Chapter 02 – The Role of Ethics in Decision Making
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Chapter 2
The Role of Ethics in Decision Making
Learning Objectives
The primary objective of this chapter is to emphasize the growing importance of ethics to
business conduct. The second objective is to provide a historical and philosophical framework
for the study of ethics. The third objective is to furnish business students with an individual
framework for ethical decision making.
To achieve its objectives the chapter discusses the relationship between morals and ethics and
then of ethics and law. Formalism and consequentialism, the two principal schools of ethical
thought, are developed. Sources of ethical values are explored. The difficulties of ethical
decision making within large business organizations are examined. The chapter concludes with a
discussion of the morality of property.
References
Barry, Norman P., Business Ethics. Lafayette, Ind.: Purdue University Press (2000).
Donaldson, T., et al, Ethical Issues in Business, 8th ed. Englewood Cliffs, NJ: Prentice
Hall (2006).
Maidment, Frederick and William Ethridge, Business in Government & Society: Ethical,
International Decisionmaking. Englewood Cliffs, NJ: Prentice Hall (2000).
Hartman, L. P. and DesJardins, Business Ethics. McGraw Hill (2007).
Wines, William A., Ethics, Law, and Business. Lawrence Erlbaum (2006).
Teaching Outline
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I. Contemporary Business Ethics
A. Ethics and Society
Point out that over 20% of today’s large companies have ethics officers whose job is to
develop ethics policies, listen to complaints of ethics violations, and investigate ethics
abuses. Why is this good business?
Statement of Stephen Fink, president of Lexicon Communications Corp. of Los
Angeles: “The number one cause of business decline in this nation is unethical behavior
personal gratification, and, ultimately, acquisitiveness.”
Changing Normative Values
Emphasize:
That diversity fosters concern over values, and as America becomes increasingly
pluralistic, changes in traditional norms create challenges in establishing shared
News Media and the Internet
Emphasize:
That news media and the Internet make it increasingly difficult to hide the
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questionable behavior of large organizations.
Sidebar 2.1 titled ‘High School Dishonesty Predicts Dishonesty in the Workplace.’
Additional Matter for Discussion:
The Ethics Resource Center reports a survey that found that 85 percent of the nation’s
largest 2000 companies now have ethical codes or guidelines. Increasingly, corporations
also have ethics officers and board of director’s ethics committees.
II. The Nature of Ethics
That ethics is a system for identifying and applying moral values.
That the end result of ethical examination is the good.
That there is an important distinction between having a good time and leading a good
life.
Additional Matter for Discussion:
That the state enforces law but that personal ethics are voluntarily observed.
That ethical values are ultimately superior to law in ensuring responsible business
behavior.
The ethics surrounding price gouging (see Sidebar 2.2.)
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Additional Matters for Discussion:
Point out that one can be ethical yet still break the law while one may also be unethical
while remaining legal.
When Mary Kay Corp. discovered that its rival Avon Products was going through Mary
Kay’s trash dumpster, it sued Avon. Avon settled the case by agreeing to stop the
practice. Was what Avon did legal? Was what Avon did ethical?
III. Two Systems of Ethics
A. Formalism
Emphasize:
That formalism is an approach to ethics that affirms an absolute morality.
That it deals with absolute values without reference to their situational context.
That the Bill of Rights contains examples of formalism.
Additional Matters for Discussion:
Note that in formalism the intent with which one acts determines the moral quality of
the action, i.e., it is what one has in his/her heart that counts. Observe that intent is also
required for most criminal liability.
Discuss how the Golden Rule affects individual’s actions.
Example of formalism by management scholar Peter Drucker: “There is only one ethics,
one set of rules of morality, one code: that of individual behavior in which the same
rules apply to everyone alike.”
For class discussion: A male bank president receives an invitation to join a male-only
social club that will be a very important source of business contacts. Is it right for the
differently if the money was to buy medicine for his wife or his infant daughter?
Kant and Formalism
Emphasize:
Kant and his categorical imperative.
Examples of how formalism raises ethical questions for businesses.
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The Social Contract
Emphasize:
The social contract theory of John Rawls.
That although formalism generally takes its rise from concepts of duty, social
contract comes from ideas about “agreement.”
That the social contract theory concerns itself with how to construct a just society
taking into consideration the many inequalities of wealth, knowledge, and social
status.
That in deciding on the values of the social contract one places oneself behind a “veil
of ignorance.” Explain.
That entitlement to certain basic rights and equal opportunity are basic values of the
social contract.
That the dominant form of consequentialism is utilitarianism.
Whether ends justify the means. Always? Sometimes?
That consequentialism provides the framework for much business ethics.
The issues of “virtual morality” discussed in Sidebar 2.3.
Additional Matters for Discussion:
An example of business consequentialism comes from Megan Barry, Senior Manager,
Business Ethics at Nortel, and appears in a DePaul University virtual journal The Online
Journal of Business Ethics, Vol. 2, No. 1 (2001). Barry says that Nortel’s ethics
“Adviceline,” which produces 2000 telephone calls annually from Nortel employees
saves the company money by identifying issues early, minimizing the loss of work time,
and avoiding potential legal issues.
Stanley Kiaer, director of the London-based Institute of Business Ethics, stated that
various pressures from the public, from shareholders, from employee recruits, and from
competitors (peer pressure) are leading to greater corporate emphasis on ethics. Said
Kiaer, “If it results in a more ethical stance the motive [for change] doesn’t matter.”
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Consequentialist statement by Robert Denham, chairman of Salomon, Inc.: “In the final
analysis, most of the major institutions in our industry provide the same or very similar
ethical orientation netted 4.7 times greater dividends than a similar portfolio of stocks
chosen for their Dow Jones ratings.
For class discussion: Dow Corning Wright, the leading manufacturer of silicone gel
breast implants, announced that it had known for 20 years that some gel would seep out
of the implants. Dow maintained that it did not believe that the leakage would cause
prices. The Pinto was sold to meet the competition such as the VW Beetle.
Unfortunately, when struck from the rear, the Pinto was prone to explosions. It was
shown that Ford knew of the danger, could have made a low cost repair and could have
prevented the explosions and resultant deaths. Rather than decreasing their profit margin,
they sold the cars in the dangerous condition. Can the students find any justification for
Ford’s actions?
The Protestant Ethic
Emphasize:
That the ascendancy of consequentialism in business ethics is attributable to the
decline of the Protestant ethic.
That the Protestant ethic was a business-related ethic that viewed hard work,
achievement, self-denial, truthfulness, promise keeping, and loyalty as absolute
moral values. The ethic is based on religious belief.
How rising wealth and the encouragement of mass consumption eroded the
Protestant ethic.
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That although formalists and consequentialists can arrive at the same conclusion
regarding a problem, they use a different evaluation process.
candy cigarettes were twice as likely to smoke as those who had not, regardless of
parental tobacco use.
Some four million adolescents aged twelve to seventeen were smokers as the century
turned. During the 1990s, smoking by eighth and tenth graders increased by a third.
The U.S. Center for Disease Control and Prevention reported: “More than five million
children under the age of 18 today eventually will die from smoking-related causes.”
A Brown & Williamson Tobacco Co. senior official publicly called cigarette smoking
“a habit of addiction” and R.J. Reynolds internal documents refer to it as “habit
forming.”
IV. Sources of Values for Business Ethics
A. Legal Regulation
Emphasize:
That ethical values frequently become law and that legal regulation can reflect society’s
ethical values.
That as a result, that legal regulation is a significant source of values for business ethics.
o Avoidance of conflicts of interest.
Additional Matters for Discussion:
Ask the students to examine their major courses of study and to look at how the five
major ethical values above will come in to play when they graduate and begin work in
their chosen career.
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comprehensive ethics programs receive significantly reduced punishment. Note that
merely posting an ethics statement on the wall is not considered sufficiently
comprehensive.
Liberty and Rights
Emphasize:
That respect for the liberty and rights of others suggests formalist values. Consider
due process guarantees, freedom of expression, and privacy legislation.
Good Faith
Emphasize:
That good faith requirements can be found in the Uniform Commercial Code.
That bad faith leads to a cause of action for tort in certain circumstances.
That bad faith suggests formalism.
Confidentiality
Emphasize:
That confidentiality often arises when the law creates or requires fiduciary
obligations. Various agency relationships demonstrate this. This suggests
consequentialism by its purpose of enhancing the willingness to enter relationships
competes with that of the first principal.
B. Professional Codes of Ethics
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Emphasize:
That recent years have revealed extensive development of group standards for ethical
Again, point out that the excerpted material in Sidebar 2.6 provides a general
introduction to many specific ethical requirements.
How unethical conduct can lead to additional regulation such as Sarbanes-Oxley and
can completely destroy a huge thriving company.
That the professional organizations that have adopted these codes employ specific
GAAP, GAAS, the ABA Code of Conduct, and others.
C. Organizational Codes of Ethics
Emphasize:
That most large business organizations now have codes of ethics (often called codes of
conduct) that provide values to be observed by all employees and management
personnel.
The Business Roundtable’s list of topics that organizational codes of business ethics
should cover.
Additional Matters for Discussion:
Students must appreciate that when a company implements an ethics program that it
does more than issue a written ethical code. A comprehensive program has:
o Ethics policies and procedures
o Measures of ethical effectiveness
o Rewards for ethical behavior
o Guidelines for ethical decision making
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o Ethics education and training
Consider the statement of Robert Denham, chairman of Salomon, Inc., about that firm’s
worldwide to report directly to the committee any issues that they feel are not
adequately being addressed. Third, to emphasize the seriousness that I attach to the
issue, I have given my personal home phone number to the senior managers—including
the compliance professional—of each of our operating subsidiaries together with
instructions to call me in the event that they uncover a material violation of this policy.
percentage of reported misconduct than do companies without a code of conduct.
Several corporations have an ethics ombudsman who plays a vital role in defining what
is right and wrong, acceptable and unacceptable for their companies. Having an
ombudsman has been identified by the Federal Sentencing Guidelines as part of a
comprehensive ethics management program.
code of ethics—or ethics generally—means something to them in their daily work. But
63.9% of those surveyed reported having witnessed unethical behavior.
Different Approaches to Ethical Codes
Emphasize:
Boeing’s Code of Conduct in Sidebar 2.7.
Discuss whether it is more appropriate to have a short or a long business code of
conduct.
That because codes of business ethics are often backed up by sanctions, it is
appropriate to term them “self–regulation.”
D. Individual Values (LO 2-3)