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OPERATION AREAS
Every employee level and operational area is confronted with ethical issues. Unethical
discriminatory practices based on race or gender can occur in dealings with suppliers,
employees, customers, the government, or the public. Unethical discrimination can occur
at any level of the organization—Board of Directors, executives, middle managers, staff,
or production employees—or in any department—accounting, finance, human resources,
or marketing:
Among Chief Financial Officers: 67% had been pressured to misrepresent
corporate results.
Among Middle Level Managers: 25% admit to having written a fraudulent
internal report.
Among Secretaries:
o57% had either been asked, or observed someone else being asked, by
their boss to lie
o43% were asked to sign someone else’s name to a legal document
o36% were asked to prepare a document that included false or misleading
information
o36% report that they were verbally harassed
o21% sexually harassed at work
o17% shared confidential information about an employee’s salary
o15% shared confidential information about hirings, firings, and layoffs
DISCUSSION ACTIVITY
Ask students to write down two or three sentences about an ethical dilemma they faced at work –
it could be a full-time summer job, part-time job, or a member of an organization (church,
nonprofit, sports, student group). Have students share these stories in small groups, describing
the situation that led to the ethical dilemma and how people responded to the ethical dilemma.
CHAPTER QUESTION 2: IN WHAT WAYS DO UNETHICAL BEHAVIORS INCREASE
ADDITIONAL COSTS?
Managers often underestimate the costs associated with unethical behaviors. The most direct cost
Arthur Andersen’s $9.3 billion revenue stream evaporated after the federal government indicted
LEGAL COSTS
Lawsuits are one of the most easily quantifiable costs associated with unethical
behaviors.
EMPLOYEE THEFT
Theft represents a cost directly incurred by the organization for hiring untrustworthy
employees.
Employees can steal money, products, or time.
Theft-related costs that are individually minimal – doing personal emails, Internet
searchers, and phone calls on company time – become substantial when aggregated
across an entire workforce.
MONITORING COSTS
Organizations incur monitoring costs when they employ, or do business with, unethical
individuals. According to an electronic monitoring and surveillance survey conducted by
the American Management Association:
REPUTATION COSTS
An organization’s reputation is one of its most important assets.
Reputation management is a high priority for many corporations and accounts for 63% of
their market value.
ABUSIVE TREATMENT COSTS
Researchers attribute a wide range of costs to less egregious unethical behaviors, such as a
verbally abusive manager:
Abusive supervision affects approximately 13% of U.S. workers.
Costs in terms of absenteeism, healthcare costs, and lost productivity have been
estimated to be $23.8 billion annually.
Some employees “get even” with the abusive boss by stealing money or product from
the organization. Others may work less diligently when the abusive supervisor is not
closely monitoring their activities.
RECRUITMENT AND TURNOVER COSTS
As will be discussed in the following section, unethical organizations incur greater costs
recruiting employees, customers, suppliers, and investors, and must provide some
premium to offset their ethical deficiencies.
The lack of loyalty between an unethical organization and its key constituents is mutual,
resulting in higher turnover among employees, customers, suppliers, and investors.
EXHIBIT 1.2, “But What If I’m a Small Business?” notes that these same ethical problems and
costs can be found in small businesses. Some businesses are more likely to employ high school
and college students on a part-time basis, a group of employees susceptible to unethical peer
pressure and less committed to the organization. In addition, they may be more prone to bullying
from a large unethical customer or supplier.
DISCUSSION ACTIVITY
In small groups, have each student describe a situation when he or she observed an employee or
customer stealing. How did the student react to the situation? Why?
CHAPTER QUESTION 3: WHAT ARE THE COMPETITIVE ADVANTAGES OF
CREATING AND SUSTAINING AN ETHICAL ORGANIZATION?
A growing amount of research on organizational performance has shifted the theoretical debate
from choosing between ethical performance and financial performance to choosing ethical
ATTRACT AND RETAIN HIGH QUALITY EMPLOYEES
If you were a job applicant, would you rather work for an ethical or an unethical
organization?
oEthical organizations, compared to unethical organizations, are more likely to
ATTRACT AND RETAIN HIGH QUALITY CUSTOMERS
If you were a customer, would you rather purchase products or services from an ethical or
unethical organization?
oA stellar ethical reputation is priceless marketing and leads to higher levels of
ATTRACT AND RETAIN HIGH QUALITY SUPPLIERS
If you were a supplier, would you rather sell your products and services to an ethical or
unethical organization?
ATTRACT AND RETAIN HIGH QUALITY INVESTORS
If you were an investor, would you rather do business with an ethical or unethical
organization?
oHigh-quality investors are attracted to ethical organizations, which leads to higher
EARN GOOD WILL WITH COMMUNITY MEMBERS AND GOVERNMEN T OFFICIALS
If you were a community leader or government official, would you rather interact with an
ethical or unethical organization?
oEthical organizations honestly communicate with stakeholders and pay their fair
share of taxes.
oIn return, ethical organizations earn the respect of, and gain access to, community
PERFORMANCE BENEFITS
A host of performance benefits that ethical organizations achieve because they attract
high-quality employees and are trusted by customers, suppliers, investors, and government
officials:
Greater trustworthy information for decision making
TIPS AND TECHNIQUES emphasizes the importance of providing a business case (impact on
profit, revenue, and performance) for persuading employees about the importance of being
ethical.
BEST PRACTICE IN USE: STARBUCKS 2009 GLOBAL REPSPONSIBIILTY REPORT
demonstrates how the company monitors its socially responsible behaviors in five key areas:
ethical sourcing, environment, community service, customer wellness, and diversity.
DISCUSSION ACTIVITY
Ask if any students have ever chosen a job or purchased a product based on ethical
considerations. Have students share their stories and explain why this mattered to them.
ADDITIONAL QUESTION 3: WHAT ARE THE DIFFERENT PERSPECTIVES ON
HUMAN NATURE?
HUMAN NATURE
Given the many financial benefits associated with ethical behavior, and the many costs
associated with unethical behavior, why don’t all organizations excel in ethics? The core
of the problem can be found in the nature of human beings.
BORN WITH PRIOR KNOWLEDGE OF RIGHT AND WRONG
Among the ancient Greek philosophers, Socrates (469-399 BC) and Plato (427-347 BC)
theorized that individuals are born with a soul – consisting of mind, emotions, and desires
– that forms an individual’s inner essence.
BORN GOOD
The second perspective on human nature tends to be grounded in religious faith.
Theologians in a variety of faith traditions – including branches of Christianity, Judaism,
and Islam – maintain that all individuals are born in the image of God, or with a
conscience, which is good.
The soul is pure and sinless at birth, and seeks perfect goodness.
BORN WITH INHERITED SIN
Others believe that individuals are born morally imperfect, or with inherited sin.
This does not mean individuals are born evil, just morally imperfect.
Due to inherited sin, a morally damaged soul joins the body at birth and needs to be
healed.
BORN MORALLY NEUTRAL
Lastly, some philosophers maintain that individuals are born morally neutral.
Aristotle (384–322 BC) disagreed with his teacher Plato’s view that infants possessed
pre-existing ideas, and argued that at birth the mind is an “unscribed tablet”.
Many centuries later, John Locke (1632-1704) referred to this as a “tabula rasa,” or
DISCUSSION ACTIVITY
Ask students to write answers to: (1) are people born morally good, bad, or neutral, and (2) is the
world getting morally better or worse over time? Have students discuss their answers in small
groups.
CHAPTER QUESTION 4: DESCRIBE THE SIX STAGES OF MORAL
DEVELOPMENT.
COGNITIVE DEVELOPMENT
Whether born morally perfect, imperfect, or neutral, children are born into a particular
family, neighborhood, and culture that influence their moral judgment. Parents are a
Jean Piaget (1896-1980) was among the first psychologists to outline stages of cognitive
development based on patterns he observed in children, including his own.
STAGES OF MORAL DEVELOPMENT
Everyone has the potential to be kind or cruel to others. Harvard psychologist Lawrence
Kohlberg (1927-1987), influenced by the writings of Jean Piaget, analyzed how children
and adults from many cultures formed moral judgments in response to a series of ethical
DISCUSSION ACTIVITY
Have students independently read and answer the Heinz Dilemma in EXHIBIT 1.4. Sort students
into groups based on answering “yes” or “no” to the question “Should the husband have done
that?” Within the group, have students share the reasons why Heinz’s stealing the drug is right or
wrong. Then have representatives from the two opposing viewpoints try to persuade the opposite
side.
After discussing the issue, have students categorize their moral reasoning according to
Kohlberg’s six stages. Be aware that many people tend to evaluate themselves at a higher level
than they really are. Reform groups based on their stage of moral development. Did they all
reach the same conclusion whether it was right or wrong for Heinz to steal the medicine? If not,
why not?
Based on extensive research, patterns emerged in terms of how people reasoned through
the ethical dilemmas.
According to Kohlberg, people sequentially progress through a continuum of six stages
of moral development, beginning with egocentric punishment avoidance and
culminating at the level of universal ethical principles.
An individual might stop progress at any point along the stages of moral development.
As shown in EXIBIT 1.5, the six stages are subdivided according to three levels:
Preconventional, Conventional, and Postconventional.
PRECONVENTIONAL LEVEL: Moral reasoning is based on what benefits the individual. Only
my interests exist and matter. Moral determination is based on my own needs and wants.
STAGE 1: OBEDIENCE-AND-PUNISHMENT ORIENTATION. Right is determined by
obeying rules from a superior authority and avoiding punishment.
STAGE 2: INSTRUMENTAL ORIENTAITON. Right is determined by a selfish desire to
obtain rewards and benefits from others. You should be nice to other people so that they
will be nice to you.
CONVENTIONAL LEVEL: Moral reasoning is based on applying a social role or group
membership analysis. The interests of other people must be considered. Moral determination is
based on performing good or right roles, pleasing others, and maintaining societal order.
STAGE 3: GOOD BOY – NICE GIRL ORIENTATION. Right is determined by winning
the approval, and avoiding the disapproval, of others. You should be concerned about the
feelings of other people and keep loyalty and trust with partners.
STAGE 4: LAW-AND-ORDER ORIENTATION. Right is being a dutiful citizen who
follows societal rules and maintains social order.
POSTCONVENTIONAL LEVEL: Moral reasoning is based on applying abstract universal
principles. There are societal and beyond societal perspectives that matter. Moral determination
is based on abiding by abstract principles applied to society.
STAGE 5: SOCIAL CONTRACT ORIENTATION. Right is determined by preserving
mutually agreed upon human rights and changing unjust laws for the sake of community
welfare. Individual freedom should be limited only when such freedom interferes with
other people’s freedom.
STAGE 6: UNIVERSAL ETHICAL PRINCIPLES ORIENTATION. Right is determined
by following abstract universal ethical principles (such as justice, the Golden Rule,
equality, and respect for life). These principles represent a universal consciousness that
all humanity should follow.
An individual’s sequential passage through the six stages of moral development is
influenced by three factors: age, respect for people at the next higher stage, and moral
discomfort.
First, progression is somewhat dependent on age because the mind becomes more
capable of understanding abstract thoughts over time.
Most children under the age of nine, some adolescents, and some adults
(particularly criminals) reason at the preconventional level. All pleasure seeking
pursuits are good until the pain associated with a scolding parent or authority
figure outweighs the pleasure.
Most adolescents and adults reason at the conventional level, which is why this
level is called conventional or ordinary. They want others to perceive them as
being good, and understand the importance of laws for maintaining societal order
and peace.
Some adults, and a few adolescents, reason at the postconventional level. They
are compelled to follow the dictates of their conscience, which is based on
universal ethical principles.
Second, people predominantly apply one stage of moral reasoning, are comfortable
applying lower stages, admire people one stage higher, and consider people two stages
higher ethically naïve.
A manager who reasons primarily at the “Good Boy-Nice Girl” stage will
occasionally justify actions based on concern for punishment and rewards,
admires managers who apply “law and order” concerns, and thinks managers who
apply concern for universal human rights to decision-making do not understand
how businesses should operate.
Third, moral discomfort plays a key factor in explaining why some adults never progress
beyond the preconventional level (stages one and two), and most adults stop moral
reasoning progress at being a good group member (stage three) or law-abiding citizen
(stage four).
oIf an individual is always content with the conclusions a particular level of moral
reasoning generates, then there is little motivation to advance to the next higher
sequential stage.
Cognitive dissonance occurs when an individual holds inconsistent or contradictory
attitudes and beliefs, which creates an unpleasant state of mind. Individuals relieve this
moral discomfort by reasoning at the next higher stage of moral development, which they
admire.
