business, people make decisions differently than at home
➢Organizational pressures have a strong influence
•The ethical decision making process includes
➢Ethical issue intensity
➢Individual factors
➢Organizational factors
•The framework for ethical decision making does not describe how to make ethical decisions**look at diagram
➢Outlines the factors and processes related to ethical decision making
Ethical-Issue Intensity
•The perceived relevance or importance of an ethical issue to the individual, work group, and/or organization
•Reflects the ethical sensitivity of the individual and/or work group
•Triggers the ethical decision making process
Ethical-Issue Intensity
•Individuals are subject to six spheres of influence...
Workplace Legal system
Family Community
Religion Profession
•Moral intensity: Relates to a person's perception of social pressure and the harm his/her decision will have on others
Individual Factors
•People base their ethical decisions on their own values and principles of right or wrong
➢ Values are learned through socialization
➢ Good personal values decrease unethical behavior and increase positive work behavior
➢ Values are subjective; vary across cultures

• An organization may intend to do right, but organizational or social forces can alter this intent
• Research shows that various factors influence ethical behavior
➢ Gender—women are more ethical than men
➢ Education, work experience, nationality, and age affect ethical decision making
Locus of Control
• Relates to individual differences in relation to a general belief about how one is affected by internal versus external events or reinforcements
• Managers with...
➢ External locus of control go with the flow because that's all they can do
➢ Internal locus of control believe they can control events; are masters of their destinies and trust in their capacity to influence their environment
• Unclear relationship between locus of control and ethical decision making
Organizational Factors
• Organizational culture has a stronger influence on employees than individual values
• Corporate culture: A set of values, norms, and artifacts that members of an organization share
➢ Ethical culture: Reflects whether the firm has an ethical conscience; is a function of many factors
• Significant others: Those who have influence in a work group
• Obedience to authority: Helps to explain why many employees unquestioningly follow superior's orders
Opportunity
The conditions in an organization that limit/permit ethical/unethical behavior
• Immediate job context: Where employees work, with whom they work, and the nature of the work
• Opportunities for misconduct can be reduced by establishing formal codes, policies, and rules
➢ Aggressive enforcement is required
• Knowledge can sometimes lead to unethical behavior
➢ A person who has an information base, expertise, or information about competition has an opportunity to exploit knowledge
Business Ethics Intentions, Behaviors, and Evaluations
Ethical dilemmas involve situations where rules are vague or in conflict
• Critical thinking skills and ability to take responsibility are important
• The final step is deciding what action to take based on a person's intentions
• Guilt or uneasiness is the first sign that an unethical decision has occurred
• Most businesspeople will make ethical mistakes
Using the Ethical Decision-Making Model to Improve Ethical Decisions
Impossible to objectively determine if a business decision is right or wrong
• Understanding how ethical decisions are made will not solve ethical problems
➢ Business ethics involves value judgments and collective agreement about acceptable patterns of behavior
• Ethical decision making in business does not rely on personal values and morals
➢ Organizations take on cultures of their own
➢ Informal relationships enforce an ethical culture
Normative Considerations in Ethical decision Making
• Normative approaches: How organizational decision makers should approach an issue
➢ Different from a descriptive approach that examines how organizational decision makers approach ethical decision making
• Concepts like fairness and justice are highly important in a normative structure
• Most organizations develop a set of core values to provide enduring beliefs about appropriate conduct
➢ Core values are central to an organization and provide direction for action
• By incorporating stakeholder objectives into corporate core values, companies begin to view stakeholders as significant
• Institutions are important in establishing a foundation for normative values
• Organizations face certain normative pressures from different institutions to act a certain way
➢ Internally and/or externally
➢ Sort institutions into three categories: Political, economic, and social
• Political influences can take place within the organization
• An ethical organization has policies and rules in place to determine appropriate behavior
• Often the compliance component of the firm's organizational culture
➢ Failure to abide by these rules results in disciplinary action
• Normative business ethics takes into account the political realities outside the legal realm in the form of industry standards
• Legal issues such as price fixing, antitrust issues, and consumer protection are important in maintaining a fair and equitable marketplace
➢ These issues must be major considerations for business when making ethical decisions
Institutions as the Foundation for Normative Values
• Competition affects how a company operates as well as the risks employees take for the good of the firm
• Amount of competition in an industry can be determined/described according to...
➢ Barriers to entry into the industry
➢ Available substitutes for the products produced by the industry rivals
➢ Power of the industry rivals over their customers
➢ Power of the industry rivals' suppliers over the industry rivals

• Social institutions include religion, education, and individuals such as the family unit
• There are laws meant to ensure an organization acts fairly, but there are no laws saying people should do to others as they would prefer to have done to them
➢ Many cultures adopt this rule that has been institutionalized into businesses with standards on competing fairly, being transparent with consumers, and treating employees with respect
• Industry shared values promote organizational effectiveness when linked to goals
• Can also hinder effectiveness if more efficient means of organization and structure are avoided in exchange for stability
➢ Risk that organizations might sacrifice new ideas or methodologies in order to be more acceptable
➢ Can limit innovativeness and productivity
• Important that organization does not stray too far from industry norms and values
• When values from political, economic, and social institutions are embedded into the organizational culture to provide incentives for appropriate behavior, firms tend to act more socially responsible
• If incentives do not align with institutional normative values or if they contradict these values, then misconduct is likely
Implementing Principles and Core Values in Ethical Decision Making
• John Rawls was one of the most influential philosophers in his research on how principles support the concept of justice
• Veil of ignorance: A thought experiment that examined how individuals would formulate principles if they did not know what their future position in society would be
➢ Identified principles that were not biased by one's social position
Two main principles of justice...
• Liberty principle (equality principle): States that each person has basic rights that are compatible to the basic liberties of others
• Difference principle: States that economic and social equalities (or inequalities) should be arranged to provide the most benefit to the least-advantaged members of society
➢ Does not advocate for the complete elimination of inequalities in society
➢ The most ethical decision seeks to benefit and not harm disadvantaged populations
• Companies take basic principles and translate them into core values
• Core values provide the abstract ideals that are distinct from individual values and daily operational procedures
• Value practices evolve and are translated into normative definitions of ethical or unethical
• Individual and organizational values can differ significantly because of ethical diversity among individuals
• Leaders, stakeholders, and the organizational culture impact the development of core values
• A firm's core values provide a blueprint into the firm's purpose as well as how it views ethical decision making and prioritizes stakeholders
• Organizations that have ethics programs based on a values orientation are found to make a greater contribution than those based simply on compliance
Understanding Ethical Decision Making
Ethical issue intensity, individual factors, and opportunity result in business ethics evaluations and decisions
• An organizational ethical culture is shaped by effective leadership
➢ Top level support is required for ethical behavior
• An ethical corporate culture needs shared values and proper oversight
• The more you know about ethical decision making, the more likely you will be to make good decisions
Chapter 6:
...
Moral Philosophy Defined
The specific principles or values people use to decide right from wrong
• Person-specific
• Guidelines for determining how to settle conflicts and optimize mutual benefit
• Provide direction in formulating strategies and resolving ethical issues
No single moral philosophy is accepted by everyone
Economic Systems
• Adam Smith
➢ The father of free market capitalism
➢ Developed the idea of the invisible hand
• Milton Friedman
➢ Markets reward or punish for unethical conduct without the need for government regulation
➢ Currently the dominant form of capitalism
The U.S. is exporting the idea of free market capitalism to other countries
➢ Free markets may not solve all problems
Economic systems allocate resources/products
• Influenced by, and directly influence
➢ Individual's actions and beliefs (morals)
➢ Society (laws) as a whole
• Depend on individuals coming together and sharing philosophies
➢ Creates values, trust and expectations, allowing the system to work
Value Orientation
• Economic value orientation: Values that can be quantified by monetary means
➢ If an act produces value, accept it as ethical
• Idealism: Places special value on ideas and ideals as products of the mind
➢ Positive correlation to ethical decision-making
• Realism: The view that an external world exists independent of our perceptions
➢ Everyone is guided by self-interest
➢ Negative correlation to ethical decision-making
Instrumental and Intrinsic Goodness
• Monists believe that only one thing is intrinsically good
➢ Hedonism: Pleasure is the ultimate good
• Qualitative hedonism
• Quantitative hedonism
• Pluralists believe that no one thing is intrinsically good
• Instrumentalists reject the ideas that
➢ Ends can be separated from the means
➢ Ends, purposes, or outcomes are intrinsically good in and of themselves

• Goodness theories: Focus on the end result of actions and the goodness or happiness created by them
• Obligation theories: Emphasize the means and motives by which actions are justified
➢ Divided into two categories
• Teleology
• Deontology
Egoism in Teleology
Two important teleological philosophies are egoism and utilitarianism
• Egoism defines right or acceptable behavior in terms of consequences to the individual
➢ Maximizes personal interests
• Enlightened egoists: Take a long-term perspective and allow for the well-being of others though their own self-interests remain paramount
Utilitarianism in Teleology
Utilitarianism seeks the greatest good for the greatest number of people
• Rule utilitarians: Determine behavior based on principles designed to promote the greatest utility
• Act utilitarians: Examine a specific action itself; not the rules governing it
Deontology
• Moral philosophies focusing on the rights of individuals and on the intentions associated with a particular behavior
➢ Believe individuals have certain absolute rights
➢ Believe compliance with stable moral principles defines ethicalness
➢ Sometimes referred to as nonconsequentialism, a system of ethics based on respect for persons
Deontology
Contemporary deontology
• Categorical Imperative - Immanuel Kant
➢ Ethical acts can be viewed by everyone and the rationale behind the act is suitable as a universal principle
• Rule deontologists: Conformity to general moral principles determines ethicalness
• Act deontologists: Actions are the proper basis on which to judge morality
Relativist Perspective
Individuals and groups derive definitions of ethical behavior subjectively from experience
• Descriptive relativism: Relates to observations of other cultures
• Metaethical relativism: Proposes people see situations from their own perspectives
➢ No objective way of resolving ethical disputes between different value systems and individuals
• Normative relativism: Assumes one person's opinion is as good as another's
Virtue Ethics
• Ethical behavior follows conventional moral standards and compares behavior against a standard "good" moral character
• Can be summarized as
➢ Good corporate ethics programs encourage individual virtue and integrity
➢ The virtues associated with appropriate conduct form a good person
➢ The ultimate purpose is to serve the public good
➢ The well-being of the community goes together with individual excellence
Justice
• Fair treatment and due reward in accordance with ethical or legal standards
• Distributive justice: An evaluation of the results of a business relationship
• Procedural justice: Considers the processes and activities that produce desired outcomes
• Interactional justice: Based on relationships between organizational members, including employees and managers
Moral Philosophy and Ethical Decision-Making
• Individuals use different moral philosophies for personal decisions than they use for work-related decisions
• Two things may explain this behavior
➢ Pressures for workplace success differ from the goals and pressures in outside life
➢ Morale character may change to become compatible with the work environment
Moral philosophies must be assessed on a continuum
Kohlberg's Model of Cognitive Moral Development
Consists of six stages
1. Punishment and obedience
2. Individual instrumental purpose and exchange
3. Mutual interpersonal expectations, relationships, and conformity
4. Social system and conscience maintenance
5. Prior rights, social contract, or utility
6. Universal ethical principles
Kohlberg's Model
Reduced to three levels of ethical concern
1. Concern with immediate interests and rewards and punishments
2. Concern with right as expected by the larger society or some significant reference group
3. Seeing beyond norms, laws, and the authority of groups or individuals
Importance and Problems Kohlberg's Theory
• Shows that individuals can change their values through moral development
• Supports management's development of employee's moral principles
However, the three hit theory says
• Kohlberg used questionable research methods
• His theory contradicts basic moral philosophy
• His theory, while reliable, may not be valid
White Collar Crime
• Illegal acts committed for personal and/or organizational gain by abusing the trust and authority associated with a given position
• White collar criminals are educated people in positions of power and respectability
• The financial sector has a high level of WCCs
• WCCs are increasing steadily
➢ Technology allows WCCs to be committed at all levels, not just the top levels of management
➢ Resulting in increased government efforts to detect and punish WCCs
Reasons for White Collar Crime
• Patterns of activities become institutionalized and may encourage unethical behaviors
• Undecided employees go along with the majority, whether ethical or unethical
• WCCs increase after economic recessions
• Some businesspeople may have inherently criminal personalities, corporate psychopaths
Individual Factors
• Most unethical behavior is not for personal gain, but to meet performance goals
• Rewards for performance goals and corporate culture in general are the most important drivers of ethical decision making
Ethical Theories:
• Consequentialists/ Teleological/ Goodness Theories
o Only consequences matter in determining right and wrong
• NonConsequentialists/ Deontological Theories
o Right and wrong are determined by more than consequences
Ethical Theories:
1. Ethical Egoism
a. Every individual should seek to maximize his/her self interest
2. Utilitarianism:
a. Every individual should seek to bring about the greatest good for the greatest number of people
3. Rights-based Ethics
a. Right of free consent
b. Right of privacy
c. Right of freedom on conscience
d. Right of free speech
e. Right of due process
4. Prima Facie Principles (ross):
a. Fidelity
b. Reparations
c. Gratitude
d. Justice
e. Beneficence
f. Self improvement
g. Not harming innocent people
5. Justice
a. Equal or fair treatment
b. Consistent administration of rules
c. Restitution
6. Golden Rule
a. Do unto others as you would have them do unto you
b. Every individual has a right to be consulted on matters that affected them
7. Disclosure rule (sunshine law)
a. Can action be justified if it becomes public knowledge
Rights
Rights are entitlements to do something without interference from other people (negative rights) or entitlements that obligate others to do something positive to assist you (positive rights).
Some rights (natural rights, human rights) belong to everyone by nature or simply by virtue of being human; some rights (legal rights) belong to people by virtue of their membership in a particular political state; other rights (moral rights) are based in acceptance of a particular moral theory
Duties
are obligations to act in a certain way, and they typically arise because people have rights.
The existence of a right implies the existence of a correlative duty.
Duties can also arise from voluntarily assumed obligations,
or from absolute authority.
Note on rights and duties
Rights and duties often conflict
o My own duties may conflict
o My rights may conflict with your rights
o My duties may conflict with your duties
Shared Slides Cooke
...
Misconceptions About Business Ethics
1. Simplism
2. Legalism
3. Cynicism: Profit and Morality Incompatibility
4. Idealism: Profit and Morality Identity
5. Dualism
6. Relativism
Cooke
• Ethics is the process of determining what are and what are not reasonable standards of moral conduct by systematically addressing at least 3 key questions:
1. What is morally good or bad?
2. What is morally right or wrong?
3. What are my moral obligations, if any?
Cooke: Three methods for making ethical decisions
Kantian/Rights-Based Ethics—every person has basic rights and we have a duty to respect those rights.
The Golden Rule—treat others in the same way you would want to be treated.
Enlightened Self-Interest—maximize net benefits to yourself in a way that minimizes the harm to others
SEVEN-STEP PROCESS FOR ETHICAL DECISION MAKING (Cooke)
1. The Facts
2. The Ethical Issues
3. The Alternatives
4. The Stakeholders
5. The Ethics of the Alternatives: Use Ethical Theories
6. The Practical Constraints
7. Actions to Take