3.4 Managerial ethics

	Ethics can be defined as the capacity to reflect on values in corporate decision making process, to determine how these values and decisions affect various stakeholder groups and establish how managers can use these observations in day-to-day company management or ethics is the code of moral principles and values that govern the behaviors of a person or group with respect to what is right or wrong.
	Ethics sets standards as to what is good or bad in conduct and decision making. Ethics deals with internal values that are a part of corporate culture and shaped decisions concerning social responsibility with respect to the external environment.
	An ethical issue is present in a situation when the actions of a person or organization may harm or benefit others. Ethics can be more clearly understood when compared with behaviors governed by laws and by free choice figure 2.3 illustrates that human behavior falls into three categories.

The first is domain of codified law (legal standard).

			In which values and standards are written into the legal system and enforceable in courts. In this area, lawmakers have ruled that people and corporations must behave in a certain way.
			Such as obtaining licenses for cars or paying corporate taxes. The internet revolution has raised new legal issues such as how copyrights are interpreted in cyberspace.

3.4 Managerial ethics

The second is domain of free choice (Personal standard).

			The Domain of free choice is at the opposite end of the scale and pertains to behavior about which law has no say and for which an individual or organization enjoys complete freedom.
			An individual’s choice of religion or a music company's choice of the number of artists to sign or CDs to release is examples of free choice.

The third is domain of ethics (Social standard).

			Between these domains lies the area of ethics. This domain has no specific laws, yet it does have standards of conduct based on shared principles and values about moral conduct that guide an individual or company.
			In the domain of free choice, obedience is strictly to oneself. In the domain of codified law obedience is to laws prescribed by the legal system.
			In the domain of ethical behavior, obedience is to unenforceable norms and standards about which the individual or company is aware. An ethically acceptable decision is both legally and morally acceptable to the larger community.
			Many companies and individuals get into trouble with the simplified view that choices are governed by either law or free choice. It leads people to mistakenly assume that "If it's not illegal, it must be ethical," as if there were no third domain.

3.4 Managerial ethics

			A better option is to recognize that domain of ethics and accept moral values as a powerful force for good that can regulate behaviors both inside and outside corporations.
			As principles of ethics and social responsibility are more widely recognized, companies can use codes of ethics and their corporate cultures to govern behavior, thereby eliminating the need for additional laws and avoiding the problems of unfettered choice.
			Because ethical standards are not codified, disagreements and dilemmas about proper behavior often occur. An ethical dilemma arises in a situation when each alternative choice or behavior is undesirable because of potentially harmful consequences.
			Right or wrong cannot be clearly identified. The individual who must make an ethical choice in an organization is the moral agent. Consider the dilemmas facing a moral agent in the following situations.

1.

A top employee at your small company tells you he needs some time off because he has AIDS. You know the employee needs the job as well as the health insurance benefits. Providing health insurance has already stretched the company's budget, and this will send premiums through the roof. You recently read of a case in which federal courts upheld the right of an employer to modify health plans by putting a cap on AIDS benefits. Should you investigate whether this is a legal possibility for your company?

3.4 Managerial ethics

			2.	As a sales manager for a major pharmaceuticals company, you've been asked to promote a new drug that costs $2,500 per dose. You’ve read the reports saying the drug is only 1 percent more effective than an alternate during those costs less than one-fourth as much. Can you in good conscience aggressively promote the $2,500-per-dose drug? If you don't could live be lost that might have been saved with that I percent increase in effectiveness?
			3.	Your company has been asked to pay a gratuity in India to speed the processing of an import permit. This is standard procedure, and your company will suffer if you do not pay the gratuity. Is this different from tipping a maître in a nice restaurant?
			4.	You are the accounting manager of a division that is $15,000 below profit targets. Approximately $20,000 of office supplies were delivered on December 21. The accounting rule is to pay expenses when incurred. The division general manager asks you not to record the invoice until February.
			5.	Your boss says he cannot give you a raise this year because of budget constraints, but he will look the other way if your expense accounts come in a little high because of your good work this past year.

These are the kinds of dilemmas and issues with which managers must deal that fall squarely in the domain of ethics. Now let's turn to approaches to ethical decision making that provide criteria for understanding and resolving these difficult issues.

3.4 Managerial ethics

Figure 2.1: General, Task, and Internal Environment

Factors affecting ethical choices

	When managers are accused of lying, cheating, or stealing, the blame is usually placed on the individual or on the company situation. Most people believe that individuals make ethical choices because of individual integrity, which is true, but it is not the whole story.
	Ethical or unethical business practices usually reflect the values, attitudes, beliefs, and behavior patterns of the organizational culture; thus, ethics is as much an organizational as a personal issue.
	Let's examine how both the manager and the organization shape ethical decision making.

3.4 Managerial ethics

The Manager:

		Managers bring specific personality and behavioral traits to the job. Personal needs, family influence, and religious background all shape a manager's value system.
		Specific personality characteristics, such as ego strength, self-confidence, and a strong sense of independence may enable managers to make ethical decisions.
		One important personal trait is the stage of moral development. A simplified version of one model of personal moral development is shown in Figure 2.4.

At the pre-conventional level:

			1.	Individuals are concerned with external rewards and punishments and obey authority to avoid detrimental personal, consequences.
			2.	In an organizational context, this level may be associated with managers who use an autocratic or coercive leadership style, with employees oriented toward dependable accomplishment of specific tasks.

3.4 Managerial ethics

The conventional level:

			1.	At level two called the conventional level people learn to conform to the expectations of good behavior as defined by colleagues, family, friends, and society.
			2.	Meeting social and interpersonal obligations is important. Work group collaboration is the preferred manner for accomplishment of organizational goals, and managers use a leadership style that encourages interpersonal relationships and cooperation.

The post conventional or principled level:

			1.	Individuals are guided by an internal Set of values and standards and will even disobey rules or laws that violate these principles. Internal values become more important than the expectations of significant others.
			2.	For example, when the USS Indianapolis sank after being torpedoed during World War II, one Navy pilot disobeyed orders and risked his life to save men who were being picked off by sharks.
			3.	The pilot was operating from the highest level of moral development in attempting the rescue despite a direct order from superiors.
			4.	When managers operate from this highest level of development, they use transformative or servant leadership, focusing on the needs of followers and encouraging others to think for themselves and to engage in higher levels of moral reasoning.

3.4 Managerial ethics

			5.	Employees are empowered and given opportunities for constructive participation in governance of the organization. The great majority of managers operate at level two. A few have not advanced beyond level one.
			6.	Only about 20 percent of American adults reach the level- three stage of moral development. People at level three are able to act in an independent, ethical manner regardless of expectations from others inside or outside the organization.
			7.	Managers at level three of moral development will make ethical decisions whatever the organizational consequences for them.

The Organization:

The values:

			Adopted within the organization are important, especially when we understand that most people are at the level-two stage of moral development, which means they believe their duty is to fulfill obligations and expectations of others.
			All ethical decisions are made within the context of our interactions with other people, and the social networks within an organization play an important role in guiding people's actions.

3.4 Managerial ethics

			For example, for most of us, doing something we know is wrong becomes easier when "everyone else is doing it." In organizations, an important influence on ethical behavior is the norms and values of the team, department, or organization as a whole.
			Research has shown that these values strongly influence employee actions and decision making. In particular, corporate culture serves to let employees know what beliefs and behaviors the company supports and those it will not tolerate.
			If unethical behavior is tolerated or even encouraged, it will become routine. For example, an investigation of thefts and kickbacks in the oil business found that the cause was the historical acceptance of thefts and kickbacks.
			Employees were socialized into those values and adopted them as appropriate. In most companies, employees believe that if they do not go along with the ethical values expressed, their jobs will be in jeopardy or they will not fit in.

Culture:

			Can be examined to see the kinds of ethical signals given to employees. Culture is not the only aspect of an organization that influences ethics, but it is a major force because it defines company values.
			Other aspects of the organization, such as explicit rules and policies, the reward system, the extent to which the company cares for people, the selection system, emphasis on legal and professional standards.

3.4 Managerial ethics

Leadership:

			Leadership and decision processes, can also have an impact on ethical values and manager decision making.
			At Levi Strauss, for example, the selection system is aimed at promoting diversity of background and thought among workers, a set of "corporate aspirations" written by top management is to guide all major decisions, and one-third of manager's raise can depend on how well he or she toes the values line.

Figure 2.4: Three level of Personal Moral Development