Ethical Decision-Making in Business

Moral myopia

-Failure to recognize unethical business decision-making as such -inability to recognize moral implications of a problem -leads to incentive gaming and failure to see conflicts of interest

Social/organization pressures: obedience to authority

tend to respect, follow those with perceived legitimate authority -fear of punishment/retaliation -encourages incentive gaming

Cognitive errors: loss aversion

tendency to hate losses more than we enjoy gains -more likely to make immoral decisions to avoid perceived potential losses than we would to make perceived gains -short term vs. long term decision making

Barriers to ethical decision-making

-cognitive errors -social/organizational pressures -situational pressures

Why do ethics matter?

-customer retention and market growth -current and prospective employees -less government regulation

Step 5: make a decision and test it

-public disclosure test: how would I feel if this action were described on the front page of a respected newspaper? -universalization test: how would I feel if everyone in a similar situation did this? -suitability test: how would my (our) action be viewed by members of this community? -legacy test: is this how I (we) would like to be remembered?

Moral muteness

Failure to speak out and/or act against such decisions. Occurs when we witness unethical behavior but say nothing -Reflects preference for conformity bias -requires rationalizations

Situational pressures: stress

research shows we act less ethically when tired

effects of moral myopia: conflict of interest

Conflicts of interest arise when: -individual interests do not align with organization's interests; or when -individual answers to two different individuals or groups whose needs are at odds with each other, such that serving one individual or group injuries the other

The rational decision-maker model

Courses in finance/economics teach us that markets are efficient because people are rational decision makers

Situational pressures: transparency

If people feel no one is watching, they act less ethically

effects of moral myopia: incentive gaming

Manipulation of pay-for-performance schemes. -mortgage lending pre-financial crisis -effects of no child left behind funding

Cognitive errors: tangible vs abstract

Natural tendency to consider immediate/tangible factors at expense of removed, abstract factors. -moral distance: easier to relate to relatively minor harms to family, children, co-workers, pets than more serious harms to those we don't know

Alternative ethical systems

Other types of ethical systems proscribe how people should behave

Social/organization pressures: Diffusion of responisibility

People feel less pressure to act when they believe, accurately or not, that others will do so.

Law-based ethical systems

Rules of law proscribe how people must behave. Law-based ethical systems are only designed for compliance

How do I make ethical decisions?

Step 1: recognizing an ethical (and/or legal) issue exists step 2: fact-gathering step 3: clarifying the decision-making process step 4: evaluate alternative actions. -utilitarian approach: which option will produce the most good and do the least harm? -the rights/duties approach: which option best respects the moral rights of all stakeholders? -the fairness approach: which option treats people equally or proportionately? -the virtue approach: which option leads me to act as the sort of person I want to be? Step 5: Make a decision and test it

Cognitive errors: euphemisms/reframing:

Tendency to make different decisions based on how Q is framed

Social/organization pressures: conformity bias

Tendency to mimic communal behaviors, rather than exercising one's own judgement -true whenever behavior is good or bad

Situational pressures: time pressures

Those under time pressure often act less ethically than when they are not

Cognitive errors: incrementalism (the slippery slope):

minor infractions, over time, lead to major infractions -example: most instances of accounting fraud begins w/ people altering small amounts that grow larger over time.