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Key Topics Ch 7 & 8 2015 Cengage Learning 1 Key Topics The Publics Opinion of Business Ethics Business Ethics: Meaning, Types, Approaches

Ethics, Economics and Law - A Venn Model Three Models of Management Ethics? Ethics Issues Arise at Different Levels Personal and Managerial Ethics Managing Organizational Ethics Best Practices for Improving an Organizations Ethical Culture Behavior Ethics Striving Towards a Deeper Understanding Moral Decisions, Moral Managers, and Moral Organizations 2015 Cengage Learning 2 The Publics Opinion of Business Ethics (1 of 2) The publics view of business ethics has never been very high. Many people think that theres only a fine line

between a business executive and a crook. e.g., Enron, Arthur Anderson According to the recent Gallup poll taken in, only 21 % of the public thought business executives had high or very high ethics. But still much better than many other counties. 2015 Cengage Learning 3 The Publics Opinion of Business Ethics (2 of 2) National Business Ethics Survey Findings Observed ethical misconduct at work has decreased slightly, from 49% to 45%. Reporting bad behavior (whistle-blowing) is on the rise. from 63% to 65%.

Retaliation against those who report misconduct has increased sharply, to 22% experienced retaliation. Pressure to compromise is near the all-time high. Weak ethical cultures the percentage of companies with weak ethics cultures increased to almost record levels. 2015 Cengage Learning 4 2015 Cengage Learning 5 Is Society Changing? Unethical practices were at one time considered acceptable to the public because, compare to today, public was not well

educated and they were not known to public due to much less media coverage. Paradigm shift & globalization For example, change of social and ethical norms due to significant development of communication technologies (e.g., SNS) 2015 Cengage Learning 6 Business Ethics Today versus Earlier Periods Expected and Actual Levels of Business Ethics Societys Expectations of Business Ethics

Ethical Problem Actual Business Ethics Ethical Problem 1960s Time 2015 Cengage Learning 2010 7 Ethics Ethics is the discipline that deals with moral duty and obligation.

Two main Branches (from philosophy) Descriptive Ethics is about how people do behave, and how they think they should behave. It is grounded in observation of some sort looking at people as they are, not necessarily as they should be. What do people think is right? Normative Ethics is about what actually has overriding importance for determining how we ought to act. It is an instruction according to an established code.

How people should act? 2015 Cengage Learning 8 Normative Ethics Examples It is wrong to kill people just because they make you angry. We should fight to free slaves when necessary, even when doing so is illegal. It is reasonable for a person to give charity to those in need, even if no reciprocation should be expected. Normative Ethics is our primary concern in this text

2015 Cengage Learning 9 Business Ethics: Business Ethics why business ethics? (1:48) Is concerned with morality and fairness in behavior, actions, and practices that take place within a business context.

Is the study of practices in organizations and is a quest to determine whether these practices are acceptable or not. Introduction to Business Ethics (2:07) Business ethics starting from each individual ethics and morality. 2015 Cengage Learning 10 Sources of Ethical Norms Fellow Workers Family

Friends The Law Local Community Regions of Country The Individual Ones SelfInterest and Conscience Profession Religious Beliefs

Society at Large 2015 Cengage Learning Employer 11 Three Major Approaches (to business ethics) From philosophy as wellpersonal level 1) Conventional Approach Based on how the average person views business ethics. That is, it relies on ordinary common sense. In other words, it depends on what people thought and what the prevailing standards were at that time. 2) Principles Approach later (ch 8)

3) Ethical Tests Approach later (ch 8) 2015 Cengage Learning 12 Factors Affecting the Morality of Personal Level Societys Moral Climate Businesss Moral Climate Industrys Moral Climate Organizations Moral Climate Superiors Superiors Individual Individual Ones

OnesPersonal Personal Situation Situation Policies Policies Peers Peers 2015 Cengage Learning 13 Kohlbergs Model of Moral Development (4:38) Source of Moral development Theory (personal level) from psychology

The Origins of Morality (13:32) a video clip from 60 minutes 2015 Cengage Learning 14 Ethics, Economics, and Law for Ethical Decision Making In many business decisions, the law, ethics, and economics all come into play and overlap in many respects. Set aside philanthropic expectations in ethical decision making. Using Venn diagram for analyzing ethical decision makings

2015 Cengage Learning 15 A Venn Model for Ethical Decision Making 2015 Cengage Learning 16 Three Models of Management Ethics Immoral Management An approach devoid of ethical principles and an active opposition to what is ethical. The operating strategy of immoral management is focused on exploiting opportunities for corporate or personal gain.

Moral Management Conforms to highest standards of ethical behavior or professional standards of conduct. Amoral Management Different in nature from the others, it has two kinds: Intentional: Does not consider ethical factors. Unintentional: Casual or careless about ethical factors. 2015 Cengage Learning 17 Characteristics of Immoral ManagersStill not so rareespecially, under-develop and developing countries These Managers continues to do things even if he/she knows it is really wrong.

Intentionally do wrong Are Self-centered and self-absorbed Care only about self or organizations profits or success Actively oppose what is right, fair, or just Exhibit no concern for stakeholders Are the bad guys An ethics course probably would not help them 2015 Cengage Learning

18 Examples of Immoral Manager Showing preferential treatment toward certain employees Rewarding employees who display wrong behaviors Harassing a fellow employee Stealing petty cash Cheating on expense reports Taking credit for anothers accomplishments Lying on time sheets Coming into work hungover Telling a demeaning joke Taking office supplies for personal use 2015 Cengage Learning 19

Characteristics of Moral Managers In real world.unfortunately, rare even in developed countries These Managers: Conform to the highest standards of ethical behavior or professional standards of conduct. Ethical Leadership is commonplace. Their goal is to succeed within the confines of sound ethical precepts Demonstrate high integrity in thinking, speaking and doing. Follow both the letter and the spirit of the law Possess an acute moral sense and moral maturity Moral managers are the good guys 2015 Cengage Learning 20

Examples of moral Manager Giving proper credit where it is due Being straightforward and honest with other employees Treating all employees equally Being a responsible steward of company assets Resisting pressure to act unethically Recognizing and rewarding ethical behavior of others Talking about the importance of ethics and compliance on a regular basis

2015 Cengage Learning 21 Characteristics of Amoral ManagersKind of most popular An amoral manager does not care about morality (what is right or what is wrong) mainly because she/he doesnt understand or doesnt know what morality is (to begin with). Intentionally Amoral Managers Dont think ethics and business should mix. and business and ethics exist in separate spheres. Unintentionally Amoral Managers Dont think ethically. & Have no ethics buds. Well-intentioned, but morally casual or unconscious. Ethical gears are in neutral.

2015 Cengage Learning 22 Examples of Amoral Manager Specific height (511) and weight (180) requirements for a police force candidate According to the historian, the protagonist has an amoral stance with regard to slavery did not care of slavery issue. Sear auto service quota force employee to complete a certain quota every month. 2015 Cengage Learning 23 2015 Cengage Learning

24 Three Models of Management Morality and Emphases on CSR 2015 Cengage Learning 25 Three Models of Management Morality And Acceptance or Rejection of Stakeholder Thinking 2015 Cengage Learning 26 Put Them Together.

2015 Cengage Learning 27 Case 10 Discussion First, read the case! It is about moral dilemma Describe your process to get to your decision based on each situation; Situation 1: Jane barely got the job because national unemployment rate is record high. Situation 2: Inflate 25% expense has been implicit practice for a very long time (it became semi-formal practice). Situation 3: Her boss and majority of peers seem also very angry with Janes intention. 2015 Cengage Learning

28 Ethics Issues Arise at Different Levels Personal level Situations faced in our personal lives outside the context of our employment. Organizational level Workplace situations faced by managers and employees. Industry or profession level A manager or organization might experience business ethics issues at the industry or professional level. Societal and global levels Managers acting in concert through their companies and industries can bring about constructive changes. 2015 Cengage Learning 29

Personal Level Ethics Three major approaches to ethical decision making; 1. Conventional Approach - chapter 7 2. Principles Approach Managers desire to make decisions based on a more solid foundation than is provided by the conventional approach to ethics. A principle of business ethics is an ethical concept, guideline, or rule that assists you in taking the ethical course. 3. Ethical Tests Approach

Practical approach that is based on short questions/"tests" to guide ethical decision making 2015 Cengage Learning 30 Types of Principles From philosophy as well Teleological theories Focuses on consequences or results of an action. Deontological theories Focuses on duties, without regard to consequences.

Deontological vs Teleological (4:04) Aretaic (virtue) theories (9:21, start @ 3:21) Focuses on the virtue of an action. 2015 Cengage Learning 31 Major principles of Ethics (from philosophy)

Utilitarianism (10:00) Kants Categorical Imperative (10:26) Principle of Rights Principle of Justice Ethical Due Process Rawls Principle of Justice (3:25) Ethics of care Virtue ethics Servant leadership (2:49) The Golden Rule (1:59) 2015 Cengage Learning 32 Ethical Tests Approach (5:07)

Based on short questions/"tests" to guide ethical decision making Test of Common Sense Test of Ones Best Self Test of Making Something Public Test of Ventilation Test of the Purified Idea Test of The Big Four (greed, speed, laziness or haziness) Gag Test Website for various Ethics Related Terminologies 2015 Cengage Learning 33 Managing Organizational Ethics A manager (and YOU as well!) must monitor the organization's ethical climate as part of its

corporate culture. Enrons culture An ethical climate is shaped through actions taken, policies established, and examples set. One must sharpen ones decision-making skills to avoid amoral thinking, and achieve moral management. 2015 Cengage Learning 34 Factors Affecting the Organizations Moral Climate 1. Behavior of superiors the number one influence on moral climate 2. Behavior of ones peers the second influence; people do pay attention to what

their peers in the firm are doing 3. Industry or professional ethical practices ranked in the upper half; these context factors are influential 4. Personal financial need ranked last 2015 Cengage Learning 35 Best Practices for Improving an Organizations Ethical Culture Three key elements that must exist if an ethical organizational culture is to be developed and sustained: 1. The continuous presence of ethical leadership reflected by the board of directors, senior executives and managers. 2. The existence of a set of core ethical values infused throughout the organization by way of policies, processes

and practices; and 3. A formal ethics program which includes a code of ethics, ethics training and an ethics officer. 2015 Cengage Learning 36 Improving Ethical Culture Ethics Programs and Officers Realistic Objectives Ethical DecisionMaking Processes Codes of Conduct Board of Directors Oversight

Top Management Leadership Moral Management Discipline of Violators 2015 Cengage Learning Ethics Audits and Risk Assessments Effective Communication Ethics Training Corporate

Transparency Whistle-Blowing Mechanisms 37 Top Management Leadership (Moral Management) (1 of 2) This premise cannot be overstated: The moral tone of an organization is set by top management (again, Enron Corporation). In a poll of communication professionals, more than half believed that top management is an organizations conscience. Managers and employees look to their bosses at the highest levels for their cues as to what practices and policies are acceptable. 2015 Cengage Learning

38 Walmart & Its Associates Case # 32 on page 655 First, lets see the video clip on the class website! Skip question # 9 Lecture slides contiue. 2015 Cengage Learning 39 Top Management Leadership (Moral Management) (2 of 2) Weak Ethical Leadership led an employee to embezzle $20,000 over a 15 year period, explaining that she thought it was ok because her boss used firm employees for personal

needs, took money from the firms petty cash box, raided the soft drink machine, and used company stamps. Her boss said it was all true, and that she should not be dealt with too harshly. Strong Ethical Leadership When a batch of tubes in production failed a critical safety test, leaving in question the 10,000 already manufactured, the VP, without hesitation, said scrap them. That act set the tone for the corporation for years, because everyone present knew of situations in which faulty products had been shipped under pressure of time and budget. 2015 Cengage Learning 40 Two Pillars of Leadership Traits

Role Modeling Behaviors Ethics Communication Decision Making Effective Rewards and Discipline 2015 Cengage Learning Moral Manager

Moral Person Ethical Leadership 41 Effective Communication of Ethical Messages Requires Written and verbal communication Non-verbal communication Candor forthright, sincere and honest Fidelity be faithful to detail, accurate, avoid deception or exaggeration Confidentiality exercise care in deciding what information to disclose to others. Trust can be shattered if confidences are breached. 2015 Cengage Learning

42 Ethics Programs and Ethics Officers Ethics programs typically include: Written standards of conduct Ethics training Mechanisms to seek ethics advice or information Methods for reporting misconduct anonymously Disciplinary measures for employees who violate ethical standards

Inclusion of ethical conduct in the evaluation of employee performance 2015 Cengage Learning 43 Setting Realistic Objectives Managers must be keenly sensitive to the possibility of unintentionally creating situations in which others may perceive a need or incentive to cut corners or do the wrong thing. Unrealistic expectations are the primary driver of employees perceiving excessive pressure to achieve goals. Example: A marketing manager set a sales goal of a 20% increase for the next year when a 10% increase was all that could be realistically and honestly expected, even with outstanding performance. A subordinate might believe he or she should go to any lengths to achieve the 20% goal.

2015 Cengage Learning 44 Ethical Decision-Making Processes 2015 Cengage Learning 45 Ethics Check Ethics Check 1. Is it legal? 2. Is it balanced? 3. How will it make me feel about myself? 2015 Cengage Learning 46

Ethics Quick Test 1. Is the action legal? 2. Does it comply with our values? 3. If you do it, will you feel bad? 4. How will it look in the newspaper? 5. If you know its wrong, dont do it. 6. If youre not sure, ask. 7. Keep asking until you get an answer. 2015 Cengage Learning 47 Codes of Conduct A way of establishing standards of behavior and communicating them to managers and employees.

The single most important element of an ethics and compliance program. Virtually all major corporations have codes of conduct today. Many have worldwide codes or standards. Some codes of conduct are designed around stakeholders, others on conduct.

2015 Cengage Learning 48 Content of Codes of Conduct Employment practices Employee, client, and vendor information Public information and communications

Conflicts of interest Relationships with vendors Environmental issues Ethical management practices Political involvement 2015 Cengage Learning

49 Disciplining Violators of Ethics Standards Management must discipline violators of accepted ethical norms and standards. One reason many question the sincerity of business with regard to codes of conduct is that many business are unwilling to discipline violators, implicitly approving their behavior.

Before disciplining anyone, the firm needs to have communicated its ethics standards clearly and convincingly. 2015 Cengage Learning 50 Ethics Hotlines and Whistle Blowing An effective ethical culture is contingent on employees having (with support of top management) a mechanism for reporting violations.

78% of companies have anonymous reporting systems (Hotlines). Among firms subject to Sarbanes-Oxley, 91% have such systems. Hotlines are the most common way to report corporate fraud. Can be telephone, web, or email-based. 2015 Cengage Learning 51

Business Ethics Training Goals of Training are to learn: 1. 2. 3. 4. 5. 6. the fundamentals of business ethics to solve ethical dilemmas to identify causes of unethical behavior about common managerial ethical issues whistle-blowing criteria and risks to develop a code of ethics and execute an internal ethical audit 2015 Cengage Learning

52 Ethics Audits and Risk Assessments Ethics Audits Intended to carefully review such ethics initiatives as ethics programs, codes of conduct, hotlines, and ethics training programs. Sustainability Audit Helps to identify sustainability issues within an organization. Fraud Risk Assessment Review processes that identify and monitor conditions that may pertain to the companys exposure to compliance/misconduct risk and to review methods for dealing with concerns. 2015 Cengage Learning 53

Corporate Transparency Corporate Transparency A quality, characteristic, or state in which activities, processes, practices, and decisions that take place in companies become open or visible to the outside world. The degree to which an organization: Provides public access to information. Accepts responsibility for its actions. Makes decisions more openly. Establishes incentives for leaders to uphold standards. 2015 Cengage Learning

54 Board of Director Leadership and Oversight Leadership and oversight of ethical initiatives by boards has not been a given. The Sarbanes-Oxley Act Companies are required to protect whistleblowers without fear of retaliation. It is a crime to alter, destroy, conceal, cover up, or falsify documents to prevent their use in a federal government lawsuit. 2015 Cengage Learning

55 Behavioral Ethics Striving Towards a Deeper Understanding (1 of 3) Behavioral Ethics helps us to understand many of the behavioral processes that are taking place: Bounded ethicality occurs when managers and employees find that behaving ethically is difficult because of various organizational pressures. Conformity bias the tendency people have to take their cues for ethical behavior from their peers, rather than exercising their own, independent judgment. Overconfidence bias people may be more confident of their moral character than they have reason to be. 2015 Cengage Learning

56 Behavioral Ethics Striving Towards a Deeper Understanding (2 of 3) Self-serving bias people may process information in a way that supports their preexisting beliefs & self-interest. Framing ethical judgments are affected by how an issue is posed; if posed as an ethical issue, they make more ethical decisions. Incrementalism a predisposition toward the slippery slope. Role morality a tendency to use different ethical standards for different roles in life. Moral equilibrium a tendency for people to keep an ethical scoreboard in their heads, and use this information when making future decisions, balancing decisions, and avoiding a moral surplus. 2015 Cengage Learning

57 Behavioral Ethics Striving Towards a Deeper Understanding (3 of 3) Ill-conceived goals poorly set goals that encourage negative behaviors. Motivated blindness overlooking the questionable actions of others when it is in ones own best interest. The slippery slope causes people not to notice others unethical behavior when it gradually occurs in small increments. Overcoming values the act of letting questionable behaviors pass if the outcome is good. This can occur when managers put more emphasis on results rather than on HOW the results are achieved. 2015 Cengage Learning

58 Moral Decisions, Moral Managers, and Moral Organizations The goal of managers should be to create moral decisions, moral managers, and ultimately, moral organizations, while recognizing that what we frequently observe in business is the achievement of moral standing at only one of these levels. The ideal is to create a moral organization that is fully populated by moral managers, making moral decisions (and practices, policies, and behaviors), but this is seldom achieved. 2015 Cengage Learning

59 2015 Cengage Learning 60

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