Ethical Decision Making in Business

1. Used by permission Ethical Decision Making in Business

2. The Big Question Whether to teach ethics in the business curriculum or not? • Friedman (1970) • Drucker (1981) • Knee-jerk reaction to recent spate of scandals

3. Distinguish between the concepts of “morality” and “ethics” • Morality – refers to the standards of behavior by which people are judged (particularly in their relationships with others). “moral standards of behavior” • Ethics – encompasses the system of beliefs that supports a particular view of morality. “ethical systems of belief” (Hosmer, 2003)

4. Moral developmental theory(Rest, Piaget, Kohlberg) Four Components of Morality:What constitutes moral behavior? Theory of Cognitive Disequilibrium:How does a person’s understanding of the world change? Moral Development Progression:How does a person’s morality change?

5. The Four Components of Morality (Rest et al, 1999). • Moral sensitivity • Moral judgment • Moral motivation • Moral character

6. Piaget’s Theory of cognitive disequilibrium “When new experiences cannot be assimilated into existing categories of experience or when expectations are violated, humans attempt to revise their categories and expectations so that experience will once again make sense and be predictable. Change in one’s cognition then comes from experiences that do not fit one’s earlier (and simpler) conceptions. Cognitive disequilibrium is the condition for development.” (Piaget, 1965)

7. Stages of Moral Development(Kohlberg)

9. So how do we make decisions in situations involving ethical matters? The same way we make decisions involving non-ethical matters. We look at the situation, assess alternative courses of action, evaluate outcomes and probabilities, and choose a course of action.

10. Steps in making a judgment • Problem recognition • Identification of alternative courses of action • Evaluation of alternative courses of action • Estimation of outcome probabilities • Calculation of expected values • Justification of course of action chosen

11. Steps in making a judgment How do we EVALUATE alternatives? • Problem recognition • Identification of alternative courses of action • Evaluation of alternative courses of action • Estimation of outcome probabilities • Calculation of expected values • Justification of course of action chosen

12. We use evaluation TOOLS. In management decisions we use tools such as: • cost-benefit analysis • feasibility analysis • time-to-market analysis • net present value • strategic prioritization • etc.

13. We also use evaluation tools in ethical analysis: • Deontology – analysis of universal duties • Teleology – comparison of good vs. bad outcomes • Conventional Rules and Mores – conventional cultural moral rules • Virtue Theory – characteristics of a good person Kant’s categorical imperative Bentham & Mill’s utilitarianism The Golden Rule, laws, etc. Bravery, temperance, generosity, justice, pride, and honesty.

14. Universal Duty (Kant, 1785) • Universal = categorical Duty = imperative • One should act only on that maxim whereby it should become a universal law of nature applicable to everyone.

15. To test an action: 1. Define the action under consideration; 2. Derive the underlying rule (maxim) for the action; 3. Test the rule as a universal law.

17. Kant’s second formulation of the categorical imperative Act in such a way that you always treat humanity, whether yourself or someone else, never simply as a means to an end, but always at the same time as an end. Based on the innate dignity of human free will.

19. Utilitarian Theory (Mill, 1863) • …the “greatest happiness principle” holds that actions are right in proportion as they tend to promote happiness; wrong as they tend to produce the reverse of happiness. • The utilitarians writers in general have placed the superiority of mental over bodily pleasures chiefly in the greater permanency, safety, uncostliness, etc.

20. Act vs. Rule Utilitarianism • The act utilitarian believes that each individual action is to be evaluated directly in terms of the utility principle, i.e., consider the consequences of each action. • Will your action generate the greatest amount of happiness for the greatest number of people involved?

21. Act vs. Rule Utilitarianism • The rule utilitarian believes that behavior is best evaluated by rules that, if universally followed would lead to the greatest good for the greatest number. We must consider the consequences of a rule if it were applied universally. • If the act in question were made a universal rule, would it result in the greatest good for the greatest number of people?

23. Conventional Moral Rules • Conventional moral rules are classic moral rules that have withstood the test of time and are commonly accepted by society. • The Golden Rule • Thou shall not kill • Thou shall not steal • These rules derive from rule utilitarian theory. Why? • Because they work within a society to promote common good throughout that society.

24. Personal Virtue Ethics (Aristotle) • One should live one’s life virtuously. • Virtues of honesty, openness, pride, and generosity. • Personal characteristics your mother would be proud of! Why? • Because these types of behaviors, when practiced in one’s life, will make it easier for one to know the right thing to do in situations of moral conflict.

26. A Framework for Moral Decision Making • Problem recognition – identification of the basic situation, the actors, and discernment between issues vs. dilemmas • Identification of alternative courses of action • Evaluation of alternative courses of action and ramifications on all actors from ethical perspective • Estimation of outcome probabilities and values • Calculation of expected values • Justification of course of action chosen • Categorical imperative • Utilitarianism • Virtue theory • Conventional rules

27. a) Which alternative respects the rights and dignity of the stakeholders and can be universally applied? For each decision alternative, identify the ramifications if everyone were to follow the principle that underlies that alternative. For each decision alternative, determine if you are respecting the stakeholders and not treating them merely as objects.

28. b) Which alternative will produce the most good and the least harm? For each alternative, identify the cost/benefits. Weigh the cost-benefits of each alternative to each stakeholder and determine if there is a solution that promotes the greatest good for the all of people. If there is no alternative that results only in good and no harm, choose the alternative that produces the most benefits and causes the least harm to the stakeholders.

29. c) Do any of the alternatives violate a conventional moral rule? These are the types of rules that we find in many great religious traditions, such as rules against killing, stealing, and lying. Others are more local and particular to specific cultures such as rules about proper dress, relations between the sexes, respect for established authority, and so on.

30. d) Which alternative can you personally live with? 1. Will adopting this decision allow you to be at peace with yourself and develop your character in a way that will improve your relationships with others? 2. How would you feel when you share your decision with your most respected mentors, family members, friends? 3. How would you feel if your actions were reported on the front page of The Wall Street Journal?

31. Pat is being interviewed by Ken as a possible consultant to the City in negotiating a new water contract. Pat asks for a fee of $600 per day for an estimated 10 days of consulting work, for a total fee of $6,000. Ken counters with an offer of a $20,000 fee, for political reasons, and requests Pat to give back $14,000 to the “flower fund.” He explains that the flower fund helps the mayor deal with hardship cases among City employees, whom he says are underpaid and receive meager fringe benefits. The mayor wishes to be perceived as a caring and compassionate politician. Pat asks Ken if this contribution of $14,000 is an absolute requirement for her to get the consulting assignment. Ken’s reply is deliberately unclear. Pat is torn in two directions as she considers her decision. On the one hand, she wants the consulting experience and sees that it can get her started as a successful consultant. The fee will also be welcome, to ease her financial pressures. On the other hand, Pat feels uncomfortable with Ken's request for the flower fund contribution, even though it may be a good cause. She also feels used to help deceive the public by proposing a $20,000 fee to further the Mayor's political purposes, when it is clear that her actual fee will only be about $6,000.