Which of these factors is taken into account while determining ethical intensity?

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.

Nationality is the legal relationship between a person and the country in which he or she is born. In the twenty-first century, nationality is redefined by regional economic integration such as the European Union (EU). When European students are asked their nationality, they are less likely to state where they were born than where they currently live. The same thing is happening in the United States, as people born in Florida but living in New York might consider themselves to be New Yorkers. Research about nationality and ethics appears to be significant in how it affects ethical decision making; however, just how nationality affects ethics is somewhat hard to interpret. Because of cultural differences, it is impossible to state that ethical decision making in an organizational context will differ significantly among individuals of different nationalities. The reality of today is that multinational companies look for businesspeople that make good decisions regardless of nationality. Perhaps in 20 years, nationality will no longer be an issue because the multinational individual’s culture will replace national status as the most significant factor in ethical decision making.

Age is another individual factor within business ethics. Several decades ago, we believed age was positively correlated with ethical decision making. In other words, the older you are, the more ethical you are. A survey of millennials found that many bring their “me first” attitude to the workplace. Based on a global survey, 73 percent of Generation Y (born in the 1980s and early 1990s) feel unethical behavior can be justified to help an organization survive. In addition, 20 percent said they could justify paying bribes. We believe older employees with more experience have greater knowledge to deal with complex industry-specific ethical issues. Younger managers are far more influenced by organizational culture than older managers.

Locus of control relates to individual differences in relation to a generalized belief about how one is affected by internal versus external events or reinforcements. In other words, the concept relates to how people view themselves in relation to power. Those who believe in external control (externals) see themselves as going with the flow because that is all they can do. They believe the events in their lives are due to uncontrollable forces. They consider the results or outcomes depend on luck, chance, and powerful people in their company. In addition, they believe the probability of being able to control their lives by their own actions and efforts is low. Conversely, those who believe in internal control (internals) believe they control the events in their lives by their own effort and skill, viewing themselves as masters of their destinies and trusting in their capacity to influence their environment.

Current research suggests we still cannot be sure how significant locus of control is in terms of ethical decision making. One study that found a relationship between locus of control and ethical decision making concluded that internals were positively correlated whereas externals were negatively correlated with ethical decisions. In other words, those who believe they formed their own destiny were more ethical than those who believed their fate was in the hands of others. Classifying someone as being entirely an internal or entirely an external is probably impossible. In reality, most people have experienced situations where they were influenced by others—particularly authority figures—to engage in questionable actions, as well as other situations where they adhered to what they knew was the correct choice. This does not necessarily mean that externals are unethical or internals are ethical individuals.

Organizational Factors

Although people can and do make individual ethical choices in business situations, no one operates in a vacuum. Indeed, research has established that in the workplace, the organization’s values often have greater influence on decisions than a person’s own values. Ethical choices in business are most often made jointly, in work groups and committees, or in conversations and discussions with coworkers. Employees approach ethical issues on the basis of what they learned not only from their own backgrounds but also from others in the organization. The outcome of this learning process depends on the strength of personal values, the opportunities to behave unethically, and the exposure to others who behave ethically or unethically. An alignment between a person’s own values and the values of the organization help create positive work attitudes and organizational outcomes. Research has further demonstrated that congruence in personal and organizational values is related to commitment, satisfaction, motivation, ethics, work stress, and anxiety. Although people outside the organization such as family members and friends also influence decision makers, the organization develops a personality that helps determine what is and is not ethical. Just as a family guides an individual, specific industries give behavioral cues to firms. Within the family develops what is called a culture, and so too in an organization.

Corporate culture can be defined as a set of values, norms, and artifacts, including ways of solving problems that members (employees) of an organization share. As time passes, stakeholders come to view the company or organization as a living organism with a mind and will of its own. The Walt Disney Co., for example, requires all new employees to take a course in the traditions and history of Disneyland and Walt Disney, including the ethical dimensions of the company. The corporate culture at American Express stresses that employees help customers out of difficult situations whenever possible. This attitude is reinforced through numerous company legends of employees who have gone above and beyond the call of duty to help customers. This strong tradition of customer loyalty might encourage employees to take unorthodox steps to help a customer who encounters a problem. Employees learn they can take some risks in helping customers. Such strong traditions and values have become a driving force in many companies, including Starbucks, IBM, Procter & Gamble, and Hershey Foods.

One way organizations can determine the ethicalness of their corporate cultures is having the company go back to their mission statement or goals and objectives. These goals and objectives are often developed by various stakeholders, such as investors, employees, customers, and suppliers. Comparing the firm’s activities with its mission statement, goals, and objectives helps the organization understand whether it is staying true to its values. Additionally, most industries have trade associations that disperse guidelines developed over time from others in the industry. These rules help guide the decision making process as well. The interaction between the company’s internal rules and regulations and industry guidelines form the basis of whether a business is making ethical or unethical decisions. It also gives an organization an idea of how an ethical or unethical culture may look.

An important component of corporate or organizational culture is the company’s conduct and whether they define it as ethical or unethical. Corporate culture involves values and norms that prescribe a wide range of behavior for organizational members, while ethical culture reflects the integrity of decisions made and is a function of many factors, including corporate policies, top management’s leadership on ethical issues, the influence of coworkers, and the opportunity for unethical behavior. Communication is also important in the creation of an effective ethical culture. There is a positive correlation between effective communication and empowerment and the development of an organizational ethical culture. Within the organization as a whole, subcultures can develop in individual departments or work groups, but these are influenced by the strength of the firm’s overall ethical culture, as well as the function of the department and the stakeholders it serves. For instance, salespeople are heavily influenced by the subculture of the sales department and face many ethical issues that are not necessarily common to other departments. Additionally, because salespeople tend to operate largely outside of the organization, they may not be as socialized to other employees and the organization’s ethical culture.

Corporate culture and ethical culture are closely associated with the idea that significant others within the organization help determine ethical decisions within that organization. Research indicates the ethical values embodied in an organization’s culture are positively correlated to employees’ commitment to the firm and their sense that they fit into the company. These findings suggest companies should develop and promote their values to enhance employees’ experiences in the workplace. The more employees perceive an organization’s culture to be ethical, the less likely they are to make unethical decisions.

A major focus of the amendments to the Federal Sentencing Guidelines for Organizations is to strengthen an organization’s ethical culture. After its sales incentive scandal, mentioned earlier in this chapter, Wells Fargo admitted that it had culture problems related to its sales practices. It decided to survey 269,000 employees about its culture. The analysis and results were to be shared with bank employees. The goal was to identify positive attitudes and potential weaknesses.

Those who have influence in a work group, including peers, managers, coworkers, and subordinates, are referred to as significant others . They help workers on a daily basis with unfamiliar tasks and provide advice and information in both formal and informal ways. Coworkers, for instance, can offer help in the comments they make in discussions over lunch or when the boss is away. Likewise, a manager may provide directives about certain types of activities employees perform on the job. Indeed, an employee’s supervisor can play a central role in helping employees develop and fit in socially in the workplace. Numerous studies conducted over the years confirm that significant others within an organization may have more impact on a worker’s decisions on a daily basis than any other factor.