Ethical Decision Making

in Business

© 2013 Cengage Learning. All Rights Reserved. 1

 2
SO FAR….
Introduction to Ethics, definition, Values & Ethics
Ethics in Business and relevance to various
stakeholders
Ethics in Business – Emerging Business Ethics
Issues in the modern business world
Institutionalization of business ethics.

Today, we would learn about ethical decision making.

 In this session…
Study comprehensive framework for ethical decision
making.
Examine intensity of ethical issues
Study individual and organizational factors that may
influence ethical decision making.
Explore the role of opportunity in ethical decision
making in business
Explain how knowledge about ethical decision
making process can improve ethical leadership
Discuss leadership styles that promote ethical
culture.
Traits of strong ethical leaders
 The Ethical Decision Making Process
 In an organization, individuals cannot make ethical
decisions in the same manner that they can do at home, in
their families or in their personal lives.
 Organizational pressures have a strong influence on decision
making.
 The ethical decision making process is governed by:
 Ethical issue intensity (perceived importance)
 Individual factors (gender, education, experience, nationality, age,
etc.)
 Organizational factors (Corporate Culture, type of industry, size
of organization, etc.)
 Opportunity (for unethical behavior)
 The framework for ethical decision making does not
describe how to make ethical decisions
 Outlines the factors and processes related to ethical decision
making
© 2013 Cengage Learning. All Rights Reserved. 4
 Framework for Ethical Decision Making
in Business

© 2013 Cengage Learning. All Rights Reserved. 5

 Ethical Issue Intensity
The perceived relevance or importance of an ethical issue to the
individual, work group, and/or organization
 Reflects the ethical sensitivity of the individual and/or work
group
- Regulators stand on Insider trading vis-à-vis “Expert-Network”
firms.
 Triggers the ethical decision making process
 Individuals are subject to six spheres of influence
Workplace Legal system
Family Community
Religion Profession (real estate broker, telemarketers,
insurance agents, stock brokers, etc. perceived to have lowest ethics?)
Moral intensity: Relates to a person’s perception of social
pressure and the harm his/her decision will have on others

© 2013 Cengage Learning. All Rights Reserved. 6

 Individual Factors
People base their ethical decisions on their own values and
principles of right or wrong
 Values are learnt through socialization
 Good personal values decrease unethical behavior and
increase positive work behavior
 Values are subjective; vary across cultures
 An organization may intend to do right, but
organizational or social forces can alter this intent
 Research shows that various factors that influence
ethical behavior are:
 Gender (Are women more ethical than men?)
 Education, work experience, nationality and age affect
ethical decision making
© 2013 Cengage Learning. All Rights Reserved. 7
 Locus of Control
Relates to individual differences in relation to a general
belief about how one is affected by internal versus
external events or reinforcements
 Managers with
 External locus of control go with the flow because
that’s all they can do
 Internal locus of control believe they can control
events; are masters of their destinies and trust in their
capacity to influence their environment
Relationship between locus of control and ethical
decision making is still not clear.

© 2013 Cengage Learning. All Rights Reserved. 8

 Organizational Factors
Organizational culture has a stronger influence
on employees than individual values
 Corporate culture: A set of values, norms, and
artifacts that members of an organization share
 Ethical culture: Reflects whether the firm has an
ethical conscience; is a function of many factors
 Significant others: Those who have influence in
a work group
 Obedience to authority: Helps to explain why
many employees unquestioningly follow
superior’s orders
© 2013 Cengage Learning. All Rights Reserved. 9
 Organizational Factors …..contd.

© 2013 Cengage Learning. All Rights Reserved. 10

 Opportunity
The conditions in an organization that limit/permit
ethical / unethical behavior
 Immediate job context: Where employees work, with whom
they work, and the nature of the work
 Opportunities for misconduct can be reduced by establishing
formal codes, policies, and rules
 Aggressive enforcement is required
Knowledge can sometimes lead to unethical behavior
• A person who has an information base, expertise, or
information about competition has an opportunity to exploit
knowledge.
• A Bank making questionable loans is a classical example of
“using knowledge to grant the loans which could later result
into collapse of the bank.”
© 2013 Cengage Learning. All Rights Reserved. 11
 Office Supplies Reported Missing Most Often

© 2013 Cengage Learning. All Rights Reserved. 12

 Business Ethics Evaluations and Intentions

Ethical dilemmas involve situations where rules are vague

or in conflict
 Critical thinking skills and ability to take
responsibility are important
 The final step is deciding what action to take
based on a person’s intentions
 Guilt or uneasiness is the first sign that an
unethical decision has occurred
Most businesspeople will make ethical mistakes

© 2013 Cengage Learning. All Rights Reserved. 13

 Causes of Unethical Decision Making
14

 I need the income and cannot afford to quit right now.

 Those around me are doing it. Why shouldn’t I? They
think, it is fine.
 If I do not do this, I may not get the recommendation /
good reference from my senior or the company, when I
leave.
 This is not such a big deal, given the potential benefits /
advantages / edge over peers.
 Business is business with a different set of rules at
times! (Everything is fair in business and war)
 If not me, someone else would do it and get rewarded.
 Using the Framework to Improve
Ethical Decisions
It is very difficult to objectively determine if a business
decision is right or wrong
 Understanding how ethical decisions are made
will not solve ethical problems
 Business ethics involves value judgments and
collective agreement about acceptable patterns of
behavior
 Ethical decision making in business does not rely
on personal values and morals
 Organizations take on cultures of their own
 Informal relationships enforce an ethical culture
© 2013 Cengage Learning. All Rights Reserved. 15
 Leadership in Corporate Culture
 Leadership: The ability or authority to guide and
direct others toward achievement of a goal
 Leaders provide a blueprint for an organization’s
corporate culture and ethics
 Leadership styles influence organizational behavior
 Including employee’s acceptance of/adherence to
organizational norms and values
 A challenge for leaders is how to gain trust and
commitment from employees
 Example1: Warren Buffett (Berkshire Hathaway), his
CEOs and David Sokol.
 Example 2: ACC Ltd. India
© 2013 Cengage Learning. All Rights Reserved 16
 Was Sokol guilty?
* Buffett relies heavily on the character of his CEOs. He has
perhaps the largest conglomerate of companies in USA.
* In many cases he may have just two / three conversations /
meetings in a given year with the CEOs of some of his group
companies.
* Has complete trust in his CEOs. David Sokol was one of
them and was considered as one of the contenders to succeed
Mr. Buffett.
* He purchased US $ 10 million in shares of a chemical
company on his own account. After a week, he recommended
the purchase of the company to Mr. Buffett. This broke the
company’s rules and duty of candor.
* Sokol’s trading falls in a gray area of the law; but there are
questions about Sokol’s disclosures!!
© 2013 Cengage Learning. All Rights Reserved 17
 The Managerial Role in Developing Ethics
Program Leadership

© 2013 Cengage Learning. All Rights Reserved. 18

 Leadership Styles
 Coercive leader: Demands instant obedience
and focuses on achievement, initiative, and
self-control (Good during times of crisis or
turnarounds)
 Authoritative leader: Inspires employees to
follow a vision, facilitates change, and creates a
strongly positive performance climate
 Affiliative leader: Values people, their
emotions and needs, and relies on friendship
and trust to promote flexibility, innovation, and
risk taking. (Good for highly educated, where
hierarchy may be difficult / irrelevant)
© 2013 Cengage Learning. All Rights Reserved. 19
 Leadership Styles (continued)
 Democratic leader: Relies on participation
and teamwork to reach collaborative
decisions
 Pacesetting leader: Can create a negative
climate because of the high standards that
he/she sets. (Quick results from highly
motivated and committed workforce)
 Coaching leader: Builds a positive climate
by developing skills to foster long-term
success, delegating responsibility, and
issuing challenging assignments
© 2013 Cengage Learning. All Rights Reserved. 20
 Leadership Styles (continued)
 Transactional Leaders: Create employee
satisfaction through bartering for desired
behaviors/performance
 Best-suited for rapidly changing situations,
including those requiring responses to ethical
problems or issues
 Crisis at Infosys. (Narayan Murthy and Nandan
Nilekani). CEO Vishal Sikka exits abruptly.
 Transformational leaders: Raise employees’
commitment and foster trust and motivation
 Is best for organizations with high ethical
commitment and strong stakeholder support
© 2013 Cengage Learning. All Rights Reserved. 21
 Corporate Founders
22 Following Corporate Founders have left an indelible ethical impact on
their organizations:
 JRD Tata and Ratan Tata
 Narayan Murty / Sudha Murty
 Steve Jobs (Apple) Strong Core Values and
deep commitment to
 Bill Gates (Microsoft)
Corporate Social
 Warren Buffet (Hathway) Responsibility
 Milton Hershey (Hershey)
 Michael Dell (Dell Computers)
 Their conduct set an example and tone of ethical culture in their
organizations making them role models of ethical corporate culture.
 Walmart after the death of Sam Walton embarked on rapid expansion and
faltered.
 “Whole Fruits” is a typical example of an organization with ethical
culture.
 Habits of Strong Ethical Leaders

Developed by Archie Carroll; based on Stephen

Covey’s “The 7 Habits of Highly Effective People”
Ethical leadership is based on
holistic thinking that embraces the
complex issues that companies
face.

© 2013 Cengage Learning. All Rights Reserved. 23

 Habits / Traits of Strong Ethical Leaders
24
1. They have strong personal character and high self esteem.

2. They have a passion to do right things.

3. They always have stakeholders’ interests in mind.
4. They are proactive.

5. They are role models for organization’s values.

6. They are transparent and are actively involved in
organizational decision making.
7. They are competent managers, who can take a holistic
view of the organization’s ethical culture.
 Ethical Decision Making and
the Role of Leadership
Ethical issue intensity, individual factors, and
opportunity result in business ethics
evaluations and decisions
 An organizational ethical culture is shaped by
effective leadership
 Top level support is required for ethical behavior
 An ethical corporate culture needs shared values
and proper oversight
The more you know about ethical decision
making, the more likely you will be to make
good decisions
© 2013 Cengage Learning. All Rights Reserved. 25
 Suggestions for Ethical Decision Making
26 1. Top Management can improve behavior: Businesses have
started setting standards and establish ethical principles to be
adopted / implemented within the organization
2. Codes of ethics improve decision making: Organizations have
started establishing codes of ethics / Conduct and corporate
policies on ethics to foster ethical decision making by reducing
the opportunities for unethical activity.
3. Interaction with peers and other colleagues helps: People
learn ethical behavior better through interactions with
individuals in social, business and other groups. In the absence
of set standards for behavior, employees generally base their
ethical decisions on their observation of peers and management.
4. Control System: The company’s policies (on ethical behavior),
rules and standards, need to be built into its control system to
avoid unethical behavior. Reducing unethical behavior is like
any other goal of the company such as increasing profits.
 Developing a Case Study – Group
27 Assignment
 Recently the Hip Implants of DePuy (a Johnson and Johnson
subsidiary) have been making headlines in news papers in India.
 Collect information about this development.
 Is this a classical case of Unethical practices on the part of the
multinational company?
 Who is responsible for the harms allegedly caused by the
implants?
 Develop a case study on the subject.
 Find out more information about similar incidents / cases in the
past in other countries (e.g. Sulzer and its hip implants, knee
replacements, Dow Corning and the silicone implants, etc.)and
draw parallels giving your opinions.
 How can such cases be avoided in future?
28
REVIEW QUESTIONS
1. List the factors that govern the process of ethical decision
making in an organization. Write a note on any one of
them.
2. Write short note on following factors that govern the ethical
decision making process. :
 Ethical Issue Intensity
 Organizational factors
 Individual factors
 Opportunity
3. “Leadership styles influence the ethical decisions in a
business / an organization”. Do you agree with the
statement? Discuss in short with examples.
29
REVIEW QUESTIONS
4. List leadership styles that are based on emotional
intelligence. Can any one type of leadership style be
successful in dealing with all ethical problems that may
crop up under different circumstances in organizations?
Explain in brief.
5. Explain the difference between a “transactional” and a
“transformational” leader in the context of ethical decision
making.
6. Describe in brief the traits of strong ethical leaders.
7. What are the Core values of the organization that you have
done the project work on?
8. What are the core values of FLAME University?