C H A P T E R 2

Contemporary Issues in Business Ethics

" E t h i c a l decision-makinff isn' t an op t ion -today.' It's an o b l i g a t i o n ^ i n bfusiness, \ i n education, i n government^ m our daily l ives. • " .

" WtUiamC. Butcher ReUred ihuirmaii, of the Chase Manhattan Corporation

Chapter Outline

• History of Business Ethics

• The Role of Integrity \A^r\

• • Specific Behaviors of High Integrity

• The Ethical Cycle

• Using Ethical Decisions to Build Character

• Ethical Managers are Able to Make Their Own Rules

• Is Everyone Unethical?

• Knowing "Right" from "Wrong"

• Rationalizing Unethical Behaviors

• Monitoring Reputations

• Striving for Ethical Behavior

• Internal and External Current Ethical Issues

14 Chapter 2

BONO: I STDLL HAVEN'T FOUND THE TAX RATE THAT I'M LOOKING FOR^

Located in a building where slave traders and spice merc§a^ts made business transac­tions four hundred years ago, a company called Promogroup has their corporate head-

, quarters. Promogrozip helps individuals and companies with high levels of income to cKcuo ''shelter" the tax exposure of that income. Clients include three members ofT%e Rolling

Stones—Mick Jagger, Keith Richards, and Charlie Watts—the record label EMI; CKX, the company that owns the rights to American Idol; and Elvis Presley's estate. Promogroup was able to reduce the total tax paid by the three Rolling Stones members to a total of $1.2 million on income of $450 million, resulting in anaggre- \jy^ gated tax rate ofL5percent.

Another client of Promogroup is the author of the foreword to the book T h e E n d ^ o f Poverty , Bono and the rest of U2. Bono is well known for his stance, on many global - (optTlCC^ caiises including AIDS awareness, reducing global poverty, and helping developing countries reduce the level of their foreign debt.

The tax shekel' established by Promogroup is based on the simple flow of royalties that go into and leave the Netherlands. A Dutch holding company is established for Pro- -••

^ mogi'oup's clients, and the revenue from the royalties of any other intellectual property / r u ^ n sent to the holding company is .exempt from taxes. The clients are then allowed to xvith-

draw the royalties with the tax being "paid." A tax considtant in Rotterdam, the / Netherlands, Ton Smit, stated that for the yastmajority of clients who set up these holding 1^''^

, ^ ^ compmies, the sole motivation is to achieve either tax minimization or tax avnjdnnce. {/) t^U, U i ' ' " ! ^ ^ I he Dutch tax snekers arevia^ only to artists who are not U.S. citizens. The U.S.

Treasury Department would charge the standard corporate income tax rate on any rev­enue that would be transferred into the United States from a Dutch company.

"tich £UM estimated that U2 has accumulated a total net worth of more than $900 mil­lion and felt that it had to move its royalty revenues because Ireland was going to g-eatly reduce the tax incentives given to musicians and other artists living in Ireland. In June 2006 U2 moved their song publishing catalog to the Netherlands via Promogroup. A research group in the Netherlands, SOMO (Centre for Research on Multinational Cor­porations), concluded that the tax haven given to individuals and corporations through the use of holding companies was having a negative impact on the capacity of developing countries to he able to provide essential services to their citizens and on the ability of de­veloped countries to reduce or forgive their outstanding debt agreements with developing countries. One of the authors of the SOMO report, Richard Murphy, who runs a tax re­search institute in England, stated that Bono's tax a^eements through the U2 Limited company in the Netherlands are completely inconsistent with Bono's stance on helping developing countries move from poverty conditioits. Murphy continued by stating that Bono cannot demand that resources be given to antipoverty campaigns while he is not giving the resources to the governments so they can implement those campaigns.

In commenting on Bono's shifting his tax burden to the Netherlands, a spokesper­son of the Irish Labor Party, Joan Burton, stated that Bono should be applauded for

\^~ixQ\\obeing an advocate for improvements in developing countries. However, those improve­ments comejfomtaxes, and it would he difficult to ask other people to pay taxes to improve economic development if he is not paying taxes himself.

Contemporary Issues in Business Ethics 15

U2's business manager, Paul McGiiinness, stated that U2 is a global business and pays global taxes. In addition, approximately 95 percent ofU2's revenue, which includes conceit ticket sales and record sales, is earned outside Ireland. The band pays taxes all over the world on its worldwide income and abides with all Irish tax laws. However, McGuinness continued by stating that unique tax solutions are common in Ireland and that U2 runs its busi?iess in the most tax-efficient way possible.

}MIQMQPMJM^SMM}£M ...........^^^^^^^^^^^^^^ Does management wor ry about, o r even care about, business ethics, integrity, and do ing

^- . ^ the right thing? W h i l e most would like to reply wi th a resounding "yes," without the CaO^\'\^tt,j^e2uisije tools to do the r ight th ing ethically, it is impossible for businesspersons to ^, f

know right from wrong . Sometimes outside of the business wor ld , the general consent, s. T^^Cki 'tft sus is tliat businesses and ul t imately their managers w i l l do anyt l i ing to make a profit. „ „ Der ived from the G r e e k w o r d for character, ethos, ethics has been dgbar.ed for centuries. Ethics needs to be given even higher consideration i n today's corporate environment. E th ica l climates are created by individual judgments. But k n o w i n g the corporate stand on certain aspects can contribute to management's creation of a strong ethical culture. T h e discovery o f ethics began many centuries ago wi th discussions initiated by Aristotle, Socrates, and Plato. In fact, Aris tot le stated that a person is not complete unt i l that per­son is a contr ibut ing member o f socieq'. Tn adrlition, Aris tot le explained that a true , friend would tell another firiend when he or she is acting selfishly and.foolhardiiy."

As l o n g as there has been commerce , there have been ethical issues w i th how business is conducted. In the seventeenth century, the U n i t e d . K i n g d o m offered c o m ­panies such as the H u d s o n Bay Company , the East India Company , and the Massa - ^ , chusetts Bay C o m p a n y ujonopoligtic charters so " E n g l i s h " setdements could be ^ O C Cj -established i n different countries.

T h e cl imate o f today's business ethics has seen a real change f r om those in i t ia l t - - y discussions that were made cenmries ago.^ E a c h decade we have been faced w i th 4311;; X,'^^ bulent ethical times. In the 1960s the chmate o f business ethics was more o f a per iod . •> , j o f social ynrgst. Employees and employers began to have a real -adversarial^relation- wClA a^vCOj ship, casting aside the earlier values of loyal ty w i th management createdTHthe i 9 ? 0 s : - -^ | "§ipi ij^hifv'^.cj Issues such as the envi ronment and d m g use among employees began to be dilemmas for employers. T h i s era showed the b i r th of the corporate social responsibi l i ty move­ment , w i th corporations beg inn ing to establish codes o f conduct to help deal w i th these newfound problems. -ti^^^itX i ^ 1 ^ ^

T h e U . S . economy o f the 1970s suffered a recessigji, and the unemployment rate rose dramatically d u r i n g this t ime. T h e r e were several scandals i nvo lv ing defense contractors and corporat ions that led to a sense o f value-centered ethics. H u m a n rights issues began to come to l ight , and environmental issues cont inued to be a major topic of concern for corporat ions. T h i s was a t ime when companies began to cover up their wrongdoings rather than deal wi th the issues head-on. qiai^ Ixvri

T h e era o f the 1980s showed a time when financial^^^u^surfaced through the sav­ings and loan scandal. Loya l t y to employers decreased dramatically. T h e Ethics Resource Center helped form the first business ethics office at General Dynamics i n 1985.

16 Chapter 2

T h e 1990s saw an outgrowth o f g lobal opportunit ies for companies, but they were not wi thout concerns. Unsafe w o r k practices, ch i ld labor issues, and envi ron­mental issues gained prominence . T h e significant ou tgrowth o f companies gave rise to financial mismanagement.

A t the new m i l l e n n i u m , unethica l companies began to surface, w r o u g h t w i th financial mismanagement problems. In te l lecmal property theft, cybercr ime, and per­sonal privacy issues surfaced. T h e most significant event i n the U n i t e d States was the passage o f the Sarbanes-Oxley A c t i n 2002, w h i c h attempted to con t ro l the financial mismanagement issues e roding the in tegr i ty and confidence o f corporat ions and their stakeholders.

I n 2005 more than two hundred thousand people went onl ine to the M e r r i a m - W e b s t e r W e b site i n search o f the def ini t ion o f integrity. T h e company's president, J o h n M o r s e , said, "I think the A m e r i c a n people have isolated a very important issue for our society to be dealing wi th . T h e entire list gives us an interest ing w i n d o w that opens up into what people are th ink ing about i n their lives."'* Perhaps this interest provides a ghmpse o f what Americans and others around the w o r l d are concerned about. C e r t a i n l y the re­cent corporate cor rupt ion discussed daily i n various forms o f the media gives rise to a real interest i n integri ty or, more precisely, ethics. Integrity is derived f r o m the L a t i n w o r d 2n?sg?7, w h i c h mean? 7i\ o/OT£.r.f. T h e te rm OTfe^'f)'is defined by A l e r r i a m - W e b s t e r

S tOi^ troCj tne\e as "a firm adherence to a code ot especially mora l o r artistic values."

o „ T h e under ly ing assumption o f the role o f employees w i t h i n the organ iza t ion is a ^ S C u x , deeplyjTootsd- level of organizat ional commi tment . T h a t c o m m i t m e n t generates an

att imde i n wh ich the employees can be passionate about their efforts and the overal l commi tmen t of the firm. Af ter they leave the firm, the employees want to believe that

(ik <iCWi there is a legacy o f t l ie ir con t r ibu t ion to the success o f the firm. It is this commi tmen t , passion, and dedicat ion that drive employees to a h i g h level o f in tegr i ty w i t h i n their w o r k setting. Integri ty is based o n employees ' cont inuous efforts to balance their per­sonal values w i th the requirements to per form their jobs effectively th roughou t their careers. Integrity could include not on ly unders tanding and fu l f i l l ing the duties o f their jobs, but also admit t ing when errors have been made and m a k i n g correct ions

7 . ,„ when needed. O n e of the greatest dangers to an employee's in tegr i ty is to have i t be :irkO(X iMCL^ compromised over t ime. T h e e £ o s i o n o f an individual 's in tegr i ty al lows potent ia l neg- ? S^lWj'fcl'^

ative consequences, i nc lud ing unethical and i l lega l behavior as w e l l as dysfunct ion w i t h i n the professional and personal relationships the ind iv idua l has w i t h others . '

^ A n individual could evaluate the integrity o f his o r her actions based o n some s im-

^ l l fn h i t k p l e rules o f thumb or heurist icain the form of different tests. T h e p u b l i c i t y test is based o n the scenario o f whether the individual w o u l d be comfortable i f his o r her actions were pubUcized i n a newspaper o r o n television. T h e t r u s t e d f r i e n d test is based on the scenario that the individual wou ld be comfortable i n tellinjf his o r her best friend or a (, - | close family member about his o r her actions. T h e r ^ g r o c i t y test , also k n o w n as the r\ho^ h' ldflc*| i '^ G o l d e n R u l e , asks whether the individual treats others as he or she w o u l d l ike to be ^ treated. T h e un ive r sa l i t y tes t draws on die belief o f whether the ind iv idua l w o u l d

Contemporary Issues in Business Ethics 1 / ^

consider i t acceptable behavior i f anj'one in the w o r l d did the same acdon. T h e o b i t u a r y £ i ^ test asks the individual to look back i n -hindsight on one's previous actions over the s' ^ h & n ^llv^C rfVUiOT course of one's career and ask i f he or she is comfortable w i t h the evaluation.'^

As shown previously, testing is one method i n w h i c h the interpretation of behavior of h igh integrity can be determined. A n alternative method would be a l i s t ing o f specific behaviors that w o u l d support a h i g h level o f in tegr i ty w i th the opposite behavior c o n ­sidered as a l o w level o f integrity. D o n a l d Zauderer listed thirteen specific behaviors that can help identify the level o f in tegr i ty i n ind iv idua l actions. T h o s e behaviors are possess humil i ty , mainta in the abihty to be concerned about the greater good, be t rudi f i i l , fulf i l l commitments , strive for fairness, take responsibility, have respect for the indiv idual , celebrate the good fortune o f others, develop others, reproach unjust acts, be forgiving, and extend self for others.^

/ " — ^

Possess Humility WiGr>-t6<i A n indiv idual should be humble i n his or her actions when interact ing w i th others. T h e r e is no value added i n be ing arrogant or exaggerat ing the ind iv idua l cont r ibu t ion to the success o f the firm. ^' /|.(5i^(^i5cbi

Maintain Concern for the Greater Good A n indiv idual should always make decisions that benefit the firm overall . T h e in j i iv id-ual should never make decisions where the individual 's self-interests supersede the interests o f the firm. ^ ' 0"^ i j - th^

Be Truthful A n indiv idual should always be truthful not on ly i n his o r her statements, but also i n his o r her actions. A n indiv idual should never make untrue statements or take credit for the efforts o f others.

Fulfill Commitments A n indiv idual should always make a good-fa i th effort to fulf i l l all the commitments the individual p romised to complete. A n ind iv idua l should never breach an agreement or deliver a required project late or not at a l l .

Strivg for Fairness A n indiv idual should make decisions that are fair^ to everyone w h o can be impacted by - , h the decision. A n indi \ ' idual should never be^^^sed i n decisions, i nc lud ing making X ^ Q ' ^ ^ ' ' ^ ' ^ i judgments wi thou t al l the relevant documents or assigning employees based on sub­jective criteria that discriminates against other employees.

18 Chapter 2

Take Responsibility A n ind iv idua l should always take fall responsibi l i ty for one's o w n actions. A n i n d i v i d ­ua l should not shift the blame to others o r falsely accuse others o f actions that are not accurate.

Have Respect for the Individual A n ind iv idua l should respect the interests and actions o f others. A n ind iv idua l should , ^ ^ not reduce the level o f respect o f other employees by n o t acknowledg ing jcecognition'^ ' CQ^ ' ^'^^ when i t is warranted. A n ind iv idua l should also not refase the inpu t o f other employ ­ees or display rude behavior toward other employees.

Celebrate the Good Fortune of Others A n ind iv idua l should share the joy i n another person's accompl ishments . A n ind iv idua l should not be envious o f the success o f a colleague.

Develop Others A n ind iv idua l should be able to support the employee development o f other employ­ees w i t h i n the organizat ion. A n ind iv idua l should make a good-fa i th effort i n he lp ing co3ch and train tethers and give effective, constructive performance evaluations of his o r ner suQojdmat^s.

(> Ki Ar< CV Re roacb^UnjusJ Acts A n ind iv idua l should refase to pe r fo rm any act that he or she w o u l d consider to be u n ­just. I n addit ion, the ind iv idua l shou ld stand up to defend his or he r pr inciples .

Be Forgiving A n ind iv idua l must let go of past actions that have had a negative impact . A n i n d i v i d ­ual must let go o f the previous i l l w i l l and release any .grudges that may have developed between the ind iv idua l and others w i t h i n the o r g a n i z a t i o n r \

l^tead Self for Others A n ind iv idua l must help and provide assistance to others i n a t ime o f need. In addi t ion , an ind iv idua l must be generous vidth' rewards to others w h e n i t is warranted.^

How People Develop Ethical Behavior Peop le develop a sense o f ethics, bo th personal and professional , th rough various ways. T h e y may learn e t l i ica l values f rom family, o rganized re l ig ions , friends, o r c u l ­tural impacts. In many cases people believe there are different ethical guidelines for

Contemporary Issues in Business Ethics 19

their professional lives and for their personal lives. However , this is not the case. W h e t h e r they are dealing w i d i work or personal issues, the same ethical t ra in ing and values are used. M a n y assume that they wou ld make different decisions for work and personal dilemmas, but they forget that their personal ethics can't be left at the corpo­rate door. T h e y use personal ethics each day i n their business dealings. To understand this, ethics is not any o f the fo l lowing :

• Religion or religious p i e t y ' ^ U '^U.nfj'dae

• Law

B A game

B A matter of feeling good or right''

Since 1964, when the U n i t e d States C i v i l Rights A c t was passed, companies have been faced w i t h an increasing array o f ethical decisions. T h e s e ethical decisions have cre­ated a new area for management—that o f managing the business ethically. T h i s may mean fo l lowing prescribed laws and regulations or deal ing wi th equal opportunity. It may mean dealing w i t h a myr i ad of social responsibi l i ty issues, such as environmental issues and sustainability, or deal ing w i th cor rupt ion . Wha teve r the issue, management must take an active stance o n the issues. I n general, companies must take a look at the needs and demands o f all stakeholders w h e n mak ing ethical decisions. O n e method used to understand the under ly ing dynamics o f ethical decision mak ing is based on the ethical c}'cle. T h e ethical cycle is presented i n F igu re 2 -1 .

Moral Problem Statement 3 1T(\T h e ethical cycle begins wi th the identif icat ion o f the mam p rob lem. T h e mora l p rob lem statement must be developed based on the reggoflse to three condi t ions: a clear statement of what the mora l p rob lem is, an ident i f icat ion o f w h o is affected by the resolut ion o f the mora l p rob lem, and the m o r a l issue o f the problem.

Problem Analysis In order to analyze the mora l p rob lem, three factors must be identified: (1) W h i c h stakeholders are impacted by the p rob lem, and how does i t impact their own interests?

FIGURE 2-1 The Ethical Cycle

Moral problem Problem Options for Ethical statement analysis aaions

^ • >

judgment I • ;

Reflection: Morally ,

acceptable action

Source; l.vsnde Poel and L. Royakkers, "The Ethical Cyde," Journal of Business Ethics 71 (2007): 4-7.

20 Chapter 2

(2) W h a t are the m o r a l values that need to be considered to analyze the problem? and (3) W h a t are the relevant tacts related to the m o r a l problem?

Options for Action O n c e the m o r a l p r o b l e m has been identif ied and the infiarmation related to the p rob­lem has been analyzed, the next step is to generate potent ia l alternative opt ions to re­solve the p r o b l e m . B y presenting these alternative solut ions, the decis ion makers are able to understand h o w each alternative can impact the relevant stakeholders. It is du r ing the ident i f icat ion of different viable opt ions that the creativity o f the decis ion makers should come to the forefront i n the dec i s ion-making process. It is du r ing this step that the decis ion makers should consider al l ideas as in i t ia l ly viable un t i l they are discussed i n further detail .

Ethical Judgment It is d u r i n g the ethical judgment stage that the evaluation o f the different options takes place. F o r each o f the options that were presented i n the previous step, an eval­uat ion w o u l d take place to see w h i c h o f the opt ions w o u l d be acceptable based on the mora l values and beliefs o f the decis ion makers and the organizat ion as a who le .

Reflection A reflection o f the opt ions that were considered viable i n the previous step is needed to estabhsh the final course o f act ion. I t is d u r i n g the ref lect ion stage that the out­comes f r om the ethical judgment stage are further evaluated so a definitive course o f action can be determined. T h e different ethical judgment opt ions that were the out­comes o f the previous step w o u l d be weighed against each other to identify wha t the decision makers w o u l d consider the op t ima l so lu t ion to the mora l p rob l em. I t is f rom the ref lect ion stage that the mora l ly acceptable ac t ion is determined by the decis ion makers and is implemented to resolve the m o r a l p rob l em.

T h e ethical cycle helps employees understand w h o they are f rom an ethical perspec­tive. It is the decisions based o n resolving ethical d i lemmas that cou ld be considered ethical def in ing moments . These def in ing moments shape and m o l d the personal va l ­ues and beliefs that pertain to each decis ion maker i n the resolut ion o f an ethical issue. E t h i c a l decisions involve choosing between r ight and w r o n g . T h e classic example o f a ^ « ^ def in ing m o m e n t is w h e n a decision maker has a choice between two ^ l a u s i b k and ^ " l O p U

o 1 acceptable o p t i o n s Based on the decis ion maker's j j l r imate decis ion, the i n d m 3 u a l has %(Jix, CCOog K^(k>'^^Q cO-Cv established a t h r e ^ d j l o f a defining po in t i n what is considered acceptable and not. A

1 def in ing m o m e n t cou ld generate potent ia l ly conf l i c t ing feelings. T h i s confl ict is based <i,v!. tAH^AhaAjOn the tgns i^n that can arise when two va l i d perspectives are considered i n the dec i ­

s ion-making process. A s a result, def in ing moments do not have a "correct" response.

Contemporary Issues in Business Ethics 21

but they help " form, reveal, and test" the character o f the decision maker. A s a result, defining moments he lp decision makers fo rm and define their personal character.

Who A m I? T h r o u g h these def in ing moments , individuals are able to identify themselves by answering three relevant questions: (1) W h a t feehngs and personal in tu i t ion are being confl icted as the ind iv idua l decides o n the course o f action? (2) W h a t are the indiv idual values that are so deeply rooted i n the core o f the individual 's being that they w i l l no t be compromised under any circumstances? and (3) W h a t type „ , ^ o f creative ideas and shrewdnsss can be developed by the ind iv idua l to guide the i n d i - S . vidual to make the r ight decision?

W h o A r e W e ? D e f i n i n g moments can also occur for managers o f various w o r k groups. W h a t is learned f rom the def ining moments w i l l be based o n the answers to the fo l lowing three questions: (1) W h a t are different interpretations or points o f view « to the ethical d i l emma that can make a c i jny inc igg argument? (2) W h a t focus or point A n t u ^ t o f v iew w o u l d be considered the most supportive or gejsi^gsiv^ to the general beliefs

o f other employees w i t h i n the organization? and (3) H o w can the manager o f the Ka^p? f) ^ AxS w o r k group create a process that w i l l manijgst the ethical values and beliefs that are SSt tPt , impor tant to the manager w i t h i n the organization? In other words, what can the man­ager do to make his or her interpreta t ion o f the ethical issue be supported by the w o r k group?

W h o Is the C o m p a n y ? D e f i n i n g moments can also be used to clarify the ethical [lath company executives take w i t h i n the organizat ion. T h e questions that w o u l d help identify defining moments for company executives are as follows: (1) As a company executive, have I done everything i n m y power to secure m y o w n strength as wel l as the strength and stability o f the organizat ion to be able to make ethical decisions? (2) As a company executive, have I considered all the innovative ways i n wh ic h my organization can help society, stockholders, and other stakeholders? (3) W h a t creative ideas can I develop as a company executive to help convert m y ethical v i s ion in to a personal and organizat ional reafity?

ETHICAL MANAGERS ARE ABLE l a j ^ E ^ T O E R i i m M ^ Managers have the abi l i ty to estabfish their o w n rules per ta in ing to acceptable and unacceptable behaviors w i t h i n the organizat ion. In any business setting, there is a l ­ways the oppor tuni ty for ethical and commerc i a l considerations to confl ict w i t h each other. T h e ethical considerations do not always support the commerc ia l considera­tions. F o r example, the owner o f C a d b u r y L i m i t e d i n the U n i t e d K i n g d o m was or- ^ ^ dered by the r e i g n i n g m o n a r c h , Q u e e n V i c t o r i a , to make chocolate tins for the B r i t i s h M l 0 0 - ^ 5 soldiers i n the Anglo-BoeJFTVar. T h e owner d i d not agree w i th the war but wanted to help the soldiers. As a result, he produced the tins for the soldiers but sold them to the Br i t i sh government at cost so he w o u l d not profi t f rom the war.

It is argued that " rea l" ethical decisions take place w h e n managers have to make decisions that impact the actual o r potent ia l interests o f other people. A s a result, ethical decisions have to consider and balance the interests o f a l l vested stakeholders

22 Chapter 2

i n the company. Business organizat ions/can be considered to be a component o f the overa l l social system and must contemplate h o w their actions impact overal l society. There fo re , a realistic evaluat ion o f the ethical conduct o f a firm is not what is said i n its code o f ethics statement, but wha t is done i n its everj'day actions. It is expected that when ethical decisions are made, the manager's personal rules o f conduct are considered as w e l l as w h o w i l l be impac ted by the decision. I f a company is t ru ly e th ­ica l , then the company w o u l d have no objections to be ing comple te ly transparent w h e n releasing to the pub l i c i n f o r m a t i o n that describes its actions i n every area o f the business.

714

O n e o f the unde r ly ing assumptions that is made per ta in ing to ethical behavior is that people are always aware of the i r o w n behavior. It could be argued that under certain circumstances, people can act i n an uneth ica l manner and not even realize i t . U n i n ­tent ional unethica l behavior can take place, i n part, due to the i l l u s i o n o f objectivity. ^ T h e i l lus ion o f objectivity occurs w h e n a decis ion maker believes that his or her de-

g / , . , c is ions are free o f biases, but biases are actually part o f the dec i s ion-making propessT" -. C ^KcxiVvvO^ A(x q-j^g biases may be undetected because they are not congruent w i t h the expl ic i t ly l e l d d ^ n ^ Q.OJ^

beliefs o f the decis ion maker. I t cou ld be concluded that B o n o may be deal ing w i t h an ^< i l l u s i o n o f objectivity i n the example that was g iven at the b e g i n n i n g o f the chapter. It

, 6,u, -tKwxn appears that he does not see any con t r ad ic t ion i n asking others to pay to improve the standard o f l i v i n g o f ci t izens i n deve lop ing countries v/hi lc he is try"ing to pa^' as l i t t le i n c o m e tax as possible. T h e r e are four avenues a long w h i c h un in ten t iona l unethica l beha%'ior may be developed; (1) i m p l i c i t forms of^re judice , (2) a bias that is favorable to the decision maker's o w n "g roup , " (3) actual and potent ia l confl icts o f interest, and (4) the tendency o f the dec is ion maker to c l a i m the credit for o ther people's actions.

Implicit Prejudice 1 - xf ^' 1 - 1 '

T h i s is a bias that occurs based o n unconscious_behefs. A c o m m o n bias occurs w h e n a decision maker supports the dec is ion pe r ta in ing to a person by r e ly ing o n unconscious

- ^ W o ^ ' ^ ^ " ^ stereotypes or the unconscious compar i son o f past behavior to a person i n the past w h o had s imilar characteristics w i t h a person current ly w o r k i n g for the organizat ion. G e n d e r and ethnic biases can be c o m m o n i m p l i c i t prejudices.

In-Group Favoritism

In-group favori t ism occurs w h e n the dec is ion maker forms a bias toward individuals i n the same "group" as the dec is ion maker. F o r example, a manager may be more he lpf i i l to subordinates who have a g o o d personal relationship w i t h the boss. A p r i n c i ­pal reason a close, personal re la t ionship had developed between the boss and the sub­ordinate could be that they share the same interests o r ethnic background . A s a result, managers may give more "he lp" to subordinates i n their o w n groups than other sub­ordinates and not realize that a bias has occurred .

•4

Contemporary Issues in Business Ethics

C l a i m i n g C r e d i t for Others ' Actions ^

C l a i m i n g credit for others ' actions occurs when the decis ion makers believe that they are above average i n their job duties, responsibili t ies, and general intellect, w h i c h results i n above average performance. In a smdy at H a r v a r d , iVIBA students were asked to determine what percentage their ind iv idua l contr ibut ions were to a group project. T h e overall average percentage for each group was 139 percent, clearly i n d i ­cating some individuals were c l a iming more than their fair share.

!0U

Conflicts of Interest

A bias occurs when there is a conflict o f interest and the decision maker favors a solut ion i n wh ich there would be personal benefits. A conflict o f interest can unintentionally shift \the focus as to what course of action should be considered. A n example of how conflictS'<'^^ o f interest caUv^kejv the decis ion-making process relates to the ability of physiciarfsto '(ajO accept compensation when they refer patients to be viable participants i n a cl inical trial. A simple j a t iona l i zadon tha t i t is in the best interest o f tl ie patient and that no harm is done by receiving money for it could become entrenched i n the physician's mindset.

D e c i s i o n makers must be aware that potent ia l unreal ized biases can become part o f their dec is ion-making pattern. A s a result, dec is ion makers must make them­selves aware o f the potent ial unconscious biases that cou ld im.pact their "objective" decision making . Therefore , decis ion makers need to col lec t enough data, even i f it is ccajnterintuitive, to m.?ke their decisions i n confidence. F-arthermore, decision mak­ers must shape their o w n envi ronment by unders tanding the external signals that are presented i n the environment . Final ly , decision makers must lift up the "ve i l o f i g n o ­rance" by broadening their perspective as i t pertains to the dec i s ion-making process.

T h e results o f company decisions help shape the company's image. Managemen t of the ethical issues gives rise to several mj ths about business ethics. Table 2-1 pres­ents ten m ) ^ s o f business ethics. These myths represent a general misunderstanding about business ethics.

TABLE 2-1 Ten Myths about Business Ethics

1- Business ethics is more of a focus on religion than on effective management.

2. Companies assume that they select and train ethical employees who will always do the right thing.

3. Business.ethics is a theoretical and abstract philosophical concept

4. Business ethics is based solely on the belief that you will always do the right thing.

5. Business ethics is used by ethical people to correct what unethical people do.

6. Business ethics is based on legal Qompliance^ (?

7. Business ethics cannot be raariaged by company supervisors and executives.

8. Business ethics equals corporate social responsibility.

9. Because the company does not have any criminal investigations pending, the company is ethical.

10. There is little practical relevance in supervisors' managing subordinates on business ethics in the workplace.

Source: Adapted from mm.managementhelp.or^ethics/ethxgde.h.tm.

24 Chapter 2

I n ove rcoming these myths, managers must reaUze that there are benefits to paying attention to ethical issues. Employees need guidance about the ethical issues they w i l l face, especially i n the gray areas. T h e r e are several benefits for-paying atten­t ion to ethical issues i n the workplace . These include the fo l lowing : ' ^

• Attention to business ethics has substantially improved society.

^ • Ethics programs help maintain a moral course in turbulent times.

• Ethics programs gultivatq strong teamwork and productivity.

• Ethics programs support employee growth and meaning.

• Ethics programs are an insurance policy; they help ensure that policies are legal. ^

B Ediics programs help avoid criminal acts "ofjjmissipn" and can lower fines. S b(3 ci,ot

• Ethics programs help manage values associated with quality management, strategic planning, and diversity management.

• Ethics programs promote a strong public image.

B Overall benefits of etliics programs include legitimizing managerial actions, strength­ening the coherence and balance of the company's culture, improving trust in relationships, supporting consistency, and cultivating sensitivity to the impact of the company's messages.

n Formal attention to ediics in the workplace is the right thing to do.

I n addit ion, changes i n the economy have altered attitudes about ethical issues. F o r example, adjustments i n China 's economy have brought many issues to l ight such as CGrrjpt;ai i , i i i tel lectual property right:;, e i i . i r j i i m c n t d concerns, labor disputes, i i i id equahty issues.*^ A s C h i n a prepares to take an active role i n international commerce and tries to become an international leader, these ethical issues must be actively addressed. Different coimtries have different cultural norms, so ethical dilemmas w i l l always exist ^ firom. a cultoral perspective. W h i l e the U n i t e d States has tried to .address the problems o f ?Clc corrupt ion and misleading financial statements through recent legislation, other coun­tries have not been as proactive i n dealing wi th these problems. Ano the r example of i n ­ternational differences is through environmental regulations. A l t h o u g h the U n i t e d States appears to have strict environmental laws, many European coimtries have even more r ig id environmental regulations that pose differing levels o f compHance for U . S . companies.

It is essential for employees and managers to understand the impact o f their decisions. M a n y argue that ethics can't be taught and that people just k n o w "r ight" f rom "wrong . " Because o f the focus o n max imiz ing shareholder weal th , some decisions made w i t h i n corporat ions by top management are unethical . E th i c s t r a in ing helps e m ­ployees make decisions i n diff icult situations, consider ing there may be mul t ip le o p ­tions that may not be s imple to choose firom i n any given si tuation. Howeve r , these decisions, ethical or not , may seem, at the time, necessary because o f the pressure o n individuals and corporat ions a round the globe to succeed.

Contemporary Issues in Business Ethics

T h e ethics o f business real ly affects a group o f faceless stakeholders. T h e s e stakeholders are faceless i n the sense that the persons responsible for m a k i n g the e thical decisions i n these g loba l corpora t ions m a y not be unaware o f the m a n y stakeholder groups that w i l l be affected by the i r actions, whether e thical o r une th­i c a l . T h e s e stakeholder groups inc lude , but are n o t l i m i t e d to, employees ( inc lud ­i n g management) , suppl iers , customers, persons i n the c o m m u n i t y and c o m m u n i t y groups, the government , compet i to r s , and s tockholders . T h u s , the idea o f operat- ~ v i n g a business e thical ly is ^nescapablg. Business professionals have an ob l iga t ion to 9 jXi [d ^ stakeholders to act wi th i n t eg r i t y and w i t h the s takeholders ' best interests in m i n d . I f the business professionals do not act ethical ly, their behaviors can affect m a n y different s takeholder groups i n m a n y ways, mos t often negative. A n d somet imes the interests o f these s takeholder groups m a y be i n conf l ic t w i t h the desires o f the f i r m , c rea t ing an even m o r e demand ing profess ional ob l iga t ion for the business profess ional .

E th i c s is about be ing and d o i n g the r ight th ing , no t just presenting the lught idea. Corpora t ions are not responsible for m a k i n g ethical decisions; the people at those corporat ions have the ult imate responsibi l i ty for decisions made, ethical or unethical . Managers wi l l begin to cut corners and glay account ing_g£ir ics . when tr}"in,g to raise share prices, ul t imately t r y m g to satisfy the shareholders and increase their own bonuses. T h e Institute o f Business E th ics has identif ied three s imple ethical tests to use for a business decision: transparency, effect, and fairness.

Transparency

Transparency refers to dec id ing i f one accepts hav ing others k n o w what one has decided. T h e more open and transparent a person is i n discussing his or her actions w i t h others, the more comfortable the person is that he or she has made the r igh t dec is ion .

Effect

Effect refers to de te rmin ing who the dec is ion affects or impacts. D e c i s i o n makers must always be aware o f w h o w i l l be d i rec t ly o r ind i rec t ly inf luenced by their ac­t ions. T h e decis ion maker must not assume that the effect w i U be o n l y m i n i m a l to others.

Fairness

Fairness refers to determining i f the decision w o u l d be considered fair by those affected by it. A decision maker must understand the perspective of each person wh o is affected by the decision to ensure that the dec is ion is just to a l l .

TABLE 2-2 Eight Rationalizations for Ethical Compromise

1. I have to do questionable actions to achieve my objectives.

2. I don't have the time and/or the resources to follow an ethical course of action.

3. My fellow colleagues expect me to behave in an unethical manner.

4. My boss wants me to produce results, not excuses as to why it can't be done.

5. I beUeve that my actions are neither wrong nor illegal.

6. Other people would agree wdth my decision.

7. No one will be able to identify the difference between my action and a more ediical course of action.

8. I am hesitant to take the right course of action.

Source; Adapted from Ethics fiesouTO Centef.

In def in ing the boundaries of business ethics, one cou ld view the b inary cons id ­erations: discret ionary actions and nondiscre t ionary actions. Discretiona?y actions are those actions that y o u can compromise w i t h i n established boundaries. Nondiscretionary aaions are those that y o u cannot change; that is, there is o n l y one acceptable way o f acting. Nond i sc re t i ona ry actions inc lude laws and regulations, publ ic and employee safety, and truthfulness o f records and statements.'^

Frequently, people w i l l t ry to rat ional ize their unethica l behaviors. Table 2-2 consists o f eight rationahzations for ethical compromises as identified b y the E t h i c s Resource Center . M a n y people w i l l use these excuses to convince them.selves rhst the behavior they have chosen is appropriate.

W i t h o u t appropriate support f r om upper management or f rom an enforceable code o f ethics, many employees may be s t ruggl ing w i t h thoughts such as these. E m ­ployees must understand what is expected o f t h e m w h e n facing ethical di lemmas. F o r example, Texas Instruments first addressed the issue o f ethics more than sixty years ago when it developed ethical pr inciples for the company, but the first wr i t t en code o f ethics appeared for the company i n 1961. T h e n , i n 1987, the company opened the Texas Instruments E th i c s Office and appointed an ethics director. A l l Texas Ins t ru­ments employees have been issued a smal l bookle t w i t h a short test that encourages the company's employees to make the r ight ethical decisions. T h e test consists o f seven steps, w h i c h fol low:

1. Is the action legal?

2. Does it comply with our values?

3. If you do it, wi l l you feel bad?

4. H o w wi l l it look in the newspaper?

5. If you Icnow it's wrong, don't do it!

6. If you're not sure, ask.

7. Keep asking imtil you get an answer.'^

N o matter what the decision, each person w i l l u l t imate ly be responsible for his or her ethical choices. Bu t knowing wha t an ethical d i l e m m a is may be difficult for some people. T a b l e 2-3 provides a fist o f red flags to consider.

Contemporary Issues in Business Etliics 27

TABLE 2-3 Red Flags to Spot Ethical Dilemmas

It is too insignificant a matter for anyone to notice. '

It is too insignificant a matter for anyone to be hurt by my actions.

I am not comfortable with this course of action, but I need to do it to advance my career.

Everybody else is doing it, so why should I be the exception?

I hope that the relevant party to this decision doesn't find out what I did.

Since I was told what to do, I did it.

I am doing this because I don't want to disappoint a specific person.

If I make this decision, I will not have to deal with this specific person again.

Source: Adapted from www.refresher.com/lcrbethics.html.

W h i l e these red flags do not mean that an ethical v io la t ion is occurr ing , it cou ld mean that one could potent ia l ly occur. B e i n g alert to these red flags means that better ethical choices w i l l most l ike ly be made.

O n e of the most difficult concepts to grasp or embrace is that o f se l f -moni tor ing . ' ' ' A n ethical v io la t ion can be very smal l . But wi thout appropriate se l f -moni tor ing, employ­i n g techniques to keep oneself i n line, and fo l lowing the corporate code o f ethics, p ro-fessionals w i l l feel the smal l ethical v io la t ion is a l l r ight and w i l l beg in to jjistify al l h)(XO c K u ^

^ ?,l\)^itc\l Ugse j , no matter the size. Just if icat ion w i l l provide only a means for t h ink ing that these ethical lapses are acceptable.

A company's reputat ion i n the marketplace can be thought of as a competirive ad­vantage i f it is a positive reputation. M a n y companies, i n l ight o f recent corporate scan- . r. dais, are creating no-tolerance policies for tarnishing corporate images. L i k e -X0j,'O t c p „ individuals, a company's reputation is a precious c Q m m o d i ^ . M a n y companies work-^cu^g Aaca,/ .-tit' hard to maintain the images they have created. M a n y realize that once this image is tar­nished, it is difficult to restore. A n individual must decide i f he o r she wi l l act edi ical ly and, i n a sense, serves as an agent o f the company when mak in g this choice. W h i l e it cannot be guaranteed, i t is necessary for individuals to make the right ethical choice all the time to help maintain the positive images that many companies have created for themselves.

Businesses operate o n the under ly ing value o f trust. It takes only one w r o n g choice to change the image o f a company. Ho wev e r , the ethical cl imate in a company must be set at the top, a "tone f rom the top" approach. Compan ies can't have a scan­dal tarnish the positive images that they have w o r k e d hard to create.

As an applied discipl ine, business ethics can be v iewed as the way a person deals w i t h conduct ing business i n a responsible manner. It requires asking questions and , at tempting to decide o n the mora l ly correct t h ing to do. Employees should conduct a H L * ^ personal evaluation o f themselves by reflecting o n several questions that deal w i t h ethical scenarios. Table 2-4 addresses these questions.

£ 0 ;

TARI P 7-4 Oiipstions for an Fthir<; Splf-Asspssment

In the past, have you . . .

• used company time to do personal activities?

• taken company properly for your own personal use?

• lied when you called in sick to your employer?

• used an offensive word in reference to someone else?

• told your colleagues a joke that could be considered offensive?

• spread rumors and gossip with negative repercussions about someone else in the workplace?

B talked negatively about the company and/or company executives to other employees?

• eavesdropped on the conversations of other employees?

• relayed confidential information to others who should not have access to that information?

• violated a company rule or requirement?

• not completed a task you promised to fulfill?

• not given valuable information to others who needed it to make a decision?

• supplied inaccurate numbers on a time sheet, billing sheet, or financial report?

• sold a product that was poor quality and/or defective?

• been less than truthful to others to complete a sale?

• accepted a gift that was inappropriate and/or above the cost guidelines established by the com­pany?

• sought out credit and recognition for actions that you did not do?

• not taken responsibility for a mistake you made and/or not corrected the mistake when you real­ized that a mistake did ocriir?

• knowmgly let a colleague make mistakes that could have been avoided,''

Source: Adapted from http://ethics.georgemay.com/10.html.

Managers i n organizations sfiould always strive for ethical behavior. I t may not be easy

to always act i n an ethical way, but as a leader, i t is necessary to fo l low the corporate

codes and to support the corporate code o f ethics. George S. M a y Internat ional C o m ­

pany provides ten reasons leaders should m o d e l ethical behavior:

1. Redtices pressure on employees to compromise ethical standards

2. Increases employee willingness to report misconduct

3.. Improves trust and respect at all levels

4. Protects the positive reputation of the organization

at ^ 'VX 5_ Encourages early detection of problem areas and ethics violations

c 6 6. Fosters a positive work culture and improved customer service

7. Provides an incentive and framework for ethical decision making

8. Increases pride, professionalism, and productivity

9. Enhances the firm's abihty to attract and retain high-quality and diverse employees

10. Helps ensture the long-term viabiHty of the enterprise'*'

Contemporary Issues in Business Ethics 29

Lompan ie s have a chance tor immense ethical opportunit ies m the future. C i o m ; ^pliance w i th ethical codes and an overal l attitude that ethics matter w i l l enhance their culture and vis ion.

T h e r e may not always be a single correct answer to any mora l or ethical d i lemma. T h i s causes us to have to evaluate each ethical d i lemma separately, and i t may mean that we won't always k n o w a l l o f the facts about the si tuation. People may state many reasons for want ing to be ethical and behave i n an ethical manner. These ^ cfw v( include an inner benefit, personal advantage, pegj; approval, re l ig ion , and habit. H o w - C^i";^ ever, there are obstacles that people face when t ry ing to be ethical. These include self-interest and the pursuit o f happiness.^'

Everyone makes mistakes, but h o w we deal w i t h these mistakes is what matters. W h a t makes people make bad decisions? M i c h a e l Daignaul t , a former employee o f the Ethics Resource Center , provided several reasons.

B They do not feel loyal to the organization.

• They feel pressure to "succeed," as defined by the organization.

• They feel entided.

• They believe that the rules do not apply to them.

• They do not view the act as illegal.

• They feel pressured by their peers.

B They lack resources. "

So how should one approach be ing ethical? W h i l e there is no ser list o f i tems to follow, some suggestions are provided i n Table 2-5. ^/

W h o are the real v ic t ims o f corporate misdeeds? T h e pub l i c , the stakeholders / \' w h o have invested i n the companies w i t h an att i tude of professional trust, beheving that the i r investments w i l l be pro tec ted , are the real v ic t ims . I n reali ty, they shou ld ' ' -i'- Jk qj^ nol' i be ac t ing w i t h an attitude o f profess ional ske£ t i e i§ rn . E m p l o y e e s must r e m e m b e r - t ^c t ' CfO ' that there is always someone wa tch ing them and the i r behavior . M a n y t imes these ind iv idua l s , whe ther a supervisor, an employee 's colleagues, or the employee's ch i ld r en , are t ak ing cues f rom the employee about h o w to behave i n a cer ta in s i tua t ion.

Based o n the survey by the A m e r i c a n M a n a g e m e n t Associa t ion and H u m a n Resource Institute ( A M A / H R I ) i n 2005, the top five reasons managers t ry to make sure their firms operate i n an ethical manner are as follows:

1. They are protecting the brand and reputation.

2. It is the right thing to do.

3. It is used to establish customer trast and loyalty.

4. It increases the level of investor confidence.

5. It helps in developing public acceptance and recognition. '

30 Chapter 2

TABLE 2-5 Ways to Be More Ethical

Cutting corners does not equal efEciency.

Have a good understanding of your job responsibilities.

Acknowledge the effoi ts of others within the company.

Make sure your knowledge is shown.

Put in additional effort to complete a task.

Patienee, understanding, and empathy are good characteristics to include in your decision-making process.

Have discussions with others at the same level, and never talk about others behind their backs.

Make people aware when you are not satisfied.

Treat others as you would like to be treated yourself

Identify customer needs before focusing on completing the sale.

Make sure customers and supphers can depend on you.

Use feedback to measure your success.

Provide long-standing and durable products and services.

Think about how your decisions impact others.

Make decisions that will satisfy all your stakeholders. ^

Make sure you understand what is considered acceptable industry practice.

Make sure you take risks when they are warranted.

Establish and maintain the core values and beliefs of die company.

Use K.I.S.S. (knowledge, information, skills, support to ensure the competencies of the company> employees).

Make sure your ideas are heard!

Eliminate obstacles that can. get in the way of success.

Make sure you consider "what i f scenarios.

Make sure that the ethical course of action is also a safe course of action.

Make sure your goals and objectives match the company's values.

Make sure to integrate ethics in the performance feedback process for each employee.

Recognize and reward integrity.

Make sure that ethics is integrated into the company's selection processes for new employees.

Be careful who you select as a business partner.

Make sure you have a bias toward immediate action when it is necessary.

Learn and understand what factors are involved for the company and employees to be ethical leaders.

Source: Adapted from http://ethics.georgiemay.com/14.htmt.

It is also interest ing to note what role ethics plays i n the operations o f bus i ­nesses. T h o s e i n the survey stated that the top five ranked reasons as o f 2005 that drive business ethics are the fo l lowing :

1. Corporate scandals

2. Marketplace competition

3. Demands by investors

4. Pressure from customers

5. Globalization

Contemporary Issues in Business Ethics

T h e participants i n the survey were also asked what they would predict to be the drivers for business ethics i n 2010. T h e y predicted that globaUzation wou ld the n u m ­ber one reason, fol lowed by marketplace compet i t ion , pressure from customers, cor ­porate scandals, and demands by investors.' '* W h e n asked what the top ten external factors that impact corporate ethics were, the results showed that legal requirements and government regulations were the top factors, fo l lowed by economic environment , po l i t i ca l environment, social values, privacy, level o f g lobal security, technology, cor­porate social responsibility, environmental issues, and societal pressures.^^ 'W'Tren asked w h y people wou ld decide to do unethical actions, the survey showed that the number one reason was due to the pressure to meet unrealistic business goals or dead- ^ ( lines. A d d i t i o n a l top five reasons, i n order, were the desire to ^ i r the j one's career, the f^'^ desire to protect one's l ive l ihood, w o r k i n g i n an environment wi th l ow morale, and §1"^^ kZ' improper or nonexistent t ra in ing regarding acceptable and unacceptable actions. '^ T h e respondents were also asked to identify the top factors that have to be incorpo­rated w i t h i n a firm to estabfish and mainta in an ethical culture. T h e top five factors were corporate leaders p rov id ing support and leadership by mode l ing ethical behav­ior, having consistent communicaf ions per ta ining to ethics f rom all areas w i t h i n the ^ company, mak ing sure that ethics was incorporated w i t h i n the goals and strategies of4>lt App the company, mak ing sure that ethics was inc luded w i t h i n the performance evaluation system w i t h m the company, and mak ing sure that ethics was inc luded wi th in die se­lect ion and recrui tment funct ion o f the company.

A s can been seen by the A i \ i A / H R I survey, stakeholders have a significant role i n m o l d m g and shapmg the ethical .conuaitrnent o f the firm. It is through the external CCX/O contact w i th those groups that have a vested interest i n the company that the firm is able to establish and main ta in strong, posit ive ed i i ca l relationships w i t h its stakehold­ers. A more in-depth review of the roles of stakeholders and corporate social respon­sibi l i ty is presented in the next chapter.

Q u e s t i o n s for T h o u g h t

1. D o y o u personally th ink ethics is an impor tan t topic to discuss in business schools? E xp l a in .

2. Examine the myths given i n Table 2-1 . D o y o u agree that these are all va l id myths? W h y or why not?

3. A s s u m i n g everyone makes mistakes i n life, are ethical mistakes considered the wors t mistakes to make? Exp la in .