Chapter 4

Ethics and
Ethical Reasoning
McGraw-Hill/Irwin

Copyright 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

Ch. 4: Key Learning Objectives

Defining ethics and business ethics
Evaluating why businesses should be ethical
Knowing why ethical problems occur in business
Identifying managerial values as influencing ethical
decision making
Recognizing how peoples spirituality influences their
ethical behavior
Understanding stages of moral reasoning
Analyzing ethical problems using generally accepted
ethics theories

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The Meaning of Ethics

Ethics
A conception of right and wrong conduct
Tells us whether our behavior is moral or immoral
Deals with fundamental human relationshipshow we think
and behave toward others and want them to think and
behave toward us

Ethical Principles
Guides to moral behavior

Business Ethics
Application of general ethical ideas to business behavior
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Sources of Ethics
Notions of right and wrong come from many sources

Religious beliefs
Family background
Education
Community/neighborhood
Media influences

These experiences create a concept of ethics,

morality, and socially acceptable behavior in each
person
Acts as a moral compass to guide an individual when ethical
dilemmas arise
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Ethical Relativism
Concept which holds that ethical behavior should be
defined by various periods in time in history, a societys
traditions, the special circumstances of the moment, or
personal opinion
The meaning given to ethics would be relative to time, place,
circumstance, and the person/s involved
There would be no universal ethical standards on which
people around the globe could agree

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Figure 4.1 Observations of Unethical

Behavior at Work

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Five Key Reasons Business

Should Be Ethical
To meet demands of business stakeholders

About three-fourths of employees surveyed in 2007 believe their

firms are considering the environment, employee well-being,
and the interests of society and the community.
Meeting demands of stakeholders is good business

To enhance business performance

Research shows linkage between ethically responsible

behavior and favorable corporate financial performance
Imparts trust, promoting positive alliances among
business partners

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Five Key Reasons Business

Should Be Ethical
To comply with legal requirements

Two legal requirements provide direction for companies

interested in being more ethical in their business operations
U.S. Corporate Sentencing Guidelines
Sarbanes-Oxley Act of 2002

Although they apply only to U.S.-based firms, these legal

requirements also provide a model for firms that operate outside
the United States

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U.S. Corporate Sentencing Guidelines

Establish standards and procedures to reduce criminal
conduct
Assign high-level officer(s) responsibility for compliance
Not assign discretionary authority to risky individuals
Effectively communicate standards and procedures through
training
Take reasonable steps to ensure compliancemonitor and
audit systems, maintain and publicize reporting systems
Enforce standards and procedures through disciplinary
mechanisms
Following detection of offense, respond appropriately and
prevent reoccurrence
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Sarbanes-Oxley Act of 2002

Born from the ethics scandals at Enron, WorldCom, Tyco
Seeks to ensure that firms maintain high ethical standards
in how they conduct and monitor business operations
Requires executives to vouch for the accuracy of a firms
financial reports
Requires executives to pay back bonuses based on
earnings that are later proved fraudulent
Established strict rules fro auditing firms
In 2006 and 2007 regulation loosening occurred when the
SEC provided more relaxed guidelines to parts of the
Sarbanes-Oxley Act
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Five Key Reasons Business

Should Be Ethical
To prevent or minimize harm

Overriding principle that business should

do no harm
Examples include not harming society with toxic
waste, protecting business from unethical employees
and unethical competitors

To promote personal morality

Knowing one works in a supportive ethical climate

contributes to sense of psychological security
People want to work for companies that do the right
thing
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Why Ethical Problems

Occur in Business
Four Primary Reasons

Personal gain and selfish interest

Competitive pressure on profits
Conflicts of interest
Cross-cultural contradictions

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Figure 4.3 Why Ethical Problems

Occur in Business

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Core Elements of Ethical Character:

Managers are
Managers
Values
key to whether a company and its

employees will act ethically or unethically

The values held my managers will serve as models for
others who work at the company
Differences in ethical stances of U.S. versus European
managers and employees
Younger generation of managers more concerned about
ethics/social responsibility

A companys CSR performance is a major factor when selecting a

new employer for todays graduating MBAs

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Spirituality in the Workplace

Personal belief in a supreme being, religious
organization, power of nature or some other life-guiding
force
Organizations have responded to the increased attention
to spirituality and religion at work by attempting to
accommodate their employees
Opponents of spirituality at work point to the myriad of
implementation issues as grounds for keeping spirituality
out of the workplace

Issues include which religion should be promoted, and need for

recognizing diversity of religious beliefs

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Stages of Moral Development

From childhood to mature adulthood people move up
in their moral reasoning
Earliest stages of reasoning are ego-centered
Most developed stages are principle-centered
Most managers make decisions based on criteria in
levels 3 and 4
Company executives reasoning has wide implications
both inside and outside the organization

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Figure 4.4 Stages of Moral Development

and Ethical Reasoning

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Analyzing Ethical Dilemmas

in Business
Business managers and employees need a set of
decision guidelines that will shape their thinking when
on-the-job ethics issues occur
These guidelines should help them

Identify and analyze the nature of an ethical problem, and

Decide which course of action is likely to produce an ethical

result

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Four Methods of Ethical Reasoning

Virtues

Values and character are critical determining factors

Utilitarian

Compares benefits and costs of a decision, policy or action

Costs and benefits can be economic, social or human

Rights

Person or group is entitled to something or to be treated in a

certain way
Examples of basic human rights are right to life, safety, and due
process

Justice

Means benefits and burdens are distributed equally, according to

some accepted rule

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Figure 4.5 Four Methods of

Ethical Reasoning

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Applying Ethical Reasoning

to
Business
Activities

Can use the virtues, utility, rights, and justice

framework as a tool to analyze real business ethics
dilemmas

Once the ethical analysis is complete, the decision

maker should ask the question: Do all of the above
ethics approaches lead to the same decision?

If all the answers are Yes, the proposed action is ethical

If all the answers are No, the action is not ethical and needs
to be reconsidered
If Yes and No answers are mixed, you must decide which
takes priority
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