Chapter 1:
UNETHICAL BEHAVIORS IN ORGANIZATIONS
AND HUMAN NATURE
CHAPTER 1 CHAPTER AND ADDITIONAL QUESTIONS
In studying this chapter, students should consider the questions below.
“CQ1” refers to “Chapter Question 1.” This question appears at the end of the textbook
chapter.
“AQ1” refers to an “Additional Question 1.” This is an “additional” question related to
the chapter. It is not listed at the end of the textbook chapter as a “Chapter Question”.
These items are numbered within the two categories based on the order in which the
answer appears in the chapter.
AQ1: What is ethics?
AQ2: How often do employees experience ethical dilemmas?
CQ1: What are the most common types of unethical behaviors in organizations?
CQ2: In what ways do unethical behaviors increase organizational costs?
CQ3: What are the competitive advantages of creating and sustaining an ethical organization?
AQ3: What are the different perspectives on human nature?
CQ4: Describe the six stages of moral developments.
AQ4: What is the extent of lies and cheating in society?
CQ5: Why do good people occasionally behave unethically?
CHAPTER 1 LEARNING OBJECTIVES
After completing this chapter, students should be able to:
Explain the competitive advantages of creating and maintaining an ethical organization
Appreciate that unethical behaviors occur in all organizational operations
Identify common types of unethical behaviors
Understand that unethical behaviors can be very costly to organizations
Describe different theories of human nature and the stages of moral development
Discuss why good people occasionally behave unethically
CHAPTER 1 OVERVIEW
Businesses significantly improve the quality of life by providing goods and services that
fulfill consumer needs. Service to others, one of the most admirable ethical standards, is at the
heart of business operations. Providing goods and services is just one ethical aspect of
organizational operations. Doing business also involves a network of human interactions –
employees, customers, suppliers, other organizations, and government. Some of these people
may have high ethical standards, some may not. Federal, state, and local governments, along
with regulatory agencies, create new rules and regulations to ensure that stakeholders are treated
appropriately.
This chapter discusses why appropriately managing ethics is essential for every
organization. The prevalence and costs of unethical behaviors at work can be substantial. In
addition, appropriately managing ethics provides ethical organizations with many competitive
advantages. Despite these competitive advantages, however, unethical behaviors continue to
occur because every person is morally imperfect. The chapter reviews different theories of
human nature and Kohlberg’s six stages of moral development, and explores why good people
occasionally behave unethically.
CHAPTER 1 LECTURE OUTLINE
Teaching Objective: To increase awareness that all organizations experience ethical issues and
that these issues must be managed appropriately.
Suggested Time: Two to three hours of class time is recommended to present this chapter.
I. Additional Question 1: What is Ethics?
Ethics defined
Action sequence
II. Additional Question 2: How often do employees experience ethical dilemmas?
Daily occurrence
III. Chapter Question 1: What are the most common types of unethical behaviors in
organizations?
Extent of unethical behaviors at work
Managers as victims
Profession and industry issues
Operation areas
IV. Chapter Question 2: In what ways do unethical behaviors increase organizational
costs?
Legal costs
Employee theft
Monitoring costs
Reputation costs
Abusive treatment costs
Recruitment and turnover costs
V. Chapter Question 3: What are the competitive advantages of creating and
sustaining an ethical organization?
Attract and retain high-quality employees
Attract and retain high-quality customers
Attract and retain high-quality suppliers
Attract and retain high-quality investors
Earn good will from community and government
Performance benefits
VI. Additional Question 3: What are the different perspectives on human nature?
Human nature
Born with prior knowledge of right and wrong
Born good
Born with inherited sin
Born morally neutral
VII. Chapter Question 4: Describe the six stages of moral development
Cognitive development
Preconventional level
Stage 1: Obedience-and-punishment orientation
Stage 2: Instrumental orientation
Conventional Level
Stage 3: Good-boy—nice-girl orientation
Stage 4: Law-and-order orientation
Postconventional level
Stage 5: Social contract orientation
Stage 6: Universal ethical principles orientation
VIII. Additional Question 4: What is the extent of lies and cheating in society?
Lies and cheating
Altruism
IX. Chapter Question 5: Why do good people behave unethically?
Unintended Unethical Behaviors
Choosing Between Competing Values
Intentional Unethical Behaviors
Failure to Report Unethical Behaviors
CHAPTER 1 SUPPORTING MATERIALS
Textbook Inserts
Ethical Dilemma Analysis
What would you do?
Let’s Build a Building
In the Real World: Enron
Exhibits
Exhibit 1.1: But What If I’m a Small Business?
Exhibit 1.2: EEOC Charges and Resolutions 1997 and 2009
Exhibit 1.3: Competitive Advantages of Being Ethical and Trustworthy
Exhibit 1.4: The Heinz Dilemma
Exhibit 1.5: Stages of Moral Development for Heinz Dilemma
Exhibit 1.6: The Day Americans Told the Truth
Exhibit 1.7: What Would Happen if You Lost Your Wallet?
Thematic Boxes
Tips and Techniques
Best Practice in Use
ADDITIONAL QUESTION 1: WHAT IS ETHICS?
ETHICS DEFINED
When an organization employs someone, that individual brings to work not only unique
job skills, but also his or her ethics. Ethics is the set of principles a person uses to
determine whether an action is good or bad. Interactions involving owners, customers,
employees, lenders, suppliers, and government officials have an ethical dimension.
Human beings possess free will and can choose to behave ethically or unethically in a
particular situation. Even if the decision-maker believes he or she is being ethical,
someone harmed by the action may think otherwise.
ACTION SEQUENCE
Ethical analysis takes into consideration all aspects of an action sequence. An action
sequence consists of the motivation behind the act, the act itself, and the consequences of
the act.
Decisions are initiated by motives and result in consequences: Are the motives and
intentions behind the decision good or bad? Are the consequences and outcomes of the
decision good or bad? There is nothing inherently right or wrong with a manager
speaking to an employee. It is the motivation that led to the act, and the consequences of
an act, that carry ethical weight. In this sense, actions and behaviors are surrounded, or
sandwiched, by ethics.
An ideal ethical situation is one in which a person has good motives and the act
results in good consequences. When this alignment occurs people often do not
realize the act has an ethical dimension.
Sometimes, good motives can generate bad consequences. Trying to help a colleague
perform one task, for example, might distract the person from meeting an important
When evaluating these less-than-ethically-ideal situations, some people place greater
DISCUSSION ACTIVITY
Have students describe a situation when someone said the student’s action was ethical. Why did
the person think the student’s action was praiseworthy?
Next, have students describe a situation when someone said the student’s action was unethical.
Why did the person think the student’s action was blameworthy?
ADDITIONAL QUESTION 2: HOW OFTEN DO EMPLOYEES EXERIENCE ETHICAL
DILEMMAS?
DISCUSSION ACTIVITY
Have students write down when (how long ago) was the last time they faced an ethical dilemma.
Tell them you don’t want to know what the situation was, just how long ago did it happen. This
Then describe the ethical dilemmas you (the instructor) experienced today, and the types of
DAILY OCCURRENCE
People experience ethical dilemmas at work every day. Just about every decision made
during a day has ethical ramifications. The decision can be based on good-bad motives
and result in good-bad consequences.
Examples of daily ethical dilemmas:
Should you arrive at work early, on-time, or late?
Should you submit adequate work that meets a deadline, or submit the highest
quality work possible and miss the deadline?
Should you inform your boss about your colleague’s questionable work habits?
Should the organization incur additional costs for environmental protection
technologies not required by law?
Should you leave work at the designated time or cancel after-work plans and stay
late to finish a project?
Each of these decisions and actions is subject to ethical analysis that considers competing
obligations and outcomes. Even if an employee does not think the decision is an ethical
issue, the person benefitted or harmed may think so. Arriving late to work may seem
deserving after laboring hard the previous day. But other employees may be waiting for
essential information that only the late arrival possesses.
CHAPTER QUESTION 1: WHAT ARE THE MOST COMMON TYPES OF
UNETHICAL BEHAVIORS IN ORGANIZATIONS?
EXTENT OF UNETHICAL BEHAVIORS AT WORK
Every organization is confronted with ethical and unethical behaviors. The Ethics Resource
Center survey results about work-related ethical issues:
In 2009, the types of ethical misconduct survey respondents observed most within the
previous 12 months include:
Lying to outside stakeholders (12%)
Employee benefit violations (11%)
These ethical misconducts were observed in:
Both large firms (27%) and small firms (16%)
During a five and a half year period, 2000 to mid-2005, forty Fortune 100 companies either
pled guilty to a crime, were found guilty of a crime, or agreed to settle a case out of court for
In 2008 Gallup Poll, when asked to evaluate the honesty and ethical standards of different
professions, the scores for having high or very high ethical standards for some professions
were:
MANAGERS AS VICTIMS
Managers and owners are also victims of unethical behaviors:
20–44% of all resumes contain lies about work histories, educational background, or
other credentials.
33% of employees calling in sick are really tending to personal needs, family needs,
stress, or feel entitled to a day off.
24% of the government’s unemployment system overpayments are due to fraud.
The percentage of employees engaged in theft is a staggering 60%. In addition to the usual
pilfering of pens and paper, the most common employee misuses of corporate assets for
personal use are:
Email: 63%
Web Browser: 45%
Fax Machine: 45%
Software: 33%
Mail/Overnight Delivery: 23%
Wireless Phone: 22%
Digital Copier: 18%
PROFESSION AND INDUSTRY ISSUES
Every profession and industry experiences ethical problems.
In the accounting/auditing profession:
falsifying reimbursement or time reports
working slowly without concern for budget limits
excessively surfing the web
using company resources for personal purpose
ignoring manager input
Legal profession, along with accountants and auditors: Billable hours. One egregious
case involved a lawyer charging a client 3,500 billable hours for one year’s work, which
averages out to almost 10 hours a day, 7 days a week, every week of the year.
In the construction industry, 84% of survey respondents reported that they personally
experienced, encountered, or observed unethical industry-related acts or transactions
during the past year, with 34% claiming this happened many times. The top five major
issues were:
bid shopping
change orders
over-billing
unreliable contractors
questionable claims
Public relations and sales professions: According to a survey of 1,700 public relations
executives:
25% lied on the job
39% exaggerated the truth.
A survey of sales and marketing representatives revealed that:
79% heard a salesperson make an unrealistic promise on a sales call
78% caught a competitor lying about their company’s products and services.
Government agencies: According to the 2007 Ethics Resource Center survey, on whether
the responded observed at least one form of ethical misconduct within the previous
twelve months:
52% of federal government employees did
57% of state government employees did
63% of local government employees did