Business Ethics

P13601
DR. ALIM J. BEVERIDGE
2014-15
LECTURE 4

Making Decisions in
Business Ethics:
Descriptive Ethics

Todays Lecture
What are ethical decisions?
Why do people and companies act ethically or

unethically?
How do individual and situational factors
impact upon our ethical decision making at work?
Helps understanding occurrence of misconduct
(wrongdoing) such as accounting fraud, violation
of human rights, etc.

Introduction
Business ethics is not just about working out what

is the right thing to do; i.e. ethical theories

(normative ethics, normative=prescriptive)
It is also about understanding how and why people
make certain moral choices and why they act as
they do in ethical situations (descriptive ethics,
behavioral ethics)

Tragedy of the Commons

Why does it happen even though all our ethical

theories say its wrong? Even though we know it

hurts us and everyone else?

Some Initial Questions

Why do people make poor ethical judgments are some

people just more unethical than others?

Why do people sometimes make decisions that a rational
person would know is bad (even for themselves)?
Why do even good people sometimes make bad ethical
decisions at work?
Why do people at work sometimes make ethical
decisions that go against their own ethical standards and
principles?
Behavioral (Descriptive) ethics attempt to answer these.

The New Perspective

Typical View

New View

Frequency

Rare

Prevalent

Misconduct (Act)

Clearly wrong

The line between right

and wrong can be blurry

Perpetrator
(Actor)

Malevolent or
immoral person

Ordinary person, even

morally upstanding

Organizational
Factors

A few, clearly flawed

structures, systems or
processes

Any number of structures,

systems and processes
that are generally healthy
and functioning well

Palmer, 2013

Bad Apple or Not?

How did the alter boy of all those years ago end up

here? Walter Pavlo

Ethical Decision Making

How people make ethical decisions
Factors that influence ethical decision making

Rests Model of Ethical Decision

Making
Individual factors

Recognise
Moral
Issue

Make
Moral
Judgement

Establish
Moral
Intent

Contextual factors

Engage
in Moral
Behaviour

Rest, 1986

Individual Influences on Ethical

Decision Making

Individual Factors

Crane & Matten, 2010

National and Cultural Characteristics

People from different cultural backgrounds likely to

have different beliefs about right and wrong,

different values, etc. and this will inevitably lead to
variations in ethical decision-making across nations,
religions and cultures.

Cultural Perspective
Cultural differences have significant impact on

corporate governance and business goals

Hofstede surveyed MBA students from different
countries and assessed what they thought their
business leaders would rate as the most
important business goals

Ranking of Business Goals

Comparing Countries
USA

Germany / Netherlands

China and US
USA

China

Education and Work

Type and quality of education may be influential
E.g., people who have studied business or economics

are more likely to put their own interests ahead of

others in experiments and to cheat
Amoral business education reinforces myth of
business as amoral (Ghoshal, 2005 )
One reason why Business Ethics and CSR are part of
the curriculum, also key pillar of research and
education in UoN through ICCSR.

Ethical Behavior
Which individual factors have the strongest

influence on unethical behavior?

Meta-analytic
results from
Kish-Gephert,
Harrison &
Trevino, 2010

Rests Model of Ethical Decision

Making
Individual factors

Recognise
Moral
Issue

Make
Moral
Judgement

Establish
Moral
Intent

Contextual factors

Engage
in Moral
Behaviour

Rest, 1986

Situational and Systemic Influences

on Ethical Decision Making

An Interactive Model

Individuals

Situation
National Culture

System

The Power of the Situation

How much does ethical

behavior depend on the

situation?
Can it turn ordinary
people into bad people
(demons, monsters)?

The Stanford Prison

Experiment

Conducted by Prof. Philip Zimbardo

at Stanford University in 1971

Basement of the psychology building
was turned into a prison.
24 university students participated.
All males.
Half were randomly assigned to be
guards; half were randomly assigned
to be prisoners.

The Stanford Prison Experiment

Outcomes:

Some guards treat the prisoners with excessive

aggression; prisoners became servile and helpless
After 36 hours first prisoner has to be released
Experiment uncontrollable -> stopped after 6 days
Individual behavior is largely controlled by role and

situation rather than personal characteristics and

traits
People embrace their roles, even the experimenters
(even though everyone knew it wasnt real)

TED Video
Prof. Phil Zimbardo (Stanford University):

The Psychology of Evil

Systems
Systems operate at different levels
Multiple nested systems jointly influence a

situation

Nested Systems
National/regional culture, religion,

legal system: values, beliefs

Professional culture, education
Organizational culture, rewards

systems, formal and informal

structures of relationships and
power
Situational cues can activate

mental programming and

programmed behavior associated
with certain systems (or not)

Situation

Systemic Influences on
Ethical Decision Making

Human Nature According to

Social Psychology

Man is by nature a social animal Aristotle

Social psychology: human beings have evolved to

harmoniously live in groups

We are therefore good at cooperating, following
rules, observing others, conforming to group
behavior, expectations and norms

Power & Authority

People obey authority.

See themselves as not responsible, relinquish

responsibility to authority, suppress misgiving.
Eager to please authority figure.
People with power tend to think that normal rules

dont apply to them

Lose many inhibitions do or say things they wouldnt
normally do or say.
Abuse others.

Milgrams Experiments

The Power of the Group

Groups establish norms, exert pressure on members

to comply, exhibit desirable attitudes and behaviors

Members tends to conform
Groupthink: appearance of agreement, no one
willing to express dissenting views. Everyone seems
to be OK with it; Nobody speaks up
Diffusion of responsibility
It was the group; No one is responsible
All these apply to companies, departments, and
teams too

Social Influence Processes

Three types of influence or pressure on individual that
may lead to unethical behavior:
Explicit pressure to engage in unethical behavior
from peers or superiors
Implicit pressure:
everyone else is doing it
Commitment pressure:
Pressure to meet expectations created by prior
superior performance

Organizational Factors
Organizations have many ways of directing and

controlling member behavior .

Culture: The way we do things around here, The
____ Way, values, often invisible
Rewards systems: Explicitly signals to members
what is desired, expected.
Rules and procedures (bureaucracy) & roles.
These often have unintended consequences,
especially when they narrowly focus on instrumental
goals.

Reading Tip:

Grand Central
Publishing, 2012

Why I am leaving Goldman Sachs

It might sound surprising to a skeptical public, but culture
was always a vital part of Goldman Sachss success.
It revolved around teamwork, integrity, a spirit of humility,
and always doing right by our clients. The culture was
the secret sauce that made this place great and allowed us
to earn our clients trust for 143 years. It wasnt just
about making money; this alone will not sustain a firm for
so long. It had something to do with pride and belief in the
organization.
I am sad to say that I look around today and see virtually
no trace of the culture that made me love working for
this firm for many years. I no longer have the pride, or the
belief.

Why I am leaving Goldman Sachs

Over the course of my career I have had the privilege
of advising two of the largest hedge funds on the
planet, five of the largest asset managers in the
United States, and three of the most prominent
sovereign wealth funds in the Middle East and Asia.
My clients have a total asset base of more than a
trillion dollars. I have always taken a lot of pride in
advising my clients to do what I believe is
right for them, even if it means less money for the
firm. This view is becoming increasingly unpopular
at Goldman Sachs. Another sign that it was time to
leave.

Why I am leaving Goldman Sachs

These days, the most common question I get from
junior analysts about derivatives is, How much
money did we make off the client? It bothers
me every time I hear it, because it is a clear reflection
of what they are observing from their leaders about
the way they should behave. Now project 10 years
into the future: You dont have to be a rocket
scientist to figure out that the junior analyst sitting
quietly in the corner of the room hearing about
muppets, ripping eyeballs out and getting paid
doesnt exactly turn into a model citizen.

Reading tip:
The Smartest Guys in the
Room: The Amazing Rise and
Scandalous Fall of Enron
Bethany McLean, Peter Elkind
Penguin Books, 2003
Or see the film:

Enron: The Smartest

Guys in the Room (2005)

Ethical Behavior
Which organizational factors have the strongest

influence on unethical behavior?

Meta-analytic
results from
Kish-Gephert,
Harrison &
Trevino, 2010

Other Social and Cognitive Factors

Human Nature According to

Cognitive Psychology

Bounded rationality

We are boundedly rational: there are limits to our

cognitive (mental, information processing) abilities
We filter information and fit it into schemas
(categories, boxes)
We tend to take in very little information (cues)
and reach good enough decisions based on it
(satisfice)
Scripts help us automate decision making and
action
Gioia, 1992

Rational Decision Making or Not?

Research evidence shows discrepancies between

intent and actual behavior

This suggests that some ethical decision making is
not rational, but automatic, impulsive and
unconscious
An emerging view holds that ethical decision making
is often automatic (ethical impulse perspective)
rather than rational (ethical calculus perspective)
This view is also known as bounded ethicality

Moral Recognition
One key issue is whether the person realizes he or

she is faced with an ethical decision

Also known as Moral awareness
Recognise
Moral
Issue

Make
Moral
Judgement

Establish
Moral
Intent

Social & Cognitive Factors

Engage
in Moral
Behaviour

Rest, 1986

Moral Framing
The same issues or dilemma can be perceived very

differently according to the way that the issue is

framed (e.g., language used to discuss it)
Pragmatic framing (this is a business decision)
triggers a cost-benefit, profit calculation mode of
thinking
Moral framing (this is an ethical decision) could
motivate decision makers to assess the impacts on
stakeholders (employees, consumers, suppliers), not
only shareholders
Kreps & Monin, 2011

Moral Muteness
Moral muteness
Excising moral concerns (framing) from ones
communications

Bird & Waters, 1989

Moral Myopia
Moral muteness can lead to:

Moral myopia, distortion of moral vision: the

inability to clearly recognize the ethical dimension
of an issue

Bankers being unable to understand the moral

implications of restarting the bonus payments after banks
just almost went bankrupt, clients lost their homes,
governments bailed banks out.
Zimbardo in his own experiment
(Stanford Prison Experiment)

Dumwright & Murphy, 2004

Moral Intensity
Issue-specific factors that can influence moral

awareness:
1. Magnitude of consequences
2. Social consensus
3. Probability of effect
4. Temporal immediacy
5. Proximity (social, cultural, psychological or
physical) and
6. Concentration of effect
Jones, 1991

Moral Intensity

Meta-analytic
results from
Kish-Gephert,
Harrison &
Trevino, 2010

Recall: Thought Experiments 1 & 2

Experiment 1: You can pull a lever to switch the

trolley to a different set of tracks.

Experiment 2: You can push a very fat man over the
bridge and onto the track to stop the trolley.

nytimes.com

Results of Thought Experiments

Consequences are identical.

Why this considerable difference? Moral intensity

Cognitive Biases
Biases are unconscious distortions of perception
Overconfidence bias
It would never happen to me. Leads to vulnerability, lack
of preparedness.
Social discounting
Placing less importance on the needs of others; discounting
the needs of distant persons (i.e. strangers, people of a
different culture) more than your own or of those you are
close to or similar to (cf. Proximity)
Discounting the future
Placing less importance on future (or future generations)
needs than current ones (cf. Temporal immediacy)

Rationalization Tactics
Rationalizations serve to convince the actor that their

actions are not unethical through excuses or

justifications.
Denial of responsibility
I didnt do it, I had no choice, None of my business
Denial of injury

No one was really harmed, It could have been worse

Denial of victim

They deserved it, They chose to participate

Social weighting

You have no right to judge us, Others are worse than we

Anand, Ashforth & Joshi, 2004
are

Rationalization Tactics
Appeal to higher loyalties
We answer to a higher cause
Moral equilibrium (or Moral licensing , aka

Metaphor of the ledger)

Good deeds excuse wrongdoing
Start small (Zimbardo)
Rationalizations can be used before the act

(prospective) or after (retrospective)

Prospective rationalization can lead to moral myopia
Retrospective rationalization helps reduce
misgivings and feelings of guilt Anand, Ashforth & Joshi, 2004

Tragedy of the Commons

Biases and rationalization can explain this behavior

Rationalization
How did the alter boy of all those years ago end up

here? Walter Pavlo

Rationalization

Ford Pinto Case

Ford Pinto Case

"Problem" was a word whose public use was forbidden by
the legal office at the time, even in service bulletins, because
it suggested corporate admission of culpability. "Condition"
was the sanctioned catchword.
Framing
My cue for labeling a case as a problem either required high
frequencies of occurrence or directly-traceable causes.

Moral Intensity (Probability of effect)

The revulsion on seeing this incinerated hulk was immediate

and profound.

Moral Intensity (Magnitude of Consequence,

Proximity)

Ford Pinto Case

Comparisons revealed that although many cars in this
subcompact class suffered appalling deformation in relatively low
speed collisions, the Pinto was merely the worst of a bad lot.

Rationalization (Denial of injury)

Before I went to Ford I would have argued strongly that Ford had
an ethical obligation to recall. After I left Ford I now argue and
teach that Ford had an ethical obligation to recall. But, while I was
there, I perceived no strong obligation to recall and I remember
no strong ethical overtones to the case whatsoever.

Moral myopia

Cognitive overload
Removal of emotion

Moral Excellence
Ethical vs. unethical behavior or moral excellence?
Behavioral ethics tends to focus on unethical

behavior. Positive deviance is rarely studied.

Aaron Feuerstein: Strong moral integrity and values

Many other examples: moralheroes.org

(Virtue ethics)

Moral Imagination
Definition:

Articulating and examining alternatives, weighing

them and their probable implications, considering
their effects on ones other plans and interests, and
considering their possible effects on the interests and
feelings of others (Jacobs, 1991: pp. 25)
Promising but more evidence needed on its impact
on decision making.

Business Integrity
In 1982 a flight attendant died after

taking a dose of Extra Strength Tylenol

Managers at Johnson & Johnson first
thought about trying to deny that the
company did anything wrong, but the
CEO said otherwise. (cf. Denial responsibility)
Even though there was no evidence of wrongdoing
by J&J, within a week the company had recalled
every bottle of Extra Strength Tylenol off store
shelves around the US.

Conclusion
Ethical decision making in business is subject to a

range of complex, interacting influences within a

situation
The new perspective suggests that unethical
behavior is much more like normal behavior than
we think
Various individual, systemic and situational forces
all have an important influence on decisions
Understanding (un)ethical decision making has
crucial implications for managing business ethics

Conclusion
Prepare for Seminar 1
Instructions for group presentations (Seminar 2)

posted on Moodle
Please create your group with 4 other students in
your seminar group and register group members
on Moodle (Group membership) by Saturday, 14
March.

Next Lecture
Ethics Management
CSR & sustainability standards, tools and reporting
Guest Lecturer: Dr. Ulf Richter
Read textbook chapter 5 and articles required for

lecture 5 (KPMG CR Reporting Survey 2013 Executive Summary; Zhang, Gino & Bazerman,
2014). Provided on Moodle.
THANK YOU