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Chapter 8
Making
Ethical
Decisions in
Business
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
What is an ethical dilemma?

A situation where values are in conflict


Two or more values you hold dear – or –
Personal value conflicts with organizational value
8-2
Values Exercise
Action orientation
Altruism
Authority
Compassion
Competence
Conformity
Creativity
Customer satisfaction
Diversity
Equality
Excitement
Experimentation
Fairness/justice
Flexibility/adaptability
Freedom
Harmony
Helpfulness
Honesty/integrity
Honor
Humility
Iniatitive
Innovation
Moderation
Novelty
Obedience
Order
Power
promise-keeping
Respect
Risk-taking
Security
Self-discipline
Success
Status
Teamwork
Tradition
Wealth
winning
trust
8-3
Bill
When your colleague, Bill, is out of town, you receive a call from his wife.
She’s having a crisis with one of their children and needs to reach Bill
immediately. You offer to track him down for her and when you do, you
inadvertently discover that he’s vacationing with Marie, the chief investment
officer of a prestigious college endowment fund that Bill manages. He tells
you to keep his location a secret and that he will call his wife immediately.
Two hours later, his wife calls back and screams that his cell phone is off and
she hasn’t heard from you or him. What do you do?
A. Tell her you haven’t been able to reach him. Then call your boss and
update him on his wife’s latest call.
B. Give his wife the number of the hotel where she can reach him.
C. Tell your manager’s manager about the situation.
D. Tell her that you left an urgent message for him, but she’ll have to wait
for his call.
8-4
Principles of Ethical Conduct
o The following 14 principles are fundamental guides
or rules for behavior
o These principles distill basic wisdom that spans 2,000
years of ethical thought
8-5
The Categorical Imperative
o Origination: Immanuel Kant
o Basic premise: Act only according to that maxim by
which you can at the same time will that it should
become a universal law
o Criticism: Theory is dogmatic and inflexible
8-6
The Conventionalist Ethic
o Origination: Albert Z. Carr
o Basic premise: Business is like a game with
permissive ethics and any action that does not
violate the law is permitted
o Criticism: Commerce defines the life changes of
millions and is not a game to be taken lightly
8-7
The Disclosure Rule
o Basic premise: Test an ethical decision by asking how
you would feel explaining it to a wider audience such
as newspaper readers, television viewers, or your
family
o Also known as the New York Times Test
8-8
The Disclosure Rule
o Criticism:
o Does not always give clear guidance for ethical
dilemmas in which strong arguments exist for several
alternatives
o An action that sounds acceptable if disclosed may not,
upon reflection, be the most ethical
8-9
The Doctrine of the Mean
o Origination: Aristotle
o Basic premise: Virtue is achieved through
moderation
o Avoid behavior that is excessive or deficient of a virtue
o Criticism: The doctrine itself is inexact
8-10
The Ends-Mean Ethic
o Origination: Ancient Roman proverb, but often
associated with Niccolò Machiavelli
o Basic premise: The end justifies the means
o Criticism:
o In solving ethical problems, means may be as
important, or more so, that ends
o The process of ethical character development can
never be furthered by the use of expedient means
8-11
The Golden Rule
o Origination: Found in the great religions and in works
of philosophy
o Basic premise: Do unto others what you would have
them do unto you
o Criticism:
o People’s ethical values differ, and they may mistakenly
assume that their preferences are universal
o It is primarily a perfectionist rule for interpersonal
relations
8-12
The Intuition Ethic
o Origination: Defined by G.E. Moore in Principia Ethica
o Basic premise: What is good or right is understood by
an inner moral sense based on character
development and felt as intuition
8-13
The Intuition Ethic
o Criticism:
o Ethical intuition is reliable, but not infallible
o Self-interest may be confused with ethical insight
o No standard of validation exists outside the individual
o Intuition may fail to give a clear answer when ethical
norms are in conflict
8-14
The Might-Equals-Right Ethic
o Origination: Thracymachus
o Basic premise: Justice is the interest of the stronger
o Criticism:
o Confusion of ethics with force
o Invites retaliation and censure, and is not conducive to
long-term advantage
8-15
The Organization Ethic
o Origination: Not credited
o Basic premise: Be loyal to the organization
o Criticism: Many employees have such deep loyalty to
an organization that it transcends self-interest
8-16
The Principle of Equal Freedom
o Origination: Herbert Spencer
o Basic premise: A person has the right to freedom of
action unless such action deprives another person of
a proper freedom
o Criticism: Lacks a tie breaker for situations in which
two rights conflict
8-17
The Proportionality Ethic
o Origination: Medieval Catholic theology
o Basic premise: A set of rules for making decisions
having both good and evil consequences
o Criticism: These are intricate principles, requiring
consideration of many factors
8-18
The Rights Ethic
o Origination: Western Europe during the
Enlightenment
o Basic premise: Each person has protections and
entitlements that others have a duty to respect
o Criticism:
o Rights are sometimes stretched into selfish demands
or entitlements
o Rights are not absolute and their limits may be hard to
define
8-19
The Theory of Justice
o Originator: Contemporary, John Rawls
o Basic premise: Each person should act fairly toward
others in order to maintain the bonds of community
o Criticism: Rawl’s principles are resplendent in theory
and may even inspire some business decisions, but
they are best applied to an analysis of broad societal
issues
8-20
Figure 8.1 – Three Spheres of Justice
8-21
The Utilitarian Ethic
o Origination: Line of English philosophers, including
Jeremy Bentham and John Stuart Mill
o Basic premise: The greatest good for the greatest
number
8-22
The Utilitarian Ethic
o Criticism:
o In practice it has led to self-interested reasoning
o Because decisions are to be made for the greatest
good of all, utilitarian thinking has led to decisions
that permit the abridgement of individual or minority
group rights
8-23
You’re the plant manager in one of ABC Company’s five plants.
You’ve worked for the company for 15 years, working your way
up from the factory floor after the company sent you to college.
Your boss just told you in complete confidence that the company
will have to lay off 200 workers. Luckily, your job won’t be
affected. But a rumor is circulating in the plant, and one of your
workers (an old friend who now works for you) asks the
question. “Well, Pat, what’s the word? Is the plant closing? Am
I going to lose my job? The closing on our new house is
scheduled for next week. I need to know.”
What will you say?
8-24
Reasoning with Principles
o The use of ethical principles, as opposed to the
intuitive use of ethical common sense, may improve
reasoning, especially in complex situations
o Based on the application of utility, rights, and justice,
the manager’s decision in the text example to remain
silent is acceptable
8-25
Reasoning with Principles
o Some judgment is required in balancing rights, but
the combined weight of reasoning with all three
principles supports the manger’s decision
8-26
Character Development
o Character development is a source of ethical
behavior separate from the use of principles
reasoning
o Virtue ethic: Ethical behavior stems from character
virtues built up by habit
o Aristotle believed that by their nature ethical
decisions require choice, and we build virtue, or
ethical character, by habitually making the right
choices
8-27
A Clouded Promotion
As chairman of an accounting firm in a large city, you were prepared to
promote one of your vice chairmen to the position of managing partner. Your
decision was based on a record of outstanding performance by this person
over the eight years she has been with the firm. A new personnel director
recently insisted on implementing a policy of resume checks for hires and
current employees receiving promotions who had not been through such
checks. Unfortunately, it was discovered that although the vice chairman
claimed to have an MBA from the University of Michigan, she dropped out
before completing her last 20 units of course work. Would you:
A. Proceed with the promotion
B. Retain the vice chairman but not promote her
C. Fire her
8-28
Sam, Sally, Hector
Sam, Sally, and Hector have been laid off from middle-management positions.
Sam and Hector are very upset by their misfortune. They are nervous,
inarticulate, and docile at an exit meeting in the personnel department and
accept the severance package offered by the company (two weeks’ pay plus
continuation of health benefits for two weeks) without questioning its
provisions. Sally, on the other hand, manifests her anxiety about job loss by
becoming angry. In the exit meeting, she complains about the inadequacy of
the severance package, threatens a lawsuit, and tries to negotiate more
compensation. She receives an extra week of pay that the others did not get.
Has the company been fair in its treatment of these employees?
8-29
A Trip to Seaworld
A sales representative for a large manufacturer of consumer electronics equipment
headquartered in Los Angeles, California, has courted a buyer from a nationwide chain
of 319 retail stores for more than a year. At company expense the buyer was flown to
Los Angeles from Trenton, New Jersey, with his spouse, for a three-day sales
presentation. The company is paying all expenses for this trip and for the couple to
attend a Los Angeles Dodgers baseball game and dine at fine restaurants. During the
second day of meetings, the buyer discusses a one-year, $40 million order. The chain
that the buyer represents has not sold the company’s products before, but once it
starts, reorders are likely. At dinner that evening, the buyer mentions that he and his
wife have always wanted to visit SeaWorld in San Diego. While they are in Southern
California and so close, they would like to fly down. It is clear that he expects the
company to pay for this trip and that he will delay making a commitment for the $40
million order until he gets a response. The company already spent $4,200 for the
buyer’s trip to LA. The San Diego excursion would cost about $500. The marketing
manager estimates that the company can make 9 percent gross profit on the sale. The
sales representative stands to receive 0.125 percent commission over base salary.
What should the representative do?
8-30
The Neural Basis of Ethical Decisions
o A fast, unconscious, and automatic process in neural
circuits causes ethical judgments to appear in our
awareness without any feeling of having gone
through a reasoning process
o There is no specific part of the brain that makes
ethical decisions
8-31
The Neural Basis of Ethical Decisions
o Functional magnetic resonance imaging: A method
used to map activity in neural networks during
ethical decision making
o Emotions have a central role in ethical thought
because of their importance to adaptive behavior
o Moral intuition creates awareness of a moral
judgment without any memory of having gone
through a step-by-step reasoning process
8-32
The Neural Basis of Ethical Decisions
o Moral intuition is a form of social intuition that is
adaptive to the social environment and
predominates in individual ethical decisions
o There is considerable individual variation in
perceptions of right and wrong
o Neuroscience, as it removes physiological mysteries,
reinforces the ethical teachings of centuries
8-33
Practical Suggestions for Making Ethical
Decisions
o Pay attention to your ethical intuition
o Consider tactics that illuminate alternatives
o Critical questions approach: A method of ethical
reasoning in which insight comes from answering a
list of questions
o Sort out ethical priorities early
8-34
Practical Suggestions for Making Ethical
Decisions
o Set an example
o Thoughts must be translated into action, and ethical
deeds often require courage
o Cultivate sympathy and charity toward others
o Ethical perfection is illusory
8-35
When All Else Fails: Blowing the Whistle
o When to blow the whistle
o How to blow the whistle
o Approach your immediate manager first if you can
o Discuss the issue with your family
o Take it to the next level
o Contact your company’s ethics office or ombudsman
o Consider going outside of your chain of command
o Go outside of the company
o Leave the company
8-36
Whistleblower Protection Laws
o False Claims Act
o Whistleblowers who report wrongdoing can be
awarded 15 to 30% of whatever damages the federal
government recovers.
o Sarbanes-Oxley Act (SOX)
o Provides whistleblowers of publicly traded
corporations with new protections if disclosure could
have a material impact on the value of the company’s
shares.
8-37
Whistleblower Protection Laws
o Dodd-Frank Wall Street Reform
o SEC will pay 10 to 30 percent of the amount
government recovers from financial fraud if the
whistleblower provides original info leading to
recovery of more than $1 million.
8-38
Concluding Observations
o There are many paths to ethical behavior
o Not all managers appreciate the repertoire of
principles and ideas that exist to resolve the ethical
problems of business life
8-39
Reading parts:
AL
The CEO of a Midwestern manufacturing company tells the following story.
I was looking over recent performance reviews in the household products division and one thing that struck
me was the review of a star sales rep named Al. I know Al because he handles our Walmart account. Al had
the highest annual sales for the past five years and last year nearly doubled the next highest rep’s total. The
sales manager’s written evaluation was highly laudatory as expected, but cautioned Al to adhere strictly to
discount policy, shipping protocol, and billing protocol. I got curious.
A conversation with the division manager re- vealed that Al ingratiated himself with workers on the loading
dock, socializing with them, sending them birthday cards, and giving them small gifts such as tickets to
minor-league ball games. The loading dock supervisor complained that Al was requesting and sometimes
getting priority loading of trucks for his customers despite the formal first-in, first-out rules for shipping
orders. Second, Al had given several customers slightly deeper discounts than authorized, although the
resulting orders were highly profitable for the company. And finally, late in December, Al had informally
requested that one big account delay payment on an order by a week so that the commission would be
counted in the next year. This would have gotten him off to a running start had not an accountant for the
purchaser paid promptly and written to Al’s manager in refusing the request.
The division head stuck up for Al. I didn’t press or request that any action be taken. Did I do the right thing?
How would you answer the CEO’s question?
THE HONDA AUCTION
Dave Conant co-owned and managed Norm Reeves Honda in Cerritos, California. Naturally, he
worked closely with Honda marketing executives to get cars for his dealership. One day, one of
these executives, Dennis Josleyn, the new zone sales manager, ap- proached him, asking him to
submit a bid on 64 com- pany cars. These were near-new cars previously driven by corporate
executives or used to train me- chanics. Company policy called for periodic auctions in which
Honda dealers submitted competitive bids, and the high bidder got the cars to sell on its lot. It was
Josleyn’s job to conduct the auction.
“I want you to submit bids on each car $2,000 be- low wholesale market value,” Joselyn told Dave
Conant. Conant dutifully inspected the 64 cars and submitted the asked-for bids. Meanwhile,
Josleyn busied himself creating fake auction papers showing that other Honda dealers bid less than
Conant. Of course, others bid near the wholesale price, so their bids were higher. Completing the
phony auction, Josleyn announced the winner—Conant’s dealership. The next day he showed up
there and handed Conant an envelope.
“I have a little invoice for you,” he said.
Conant went to his office, opened it, and found a bill for $64,000 payable to an ad agency co-owned
by Josleyn and his brother. The message was clear. Josleyn wanted a 50–50 split with the dealer on
the $2,000 windfall each car would bring, so he was billing
Conant for half the extra $128,000 the entire batch of cars would bring in.
Conant faced a decision. If the invoice was paid, the dealership would make a $64,000 windfall. If
he refused to pay, the cars would be rerouted to a dealer who was a “player” and future shipments
of new Hondas might be slower. He decided to pay the in- voice. In his own words: “I believed I
had no choice. If I hadn’t paid the amount, I would have incurred the wrath of Dennis Josleyn and
possibly some of the other Honda gods, and I believe they would have taken our store down.”1
Conant was not alone. Honda dealers around the country faced a dilemma. After investing large
sums to build new showrooms and facilities and hire em- ployees, they soon found themselves
having to choose between two paths. If they gave bribes and kickbacks to Honda executives, they
secured a copi- ous flow of cars and made a fortune. On average, a favored dealer made almost $1
million a year in per- sonal income. However, if they stayed clean, no mat- ter how modern their
dealership and well trained its sales force; they received fewer cars and less profita- ble models. If
they went bankrupt, and many did, the Honda executives arranged for less scrupulous own- ers to
take over their dealerships.
Many an honest dealer short on cars drove across town to see a rival’s lot packed with fast-selling
mod- els in popular colors. Over time, it also became clear that the highest Japanese executives at
Honda knew what was going on but chose to do nothing.
Did Conant make the right decision? What would you do in his position?
Read “AL” and “THE HONDA AUCTION.” For each incident, you
must identify the pertinent facts, the ethical issue(s), all
relevant stakeholders and determine how they could be
impacted by the decision that will be made, identify and apply
at least one principle for ethical reasoning, and then consider
alternative courses of action and choose the best course of
action based on stakeholder impacts and the outcome of the
application of the ethical principle( principle is covered in the
powerpoint) . You can use A Framework for Ethical Decision
Making or the Eight Steps to Ethical Decision Making (found in
the CSR & Ethics Module) as a guide.
Your textbook defines stakeholders as an entity that is benefitted or
burdened by the actions of a corporation or whose actions may
benefit or burden the corporation. Some common examples of
stakeholders would include customers, employees, suppliers,
stockholders, and the community.
Businesses will almost always have multiple stakeholders, and
many times their interests will conflict. This means that a business
decision-maker will frequently have to make a decision in the face
of competing claims from different stakeholders. The question of
whose interests should be prioritized requires the exercise of
judgment. This skill—examining competing claims and deciding
which one is the strongest—is called evaluation. You will want to
consider the power, urgency, and legitimacy that each stakeholder
presents.
You should put yourselves in each stakeholder’s position—Why do
they care about the …
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