Business & Society: Ethics,

Sustainability, and
Stakeholder Management,
11e
Chapter 6: Managerial and
Organizational Ethics

Carroll/Brown, Business & Society: Ethics, Sustainability & Stakeholder Management; 11th Edition. © 2023 Cengage. All Rights Reserved. May not be
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 Personal and Organizational Ethics

• Managers encounter day-to-day ethical challenges in such areas as:

• conflicts of interest
• sexual harassment
• customer dealings
• pressure to compromise on personal standards, and more
• Many managers have no training in ethics or ethical decision making.
• Ethics is vital to business success.

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 Ethics Issues Arise at Different Levels

Personal level –
• Situations faced in our personal lives outside the context of our employment.
Managerial and organizational levels –
• Workplace situations faced by managers and employees.
Industry or profession level –
• A manager or organization might experience business ethics issues at the industry or
professional level.
Societal and global levels –
• Managers acting in concert through their companies and industries can bring about constructive
changes.
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 Discussion Activity 6.1.1

From your personal experience, give two examples of ethical dilemmas you have
experienced as a member of an organization. Discuss.

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 Managerial Ethics and Ethical Principles
(1 of 2)
There are Three Approaches-
• Conventional Approach
• Principles Approach
• Managers desire to make decisions based on a more solid foundation than is
provided by the conventional approach to ethics.
• A principle of business ethics is an ethical concept, guideline, or rule that assists you
in taking the ethical course.
• Ethical Tests Approach-
• Discussed later in this chapter.
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 Managerial Ethics and Ethical Principles
(2 of 2)
Three Major Approaches to Business Ethics or Ethical Decision Making
Approaches to Business Ethics Description
Conventional Approach (Chapter 5) Compare a decision, practice, or policy with society’s prevailing norms of
acceptability. This is the way conventional societies think.

Principles Approach Be guided by principles or guidelines, anchored in moral philosophy, that have
(Chapter 6) been around for centuries. Examples include the principles of rights, justice,
utilitarianism, care, virtue, Golden Rule, and servant leadership.

Ethical Tests Approach Ethical tests are practical questions you might ask yourself that might direct you
(Chapter 6) to pursue ethical courses of action. Examples include the tests of common sense;
one’s best self; making something public (disclosure rule); ventilation, purified
idea, Big Four, gag test.

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 What Is an Ethics Principle?

A principle of business ethics is an ethical concept, guideline, or rule that assists you in
taking the ethical course.
• Examples: Honesty is the Best Policy

The Golden Rule

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 Types of Ethical Principles

Teleological theories -
• Focuses on consequences or results of an action.

Deontological theories -
• Focuses on duties, without regard to consequences.

Aretaic theories -
• Focuses on the virtue of an action.

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 Principles Approach to Ethics

Major principles of ethics - • Principle of Justice (Fairness Principle)

• Principle of Utilitarianism • Rawl’s Principle of Justice
• Kant’s Categorical Imperative • Ethics of care
• Principle of Rights • Virtue ethics
• Competing Rights and Ethical • The Golden Rule
Dilemmas
• Servant leadership

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Various Legal Rights and Claimed Moral Rights in
Today’s Society

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 Discussion Activity 6.3.1

Which is most important in ethics principles – consequences or duty? Discuss.

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 Ethical Tests Approach to Decision Making
Ethical Test Practical Ethical Guideline
Common Sense If the proposed course of action violates your “common sense,” don’t do it. If it doesn’t pass the “smell” test,
don’t do it.
One’s Best Self If the proposed course of action is not consistent with your perception of yourself at your “best,” don’t engage
in it.
Making Something Public If you would not be comfortable with people knowing you did something, don’t do it. Don’t take a course of
action if you think your grandma might disapprove.
Ventilation Expose your proposed course of action to others’ opinions. Don’t keep your ethical dilemma to yourself. Get a
second opinion.
Purified Idea Don’t think that others in authority such as an accountant, a lawyer, or a boss can “purify” your proposed
action by saying they think it is okay. It still may be wrong. You will still be held responsible.

Big Four Don’t compromise your action or decision by tempting behaviors, such as greed, speed, laziness, or haziness.

Gag Test If you “gag” at the prospect of carrying out a proposed course of action, don’t do it.

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 Discussion Activity 6.4.1

Using the examples, you provided for question 1, identify one or more of the guides to
personal decision making or ethical tests you think would have helped you resolve your
dilemmas. Describe how it would have helped.

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 Managing Organizational Ethics

• Ethical decision making is at the heart of business ethics.

• One must sharpen one’s decision-making skills to avoid amoral thinking, and achieve
moral management.
• A manager must see the organization's ethical climate as part of its corporate culture.
• An ethical climate is shaped through actions taken, policies established, and examples
set.

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Factors Affecting the Morality of Managers and
Employees

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 Factors Affecting the Organization’s Moral
Climate
• Behavior of superiors – the number one influence on moral climate
• Behavior of one’s peers – the second influence; people do pay attention to what their
peers in the firm are doing
• Industry or professional ethical practices – ranked in the upper half; these context
factors are influential
• Personal financial need – ranked last

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 Improving the Organization’s Ethical Culture

• The emphasis is on creating an ethical organizational culture or climate, one in which

ethical behavior, values and policies are displayed, promoted, and rewarded.
• Compliance vs. Ethics Orientation
• Ethics thinking is principles based; compliance thinking is rule-bound and legalistic.
A compliance orientation can undermine ethical thinking.
• Compliance can squeeze out ethics.
• Managers many not consider tougher issues that a more ethics-focused approach
might require.

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 Discussion Activity 6.5.1

An ongoing debate concerns whether business ethics can and should be taught in business
schools. Do you think ethics can be taught in B-school? Substantiate your point with
reasons. Can top managers and board members be taught business ethics?

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 Behavioral Ethics (1 of 3)

• Behavioral Ethics helps us to understand many of the behavioral processes that are
taking place:
• Bounded ethicality – occurs when managers and employees find that behaving
ethically is difficult because of various organizational pressures.
• Conformity bias – the tendency people have to take their cues for ethical behavior
from their peers, rather than exercising their own, independent judgment.
• Overconfidence bias –people may be more confident of their moral character than
they have reason to be.

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 Behavioral Ethics (2 of 3)

• Self-serving bias – people may process information in a way that supports their preexisting
beliefs & self-interest.
• Framing – ethical judgments are affected by how an issue is posed; if posed as an “ethical”
issue, they make more ethical decisions.
• Incrementalism – a predisposition toward the “slippery slope.”
• Role morality – a tendency to use different ethical standards for different roles in life.
• Moral equilibrium – a tendency for people to keep an ethical scoreboard in their heads, and
use this information when making future decisions, balancing decisions, and avoiding a
moral “surplus.”

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 Behavioral Ethics (3 of 3)

• Ill-conceived goals – poorly set goals that encourage negative behaviors.

• Motivated blindness – overlooking the questionable actions of others when it is in one’s
own best interest.
• Indirect blindness – one holds others less accountable for unethical behaviors when they
are carried out through third parties.
• The slippery slope – causes people not to notice others’ unethical behavior when it
gradually occurs in small increments.
• Overcoming values – the act of letting questionable behaviors pass if the outcome is good.
This can occur when managers put more emphasis on results rather than on how the results
are achieved.

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 Discussion Activity 6.6.1

Which three of the concepts under the field of behavioral ethics appear to be the most
powerful? Explain why and give examples.

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 Best Practices for Improving an Organization’s
Ethics
Three key elements that must exist if an ethical organizational culture is to be
developed and sustained:
• The continuous presence of ethical leadership reflected by the board of directors, senior
executives and managers.
• The existence of a set of core ethical values infused throughout the organization by way
of policies, processes and practices.
• A formal ethics program which includes a code of ethics, ethics training, and an ethics
officer.

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scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23
Best Practices for Improving an Organization’s
Ethical Culture

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 Top Management Leadership (Moral
Management) (1 of 2)
• The moral tone of an organization is set by top management.
• In a poll of communication professionals, more than half believed that top management
is an organization’s conscience.
• Managers and employees look to their bosses at the highest levels for their cues as to
what practices and policies are acceptable.

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 Top Management Leadership (Moral
Management) (2 of 2)
• Weak Ethical Leadership – led an employee to embezzle $20,000 over a 15 year period,
explaining that they thought it was okay because their boss used firm employees for personal
needs, took money from the firm’s petty cash box, raided the soft drink machine, and used
company stamps. Their boss said it was all true, and that the employee should not be dealt with
too harshly.
• Strong Ethical Leadership – When a batch of tubes in production failed a critical safety test,
leaving in question the 10,000 already manufactured, the VP, without hesitation, said “scrap
them.” That act set the tone for the corporation for years, because everyone present knew of
situations in which faulty products had been shipped under pressure of time and budget.

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 Two Pillars of Leadership

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 Effective Communication of Ethical Messages

Requires –
• Written and verbal communication
• Non-verbal communication
• Candor – forthright, sincere, and honest
• Fidelity – be faithful to detail, accurate, avoid deception or exaggeration
• Confidentiality – exercise care in deciding what information to disclose to others. Trust
can be shattered if confidences are breached.

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 Ethics and Compliance Programs and Officers (1
of 2)
Ethics programs typically include: • Inclusion of ethical conduct in the
evaluation of employee performance
• Written standards of conduct
• Disciplinary measures for employees
• Ethics training
who violate ethical standards
• Mechanisms to seek ethics advice or • A set a guiding values or principles
information
• Methods for reporting misconduct
anonymously

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 Ethics and Compliance Programs and Officers (2
of 2)
Compliance programs Compliance Officers
• Structure • Head up compliance programs
• Oversight • Implement the array of ethics and
• Due Diligence compliance initiatives
• Communication • Many hired after Sarbanes-Oxley
• Monitoring • Started with compliance issues, ethics
• Promotion & Enforcement became focal point later on
• Response

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 Setting Realistic Objectives

• Managers must be keenly sensitive to the possibility of unintentionally creating

situations in which others may perceive a need or incentive to cut corners or do the
wrong thing.
• Unrealistic expectations are the primary driver of employees perceiving excessive
pressure to achieve goals.
• Example: A marketing manager set a sales goal of a 20% increase for the next year
when a 10% increase was all that could be realistically and honestly expected, even with
outstanding performance. A subordinate might believe that they should go to any lengths
to achieve the 20% goal.

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 Ethical Decision-Making Processes

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 Codes of Ethics or Conduct (1 of 2)

• A way of establishing standards of behavior and communicating them to managers and

employees.
• The single most important element of an ethics and compliance program.
• Virtually all major corporations have codes of conduct today.
• Many have worldwide codes or standards.
• Some codes of conduct are designed around stakeholders, others on conduct.

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 Codes of Ethics or Conduct (2 of 2)

• Employment practices • Relationships with vendors

• Employee, client, and vendor information • Environmental issues
• Public information and communications • Ethical management practices
• Conflicts of interest • Political involvement

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 Disciplining Violators of Ethics Standards

• Management must discipline violators of accepted ethical norms and standards.

• One reason many question the sincerity of business with regard to codes of conduct is
that many business are unwilling to discipline violators, implicitly approving their
behavior.
• Before disciplining anyone, the firm needs to have communicated its ethics standards
clearly and convincingly.

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 Ethics “Hotlines” and Whistle-Blowing
Mechanisms
• An effective ethical culture is contingent on employees having (with support of top
management) a mechanism for reporting violations.
• Hotlines are the most common way to report corporate fraud.
• Can be telephone, web, or email-based.

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 Business Ethics Training

• the fundamentals of business ethics

• to solve ethical dilemmas
• to identify causes of unethical behavior
• about common managerial ethical issues
• whistle-blowing criteria and risks
• to develop a code of ethics and execute an internal ethical audit

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 Ethics Audits and Risk Assessments

Ethics Audits –
• Intended to carefully review such ethics initiatives as ethics programs, codes of conduct,
hotlines, and ethics training programs.
Sustainability Audit –
• Helps to identify sustainability issues within an organization.
Fraud Risk Assessment –
• Review processes that identify and monitor conditions that may pertain to the
company’s exposure to compliance/misconduct risk and to review methods for dealing
with concerns.
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 Corporate Transparency

• A quality, characteristic, or state in which activities, processes, practices, and decisions

that take place in companies become open or visible to the outside world.
• The degree to which an organization:
• provides public access to information.
• accepts responsibility for its actions.
• makes decisions more openly.
• establishes incentives for leaders to uphold standards.

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 Board of Director Leadership and Oversight

• Leadership and oversight of ethical initiatives by boards has not been a given.

The Sarbanes-Oxley Act

• Companies are required to protect whistle-blowers without fear of retaliation.
• It is a crime to alter, destroy, conceal, cover up, or falsify documents to prevent their use
in a federal government lawsuit.

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 Discussion Activity 6.7.1

Identify and prioritize the best practices for improving the organization’s ethical climate.
What are the strengths and weaknesses of each?

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 Discussion Activity 6.7.2

What do you think about codes of conduct? Give three reasons why an organization ought
to have a code of conduct and three reasons why an organizations should not have a code
of conduct. On balance, how do you assess the value of codes of conduct?

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 Moral Decisions, Managers, and Organizations (1
of 2)
• The goal of managers should be to create moral decisions, moral managers, and
ultimately, moral organizations, while recognizing that what we frequently observe in
business is the achievement of moral standing at only one of these levels.
• The ideal is to create a moral organization that is fully populated by moral managers,
making moral decisions (and practices, policies, and behaviors), but this is seldom
achieved.

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Moral Decisions, Managers, and Organizations (2
of 2)

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