Chapter 5 Notes.pdf

Ethical Decision Making and Ethical Leadership Ethical Decision-Making in Business: - Individuals in organizations may not make ethical decisions as they do in their personal lives due to organizational pressures. - The chapter provides insights into ethical decision-making in o...

Ethical Decision Making and Ethical Leadership Ethical Decision-Making in Business: - Individuals in organizations may not make ethical decisions as they do in their personal lives due to organizational pressures. - The chapter provides insights into ethical decision-making in organizations and summarizes current knowledge in this area. - There are at least six widely accepted ethical decision models by academics and practitioners, which form the basis of generalizations about typical behavior patterns within organizations. - The framework for understanding ethical decision-making in the context of business integrates concepts from philosophy, psychology, sociology, and organizational behavior. - The model of the ethical decision-making process in business includes ethical issue intensity, individual factors, and organizational factors such as corporate culture and opportunity. - This model helps us understand the factors and processes related to ethical decision-making, but it does not describe how to make moral decisions.  Ethical Decision Making and Ethical Leadership Ethical Issue Intensity : - Ethical issue intensity refers to the relevance or importance of an ethical issue in the eyes of the individual, work group, and/or organization. It is influenced by personal and temporal factors, including values, beliefs, needs, perceptions, the characteristics of the situation, and personal pressures. - Senior employees and those with administrative authority significantly contribute to ethical issue intensity as they often dictate an organization’s stance on ethical issues. Under current law, managers can be held liable for the unethical and illegal actions of subordinates. - Ethical issue intensity involves individuals’ cognitive state of concern about an issue and reflects their ethical sensitivity in the decision-making process. Research suggests that individuals are subject to six “spheres of influence” when confronted with ethical choices—the workplace, family, religion, legal system, community, and profession. - The individual’s sense of the situation’s moral intensity increases his or her perceptiveness regarding ethical problems, which in turn reduces the intention to act unethically. Factors including individual factors, organizational factors, and intentions determine why different individuals perceive ethical issues differently. - Management can influence the perception of ethical issue intensity through the use of rewards and punishments, corporate policies, and corporate values to sensitize employees. Identifying and educating employees about specific problem areas is crucial in raising ethical issues intensity. - Companies must assess areas of ethical and legal risk and communicate the importance of ethical issues to increase employees’ ethical issue intensity. The perceived importance of an ethical issue strongly influences employees’ ethical judgment and behavioral intention. - Ethical issue intensity should be considered a key factor in the ethical decision-making process. Individual Factors - Individual factors in ethical decision-making are influenced by personal values, principles, and education.  Ethical Decision Making and Ethical Leadership - Scandal-plagued companies like AIG, Countrywide Financial, Fannie Mae, and Freddie Mac raise questions about individuals' character and integrity, often operating in their self-interest or disregarding the law and society's interests. - Personal ethical issues in the workplace include honesty, conflicts of interest, discrimination, nepotism, and theft of organizational resources. - The public's perception of individual ethics varies across professions, with factors such as gender, education, work experience, nationality, age, and locus of control affecting ethical awareness, judgment, intent, and behavior. - Research suggests that women tend to be more sensitive to ethical scenarios and less tolerant of unethical actions compared to men. - Education and work experience play significant roles in ethical decision-making, with more education and experience generally leading to better ethical decision-making. - Nationality and age also influence ethical decision-making, with cultural differences playing a role in organizational contexts. - Locus of control, which relates to individual beliefs about internal versus external control of events, has been linked to ethical decision-making, with internals showing a positive relationship (they believe they control events in their lives due to their effort and skills, master of their destinies and trust in their capacity to influence their environment) and externals showing a negative relationship ( go with the flow, believe that events in their lives are due to uncontrollable forces) Organizational Factors - Organizational values often have a greater influence on decisions than a person’s own values in the workplace. - Ethical choices in business are often made jointly, influenced by the organization's culture and structure. - Corporate culture includes values, norms, and artifacts shared by organization members and influences ethical decisions.  Ethical Decision Making and Ethical Leadership - An organization’s ethical culture reflects whether the firm has an ethical conscience and is influenced by corporate policies, leadership, coworkers, and opportunities for unethical behavior. - The more ethical employees perceive an organization’s culture to be, the less likely they are to make unethical decisions. - Significant others within the organization, including peers, managers, and coworkers, have a significant impact on a worker’s decisions. - Obedience to authority helps explain why many employees resolve business ethics issues by simply following the directives of a superior. - The type of industry and the size of the organization have also been found to be relevant factors in influencing ethical decisions. Opportunity - Opportunity in an organization describes the conditions that either allow or limit ethical or unethical behavior, arising from factors that provide internal or external rewards or fail to erect barriers against unethical behavior. - For instance, the absence of punishment for accepting large gifts from clients creates an opportunity for unethical behavior, while the prospect of rewards for unethical conduct can motivate individuals to engage in questionable decisions. - Opportunity is influenced by individuals' immediate job context, including the motivational incentives used by superiors. Positive reinforcements like pay raises and public recognition act as "carrots," while negative reinforcements like demotions and firings act as "sticks." - Organizations can eliminate opportunities for unethical behavior through the enforcement of formal codes, policies, and rules. For example, financial companies have developed elaborate sets of rules to prevent individual employees from manipulating their trusted positions. - Knowledge also creates opportunities for unethical behavior as individuals with information about the organization or competition may exploit this knowledge. Long-term employees often become "gatekeepers" of the organization's culture and may influence newer employees' ethical conduct. - Aggressive enforcement of codes and rules is essential for eliminating opportunities for unethical behavior, as demonstrated by a jewelry store-chain president's response to a buyer taking a bribe.  Ethical Decision Making and Ethical Leadership Terminating the buyer's employment and the supplier relationship illustrated how the opportunity to commit unethical acts can be eliminated. Business Ethics Evaluation and Intentions - Ethical dilemmas involve vague or conflicting decision rules, leading to uncertain results. - There are no magic formulas or software for solving ethical dilemmas; critical thinking and personal responsibility are crucial. - An individual's intentions and final decisions play a key role in ethical decision-making. - Inconsistent behavior with ethical judgment can lead to guilt and uneasiness. - Guilt can lead to justifications such as financial need, peer influence, and career concerns, which can reduce and eliminate guilt. - The concept of success drives intentions and behavior in business, with measures such as money, security, power, and personal gratification. The probability of rewards and punishments also influences behavior in business. Using The Ethical Decision-Making Framework To Improve Ethical Decisions Notes on the Ethical Decision-Making Framework:  Ethical Decision Making and Ethical Leadership - The framework does not dictate what is right or wrong but aims to prepare individuals to make informed ethical decisions in business. - It provides an overview of typical decision-making processes and factors influencing ethical decisions, rather than prescribing specific actions. - Business ethics scholars focus on regularities in decision-making and the various phenomena that produce predictable behavioral patterns, rather than normative judgments about what is ethical. - Thorough knowledge about ethical decision-making processes alone is unlikely to solve an organization's ethical problems, as business ethics involves value judgments and collective agreement about acceptable behavior patterns. - Understanding typical ethical decision-making in organizations can reveal opportunities for improvement and better preparedness to analyze critical ethical dilemmas and provide ethical leadership, irrespective of one's role in the organization. - Ethical decision-making within an organization is not solely reliant on personal values and morals, but also requires business knowledge and an understanding of the complexities of the dilemmas at hand. - Business competence and personal accountability are essential in ethical decision-making, as managers and coworkers exert significant influence on ethical decisions within an organization. The Role of Leadership In a Corporate Culture - Top managers play a crucial role in shaping a firm's corporate culture by providing a blueprint for desired behaviors and goals. - Leaders can guide and direct others toward achieving goals, which significantly impacts ethical decision-making within the organization. - Leaders have the power to motivate others, enforce organizational norms and policies, and influence the company's ethical posture.  Ethical Decision Making and Ethical Leadership - However, a poll found that less than half of employees in large organizations view their senior leadership as highly ethical, indicating a gap in ethical leadership perception. - Corporate governance reforms emphasize the importance of the board of directors as an essential leadership component, with a legal obligation to manage companies for the best interests of the corporation. - Directors should consider the effects of their decisions on shareholders, employees, and other stakeholders when determining the best interests of the firm. - The respect and ethical conduct of a leader are crucial for retaining a leadership position, as stakeholders' satisfaction with the leader's behavior is essential for long-term leadership. - The case of Lee Kun-hee, former chairman of Samsung Group, illustrates the impact of ethical misconduct on leadership positions, as he resigned in disgrace following corruption charges, leading to efforts by the company to improve its image. Leadership Styles Influence Ethical Decisions - Leadership styles have a significant influence on organizational behavior, including employee acceptance of and adherence to organizational norms and values. Styles that focus on building strong organizational values contribute to shared standards of conduct and influence the organization’s transmission and monitoring of values, norms, and codes of ethics. - A firm's leadership styles and attitudes can help pinpoint where future ethical issues may arise. Even for actions that may be against the law, employees often look to their organizational leaders to determine how to resolve the issue.  Ethical Decision Making and Ethical Leadership - Ethical leadership is not only for CEOs, boards of directors, and managers but can also be exhibited by fellow employees. Ethical leaders need both knowledge and experience to make decisions and must possess the right kind of moral integrity. They must be proactive and ready to leave the organization if its corporate governance system makes it impossible to make the right choice. - Six leadership styles based on emotional intelligence have been identified by Daniel Goleman: coercive, authoritative, affiliative, democratic, pacesetting, and coaching. The most successful leaders alter their techniques based on the characteristics of the situation, and different styles can be effective in developing an ethical culture. - Leadership styles can also be classified as transactional or transformational. Transactional leaders attempt to create employee satisfaction through negotiation, while transformational leaders strive to raise employees’ level of commitment and foster trust and motivation. Transformational ethical leadership is best suited for organizations with higher levels of ethical commitment among employees and strong stakeholder support for an ethical culture. - Transactional leaders focus on ensuring that required conduct and procedures are implemented and are best suited for rapidly changing situations, including those that require responses to ethical problems or issues. Overall, leadership styles play a crucial role in shaping an organization's ethical culture and influencing ethical decision-making processes. Habits of Strong Ethical Leaders  Ethical Decision Making and Ethical Leadership Ethical Leaders Have Strong Personal Characters - Ethical leadership requires strong personal character - Focus on "ethical reasoning" rather than being a "moral person" - Intellectual skills needed to resolve complex ethical dilemmas - Corporate environment requires respect for cultural diversity and privacy - Teach individuals to address ethical issues using corporate values and ethical codes Ethical Leaders Have a Passion to Do Right - The passion to do right is crucial for ethical leadership - Some leaders develop this trait early in life, while others develop it over time - Familiar arguments for doing right include keeping society intact, alleviating human suffering, and advancing human prosperity - Having a passion for doing right indicates a willingness to face challenges and make tough choices - Courageous leadership requires making and defending the right decision  Ethical Decision Making and Ethical Leadership Ethical Leaders Are Proactive - Ethical leaders are proactive and anticipate ethical problems. - They develop effective programs for employees to make ethical choices under pressure. - Proactive leaders understand social needs and apply best practices of ethical leadership. - Herman Miller is a prime example with a highly ethical culture and strong leadership. - The company ranks as one of the safest, coolest, and most ethical in its industry. Ethical Leaders Are Role Models for the Organization’s Values - Leaders serve as role models for the organization's core values. - Leaders' decisions and actions strongly influence individual ethical behavior. - Countrywide Financial used core values as window dressing, while Whole Foods demonstrated a commitment to social responsibility and strong core values. - Whole Foods cares for its employees, encourages teamwork, supports growers and the environment, and donates to local communities. - Whole Foods' high-quality standards and close relationships with suppliers attract customers.  Ethical Decision Making and Ethical Leadership Ethical Leaders Are Transparent and Actively Involved in Organizational Decision Making - Ethical leaders are transparent and actively involved in organizational decision-making. - Transparency fosters openness, freedom of expression, and stakeholder involvement. - Personal involvement in key decisions with ethical ramifications is crucial for effective leadership. - Transformational leaders instill commitment and respect for values, encouraging ethical behavior. - Herb Baum's principles of transparency: tell the whole truth, build a values-based culture, and hire "people people." Ethical Leaders Are Competent Managers Who Take a Holistic View of the Firm’s Ethical Culture - Ethical leaders have a holistic view of their organization and consider ethics as a strategic component of decision-making. - Waste Management's CEO, David P. Steiner, is committed to renewable energy and has been recognized for his commitment to social responsibility and sustainability. - The company has transitioned from being primarily known as a garbage collection service to generating nearly half of its revenues from "green" services.  Ethical Decision Making and Ethical Leadership - Senior executives find it more challenging to be leaders in today's business environment compared to five years ago. - Leadership is a crucial driver of ethical conduct in organizations. Summary - Ethical decision-making framework components: ethical issue intensity, individual factors, organizational factors, and opportunity 1. Ethical Issue Intensity: - Perceived relevance or importance of an ethical issue to the individual or work group. - Reflects the ethical sensitivity triggering the decision-making process. - Influenced by personal and temporal factors such as values, beliefs, needs, perceptions, and situational characteristics. 2. Individual Factors: - Gender, education, nationality, age, and locus of control can affect the ethical decision-making process. - Personal values, principles, and education influence individual factors. - More education and experience generally lead to better ethical decision-making. 3. Organizational Factors: - Organizational values often have a greater influence on decisions than an individual’s own values in the workplace. - Decisions are often made jointly, influenced by the organization's culture and structure. - Corporate culture includes shared values, norms, and artifacts that influence ethical decisions.  Ethical Decision Making and Ethical Leadership 4. Ethical Opportunity: - Conditions providing rewards or limiting barriers to ethical or unethical behavior. - Immediate job context and motivational techniques influence employee behavior. - Formal codes, policies, and rules enforced by management can eliminate unethical behavior. - Ethical issue intensity: perceived relevance or importance triggering the ethical decision process - Influence of individual and organizational factors on ethical decision-making - Impact of gender, education, nationality, age, and locus of control on the process - Influence of organizational values and culture on individual decisions - Significant influence of peers, managers, coworkers, and subordinates on ethical decisions - Ethical opportunity: conditions providing rewards or limiting barriers to ethical or unethical behavior - Importance of formal codes, policies, and rules enforced by management in eliminating unethical behavior - Ethical decision-making framework as a source of insights and knowledge about typical processes in business organizations - Influence of organizational culture and corporate governance mechanisms on business ethics - Leadership styles promoting an organizational ethical climate: coercive, authoritative, affiliative, democratic, and coaching elements - Attributes of strong ethical leaders: strong personal character, passion for doing the right thing, proactive nature, focus on stakeholders' interests, role modeling of organizational values, transparency in decisions, and holistic view of the firm's ethical culture The Ethical Decision-Making Framework: - Provides insights and knowledge about typical ethical decision-making processes in business organizations. - Does not rely strictly on the personal values and morals of employees. - Organizations' culture, combined with corporate governance mechanisms, significantly influence business ethics. Leadership and Organizational Ethical Climate: - Leadership styles and habits promote an organizational ethical climate. - Leadership styles include coercive, authoritative, affiliative, democratic, and coaching elements. - Strong ethical leaders have a strong personal character, passion to do the right thing, focus on stakeholders’ interests, and are role models for the organization’s values.