Defining Ethics

Many definitions of business ethics exist. The definitions include words such as moral principles, morality of human actions, standards of conduct, rights and wrongs, truth, honesty and fairness, values, customs, the Golden Rule, and philosophy. One researcher has developed a definition that synthesizes what he found to be the four most mentioned concepts in existing definitions: “Business ethics is rules, standards, codes or principles which provide guidelines for morally right behaviour and truthfulness in specific situations” (Lewis, 1985, p. 381).  Lewis and others argue that business ethics is difficult to define as it apparently means different things to different managers. However, the definition given above and the discussion of its main components provide a basis for understanding the concept.

Assessment of Ethical Implications in Business Decisions

The following Figure illustrates how managers consider ethical implications of business decisions or actions. Three levels of assessing ethical implications are identified: awareness, assessment based upon influences, and assessment based upon ethical principles.

Level 1 assumes an awareness of moral or ethical implications of business decisions or actions.  This may not be the case as some managers behave in an amoral manner. Managers with an amoral approach to ethics disregard all moral responsibilities when making decisions.  In order to assess ethical implications there must be an awareness of ethics.

The ethical implications of business decisions or actions can be assessed by individual and/or societal influences that are described as value judgments of purpose and moral standards of behavour.  Value judgments are subjective evaluations of what is considered important and are based on how managers intuitively feel about the goodness or rightness of various goals (Hosmer, 1994b, 23) .  Moral standards are defined as the means by which individuals judge their actions and the actions of others based upon accepted behaviour in society (Hosmer, 1987, 96).  Both types of influences can vary by culture, country, and time.  Level 2 is that most commonly used by managers, and most individuals.

Level 3 represents a more systematic analysis or assessment of ethical implications.  The assessment is based on the use of fundamental ethical principles to evaluate the outcomes from decisions or corporate actions.  A conscious effort is made to identify and analyze the distribution of benefits and harms to all stakeholders affected.

Levels 2 and 3 are described in the following sections.

Figure

Levels of Ethical Assessment

Level 1

¯

Level 2

¯

Level 3

¯

Influences on Ethical Behaviour

There is no definitive influence of ethical behaviour, and the following list identifies likely sources.

Individual Morals - Managers often make ethical decisions based on the morals they acquire while growing up. The family or home environment is a major influence, making the personal convictions of individual managers a source of ethical standards.

National and Ethnic Cultures – The cultural traditions of a country or an ethnic group influence how managers view society and business practices.

Government Legislation and Regulation - Government legislation does influence ethical decisions. For example, the Competition Act makes some questionable market practices illegal and thus discourages some managers from becoming involved in such practices. Certain government and industry regulations require the disclosure of certain information to protect the interests of stakeholders. For example, when selling shares to the public, a corporation must clearly state certain information about its finances and operations.

The Legal System - The law makes some behaviour illegal and most managers are sensitive to maintaining behaviour that is within the law. Moral judgments are contained in judicial decisions relating to business transactions.

Religion - For some managers, religious upbringing and contact with religious organizations as an adult provide a basis when confronted with ethical decisions.

Colleagues or Peers - The moral standards set by other businesspersons may become the basis on which an individual manager considers ethical issues.

Education - The educational process that a manager is exposed to may become a reference point. Ethical matters in general are examined in schools, and some managers may even have university education in ethics or philosophy.

Media - The possibility of exposure influences decisions. In fact, one test of ethical behaviour is whether or not the manager can defend the decision if it becomes known.

Corporate Missions, - Objectives, and Culture A mission statement usually involves identification of the values held by the organization, and these values are reflected in culture. Objectives that are socially oriented emphasize values or moral considerations.

Union Contracts - Union contracts often specify the type of action that can or cannot be taken by managers. For example, if there is to be a layoff, managers cannot retain their favourites but must release employees according to seniority.

Competitive Behaviour - The behaviour of others in the same industry affects a manager. For example, if one soft drink manufacturer decides to mount an advertising campaign based on attacking the competitor’s product rather than emphasizing the qualities of his or her own product, it is more likely that the attacked soft drink manufacturer will respond with a similar campaign.

Activist or Advocacy Groups (NGOs) - The numerous activist or advocacy groups existing in society can have an impact on business decisions. An example is the Taskforce on the Churches and Corporate Responsibility. This group was instrumental in getting some Canadian corporations to withdraw from South Africa.

Business or Industry Organizations - Many business or industry organizations encourage members to act ethically. For example, the Better Business Bureau (BBB) is comprised of “businesses, organizations and individuals who believe that it is in the interests of good business to be honest and fair to their customers and clients” (Better Business Bureau materials). BBB services are designed to promote and insure more ethical business practices.

Professional Associations - Business employs professionals such as lawyers, architects, engineers, and doctors. Ethical codes or guidelines have been developed by the professional associations and must be adhered to by their members.

These influences on ethical standards affect the decisions of managers and how they view moral dilemmas. But, by themselves, these influences do not insure any type of standardized or uniform behaviour. These influences result in individual value judgments and moral standards that affect the assessment of ethical implications by managers.

Most of these influences are not based on any theoretical basis of ethical assessment. As a result, the degree of assessment of ethical implications is most likely not complete or thorough. Proper and acceptable decisions may be made, but in order to perform a more systematic assessment of business decisions or actions, managers should consider a Level 3 analysis.

The following Table distinguishes between values judgments and morals standards as discussed in this section, and ethical principles described in the next section.

Table

Distinguishing Among Ethics, Morals and Values

Source: Summarized from Larue Tone Hosmer, “Strategic Planning As If Ethics Mattered,” Strategic Management Journal, Vol. 15, pages 22-24, 1994b.

The Theoretical Basis for Ethical Conduct

Business people have difficulty incorporating ethics into decision making as many principles exist and they are often described in very theoretical, abstract and complex language.  The same principle is sometimes broken down into several categories that can be confusing for persons without ethics education.  Many business people simply did not know how to apply ethics principles to business circumstances.

Hosmer (1994a) stated that it is no longer necessary to recognize all the distinctions in ethical theories for them to be useful.  Moral problems should be defined as resulting in harms to some and benefits to others.  This introduces more realism in the business context and takes into account the effects of competition. Some management actions have to be taken despite the harms to some stakeholders in order to maintain or enlarge the benefits to other stakeholders.

To enable business people to apply ethical principles, Hosmer suggested that only the ten most cited principles be used, and identified them as self-interest, personal virtues, religious injunctions, government requirements, utilitarian benefits, universal rules, individual rights, economic efficiency, distributive justice, and contributive liberty.

According to Hosmer, ethical principles are applied the same in any context.  Ethical principles are not subjective measures that vary with cultural, social and economic conditions. Instead, they are objective statements that transcend countries, religions, cultures, and times. 

The ten most cited principles of ethical analysis are described in more detail. Note that the names given the principles differ from those assigned by Hosmer and that the principles may be described in a matter inconsistent with Hosmer’s writings.

Self-Interest Ethic (Ethical Egoism)

Most individuals are influenced by their own interests and are genetically programmed to do what is right for themselves. Self-interest is always present and cannot be ignored even though many moralists have a low opinion of it as a basis of behaviour.  Self-interest is extended to organizations, and in particular, to corporations that are criticized for profit maximimization.  With self-interest, managers or businesspersons set their own standards for judging the ethical implications of their actions, that is, only the individual’s values and standards are the basis for actions.

There are problems associated with the self-interest ethic.  Carried of the extreme, self-interest is not desirable as an ethic. It is considered an easy way out and implies laziness as the person is relying on his/her own beliefs without a more complicated analysis. In the short term, self-interest is viewed as selfish behaviour, but the long-term results of a self-interested action should also be considered. Individuals relying on this ethic may become absolutists who consider only what they think is right and fail to take in to consideration the interests of others.  Few in society practice extreme self-interest or egoism.

Many fail to recognize that some degree of self-interest can be reconciled with morality and does include the consideration of others. Maitland (2002) claims that many confuse self-interest with selfishness, self-absorption, disregard for the right and interests of others, moneymaking, greed, materialism, hedonism, and profit maximization. He argues that many do not distinguish between morally acceptable and unacceptable expressions of self-interest. 

Kaler (2000) admits that the line between self-interest and concern for others is blurred, but has attempted make the distinction through gradations of self-interest and morality presented in the Figure below.  At the two extremes is complete altruism and egoism.  The goals of altruists are to account for and be sensitive to the interests of others to the point where their own interests are sacrificed or neglected (ultra-moral).  Egoism, or extreme self-interest, is excessive interest in oneself ignoring completely the interests of others.

In between these extremes are degrees or gradations of self-interest.  In the Figure below, the box represents the blurred distinction between the appropriate consideration of others versus only consideration of oneself.  Quasi-egoism and complete egoism could be considered unacceptable approaches to morality. However, the gradations above the box could be considered acceptable.

Figure

Kaler’s Gradations of Self-Interest and Morality

Ultra-moral

(Self-sacrificial altruism)

↑

Extraordinarily Moral

(Altruism without self-sacrifice)

↑

Ordinarily Moral

(Equal self-interest to others)

↑

Quasi-moral

(Disproportionate but not dominant self-interest)

↑

↓

Quasi-egoism

(Self-interest dominant but not total)

↓

Egoism

(Totally self-interested)

Source: Adapted from John Kaler, “Reasons To Be Ethical: Self-Interest and Ethical Business,” Journal of Business Ethics, Volume 27, 2000, page 163.

Many find no fault with reasonable, measured, and proportionate self-interest and it is acceptable for an individual to be appropriately self-concerned as long as the interests of others are considered.  Maitland (2002) argues that it is an individual’s interests not be too self-interested.  An appropriate gradation of self-interest draws the egoist into relations with others who are required to assist or enable the accomplishment of his/her self-interest. Thus, the enlightened egoist will be attentive to the needs of others, and  self-interest provides an incentive to restrain one’s self-interest.  Maitland counters the various attacks on self-interest and argues that it is not the same as money-making, greed, and hedonism.    For example, maximization of profits is acceptable in society as long as the interests of all relevant stakeholders have been considered and the corporation stays within the rules of operation provided in society through government.

The self-interest ethic has been described in some detail because it is so pervasive in society despite denials, it is often cited by critics of business as the only ethic businesspersons use, and it is widely misunderstood.

Personal Virtues Ethic

The application of self-interest, especially in the short term, may not result in the fair and courteous treatment of others.  The lack of forceful interference is not enough even if the long term result is good.  An individual’s behaviour is based upon being a good person with particular traits such as courage, honesty, wisdom, temperance, and generosity. People should act in ways to convey a sense of honour, pride and self-worth. The moral decisions made are not necessarily based on being kind and compassionate, or are not necessarily concerned about rights or benefits.  Instead, the decision maker is concerned about the character of his or her own actions.

Managers/owners must be honest, open, and truthful and should be proud of their actions.  Standards of behaviour towards others reflect fair and courteous treatment of one another, or in the case of business, the treatment of its stakeholders. Managers should ask themselves how they would feel if the bases and details of a moral action became known.  For example, managers should ask, "would I feel comfortable explaining to a national television audience why a particular decision was made?"  The disclosure audience can be colleagues, friends, partners,  family, or the public. The application of this principle in this manner is referred to as the “TV Test” or "Light of Day Test" by some ethicists (for example, Pagano, 1987). Hosmer expressed this ethic as: “Never take any action which is not honest, open and truthful, and which you would not be proud to see reported widely”  (1994b, 20-22).  The personal virtues of managers and businesspersons do provide a basis for deciding what is the right thing to do in business.

Ethic of Caring

What is truly good for society should be considered by managers/owners.  Honesty, truthfulness and temperance are not enough, and there has to be some degree of caring, compassion and kindness towards others.  Attention is given to specific individuals or stakeholders harmed or disadvantaged and their particular circumstances. There should be some sense of responsibility for reducing the harm or suffering of others and solutions are designed to respond to the needs of particular individuals or stakeholders.  Decision makers will be concerned with equity or what is appropriate in the circumstances.  Exceptions to universal application are fine when they will relieve suffering and harm.  Stated another way, this ethic assumes that there should be a sense of responsibility to reduce actual harm or suffering of particular stakeholders.

Managers/owners should act towards others in a way they would expect others to act towards them.  The moral decision should be examined from the perspective of other parties or stakeholders involved or affected to try to determine what response the other stakeholders see as the most ethical.  This principle is referred to as the Golden Rule, "Do unto others as you would have them do unto you."  Managers/owners would take actions that would be caring and work towards building a sense of community. In the corporation, this would include developing people, recognizing effort, considering family responsibilities, responding to a community problem, and accommodating disadvantaged groups. 

The advantage of this ethic is that it is responsive to immediate suffering or harm.  It allows for flexibility enabling the manager to respond quickly to changing circumstances. Precedents are not a concern. There are downsides to the use of this ethic in decision-making. The consideration of individual stakeholder problems might result in losing sight of the bigger picture and thus harming unintentionally some other stakeholder. Quite often the caring actions rely on subjective criteria or gut responses that limits the understanding of all the factors involved.  If used to the extreme, this ethic can result in decisions that appear subjective and arbitrary.

In business organizations, the ethic of caring is exemplified by developing employees,  responding to family or community problems, and participating in affirmative problems for disadvantaged groups.

Government Requirements Ethic

Unfortunately, not all managers/owners are kind and compassionate and committed to a commonly accepted goal. In their dealings with other stakeholders and one another, mangers/owners sometimes take advantage of someone else. In order to maintain fair competition and peace in society, there has to be a central authority that has the power to enforce basic rules of conduct.  In a democratic society, this authority is the government that provides a legal system and a code of laws, and thus determines what is just. The acceptance of this code of laws becomes a social contract with society which is accepted as the governing rules of society and determines what people consider is right.

Government legislation does influence decisions of business.  For example, the Competition Act makes some questionable market practices illegal and thus discourages some managers from becoming involved in such practices.  Government regulations require the disclosure of information to protect the interests of stakeholders, for example, when selling shares to the public, a corporation must clearly state certain information about its finances and operations. The legal system clearly makes some behaviour illegal and most managers are sensitive to maintaining behaviour within the law. Every law was once a moral standard and became a law because practice showed that is was necessary to have the law in place.  Businesspersons often argue that it is better to self-regulate or to police self than to encourage a law.  This is one of the main arguments for corporations to practice social responsibility.

The minimal moral standard for some managers/owners is to take actions that do not violate the law, that is, “It’s legal so it’s okay.”  This approach to ascertain what is right has some drawbacks.  Morality is more than just what is legal versus illegal and laws cannot cover everything.  Laws or government regulations can be arbitrary and designed to further the interests of particular individuals or organizations in society. Nevertheless, for many in business the law does represent the minimal moral standards.

Utilitarian Ethic

There is a need for a means of evaluating the laws of government as the people associated with government also have their self-interests.   This principle means that managers should make moral decisions that do "the greatest good for the greatest number."  When managers make decisions, they should consider whether the harm in an action is outweighed by the good, that is, a cost-benefit analysis is conducted.  If the action maximizes benefit, then it is the optimum course to take among alternatives that provide less benefit. Ethicists have described many variations of the utilitarian ethic, but this description is the most appropriate for managers. It is particularly appropriate when managers are attempting to understand the impact of an action on society and its various stakeholders.

As with other ethics, there are difficulties.  The utilitarian ethic does not account for what is just.  Also, there is a question of what is maximized to result in the community’s happiness. There is no accepted means to accurately measure some costs and benefits, and even if there were, there is a risk of miscalculating them.  Finally, there is no method for distributed the costs or benefits.  Despite these difficulties, managers often make a moral decision based on the greatest good for the greatest number.

Universal Rules Ethic

The determination of the net social benefit is good in theory, but it is difficult to apply, especially in business situations. It is challenging to distribute benefits and allocate harms fairly, as it is not possible to eliminate the self-interest of the person who decides. As an alternative, managers should behave in such a way that the action they take under the circumstances can be an appropriate decision or rule of behaviour for others in a similar situation.  One-way to express this principle is “what individuals believe is right for themselves, they should believe is right for all others.”  Persons should be treated as an end in themselves worthy of dignity and respect and never as a means to one’s own ends.  An advantage of the ethic is that it eliminates self-interest.

The ethic indicates that there should be rules and morals in society that should be fair to everyone, that they should universally apply, and that they should apply over time. This principle is also referred to as categorical imperative ethics, that is, it is complete in itself without reference to any other ends.  This means that a manager would only act if he or she were willing to have the decision become a universal law.

There are drawbacks to this approach to moral decision-making. It is questionable whether or not it is possible to always work to universal rules as exceptions usually exist. The ethic provides no scale between actions that are considered to be morally right or wrong.

Individual Rights Ethic

It is difficult, if not impossible, to eliminate self-interest given human nature. What is needed is a list of agreed-upon rights for everyone that will be upheld by everyone that becomes the basis for deciding what is right, just or fair. Examples of such rights are guarantees against arbitrary actions of government, the reinforcement of freedom of speech and religion, security against seizure of property, access to due process, and protection of privacy. Governments identify rights in constitutions, and the United Nations has made a “Universal Declaration of Human Rights.”  The advantage of this ethic is that there is no need to determine the greatest good or to establish a universal duty.

Problems exist in determining and agreeing upon the list of rights. Often rights are in conflict with one another of there is a conflict between the holders of those rights creating dilemmas that are not easily resolved. In business, stakeholders have various rights, some of which are supported by laws.  For example, employees have a right to privacy and shareholders to disclosure of information that will impact on their investments. 

Economic Efficiency Ethic

It is also necessary to maximize output of society in order to provide the essentials of food, clothing, and shelter.  Adam Smith’s Wealth of Nations is held up as the foundation for this ethic according to which managers may take selfish actions and be motivated by personal gains in their business dealings. Selfish actions in the marketplace are justified as they contribute to the efficient operation of the economy, which in turn results in prosperity and the optimum use of society’s resources. Profits are maximized but are subject to market and legal constraints, but the role of the state is minimized. In individuals, economic efficiency would be exemplified by frugality.

Business is allowed to convert scarce resources, capital, materials, and people, into the goods and services needed in society in the most economical way.  Resources are not to be wasted and enlightened businesspersons are concerned about environmental sustainability.  The corporation’s success is measured by its economic efficiency and competitive effectiveness which leads to social betterment.  Society benefits or the public good is increased when there is an improved use of scarce resources.  This does not mean cutting corners and producing poor quality products or providing unsafe working conditions for employees. But, it does involve the substitution of capital for labor and making use of the economies of scale, scope and experience. Abuses will be avoided if effective markets exist and economic efficiency differs from self-interest in that business must operate within market constraints.

There are some difficulties with this ethic.  Often non-competitive markets exist resulting in market domination and excessive profits. Economic efficiency leads to some stakeholders not participating fully, and inequalities will result. Those that oppose capitalism and those that advocate for alleviation of the perceived abuses of business frequently criticize this ethic.

Ethic of Justice

This ethic considers that moral decisions are based on the primacy of single value: justice. It is preferred by those who view ethical dilemmas as involving a conflict between rights that can be resolved by the impartial application of some general principle. Thus, the fairness of the process is important, but so is the equitable (but not necessarily equal) distribution of results. Each stakeholder has rights relating to the distribution of benefits or harms from an action or decision.  In the equitable treatment of stakeholders, precedents should be avoided. There is a need to ensure that no stakeholders are not left out, and an implicit social contract exists in society that the poor, uneducated and unemployed should not be made worse off, in particular, by any actions of business.

Ethicists have identified several forms of justice.

• Procedural. This involves the impartial application of rules or procedures.
• Corrective. Stakeholders are compensated appropriately for wrongs that are suffered.
• Retributive. This form is concerned that punishment should fit the offence.
• Distributive. There is concern for how all stakeholders are treated. This form of justice is often applicable in business situations.

The advantage to using this ethic is that it attempts to look at a dilemma logically and impartially.  This ethic is appealing, as all are perceived to have an equal right to equitable treatment.  A disadvantage is that it is difficult to decide, outside of the law, who has the moral authority to reward or punish whom.  Insuring that benefits are distributed fairly to everyone is challenging, and there may be arbitrariness in deciding which rules to apply.  Persons relying on this ethic may unintentionally ride roughshod over some stakeholders in favour of some abstract ideal.  The immediate interests of particular stakeholders maybe overlooked, and the ethic is perceived as being impersonal, inflexible, cold and uncaring. Persons who prefer this ethic may tolerate harms to some stakeholders in the name of justice or some right. Discriminatory behaviour is acceptable as long as the relative inputs of those affected are considered.

With this ethic, managers should act to insure a more equitable distribution of benefits so that all individuals are better off.  But, markets are unjust in the distribution of resources resulting in poverty, some poorly educated citizens, and unemployment. Justice is reflected in the following business practices: the development of outstanding goods and services, employee skill and competency development, the use of teams, and fair and honest treatment of all stakeholders.

Contributive Liberty

A manager’s ethical decisions should be based upon the primacy of a single value, liberty.  Liberty is considered a first requirement of society and is defined as the freedom to follow one's own self-interests within the constraints of the law and the market.  This freedom is considered more important than justice and the right to be included in the overall distribution of goods and services. No law should interfere with the right of self-development, as it will eventually contribute to the welfare of society.  This ethic assumes that everyone should act to ensure freedom of choice as this promotes the market exchange that is essential for the well being of all in society.

The name for this principle was formulated by Hosmer (1994a, 164) and is in contrast to distributive justice.  Anything that violates individual liberty has to be considered as unjust even if greater benefits result to others, even the poorest in society. The principle is applicable even in a society where association with others is necessary and desirable.  Cooperation with others is necessary as individuals have holdings of goods and services that they need to exchange with others.  The exchanges, or transfers, are appropriate as long as they are voluntary and therefore just whereas non-voluntary exchanges involving social force or other coercive means are unjust.  Individuals must be allowed to make informed choices leading to their personal betterment, but this is only appropriate if the same choices or opportunities are extended to others.  Justice depends upon equal opportunity to choice and exchange, but not on the equal allocation of wealth or income.

 There is a downside with the application of this principle as it is difficult to apply.  It is based on a narrow interpretation of liberty that is limited to the negative right not to suffer interference from others. The appropriateness of the type and the extent of interference is difficult to establish. For example, should there be interference to assist in an individual’s pursuit of self-development and self-fulfilment? (Hosmer, 1991, 116-117; Hosmer, 1994a, 164-166; Hosmer, 1994b, 22).

The ten principles represent a wide range of ethical philosophy.  The assessment of the appropriateness of behaviour would vary substantially among these principles. This is one reason why there is such a deviance of views regarding whether particular actions are correct.  Managers can use these principles to become better informed of the consequences of their decisions.

Moral Reasoning

The description of how the implications of ethics could be assessed in the business environment represents an approach to thinking or reasoning through a moral problem or issue.  In general terms, an approach to moral decision-making would include the following steps although there are variations to the sequence:

• Define the moral issue or decision

• Gather of all relevant information
• Identify the stakeholders involved
• Develop possible alternative solutions
• Consider the applicable value judgments, moral standards and ethical principles.
• Identify the distribution of harms and benefits to the stakeholders by each alternative with each ethical principle used
• Determine any practical constraints that might apply
• Decide on the action or decision to be taken that can be supported, explained, and defended if necessary.

Hosmer (1994b) argues that one or more of the ethical principles should be used to analyze a moral dilemma.  For each principle the distribution of harms and benefits to the relevant stakeholders is identified.  As the principles represent a wide range of perspectives and no one principle is necessarily consistent with others, the conclusions reached through the use of each principle will vary. By using a range of perspectives, managers can increase their understanding of the various ethical implications of their decisions.  It is unlikely that any single ethical principle can ensure a satisfactory analysis to every business decision or to a complex decision.   The use of several principles provides a board-based range of options to the manager, and identification of harms and benefits to stakeholders enables the manager to better understand the consequences of an ethical decision.

According to Hosmer, managers confuse ethics, morals and values.  Whereas ethics remain the same and do not differ among people, cultures or countries, morals and values do.  Decisions involving moral considerations are often based upon moral standards of society and value judgements held by individuals. It is important that managers use ethics principles as the basis of analysis and not rely solely on morals and values.  The moral standards and value judgements are partly determined by the influences mentioned above.

Many managers rely solely on moral standards and value judgements but they may not provide a sufficient analysis of the situation or result in the most satisfactory course of action. The ethical principles offer a form of analysis that systematically allocates the benefits and harms in a manner that recognizes the interests and rights of each stakeholder. This is more likely to result in an accommodation of stakeholders that will lead to more confidence and trust of the corporation. 

Approaches to Considering Ethical Implications

Chart below summaries the approaches managers might take to consider the ethical implications of business decisions.  Approach #1 is to ignore the ethical implications and not consider them and is increasingly unacceptable in today’s society.  Approach #2 represents Level 2 of ethical assessment where value judgements and moral standards are considered.  Depending upon the values and morals identified, this approach might be acceptable and result in a satisfactory consideration of ethical implications.  Approach #3 involves the systematic evaluation of business decisions through the use of ethical principles.  This approach would most likely result in a more satisfactory decision as the distribution of harms and benefits among stakeholders is analysed from different ethical perspectives and is viewed as being the most appropriate method. 

In Approaches #2 and 3, consideration of ethical implications is performed prior to making the decision.  Approach #4 is thought to be inappropriate as the decision is made without any consideration of ethics but value judgements, moral standards, and ethical principles are searched for after the fact as justification of the decision.  Such an approach would not be considered acceptable given today’s sensitivity of social responsibility and ethics.

Chart

Approaches to Consideration of the Ethical Implications in Business Decisions

Kohlberg’s Stages of Moral Development

How managers assess ethical issues and challenges varies greatly and one explanation is provided in this reading.  Another commonly referred to theory of moral reasoning was developed by Kohlberg  (1969, 1973, 1981) and posits that individuals have identifiable cognitive skill levels that they use in resolving moral dilemmas. These skills are developed over time as a result of educational experience and the socialization processes in maturing from childhood to adulthood. The Table below summarizes six Stages of Moral Development in three levels. He has also proposed a seventh stage, “Beyond morality and justice” which is not described (Kohlberg and Ryncarz, 1990).

Kohlberg’s work has been criticized on theoretical and methodological grounds but is often described in relation to the ethics of business.  It is another approach to explaining how managers behave morally and it is believed that most managers use Stages 3 and 4. The stages of moral development suggest that managers learn through experience and training to consider the ethical implications of decisions differently over time and in different situations.

Table

Kohlberg’s Stages of Moral Development

Source: Lawrence Kohlberg (1969), “Stage and Sequence: The Cognitive Development Approach to Socialization,” in Handbook of Socialization Theory and Research, D.A. Goslin, ed., Chicago: Rand McNally, pages 347-480; Lawrence Kohlberg (1973), “The Claim of Moral Adequacy of a Highest Stage of Moral Judgment,” The Journal of Philosophy, Vol. LXX, pages 630-646; and Lawrence Kohlberg (1981), Essays on Moral Development, Vol 1 : The Philosophy of Moral Development, New York: Harper and Row.

A question that can be asked is: How can  managers and businesspersons be moved towards Approach #3 identified in the chart “Approaches to Consideration of the Ethical Implications in Business Decisions,” and the Post Conventional Level in Kohlberg’s “Post Conventional Level” of moral reasoning. Several things can be suggested in general terms. Managers should be encouraged to view situations from various points of view or from the perspectives of relevant stakeholders. They should be introduced to moral reasoning processes and engage in logical thinking or a reasoned argument. In addition, they should be exposed to moral controversy through training or by example. Resources persons more experienced in moral reasoning should be available to managers and businesspersons.

The next reading, “Managing the Ethics of Business,” identifies some initiatives being undertaken by corporations to make managers aware of ethics in the business environment and to reinforce ethical behavour.

Summary

Business ethics has been an “in” topic for the past decade. The topic has been discussed extensively in the literature, the media, and the classroom as well as on the Internet. Ethical behaviour as it relates to a variety of contexts has been examined, for example, as it relates to public administration and government, the environment, multinational corporations, banking, competitiveness, and industrial relations. There has been an extensive examination of ethical behaviour not only as it relates to business and the corporation but also as it impacts the various interrelationships among business, society, and stakeholders.

In this reading, a definition of business ethics, considered to be appropriate for the purpose of this discussion, was selected from a review of the literature. The numerous sources and influences on ethical behaviour were identified, indicating that the ethics of businesspersons and managers are established in different ways. Ten ethics principles are described that might be appropriate for managers and businesspersons to consider when addressing moral dilemmas or decisions: self-interest, personal virtues, caring, government requirements, utilitarian, universal rules, individual rights, economic efficiency, justice, and contributive liberty.

The process of moral reasoning is described. In particular, Kohlberg’s stages of moral development is outlined as it has an application to the ethics of business. The preconventional, conventional, and pose conventional levels and the six stages illustrate the attitude that managers may have towards assessing the implications of ethics in the business environment. 

References

Hosmer, Larue Tone.  (1994b). “Strategic Planning As If Ethics Mattered,” Strategic Management Journal, Vol. 15, 1994, pages 17-34.

Hosmer, Larue Tone. (1987). The Ethics of Management (1st ed.). Homewood, IL: Irwin.

Hosmer, Larue Tone. (1991). The Ethics of Management (2nd ed.). Homewood, IL: Irwin.

Hosmer, Larue Tone. (1994a). Moral Leadership in Business. Burr Ridge, IL: Irwin

Kaler, John. “Reasons To Be Ethical: Self-Interest and Ethical Business,” Journal of Business Ethics, Volume 27, 2000, pages 161-173.

Kohlberg, Lawrence (1973), “The Claim of Moral Adequacy of a Highest Stage of Moral Judgment,” The Journal of Philosophy, Vol. LXX, pages 630-646.

Kohlberg, Lawrence (1981), Essays on Moral Development, Vol 1 : The Philosophy of Moral Development, New York: Harper and Row.

Kohlberg, Lawrence (1969), “Stage and Sequence: The Cognitive Development Approach to Socialization,” in Handbook of Socialization Theory and Research, D.A. Goslin, ed., Chicago: Rand McNally, pages 347-480.

Kohlberg, L. and R. Ryncarz (1990). “Beyond Justice Reasoning: Moral Development and Consideration  of a Seventh Stage,” in C. Alexander and E. Langer, eds., Higher Stages of Human Development: Perspectives on Adult Growth, New York: Oxford University Press.

Lewis, Phillip V. (1985). Defining business ethics: like nailing jello to a wall. Journal of Business Ethics, 4, pp. 377-383.

Maitland, Ian. (2002). “The Human Face of Self-Interest,” Journal of Business Ethics, Volume 38,  pages 3-17.

Pagano, Anthony M. (1987). Criteria for ethical decision making in managerial situations. Proceedings, National Academy of Management, New Orleans, pp. 1-12.

Sexty, Robert W. (1998). Canadian Business in the New Stakeholder Economy. Scarborough, Ontario: Prentice-Hall Canada.

APPENDIX

Internet Materials on Business Ethics

Business ethics is another topic with volumes of information on the Internet. The purpose of the following two sites is to provide you with an opportunity to understand your own ethics!

Business Ethical Dilemmas, Institute for Global Ethics Web Site

Read the “Business Dilemmas” and decide what you would do in each situation. Then check the solutions provided against what you think should have been done.

Dilemmas Page:  http://www.globalethics.org/dilemmas/default.html

Ethics Self Tests

How ethical are you?  Take the following “ethics” tests and find out!

• World Bank Institute Ethics Self-Test

Home Page: http://www.worldbank.org/wbi/corpgov/core_course/m5/m5selftest.htm

• Business Ethics and Social Issues Exercise, Survey of Ethical Theoretical Aptitudes, San Diego State University.

Home Page: http://www-rohan.sdsu.edu/faculty/dunnweb/exer.bradyinstrument.html

·        Center for Ethics and Business at Loyola Marymount University “Ethics Toolbox” for handling ethical dilemmas.

Home Page: http://www.ethicsandbusiness.org/toolbox.htm