Ethical choices in business situations are most often made

Introduction

To improve ethical decision making in business, you must first understand how individuals make organizational decisions. Too often it is assumed people in organizations define ethical decisions in exactly the same way they would at home, in their families, or in their personal lives. Within the context of an organizational work group, however, few individuals have the freedom to personally decide ethical issues independent of the organization and its stakeholders.

This chapter summarizes our current knowledge of ethical decision making in business and provides a model so you may better visualize the ethical decision making process. Although it is impossible to describe exactly how any one individual or work group might make ethical decisions, we can offer generalizations about average or typical behavior patterns within organizations. These generalizations are based on many studies and at least six ethical decision models that have been widely accepted by academics and practitioners. Based on this research, we present a model for understanding ethical decision making in the context of business organizations. The model integrates concepts from philosophy, psychology, sociology, and organizational behavior. This framework should be helpful in understanding how organizations decide and develop ethical programs. Additionally, we describe some normative considerations that prescribe how organizational decision making should approach ethical issues. Principles and values are discussed as a foundation for establishing core values to provide enduring beliefs about appropriate conduct. Therefore, we provide both a descriptive understanding of how ethical decisions are made as well as a normative framework to determine how decisions ought to be made.

A Framework for Ethical Decision Making in Business

The ethical decision making process in business includes ethical issue intensity, individual factors, and organizational factors such as corporate culture and opportunity. All these interrelated factors influence the evaluations of and intentions behind the decisions that produce ethical or unethical behavior. This model does not describe how to make ethical decisions, but it does help you to understand the factors and processes related to ethical decision making.

Ethical Issue Intensity

The first step in ethical decision making is to recognize that an ethical issue exists, requiring an individual or work group to choose among several actions that various stakeholders will ultimately evaluate as right or wrong. Ethical awareness is the ability to perceive whether a situation or decision has an ethical dimension. Costly problems can be avoided if employees are able to first recognize whether a situation has an ethical component. However, ethical awareness can be difficult in an environment when employees work in their own areas of expertise with the same types of people. It is easier to overlook certain issues requiring an ethical decision, particularly if the decision becomes a routine part of the job. This makes it important for organizations to train employees on how to recognize the potential ethical ramifications of their decisions. Familiarizing employees with company values and training them to recognize common ethical scenarios can help them develop ethical awareness.

The intensity of an ethical issue relates to its perceived importance to the decision maker. Ethical issue intensity can be defined as the relevance or importance of an event or decision in the eyes of the individual, work group, and/or organization. It is personal and temporal in character to accommodate values, beliefs, needs, perceptions, the special characteristics of the situation, and the personal pressures prevailing at a particular place and time. Senior employees and those with administrative authority contribute significantly to ethical issue intensity because they typically dictate an organization’s stance on ethical issues. Potential ethical issues are identified as risk areas, and employees are trained to recognize these issues. For example, sexual harassment, conflict of interest, bribery, and time theft are all ethical issues that have been identified as risk areas. Additionally, insider trading is considered a serious ethical issue by the government because the intent is to take advantage of information not available to the public. Therefore, it is an ethical issue of high intensity for regulators and government officials. This often puts them at odds with financial companies such as hedge funds. A survey of hedge fund companies revealed 35 percent of respondents feel pressured to break the rules. Because of their greater ability to gather financial information from the market—some of which might not be public information—hedge funds and other financial institutions have often come under increased scrutiny by the federal government.

Under current law, managers can be held civilly and criminally liable for the illegal actions of subordinates. In the United States, the Federal Sentencing Guidelines for Organizations still contains a quasi-liability formula judges use as a guideline regarding illegal activities of corporations. For example, Wells Fargo employees created over 2 million fake bank accounts in four years because of their managers’ insistence on specific target numbers. When certain employees called the ethics hotline, they were terminated. As a result, more employees began to tell of horrific stories of bullying, being disciplined, or retaliated against, for complaining about being, or refusing to be, forced to make quotas by signing up customers for new accounts without their consent which led to more public attention. As a result, John Stumpf, former Wells Fargo CEO, publically stated his shock at the management practices and immediately fired over 5,300 employees. Federal agencies have levied approximately $185 million in fines along with $5 million to refund customers.

Ethical issue intensity reflects the ethical sensitivity of the individual and/or work group facing the ethical decision making process. Research suggests that individuals are subject to six “spheres of influence” when confronted with ethical choices—the workplace, family, religion, legal system, community, and profession. The level of importance of each to the business person influences and varies depending on how important the decision maker perceives the issue to be. Additionally, individuals’ moral or value intensity increases their perceptiveness of potential ethical problems, which in turn reduces their intention to act unethically. Moral intensity relates to individuals’ perceptions of social pressure and the harm they believe their decisions will have on others. All other factors in Figure 5-1, including individual, organizational, and intentions, determine why different individuals perceive ethical issues differently and define them as ethical or unethical. Unless individuals in an organization share common concerns about issues, the stage is set for ethical conflict. The perception of ethical issue intensity can be influenced by management’s use of rewards and punishments, corporate policies, and corporate values to sensitize employees. In other words, managers can affect the degree to which employees perceive the importance of an ethical issue through positive and/or negative incentives.

For some employees, business ethical issues may not reach critical awareness if managers fail to identify and educate them about specific problem areas. One study found that more than a third of the unethical situations that lower and middle-level manager’s face come from internal pressures and ambiguity surrounding internal organizational rules. Many employees fail to anticipate these issues before they arise. This lack of preparedness makes it difficult for employees to respond appropriately when they encounter an ethics issue. One field recognized as having insufficient ethics training is science. An Iowa State University scientist resigned and was charged with four felony counts of making false statements after falsifying lab results for AIDS research. Although this type of scandal is a rare occurrence in the scientific profession, a panel of experts found young scientists tend to lack knowledge about ethical frameworks to navigate ethical gray areas. Many are therefore unprepared when faced with an ethical issue. The Committee on Publishing Ethics (COPE) helps editors of scholarly journals prevent and manage misconduct. Organizations that consist of employees with diverse values and backgrounds must train workers in the way the firm wants specific ethical issues handled. Identifying the ethical issues and risks employees might encounter is a significant step toward developing their ability to make ethical decisions. Many ethical issues are identified by industry groups or through general information available to a firm. Flagging certain issues as high in ethical importance could trigger increases in employees’ ethical issue intensity. The perceived importance of an ethical issue has a strong influence on both employees’ ethical judgment and their behavioral intention. In other words, the more likely individuals perceive an ethical issue as important, the less likely they are to engage in questionable or unethical behavior. Therefore, ethical issue intensity should be considered a key factor in the ethical decision making process.

Individual Factors

When people need to resolve issues in their daily lives, they often base their decisions on their own values and morals of right or wrong. They generally learn these through the socialization process, interacting with family members, social groups, religion, and in their formal education. Good personal values or morals have been found to decrease unethical practices and increase positive work behavior. The moral philosophies of individuals, discussed in detail in Chapter 6, provide principles, values, and rules people use to decide what is moral or immoral from a personal perspective. Values of individuals can be derived from moral philosophies that are applied to daily decisions. However, these values can be subjective and vary a great deal across different cultures. For example, some individuals might place greater importance on keeping their promises and commitments than others would. Values applied to business can also be used in negative rationalizations, such as “Everyone does it,” or “We have to do what it takes to get the business.” Research demonstrates that individuals with certain personalities will violate basic core values, causing a work group to suffer a performance loss of 30 to 40 percent compared to groups without employees with such personalities. The actions of specific individuals in scandal-plagued financial companies such as JP Morgan often raise questions about those individuals’ personal character and integrity. They appear to operate in their own self-interest or in total disregard for the law and the interests of society.

Although an individual’s intention to engage in ethical behavior relates to individual values, organizational and social forces also play a vital role. An individual’s attitudes as well as social norms help create behavioral intentions that shape his or her decision making process. While an individual may intend to do the right thing, organizational or social forces can alter this intent. For example, an individual may intend to report the misconduct of a coworker but when faced with the social or financial consequences of doing so, may decide to remain complacent. In this case, social forces overcome a person’s individual values or morals when it comes to taking appropriate action. At the same time, individual values strongly influence how people assume ethical responsibilities in the work environment. In turn, individual decisions can be heavily dependent on company policy and corporate culture.

The way the public perceives business ethics generally varies according to the profession in question. Financial institutions, car salespersons, advertising practitioners, and stockbrokers are often perceived as having the lowest ethics. Research regarding individual factors that affect ethical awareness, judgment, intent, and behavior include gender, education, work experience, nationality, age, and locus of control.

Extensive research regarding the link between gender and ethical decision making shows that in many aspects there are no differences between men and women. However, when differences are found, women are generally more ethical than men. By “more ethical” we mean women seem to be more sensitive to ethical scenarios and less tolerant of unethical actions. One study found that women and men had different foundations for making ethical decisions: women rely on relationships; men rely on justice or equity. In another study on gender and intentions for fraudulent financial reporting, females reported higher intentions to report than male participants. As more and more women work in managerial positions, these findings may become increasingly significant.

Education is also a significant factor in the ethical decision making process. The important point to remember is that education does not reflect experience. Work experience is defined as the number of years in a specific job, occupation, and/or industry. Generally, the more education or work experience people have, the better they are at making ethical decisions. The type of education someone receives has little or no effect on ethics. For example, it doesn’t matter if you are a business student or a liberal arts student—you are similar in terms of ethical business decision making. Current research, however, shows students are less ethical than those in business which is logical because businesspeople have been exposed to more ethically challenging situations than students. Additionally, those well versed in business ethics knowledge, including regulatory officials and ethics researchers, are likely to take more time and raise more concerns going through the ethical decision making process than novices such as graduate students. This implies that those more familiarized with the ethical decision making process due to education or experience are likely to spend more time examining and selecting different alternatives to an ethics issue.