Conducting Business Ethically

1. Conducting Business Ethically

2. ETHICS Essence of Ethics Morally Questionable Acts Dynamic Relationships that Affect Ethical Decision Making Factors Affecting Ethical Decisions Norms and Counter-norms Managing Ethics

3. Does it Pay to Be Ethical? (Business Ethics article) TEXACO -racial discrimination $176 M MERCURY FINANCE -overstating profit$ 2.2 B ADM -price fixing $100 M GENETECH -tying personal loan to business deal CEO loses job BANKER’S TRUST -deliberately misled or deceived customers Damaged image W.R. GRACE -sexual harassment CEO loses job BAUSCH & LOMB -manipulation of accounting data earnings fell 54%

4. Does It Pay to Be Ethical? (Business Ethics Article) 1. Responsibility to address corporate issues (58% Execs) 2. Corp. leaders’ responsibility is to the greatest good (52% Execs; 35% MBAs) 3. Switch brands (76% consumers) 4. Skepticism about ‘cause’ related marketing (58% consumers; 21% today) 5. Do notbuy (75% consumers) 58% execs 52% execs 35% MBAs 76% consumers 58% consumers 21% today 75% consumers

5. Does It Pay to Be Ethical? (Business EthicsArticle) 1.Social responsibility is important (26% investors) 2. Company image (84% employees) 3. Innovative workplace practices associated with productivity 4. Employee ownership leads to productivity (60% companies) 5. Business has too much power (71 %) 6. Corporate role is more than to make a profit(95%) 1. 26% investors 2. 84% employees 4. 60% companies 5. 71% 6. 95%

6. Profit at Any Cost - Corporate layoffs - theft - Wall Street sins - selling products that do not meet specs. - Pentagon fraud - age discrimination - retaliation against employees who exposed unsafe/illegal practices - price fixing - use of banned chemicals - power in the market place * Who is responsible? “Captain of the ship?” * Does profitability excuse questionable behavior?

7. Essence of Ethics • Codes do not produce ethical behavior. • Our ethics tend to flow from our core values. • People have intrinsic worth.

8. Watchdogs and Lapdogs (article by Malkiel Conflicts of interest lead to ethical problems Individual behavior is strongly influenced by incentive Self-regulation and standard setting organizations fall short

9. Steps to an Ethics Statement (article by Kensichi) • Get support by CEO for support of key stakeholders • Get stakeholders participation • Expand words/ phrases into expectations • Establish feedback mechanism • Assure implementation/ monitoring of results • Reward employees who perform and deliver on values

10. Morally Questionable Acts • Non-job failures: • Cheating on your expense accounts • Stealing supplies • Sandbagging • Job failures: • Superficial performance appraisal • Not confronting expense account • Cheaters • Falsely praising poor performers • Denial of training opportunities • Undermine management

11. Morally Questionable Acts • Job distortions: • Bribery • Manipulation of suppliers/buyers • Differential pricing • Falsifying information • Job “creation”: • Bending policies for certain customers • Bending policies for salespeople • Caught violating rules • Arranging for promotions

12. FACTORS AFFECTING ETHICAL DECISIONS UNCERTAINTY OF INPUTS POWER CENTRALITY OF WORKFLOW CONTROL OF ETHICAL CONTINGENCIES BEHAVIOR SUBSTITUTABILITY OF ACTIVITIES COPING ROUTINIZATION PREVENTIVE ROUTINIZATION

13. A General Framework of the Ethical Decision-Making Process CHARACTERISTICS OF THE DECISION MAKER OUTCOMES ETHICAL SITUATION DECISION SIGNIFICANT INFLUENCES

14. Individual Characteristics of the Decision Maker that Influence the Ethical Decision-Making Process CHARACTERISTICS OF THE DECISION MAKER ETHICAL SITUATION OUTCOMES DECISION SIGNIFICANT INFLUENCES *Achievement motivation * Knowledge * Need for affiliation * Experience * Ego strength * Risk taking * Locus of control * Machiavellianism

15. Outcomes that Result from the Ethical Decision-Making Process CHARACTERISTICS OF THE DECISION MAKER ETHICAL SITUATION OUTCOMES DECISION SIGNIFICANT INFLUENCES *Performance * Feedback * Rewards * Promotions * Satisfaction * Learning

16. Significant Influences on the Ethical Decision-Making Process CHARACTERISTICS OF THE DECISION MAKER ETHICAL SITUATION OUTCOMES DECISION SIGNIFICANT INFLUENCES *The organization * Technology * Work * Significant others; customers, * The law peers, immediate supervisor, * Economics top managers, family, friends, * Professionalism other “opinion leaders”

17. Elements of the Ethical Situation CHARACTERISTICS OF THE DECISION MAKER ETHICAL SITUATION OUTCOMES DECISION SIGNIFICANT INFLUENCES *Opportunity * Ethical decision history * Moral intensity of the situation

18. Characteristics of Decision Makers Elements of the Ethical Decision-Making Process Ethical Situation Outcomes DECISION Significant Influences ELEMENTS OF THE DECISION Information acquired Information processed PERCEIVED ETHICAL PROBLEM Ethical decision history Expectations Sent and received roles Ethics norms (personal & those of others) PERCEIVED ALTERNATIVES, PRODUCT, PRICE, PROMOTION, DISTRIBUTION INFO JUDGMENT Information acquired Information processed PERCEIVED CONSQUENCES Probability of consequences Desirability of consequences

19. Value Differences Lead to Conflict ORGANIZATION A ORGANIZATION B

20. NORMS LT relationships with customers Objectivity Openness Candor Honesty Flexibility/Adaptability Cost-effectiveness Taking responsibility Customer Service Develop younger salespeople Team effort Consensus Loyalty COUNTERNORMS Sandbagging Emotional Involvement Secrecy Stonewalling Lying Dogmatism Padding expenses Passing the buck Sales force Look out for “Number 1” Individual goals first Taking unfair credit Criticize the company Norms & Counternorms

21. The OLD Ethic Favors Work Savings Responsibility Competition Sex roles Sacrifice Equality - Inequality Wealth accumulation Absolution Risk assumption Efficiency/Productivity Thrift/Investment The NEW Ethic Favors Leisure Debt Rights Protection Unisexism Self-interest Equality Wealth redistribution Situationalism Risk aversion Quality of life Consumerism Differences Between the OLD and NEW Ethic

22. Managing Ethics • Diagnose the reward system • Analyze rules and procedures • Training and education • Develop investigative structures

23. Moral Courage (article by Williams) • Leaders exhibit moral courage by being willing to make personal sacrifices • Leaders should not become to preoccupied with pleasing constituents • Leaders focus on needs of others - they have a commitment to serve • Business as usual may be evidence of a leadership failure

24. CEO’SSet the Tone for How to HandleQuestions ofEthics (Hymowitz) • Determination and a winning personality equal success • Employees rarely complain • Employees take their cues from management • Top management actions are more important than codes of ethics • Employees wrestle with the short-run vs. long-run

25. THE ESSENCE OF ETHICS I(Article by Williams) • Codes of ethics do not necessarily lead to ethical behavior. • The core values we profess are not necessarily those by which we live. • There is a place for compassion in leadership. • Bureaucracy can come in conflict with ethics. • Managers who vent their frustration on subordinates (who can do little about it) are not acting ethically.

26. THE ESSENCE OF ETHICS II(Article by Williams) • Study the ethics of organizations which have reputations for being ethical. • Build ethics into organization policies and practices. • Make sure quality and service and integrity permeate the entire organization. • Develop high expectations of all members of your organization.

27. THE ESSENCE OF ETHICS II (Article by Williams) • Create an organizational culture that • encourages...… • open and honest communication • continual learning • personal development • respect for people

28. BackgroundSlides You will be Responsible for this Material!

29. Company Threats to Ethical Behavior • A firm that… • routinely ignores or violates internal codes of ethics • always looks for simple solutions to ethical problems and is satisfied with “quick fixes” • unwilling to take an ethical stand when there is financial cost to the decision • creates an internal environment that either encourages unethical behavior or discourages ethical behavior • usually sends its ethical problems to the legal department • looks at ethics solely as a public relations tool to enhance its image

30. Company Threats to Ethical Behavior • A firm that… • treats its employees differently from its customers • is unfair or arbitrary in its performance appraisal standards • has no procedures or policies for handling ethical problems • provides no mechanisms for internal whistle-blowing • lacks clear lines of communication within the organization • is sensitive only to the needs of shareholders • encourages its employees to leave their personal ethical values at the door

31. FIVE WARNING SIGNS OF ETHICAL COLLAPSE(Jennings article) • surround yourself with subordinates who are young, inexperienced, enthralled with power and deep in debt • send a clear message that you expect results at any cost • be certain the CEO is tyrannical and prone to anger • when an employee’s public statements bring criticism to the company, cut the employee loose • when an ethical lapse is discovered, never admit anything. Conceal, spin and gloss.

32. Do College Honor Codes Make Moral Sense on Today’s Campus?(Brownfield) Information on College Students • 70% have cheated on a test at least once • 87% have cheated on some type of written work • 49% have collaborated with others on an assignment • 52% have copied from someone • 87% business majors have cheated at least once Conclusion: grade > learning short-run > long-run chaos > standards negligence > integrity laziness > diligence

33. Do College Honor Codes Make Moral Sense on Today’s Campus?(Brownfield) Is an Honor Code a reasonable ideal for Today’s students??? Today, we have a… • Questionable moral climate, • Lack of strong, value-based up-bringing, and • Celebration of negative role models

34. World of Payola (article by Zuckerman) Can we arrive at consistency in global ethics standards? • Companies are identified by their corruption • Who will want to partner with such companies?

35. The Environment was Ripe for Abuse (article by Byrne, et al) PR vs. Performance Real transformations require a change in core values, attitudes, relationships, leadership with experience for change Sound organizations provide freedom to act, but also have some controls A culture built around “star players” cannot foster teamwork

36. Companies must be committed to ethics Codes Ethics Programs Ethics Orientation Social Responsibility Not the same as ethics Related to ethics Company Responsibilities Customers Employees Investors Others Chapter #5 - Conducting Business Ethically and Responsible

37. Chapter #5 - Conducting Business Ethically and Responsible • Can businesses that conduct themselves in an ethical way be profitable? • How can ethical behavior be encouraged? • What do short-term and long-term thinking have to do with ethics?

38. Background Slides You Will be Responsible for this Material on the TEST

39. Alternative Courses of Action Available in Ethical Situations ACTIONS ADVANTAGES DISADVANTAGES • NOT THINK ABOUT IT • GO ALONG & GET ALONG • PROTEST Avoids the danger of getting into a zero-sum game with colleagues Same as “not think about it” Individual feels good about making effort to stop unethical behavior The risk of going in the wrong direction Same as “not to think about it” Individuals slowly conform… maybe to the wrong direction Organization disregards protest & punishes protester

40. Alternative Courses of Action Available in Ethical Situations ACTIONS ADVANTAGES DISADVANTAGES Makes clear statement that one person feels that action is unethical Person feels good about self for making effort to stop unethical behavior Signals that organization will lose good people if unethical behavior continues Person who leaves may join a competitor, feels better because he/she did not cooperate with unethical behavior Few organizations recognize individual rights to object May hurt chances for rewards and advancement Most people are replaceable and if replacement cooperates with unethical behavior, what is gained? • CONSCIENTIOUSLY OBJECT • LEAVE

41. Alternative Courses of Action Available in Ethical Situations ACTIONS ADVANTAGES DISADVANTAGES - Feelings of cowardice - Creation of atmosphere of mistrust - What will whistle-blower do if confronted by firm - tell the truth or lie? - Organization may attack the whistle-blower - It is difficult to interact with those one is criticizing - It may be difficult to work with those who hold a grudge - Does not permit dialogue between upper&lower managers - Might prevent injured consumers or clients from receiving remedies • SECRETLY BLOW THE WHISTLE • PUBLICLY BLOW THE WHISTLE • SECRETLY THREATEN TO BLOW THE WHISTLE Can be very effective If whistle-blower remains secret, retaliation cannot occur Can be effective Whistle-blower may be treated as a hero by many Can be very effective When it works, organization is not hurt by bad publicity

42. Alternative Courses of Action Available in Ethical Situations ACTIONS ADVANTAGES DISADVANTAGES • SABOTAGE • NEGOTIATE Can be effective Identity of saboteur might be protected Individual action may lead to small-group consensus that will be more effective than individual action Win-win solutions are possible Sabotage is not dialogue Retaliation might occur against the saboteur or against others Innocent people may be fired Does not work well in situations that are zero-sum, lose-win, in nature Individual who perceives ethical problem may not know how to negotiate, my lose “cool”

43. SELECTED PRINCIPLES OF ETHICAL CONDUCT • KANT’S CATEGORICAL IMPERATIVE: Act in a way that you believe is right and just for any other person in a similar situation. • CARR’S CONVENTIONALIST ETHIC: Bluff and take advantage of all legal opportunities and widespread practices and customs • THE DISCLOSURE RULE: Ask how it would feel to see the thinking and details of the decision disclosed to a wide audience • THE GOLDEN RULE: Look at the problem from the position of another party affected by the decision and try to determine what response the other person would expect as the most virtuous

44. SELECTED PRINCIPLES OF ETHICAL CONDUCT • THE HEDONISTIC ETHIC: Do whatever you find to be in your own self-interest • MOORE’S INTUITION ETHIC: Go with your “gut” feeling or what you understand to be right in a given situation • SMITH’S MARKET ETHIC: Take selfish actions and be motivated by personal gains in business dealings • MACHIAVELLI’S MEANS-END ETHIC: Ask whether some overall good justifies any moral transgression • NIETZSCHE/MARX MIGHT-EQUALS-RIGHT ETHIC: Seize what advantage you are strong enough to use without respect to ordinary social conventions and laws

45. SELECTED PRINCIPLES OF ETHICAL CONDUCT • THE ORGANIZATION ETHIC: Ask whether actions are consistent with organizational goals and do what is good for the organization • GARRETT’S PRINCIPLE OF PROPORTIONALITY: Do whatever you will if there is a proportional reason for doing so • THE PROTESTANT ETHIC: Do only that which can be explained before a committee of your peers • THE REVELATION ETHIC: Pray, mediate, or otherwise commune with a superior force or being • BENTHAM / MILL’S UTILITARIAN ETHIC: Determine whether the harm in an action is outweighed by the good

46. A Taxonomy of Moral Types MORAL TYPES DESCRIPTORS • Hedontist • Profit- maximizer • Socialite 1.Make physical pleasures the supreme goal in their lives. • KEY QUESTION:Which course of action will yield the greatest pleasure? 2.Goal of making as much money as possible • KEY QUESTION:which course of action will make the most money? • All their feelings and associations can be melted down to dollars 3.A social butterfly, a party animal • KEY QUESTION:Which course of action will help me best get along with the group? • If you want to know what this person thinks, find out who spoke to him or her most recently

47. A Taxonomy of Moral Types MORAL TYPES DESCRIPTORS • Politician • Self-actualizer • Craftsman 4.Life centers around power and glory. • KEY QUESTION:Which course of action will increase my power and glory? • These people have enormous egos, boundless ambitions, and undertake reckless actions. 5.Spiritual values predominate • KEY QUESTION:which course of action will help me become a better person? • These people have new insights, reform old ways, initiate new ways of thinking, strike out on new paths 6.A technician • POSITIVES:Creative, knowledgeable, independent, self-reliant, hardworking • NEGATIVES:Sadistic, forceful, manipulative, non-trustworthy

48. A Taxonomy of Moral Types MORAL TYPES DESCRIPTORS • Company person • Gamesman 7.Main goal in life to belong to an organization • POSITIVES:Service oriented, loyal, responsible, humble, sensitive to the needs of others, dependable, pleasant, trustworthy • NEGATIVES:Fear, worry, dependency, lacking vision, risk aversive, low drive, indecisive, change resistant 8.Dominant goal in life to gain prestige, glory, fame • POSITIVES:Inventive, flexible, change oriented, competitive, team player, independent, risk taker, impartial, high energy, idealistic • NEGATIVES:Lack of conviction, rebellious, manipulative, lack of intimacy, lonely

49. PERSONAL MORAL DEVELOPMENT 1. Physical consequences determine moral behavior. Avoidance of punishment and deference to power are typical of this stage 2. Individual pleasure needs are the primary concern and dictate attitudes toward behavior ORGANIZATIONAL MORAL DEVELOPMENT 1. Social Darwinism - Fear of extinction and the urgency of financial survival dictate moral conduct. The direct use of force is the acceptable norm. 2. Machiavellianism - Organizational gain guides actions. Successfully attaining goals justifies the use of any effective means, including individual manipulation Models of Personal and Organizational Moral Development PERSONAL MORAL ORGANIZATIONAL MORAL DEVELOPMENT DEVELOPMENT

50. PERSONAL MORAL DEVELOPMENT 3. The approval of others determines behavior. The good person is one who satisfies family, friends, associates. 4. Compliance with authority, upholding of the social order, and “doing one’s duty” are primary concerns ORGANIZATIONAL MORAL DEVELOPMENT 3.Cultural conformity - A tradition of standard operating procedures and caring groups. Peer professional pressure to adhere to social norms dictates what is the right and wrong behavior Allegiance to authority- Directions from legal authority determine moral standards. Right and wrong are based on the decisions of those with legitimate hierarchical power Models of Personal and Organizational Moral Development PERSONAL MORAL ORGANIZATIONAL MORAL DEVELOPMENT DEVELOPMENT