Decision Making and Ethics
The Ethics Resource Center, headquartered in Washington, D.C., conducts ethical sur- veys of employees in the United States. In their most recent survey, more than half of the American employees surveyed observed at least one type of ethical misconduct a year in their workplace despite an increase in employees’ awareness of formal ethics programs.
The importance of having an ethical culture in organizations cannot be underestimated.
Employees in organizations with a weak ethical culture reported a much higher level of observing at least one type of misconduct (theft, lying, etc.) than employees in an organization with a strong ethical culture (52 percent compared to 4 percent, respec- tively). Employees in organizations with a weak ethical culture were much more likely to experience pressure to break rules than those in strong ethical culture organizations (18 percent compared to one-half of 1 percent). Culture had a stronger impact on the results reported by employees than an organization’s formal ethics and compliance programs.
Patricia Harned, the president of the Ethics Resource Center, comments: “Creating a strong ethical environment should be a top priority of all companies. We know formal programs are critical and work well initially, but we must now focus greater attention on building the right culture in which ethics programs operate. This data shows, for exam- ple, that leaders needs to behave by example to set an ethical culture throughout the whole organization.”9 Anne Mulcahy and the other top executives at Xerox show their commitment to a strong ethical culture by using their own behavior as an example.
In some situations, there are no simple rules for making ethical decisions. Our goal here is to help you develop your ethics competency. The five key components that com- prise the basics of ethical decision making include ethical intensity, ethics-based prin- ciples, concern for affected individuals, benefits and costs, and determination of rights.
As suggested in Figure 2.2, these basic components are interrelated and need to be considered as a whole in order to make ethical decisions and create an ethical culture.
Learning Goal
2. Explain and apply the core concepts used by individuals and organizations to make ethical decisions.
In our highly competitive environment, where the pressure to perform is intense and relent- less, we must constantly strive to do more and do better. Results are important—vital, in fact—and the pressure to improve results will always be with us. But, equally important is the means we use to achieve results. We must conduct ourselves and our business dealings with the highest degree of ethical conduct.
This means not only complying with laws, reg- ulations and company policies, but also doing so in a way that reflects our core values.
When it comes to business ethics, there is no choice and there can be no change in our position. Ethic issues are so serious that, in some instances, violations could result in serious legal penalties for Xerox Corporation and for the individual. Furthermore, violations of our ethics policy could damage the repu- tation of Xerox, as well as the individual. To make certain that we protect our reputation and ensure compliance with applicable laws,
regulations, company policies and values, every violation of the ethics policy will be treated severely by the management of this Corporation. We must have zero tolerance in this regard.
We have a duty to assure that Xerox people understand their ethical obligations.
For this reason, we have a written Xerox Code of Conduct, available to all employees in multiple languages, and we cascade a let- ter like this throughout the company every year. It is important to rededicate ourselves periodically to our unwavering commitment to ethical conduct.
We are committed to an absolute stan- dard of the highest ethical behavior and unquestionable integrity in our financial reporting and business activities. For a Xerox manager, regardless of the division or the location, compliance with our policies and code of conduct is a non-negotiable requirement.
To learn more about Xerox, go to www.xerox.com.
Ethical Intensity
Ethical intensity is the degree of moral importance given to an issue. It is determined by the combined impact of six factors, which are shown in Figure 2.3 and described as follows10:
Magnitude of consequences
• is the harm or benefits accruing to individuals affected by a decision or behavior. An action that causes 1,000 people to suffer a particular injury has greater consequences than an action that causes 20 people to suffer the same injury. A decision that causes the death of a human being is of greater consequence than one that causes a sprained wrist.
Probability of effect
• is the likelihood that if a decision is implemented it will lead to the harm or benefit predicted. The production of an automobile that would be dan- gerous to occupants during normal driving has greater probability of harm than the production of a NASCAR race car that endangers the driver when curves are taken at high speed. The sale of a gun to a known armed robber has a greater probability of harm than the sale of a gun to a law-abiding hunter.
Social consensus
• is the amount of public agreement that a proposed decision is bad or good. Actively discriminating against minority job candidates is worse than
Ethics-Based Principles
Determination of Rights
Benefits and Costs
Concern for Affected Individuals Ethical
Intensity
FIGU RE 2 .2 Basic Components for Making Ethical Decisions
Social Consensus
Temporal Immediacy Magnitude
of Consequences
Concentration of Effect
Probability of Effect
Proximity plus
plus plus
plus
plus plus
FIGU RE 2 . 3 Determinants of Ethical Intensity
not actively seeking out minority job candidates. Bribing a customs official in the United States or Canada evokes greater public condemnation than bribing a customs official in a country (e.g., Nigeria or Chad) where such behavior is an accepted way of doing business. Managers and employees will have difficulty deciding what is and isn’t ethical if they aren’t guided by a reasonable amount of public agreement or if the organization’s ethical culture is weak.
Temporal immediacy
• is the length of time that elapses between making a decision and when the consequences of that decision are known. A shorter length of time implies greater immediacy. Assume Merck releases a drug that causes 1 percent of the people who take it to have acute nervous reactions within one week. This has greater temporal immediacy than releasing a drug that will cause 1 percent of those who take it to develop nervous disorders after 25 years of use. A reduc- tion in the retirement benefits of current retirees at GM, Ford, and Chrysler has greater temporal immediacy than a reduction in the future retirement benefits of employees who are currently 25 years of age.
Proximity
• is the sense of closeness (social, cultural, psychological, or physical) that the decision maker has for victims or beneficiaries of the decision. Recently, Citigroup cut 53,000 jobs. This reduced its labor force to 300,000 employees with more layoffs anticipated. This action had a greater impact on the remaining employees than the personal impact the news reporters feel when announcing this layoff. Citigroup CEO Vikrim Pandit reflected this more personal impact when he addressed the job cuts at an employee town hall meeting. He stated: “There is nothing easy about these decisions and the impact on our people. We do this because we must and not because we want to.”11
Concentration of effect
• is the inverse function of the number of people affected by a decision. A change in an insurance policy denying coverage to 40 people with claims of $50,000 each has a more concentrated effect than a change denying cov- erage to 4,000 people with claims of $500 each. Cheating an individual or small group of individuals out of $10,000 has a more concentrated affect than cheating an organization, such as the IRS, out of the same sum.
Insights for Individuals
The six factors of ethical intensity are influenced by the characteristics of the decision itself. Ethical intensity rises with increases in one or more of its factors and declines with reductions in one or more of these factors, assuming that all other conditions remain constant. However, you may rate the ethical intensity of the same decision dif- ferently than another person because you place different values on the principles and rules of ethics in decision making. Table 2.1 provides a questionnaire for you to take in rating the ethical intensity of 10 different behaviors.
Ethics-Based Principles
There are no universally accepted principles and rules for resolving all ethical issues.
In addition, individuals and groups differ over what influences ethical and unethical behaviors and decisions. Numerous principles and rules have been suggested to pro- vide an ethical justification for a person’s decisions and behaviors.12 They range from those that justify self-serving decisions to those that require careful consideration of others’ rights and costs. In presenting all of these principles, we recognize that the individual generally cannot use a principle to justify an act or decision if it is illegal.
Self-Serving Principles
The following three ethical principles are used to justify self-serving decisions and behaviors.
Hedonist principle:
• You do whatever is in your own self-interest.
Might-equals-right principle:
• You do whatever you are powerful enough to impose on others without respect to socially acceptable behaviors.
Organization interests principle:
• You act on the basis of what is good for the
organization.
Some of the statements that might reflect self-serving principles include the following:
(1) “This act really won’t hurt anybody”; (2) “I don’t feel comfortable doing this, but if this is what it takes to get ahead (via money/work/promotion/prestige), I should probably do it”; (3) “Everybody else does it, so why shouldn’t I”; (4) “Because _____ is my boss and told me to do this, I have no choice but to comply”; and (5) “Since this is such a small matter to most people and it will help our organization, who will notice.”
The large bonuses paid to or requested by top executives at some U.S. financial insti- tutions with huge losses after the near collapse of the financial system and in the face of a deep recession appear to reflect the hedonist principle and might-equals-right princi- ple. John Thain, the CEO of Merrill Lynch, initially proposed in early December 2008 to the board of directors that he receive a bonus of $10 million for 2008, despite huge losses and the need to sell the floundering firm to Bank of America to avoid bankruptcy.
His argument: Things would have been worse if he had not orchestrated the sale of the firm. There were enormous losses for Merrill’s shareholders and major layoffs. Thain received a $15 million signing bonus when he joined Merrill in December 2007. The public and media hullabaloo that ensued when his bonus request hit the news pre- sumably led him to withdraw his bonus proposal to the board on December 8, 2008.
We suspect, but do not know, that Thain received a phone call from Kenneth Lewis, the CEO of Bank of America, to withdraw the bonus proposal. Lewis announced no bonuses for top executives at Bank of America in 2008. Three weeks later, Lewis fired Thain over the way he handled billions in losses at Merrill Lynch.13
Balancing Interests Principles
The following three ethical principles are used to justify decisions intended to balance the interests of multiple individuals or groups14:
TABLE 2 .1 Ethical Intensity of Selected Behaviors
Instructions: Evaluate each of the 10 behaviors shown in this questionnaire in terms of its ethical intensity. The overall scale of ethical intensity varies from −5, which indicates highly unethical behavior, to +5, which indicates a highly acceptable and ethical behavior. Write down the number on each scale at or near the point that reflects your assessment. What factors were most important in arriving at your rating of the ethical intensity for each behavior?
ETHICAL INTENSITY
BEHAVIORS
UNETHICAL/
NEGATIVE −5
NEUTRAL 0
ETHICAL/
POSITIVE +5
_____ 1.
_____ 2.
_____ 3.
_____ 4.
_____ 5.
_____ 6.
_____ 7.
_____ 8.
_____ 9.
_____ 10.
Covering up mistakes by coworkers.
Giving a favor to a client out of friendship.
Giving a favor to a client for a bribe.
Discriminating against an employee on the basis of race.
Presenting misleading information to a customer.
Presenting only positive features of your organization’s products to a customer.
Manipulating performance data and indicators to give the appearance of reaching your goals.
Rewarding people differently based on differences in performance.
Bending the rules to help the organization.
Using an office PC for personal use.
Means–end principle:
• You act on the basis of whether some overall good justifies a moral transgression.
Utilitarian principle:
• You act on the basis of whether the harm from the decision is outweighed by the good in it—that is, the greatest good for the greatest number.
Professional standards principle:
• You act on the basis of whether the decision can be explained before a group of your peers.
These principles provide the ethical foundation for some decisions in organizations.
They create the basis for helping to resolve ethical dilemmas. For example, organiza- tions—Citigroup, General Motors, and others—are able to justify employee layoffs for the good of the organization. However, they recognize certain responsibilities for providing career counseling and severance packages to the employees affected.
The Internet, new surveillance technologies, privacy issues, and governmental legislation in the United States and many other countries have created major concerns in the attempt to balance the interests of individuals, organizations, and the public at large.15 The growing perception is that employees and consum- ers have lost too much of their privacy to employers, marketers, and governmental agencies. Although a variety of U.S. laws have been passed that attempt to protect the privacy of individuals in their roles as citizens, an employee’s legal right to privacy in the workplace is quite limited.16
Privacy issues in the workplace pose ethical dilem- mas in terms of (1) distribution and use of employee data from computer-based human resource information systems;
(2) increasing use of paper-and-pencil honesty tests, result- ing from polygraph testing being declared illegal in most situations; (3) procedures and biases for substance abuse and acquired immune deficiency syndrome (AIDS) testing; and (4) genetic testing. The ethical dilemmas in each of these areas
revolve around balancing the rights of the individual, the needs and rights of the employer, and the interests of the community at large.17
Most employers want to ensure a reasonable degree of employee privacy even when they are not legally obligated to do so. This perspective is based on the balancing inter- ests ethical principles. There is, however, wide consensus that employers must protect against the actions of employees who download pornography or copyrighted music, send harassing e-mail, reveal company secrets, disclose personal information, sell drugs, or spend too much time surfing the Internet for personal use. New technologies make it possible for employers to monitor many aspects of their employees’ jobs, especially on telephones, computer terminals, through electronic and voice mail, and when employees are using the Internet. Monitoring of employees by employers is virtually unregulated by the U.S. government. Therefore, unless company policy specifically states otherwise (and even this is not assured), there are no legal prohibitions against an employer listen- ing, watching, and reading almost all workplace communications by employees.18
Concern-for-Others Principles
The following three ethical principles focus on the need to consider decisions and behaviors from the perspective of those affected and the public as a whole:
Disclosure principle:
• You act on the basis of how the general public would likely respond to the disclosure of the rationale and facts related to the decision.
Distributive justice principle:
• You act on the basis of treating an individual or group equitably rather than on arbitrarily defined characteristics (e.g., gender, race, age).
Golden rule principle:
• You act on the basis of placing yourself in the position of some- one affected by the decision and try to determine how that person would feel.
▲
New surveillance technologies have created concerns in the attempt to balance the interests of individuals, organizations, and the public at large.
WALTER G ALLGÖWER/PHOTOLIBRARY
These three ethical principles are often imposed on certain categories of decisions through laws, regulations, and court rulings. Governments impose ethical principles and rules that organizations are expected to follow. For example, U.S. civil rights laws forbid organizations from considering personal characteristics—such as race, gender, religion, or national origin—in decisions to recruit, hire, promote, or fire employees.
These laws are based on the ethical principle of distributive jus- tice, which requires the same (or substantially the same) treat- ment of individuals regardless of age, disability, race, national origin, religion, and sex. The U.S. Equal Pay Act of 1963 asserts that paying women and men different wages is illegal when their jobs in the same organization require substantially equal skills, effort, and responsibility and are performed under similar working conditions. This act applies to organizations with 15 or more employees. There are limited exceptions for pay dif- ferentials when an employer can show that
• the difference is due to a seniority or merit system or
• the difference is due to an employee’s education, training, and experience.19
The scenario in Table 2.2 lets you choose a course of action based on the nine ethical principles just described. If you were Ray, what would you do?
TABLE 2 .2 Ethical Assessment of a Scenario
Scenario
Ray manages a unit in a company that calls itself a "total quality" organization. Part of the organization's mission statement says that employees should strive to continually improve their performance. Lately, Ray's unit has been extremely busy trying to get its work done on several important projects. Ray asked his vice president for advice about how to meet all of the deadlines, and the VP basically told him that his unit would have to cut corners on quality in order to get everything done on time. The VP also told Ray that meeting deadlines is the best way to keep clients off their backs, and that the clients rarely complain about substandard work because its effects show up much later. However, Ray knows that doing substandard work for clients will only hurt the company's reputation in the long run.
Questions
1. What should Ray do?
2. How would you evaluate the ethics of your decision with respect to the degree to which it is based on each of the following ethical principles?
Ethical Principle
UNCERTAIN/ LOW DEGREE
HIGH DEGREE UNDECIDED (NONE)
5 4 3 2 1
To what degree is your decision based on this ethical principle:
1. Hedonist 5 4 3 2 1
2. Might-equals-right 5 4 3 2 1
3. Organization interests 5 4 3 2 1
4. Means-end 5 4 3 2 1
5. Utilitarian 5 4 3 2 1
6. Professional standards 5 4 3 2 1
7. Disclosure 5 4 3 2 1
8. Distributive justice 5 4 3 2 1
9. Golden rule 5 4 3 2 1
Source: Scenario adapted from Loviscky, G. E., Treviño, L. K., and Jacobs, R. R. Assessing managers’ ethical decision- making: An objective measure of managerial moral judgment. Journal of Business Ethics, 2007, 73, 263–285.
Ethics Insight
Our system of capitalism is built on inves- tor trust—trust that corporate leaders and boards of directors will be good stewards of their investments and provide investors with a fair return. There is no doubt that some leaders of corporations have vio- lated that trust.
William George, Former Chairman and CEO, Medtronic, and Author, True North: Discover Your Authentic Leadership