Chapter 05 - Ethics and Ethical Reasoning

CHAPTER 5
ETHICS AND ETHICAL REASONING
INTRODUCTION

People who work in business frequently encounter and must deal with on-the-job
ethical issues. Being ethical is important to the individual, the organization and the global
marketplace in today’s business climate. Managers and employees alike must learn how
to recognize ethical dilemmas and know why they occur. In addition, they need to be
aware of the role their own ethical character plays in their decision-making process, as
well as the influence exhibited by the ethical character of others. Finally, managers and
employees must be able to analyze the ethical problems they encounter at work to
determine an ethical resolution to these dilemmas.
PREVIEW CASE

Unknown Corporate Criminals

How does a person know what behavior is right or wrong in the business world?
What might lead an individual to act unethically? Does the root cause lie in a person’s
character or direction given by top management? Were these “mid-level executives”
simply following orders? If so, should they be sent to jail or forced to resign for doing
what their bosses told them to do? How can an employee refuse to follow orders – even
when their boss is the CEO or CFO of the firm?

All people have a sense of right versus wrong, based on their upbringing,
education and other life events. While there is variation among people around the globe,
there are universal values or ethical principles that can be used to guide and judge
people’s behavior. Nonetheless, people succumb to temptation or lose their moral
compass. Sometimes the pressure to act unethical can come from top management. As a
middle-level manager in a firm, the pressure to act as your boss desires can be intense.
Yet, people must be true to their own moral character and do what is right, even though it
may be hard.

5-1
Chapter 05 - Ethics and Ethical Reasoning

CHAPTER OUTLINE
I. THE MEANING OF ETHICS

Teaching Tip: Defining Ethics

Establishing a clear definition of ethics is a critical task
in understanding this and the following chapters. Ethics
is not identical to law (as discussed at the end of this
chapter), nor is it simply personal or cultural values.
Defining ethics should promote a lively discussion,
although at the conclusion of the class session all
students should have a clear definition.

A. What Is Business Ethics?

B. Why Should Business Be Ethical?

*Meet demands of business stakeholders

*Enhance business performance

*Comply with legal requirements

*Prevent or minimize harm

*Promote personal morality

Teaching Tip: Corporate Sentencing Guidelines and

the Sarbanes-Oxley Act
The U.S. Corporate Sentencing Guidelines and the Sarbanes-
Oxley Act have emerged on the U.S. ethics scene. There are
numerous current articles discussing these legal requirements.
Students may be challenged by the question: Will the U.S.
Corporate Sentencing Guidelines or the Sarbanes-Oxley Act
promote ethical behavior by employees, or are firms only
interested in avoiding or reducing jail time for their executives?
Specific to the U.S. Corporate Sentencing Guidelines, isn’t it
a bit ironic that executives found guilty of criminal activity
could serve less time in prison if their firm has developed a
comprehensive ethics program? How effective was the program
if criminal activity was discovered?

5-1
Chapter 05 - Ethics and Ethical Reasoning

II. WHY ETHICAL PROBLEMS OCCUR IN BUSINESS

A. Personal Gain and Selfish Interest

B. Competitive Pressures on Profits

Teaching Tip: Ethical Problems in Business Video
Tom Bearden hosts a discussion of the ethical
implications of radio frequency identification tags
(RFIDs), used to – among other things – track inventory.
Tags embedded in their clothing, electronic devices, or
identification papers individuals carry can potentially be
“read” by a variety of readers. What are the implications
for privacy and civil liberties?
* The video segment is from the Public Broadcasting Services’s
“News Hour with Jim Lehrer” and is available on the Instructor’s
Resource Manual DVD that accompanies the textbook, available
upon request from the publisher.

C. Conflicts of Interest

5-1
Chapter 05 - Ethics and Ethical Reasoning

D. Cross-Cultural Contradictions

Teaching Tip: Global Ethical Challenges Video

Faisal Islam reports on Google’s decision to launch a
search engine in China. To do business there, the
company had to agree to comply with Chinese
government rules mandating censorship of political,
religious, and cultural content the authorities found
offensive. Was Google’s decision to do so a violation of
its espoused commitment to making the world’s
information universally useful and accessible? After an
opening segment, Jeffrey Brown interviews Rebecca
MacKinnon, a fellow at the Berkman Center for Internet
and Society at Harvard and the former Beijing bureau
chief for CNN.
* The video segment is from the Public Broadcasting Services’s
“News Hour with Jim Lehrer” and is available on the Instructor’s
Resource Manual DVD that accompanies the textbook, available
upon request from the publisher.
Teaching Tip: Types of Business Ethics Issues
Have your students prepare a class report that identifies
an example of each “cause” for an ethical problem to
occur in business. Your students may be surprised at
how easy it is to locate examples of these causes in the
popular press or Internet. Students may also be able to
apply these causes of unethical situations to their own
lives, wither at work or on campus.
III. THE CORE ELEMENTS OF ETHICAL CHARACTER

A. Manager’s Values

0 Virtue Ethics

C. Personal Character, Spirituality and Moral Development

*Personal Spirituality

*Manager’s Moral Development

5-1
Chapter 05 - Ethics and Ethical Reasoning

Teaching Tip: Stages of Moral Development

Popular television shows or movies can be used to
illustrate the stages of moral development. Some
scholars have researched and published papers
describing a moral reasoning analysis of M*A*S*H
characters and The Simpson’s. Most children’s movies
are classic battles between good and evil and higher
stages of reasoning can be seen in the reasoning
processes for the “good characters” and lower stages in
the “bad characters.”

IV. ANALYZING ETHICAL PROBLEMS IN BUSINESS

A. Utility: Comparing Benefits and Costs

B. Rights: Determining and Protecting Entitlements

C. Justice: Is It Fair?

D. Applying Ethical Reasoning To Business Activities

Teaching Tip: Ethical Decision-making at Work

Video
Kwame Holman reports on the congressional hearing
where HP CEO Mark Hurd and former chairwoman
Patricia Dunn testified about HP’s use of pretexting and
other possibly illegal and/or unethical methods to
investigate boardroom leaks. The segment may be used
with a discussion of analyzing ethical reasoning.
* The video segment is from the Public Broadcasting Services’s
“News Hour with Jim Lehrer” and is available on the Instructor’s
Resource Manual DVD that accompanies the textbook, available
upon request from the publisher.

5-1
Chapter 05 - Ethics and Ethical Reasoning

V. WHISTLE-BLOWING

A. The Consequences of Whistle-Blowing

B. Government Action and the Whistle-Blower

GETTING STARTED

KEY LEARNING OBJECTIVES

1. Defining ethics and business ethics.

Ethics is a conception of right and wrong behavior, defining for us when our actions are
moral and when they are immoral. Business ethics is the application of general ethical
ideas to business behavior.

2. Evaluating why businesses should be ethical.

Ethical business behavior is demanded by business stakeholders, enhances business

performance, complies with legal requirements, prevents or minimizes harm, and
promotes personal morality.

3. Knowing why ethical problems occur in business.

Ethics problems occur in business for many reasons, including the selfishness of a few,
competitive pressures on profits, the clash of personal values and business goals, and
cross-cultural contradictions in global business operations.

4. Identify managerial values as influencing ethical decision making.

Managers’ on-the-job values tend to be company-oriented, assigning high priority to

company goals. Managers often value being competent and place importance on having a
comfortable or exciting life, among other values, although values in America may be
changing in the post-2001 terrorist attacks era.

5. Recognizing the core elements of ethical character.

Personal character and spirituality can greatly assist managers when coping with ethical
dilemmas. Personal spirituality has emerged as a more common topic for discussion at
work and has influenced company-sponsored activities during work hours and after work.

5-1
Chapter 05 - Ethics and Ethical Reasoning

6.

7. Understanding stages of moral reasoning.

Individuals reason at various stages of moral development, with most managers focusing
on personal rewards, recognition from others, or compliance with company’s rules as
guides for their reasoning.

8. Analyzing ethical problems using generally accepted ethics theories.

People in business can analyze ethics dilemmas by using three major types of ethical
reasoning: utilitarian reasoning, rights reasoning, and justice reasoning.
KEY TERMS AND CONCEPTS USED IN THE CHAPTER

business ethics, 90

conflict of interest, 97

ethical egoist, 95

ethical principles, 90

ethical relativism, 90

ethics, 90

human rights, 104

justice, 105

noisy withdrawal, 108

personal spirituality, 100

Sarbanes-Oxley Act, 93

stages of moral development, 101

U.S. Corporate Sentencing Guidelines, 92

utilitarian reasoning, 103

virtue ethics, 100

5-1
Chapter 05 - Ethics and Ethical Reasoning

whistle-blower, 107

INTERNET RESOURCES

www.ibe.org.uk Institute for Business Ethics

www.usoge.gov United States Office of Government Ethics
www.sarbanes-oxley.com Sarbanes-Oxley Act
www.ussc.gov United States Sentencing Commission
www.charactercounts.org Josephson Institute, Character Counts
www.workplacespirituality.info Workplace Spirituality
DISCUSSION CASE

THE WARHEAD CABLE TEST DILEMMA

Discussion Questions

1. What stage of moral development do you think Stanton Wong is at? What about
Harry Jackson? Why do you think so?

From the information presented in the discussion case, it appears that Stanton Wong
is reasoning at many stages of moral reasoning. He is committed to not confront his
boss, Harry Jackson, which might indicate stage 1 reasoning – avoidance of punishment
and deference to authority. Stanton also is concerned about his family and being a loyal
employee, characteristic of stage 3 reasoning. Yet, Stanton’s reasoning also focuses on a
concern for all affected – U.S. service members and innocent civilians – as well an
adherence to ethical principles such as do not harm, be fair to all affected, and respect
others rights to information and safety. This reasoning points to higher stages of
reasoning such as stages 5 and 6.

Harry Jackson’s moral reasoning appears more focused on stage 2. He exhibits a

style of leading by fear (hoping to control others reasoning at stage 1), seeking to
maintain his power at work, and attempting to look or be successful. This ego-centered
reasoning is characteristic of adolescents but even adults, as Harry’s reasoning
indicates, can focus on these moral statements to explain their behavior.

5-2
Chapter 05 - Ethics and Ethical Reasoning

2.
3. What do you think Stanton should do now, and why? Use the one or more of the
methods of ethical reasoning presented in the chapter to support your view.

All three of the major ethics theories justify Stanton to act in this situation.

Utilitarianism seeks the greatest good for the greatest number. Stanton must
consider the consequences to the U.S. service members and innocent civilians, as well as
the impact on his family, boss and company, if the faulty product is not detected and is
used. The present situation does not meet the utilitarian standard of maximizing benefit
for all affected.

The rights ethics theories focuses on protecting individual’s entitlements and calls
for Stanton to take action to address the unethical situation described in the discussion
case. The inspector has a right to know (or be informed) about the failed test results.
Stanton has a right to his conscience, despite threats from his boss, and should be able to
tell the inspector about his concerns. Finally, those affected by this situation, U.S.
service members and innocent civilians, have a right to their safety and be protected from
faulty products if the harm is known to others that can do something about it.

Finally, justice reasoning seeks an equitable distribution of the benefits and harms.
Presently, the company would benefit by the sale of the product but others would be
harmed if the faulty product is shipped and used. There needs to be a concern for
balancing the benefits and harms in this situation.

4. Should Stanton to blow the whistle on his company? Why or why not?

Blowing the whistle on the discovery of faulty testing and his boss’s refusal to act
ethically may be tempting for Stanton but could be a high-risk resolution. Stanton admits
he does not know who to turn to and he might find that his boss has many loyal followers
in the company who are not inclined to help Stanton or risk Harry’s wrath. The boss’s
leadership style and company culture described in the case makes blowing the whistle
less likely or successful.

5. What steps could the company take to prevent a situation like this from
occurring in the future?

Many of the actions recommended for the company to take to prevent this situation
are described in Chapter 6. For example, an ethics program, with an 800-number or
ethics help line, would enable Stanton to call someone within the firm (internally blow
the whistle) and tell them about the situation. In addition, the company should develop
more comprehensive testing procedures than are currently used enabling the inspector to
discover the testing problem. These new procedures are justified based on utilitarian,
rights and justice ethics theories.

5-1