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UVA-E-0242 A Note on Ethical Decision Making
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UVA-E-0242
A NOTE ON ETHICAL DECISION-MAKING
Introduction This handout on ethics will build on and further develop the already familiar ways in which we think and talk about ethics. It provides background, language, and concepts to identify and analyze managerial problems from an ethics perspective. The focus of our use of these tools is to help managers understand the ethical dimensions of their decisions and to make defensible decisions. Use this handout as a reference guide and pay special attention to the Decision Rules (part 3) and Guides to Help Avoid Rationalizations (part 4) as both will be used for the case analysis we will do in class. The remaining material (parts 5–8) provides additional background material that students may find useful. Focus of business ethics The subject of ethics deals with promoting human welfare, broadly speaking. It incorporates our desire to achieve our potential as human beings, to live well, and to treat each other decently. Within this course, our more specific use of ethics will be for making judgments—that is, deciding whether our behavior is right or wrong, good or bad, responsible or irresponsible. Special attention is given to making decisions and giving good and defensible reasons for our choices (i.e., that we can justify our actions). The idea of giving reasons for our actions presupposes that people act in communities and are accountable to others for their conduct. Given the focus on managerial and firm behavior in this course, we will pay special attention to those involved in the “community” of business (e.g., shareholders, workers, customers, suppliers, local community) and ask whether the reasons we give for our choices can be defended to these audiences. Ethics as part of managerial decision making We will discuss a range of cases in business, each of which raises various ethical problems and dilemmas. While we will consider these problems, we will also focus on understanding how ethics is an integral part of what managers and organizations do on a daily basis and how values are important for organizational performance and success. Thus, ethics (like accounting, economics, and other disciplines) provides a way to look at or understand what This technical note was prepared by Andrew C. Wicks, associate professor of Business Administration, Darden Graduate School of Business, University of Virginia. Copyright © 2003 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to
[email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Rev. 3/04. ◊
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is going on within organizations (for example: seeing managers as people who balance responsibilities to various constituencies). Not a course in philosophy, but philosophy of business Ethics is grounded in philosophy and religion. However, because of its applied and practical orientation, this course will not delve deeply into ethical theory. Rather, we will focus on distilled accounts of ethical theory that are most applicable to business settings with a managerial focus. As we analyze cases, we will often call into question the assumptions we make about various concepts of business and our images of how business functions. For instance, what do we mean by self-interest, competition, greed, profits, and other basic business terminology? What are the moral differences in various understandings of these terms and how does our understanding of them shape how we act within organizations? Not antibusiness This course is not antibusiness. There are important debates about the legitimacy of capitalism versus other systems for conducting economic affairs. There are also very interesting discussions of various ways of structuring capitalism at a systems level (United States vs. Japanese or European models; the critique of multinational corporations (MNC) in David Korten’s book, When Corporations Rule the World) that are still pro-capitalism. Because of our focus on managerial decision-making (and our limited time), we will only indirectly address these dimensions of business ethics—primarily in conversations about international business. Although I encourage you to think about these questions and their relevance for our discussions, we will focus on firm and managerial behavior with the assumption that capitalism is fundamentally morally sound.
Part 1: Defining Key Terms Morality Morality refers to the (implicit/explicit) norms people use to guide their behavior in a given context. People act according to moral norms without careful thought because such action is widely accepted, uncontroversial, and clearly expected (e.g., shaking hands, assisting others, telling the truth, waiting your turn in line). Morality, according to Lynn Paine, provides an “invisible infrastructure of norms and precepts,” which support human interaction. Ethics Ethics refers to the conscious and reflective activity of making good decisions and justifying our actions. Here careful analysis and reason-giving is needed to determine appropriate action and to persuade others that it is justified. Typically, ethical analysis is required when what is right either is unclear or involves conflicts between competing moral norms.
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Part 2: Ethics Background to Decision Rules There is a rich history and diverse range of ethical theory. This vast range of writing focuses on three different emphases for analysis: 1. The Actions or means people use to achieve their goal 2. The Agent (i.e., person) who is acting in the situation 3. The Purposes (i.e., ends or goals) and Consequences (i.e., outcomes) of actions I will give a brief overview of the core of these different strands of ethical theory. We will use this fairly general material on ethics as a template to formulate a set of decision rules that are tailored more specifically to managers operating in a business context. Thus, this section is primarily background to help you understand the basis for the decision rules we will use in class. Standards of conduct This branch of ethical thought focuses on the actions people take and tries to determine whether a given act is ethically acceptable, regardless of its consequences. For example, if I am deciding whether to lie to someone, the issue is whether lying—as such—is morally defensible, not whether lying to this person will create more good outcomes than bad. In moral philosophy, the school of thought that focuses on this aspect of ethics—the means or actions we use to pursue goals—is “deontology.” Origins of standards of conduct: Because actions are viewed as having inherently good or bad qualities, it is important to understand how we make such determinations. The criteria come from various influential religious and philosophical traditions. Much of Western morality is influenced by Judaism and Christianity, particularly the basic “do’s” and “don’ts” that come out of those religious traditions, while Islam, Hinduism, Buddhism, and Confucianism have greatly influenced various Eastern cultures. Deontological accounts maintain that there are certain standards of human decency or respect for the worth of others that apply to everyone of any tradition. These standards rule out treating each other in certain ways (e.g., lying, physically harming, and killing). Examples of standards of conduct: Standards of right and wrong provide directives for action. They tell us which actions are acceptable and which are not. Statements setting out right from wrong include the ten commandments (for example: do not kill, do not lie, respect your parents); the golden rule (treat others as you would have them treat you); and the law. Moral conflict: In most moral dilemmas, the conflict is between two compelling morally good actions rather than between good and evil. There are many cases where moral directives for action conflict and do not provide us with a clear answer as to what is right. Ethics involves doing the hard work of sorting out the relevant moral claims and choosing the best course of action.
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Character and virtue Ethics deals with more than right and wrong actions. It also addresses issues of character—the personal traits and qualities that define who we are as human agents. These traits include habits, priorities, and idiosyncrasies. They can change over time, with much effort, but such change is difficult to achieve, particularly as a person grows older. A person of good character is someone who possesses many important virtues (forms of human excellence), while someone with bad character has significant failings or vices (which express corruption or a lack of excellence). This branch of ethics, termed character or human nature ethics, focuses on the agent (i.e., individual): how various patterns of conduct come to define the kind of person we are, what it means to live well (for example: Aristotle’s “eudemonia” or “doing well”), and what it means to be a good person. Strength of character: This refers to the fortitude that allows individuals to adhere to their convictions or moral standards, even when the costs of doing so may be great. Virtues: These are forms of human excellence—traits that are morally commendable. Virtues—like prudence, fairness, trustworthiness, courage—are traits that we embody after years of effort and training. To say someone has a given virtue means more than that they acted virtuously in one instance, but that they have done so consistently over time, and we would predict they would continue to behave that way in the future. However, what counts as virtue is often determined in large part by the context in which one operates. For example, action that is praiseworthy with close friends and family (for example: forthrightness, candor) might be considered a vice in certain business situations (such as a difficult negotiation). Integrity: This is a central aspect of good character. Integrity literally means wholeness or the sense that you have a clear conscience and can affirm who you are and what you have done. Persons of integrity usually have high moral standards and the strength of character to act according to their beliefs, particularly when they are in difficult situations. Purposes and consequences Ethics has to do with pursuing—and achieving—laudable ends. This includes the quest to make something of one’s life (for example: the search for personal success and happiness) as well as the aspirations we have for our communities (for example: prosperity, security, justice). This branch of ethical thought focuses on the moral importance of the purposes or “ends” we set and the need to try to achieve them through our actions. Thus, the moral worth of our actions should be determined by the likely consequences they would generate. Do our actions create more good than harm in terms of realizing the goals or purposes we set (for example: winning a war; creating profits; helping others)? If so, our actions can be defended; if not, then our actions are unjustified. The phrase “the ends justify the means” is often used to describe this branch of ethics, known as “consequentialism.” Utilitarianism (creating the most favorable balance of benefit over harm), which has heavily influenced economics, is the most famous branch of consequentialism. There are two core features of this branch of ethics:
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Morally defensible purposes: People need to be sure that the purposes or ends they set for themselves are morally defensible. Creating favorable consequences: People need to undertake actions that create the most favorable consequences toward realizing their purposes. Overview of part 2 Each of these three strands of ethics provides moral insight: they capture important elements of the moral life, yet each has its limitations. For most people, and most cultures, none of the three strands of ethics by itself provides a complete set of moral considerations to live by. Each raises important themes for decision-making, and while all three strands are distinctive, there are often important tensions and interconnections among them in practice. The next section takes these themes and develops them further in a managerial context.
Part 3: Decision Rules The decision rules are tools for analysis that are developed from the three traditions of ethics discussed above. The focus of the decision rules is on helping managers identify issues, make decisions, and take action. Decision rules are frameworks for understanding and analyzing the moral dimensions of a given situation—they help you identify key themes, raise important questions, and provide a basis for making informed and defensible decisions. While they help frame issues in a case in moral terms and help highlight areas of concern, they do not provide a recommended course of action. Finally, the decision rules should be seen as complementary to, not separate from, other modes of business analysis and decision making (for example: from finance, accounting, marketing). Decision rule #1: standards of conduct This decision rule refers to the principles and rules that constitute the standards of conduct operating within a community. Corporations should try to understand and respect the standards of conduct where they do business. Standards of conduct determine morally appropriate and inappropriate action and articulate the moral rules, which most people in that community live by the most of the time. For corporations, we are interested in several different communities that may come into play in a given case: the firm, the industry, and the local communities where we do business, as well as the larger national and international communities. The importance of standards of conduct: For any society to function effectively there must be a set of moral standards that are widely shared and observed. Similar arguments have been made about the importance of standards of conduct to firms and to market economies— certain basic mores for behavior are necessary for them to function at all, and the kinds of moral standards used can help determine their efficiency and productivity. As Lynn Sharp Paine has argued, “Managers are becoming increasingly aware that many people do their best, most creative
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work in an environment of trust, responsibility, and high aspirations. Such an environment can only be built on values such as honesty, reliability, fairness, and respect.”1 The reality is that every firm has an ethics culture, though its rules may be implicitly or explicitly stated. The term “standards of conduct,” when referring to communities, incorporates the law (socially determined moral minimums), respect for basic rights, and other moral agreements. Levels of analysis: We will use standards of conduct to describe the shared moral values of a range of different groups. We will typically focus on the society level and the firm level. Part of our challenge is to identify core elements of a given community’s standards of conduct and search for conflicts across the different levels, such as between the morality of the firm and that of society. Particularly in the international arena, having participants from multiple communities may entail that businesses have to wade through very different and sometimes conflicting sets of moral expectations (for example: sweat shops and child labor, which may be relatively accepted in some countries, but not accepted in the United States and other developed countries). Thus, identifying the relevant communities and their respective standards of conduct issues is simply a first step in sorting out what needs to be done. Key terms: We will use several widely used terms to discuss common morality. Examples include promise keeping, nonmaleficence (not harming), trust, beneficence (providing help or aid to others), respect for property, personal freedom/autonomy, and fairness. Each helps to capture the basic standards and expectations we have for human behavior and is frequently used in a business context to evaluate behavior. Discussing these standards leads us to highlight another fundamental term in ethics: responsibility. Responsibility is a term that captures the expectations, duties, and obligations we place on people. Responsibility arises from being part of a community and from taking on certain roles in various groups and organizations (for example: as a manager, citizen, parent). For instance, people have a responsibility to respect basic moral minimum standards and to respect the rights of others. They also have a responsibility to act according to the rules and principles of conduct in a given community or culture. However, they may take on certain roles such as that of a manager) that create additional responsibilities sometimes conflicting with their other responsibilities. We can use all of these terms to frame managerial situations in moral terms, isolate particular problems, and discuss whether your decision can be defended. Crucial questions: 1. Would this particular act or practice violate relevant standards of conduct? 2. Are there ways to pursue our strategic interests without violating the standards of conduct? 3. If the public finds out about this activity, will it lead to action against the firm (e.g., lawsuits)?
1
Lynn Sharp Paine, “Managing for Organizational Integrity,” Harvard Business Review (March/April 1994).
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4. Are the standards of conduct observed within the firm defensible and consistent with the standards of conduct of the society in which it operates? Decision rule #2: character and relationships The core idea here is that firms have to walk-the-talk and find ways of doing business that enable them to embody the traits to which they aspire, such as customer service, integrity, or diversity. Here we look at much more than the rhetoric of the firm and focus on what we learn from the habits of managers and ways of doing business that are common within the firm. Are managers tough-minded, fair, respected, and accountable? Or are they selfish, abusive, twofaced, and opportunistic? This decision rule highlights the importance of character traits and how those character traits are formed (i.e., patterns of action over time) for decision making. Rather than looking at specific choices in time, it requires that we evaluate actions in terms of their symbolic importance for defining who we are. Here the question of purpose (What do we want to achieve?) is important, but takes on a slightly different quality (Who do we want to be?). For instance, if we think only of the immediate effects of our actions, we may think nothing of lying to a business partner in a particular case where the outcomes are favorable to us. However, is this how we would like to do business? Is this a way of conducting business over time that we endorse and for which we would like to become known (i.e., that we are opportunistic or not trustworthy)? Looked at in this light, as a potential habit or character trait, we may decide to reevaluate the wisdom of lying (or some other questionable action) in a particular case. Identifying key character traits: Firms and managers need not only to identify key purposes or goals, but also the character qualities (e.g., virtues and vices) they want to develop to help them achieve those purposes; in other words, there are habits, practices, and ways of doing business that will help them achieve their goals over time (e.g., taking care of their customers or employees; for being a trustworthy and reliable partner with suppliers). Some important character traits include decency, (self) respect, fairness, trustworthiness, integrity, compassion/concern for others, and prudence. Relationships and character: One area where the character dimension of human interaction is especially important is within relationships, particularly since they focus our attention on certain underlying qualities and traits and occur over time. Relationships have a certain character (for example: dysfunctional, constructive, open, respectful) that can be either positive or negative from the standpoint of the firm (and society). The ability to develop and maintain positive relationships is a core ingredient of both morally sound interaction and successful organizations. Having significant levels of mutual trust, respect, cooperation, teamwork, and effective communication within relationships is important both morally and strategically. For example, having morally sound relationships can: create substantial saving on monitoring and transaction costs, facilitate prompt and appropriate use of resources in the face of uncertainty and change, and create synergies among the parties within the organization that make it far more effective than the individual efforts of each member. Significant problems with relationships can translate into critical organizational problems, such as chronic distrust, disregard for leadership, low morale, abuse, vandalism, sabotage, or theft.
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Crucial questions: 1. What character traits does the firm or managers need to be successful over time? 2. To what extent do these actions reflect the character traits that the firm desires? Are they the basis for excellent organizational performance over time? 3. To what extent is this problem a result of a poor relationship (e.g., bad communication)? 4. Could improvements in how the firm communicates with and treats employees or other stakeholders improve the long-term prospects for the firm? Decision rule #3: purposes and consequences Purposes and consequences are central to managers and the core stakeholders connected to the firm. A key part of morality is selecting a set of defensible purposes and then taking actions that help achieve those purposes. This decision rule underscores the importance of selecting the appropriate purposes to direct managerial action and taking actions that are most likely to create the desired consequences (i.e., actions that help us achieve our purposes). A morally important part of what managers do is getting down to the hard and often dirty work of getting things done, not just espousing noble intentions. Creating favorable consequences for key stakeholders highlights the moral importance of practicality for managers—finishing projects, creating jobs, and making profits. Who are stakeholders? These are individuals or groups who can affect (or who are affected by) the activity of the corporation. Stakeholder groups are the key contingents of the firm. How a firm treats its stakeholders plays a large role in determining its success or failure. Identifying relevant purposes and consequences: A helpful way for managers to identify the relevant purposes and consequences in a given case is to do a stakeholder analysis—list the relevant stakeholders in the case, highlight their purposes (what they want), and consider likely courses of action in terms of those purposes. This decision rule does not presuppose that one is committed to either a stakeholder or a stockholder view. It simply asks that you look at the interests of the various groups and make decisions bearing that information in mind. It is up to you to decide which interests to prioritize. Crucial questions: 1. Which purposes are most important? Are there any clear priorities among stakeholder claims? 2. Which actions best realize the key purposes of the firm? 3. Will certain stakeholders be especially harmed? Will they feel negatively toward the firm or seek to hurt the firm? 4. Are there any natural alliances among key stakeholders that can be developed?
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Concluding observations about decision rules The decision rules help capture what is going on, morally speaking, within a given case. However, there will often be tensions between the decisions rules—particularly between the desire to create good consequences for core stakeholders and the other two decision rules. This is an acute problem in many moral dilemmas in business, especially when managers face significant incentives or pressures (for example: going out of business) to bend the rules or adopt unsavory practices. There is no simple way of resolving these conflicts. However, no matter how compelling the goal, certain actions or means are always morally suspect (e.g., lying, breaking promises, stealing, violence), while others may never be acceptable (for example: murder, torture, rape). To resolve such conflicts, managers need to consider the justifiability of their choices to the audiences in question (i.e., key stakeholders) and use the Guides to Help Avoid Rationalizations (part 4).
Part 4: Guides to Help Avoid Rationalizations Rationalizations are a common pitfall in decision-making. The term refers to the process of convincing oneself that a decision is fair and defensible, when in fact it merely serves one’s own interests or offers an easy way out. In these situations, when one is pressed by others about the decision, the reasons may not seem so compelling, even to the one offering the rationalization. There are no foolproof techniques for revealing rationalizations, but the following tests and methods have been used by philosophers and ethicists for some time. Publicity test Could you defend your choice if it were made public (for example: the cover of the Wall Street Journal; or if you had to explain it to your mom or your kids)? This test tries to make you scrutinize your reasoning by raising tough questions that might otherwise be avoided. The prospect of having to face publicity helps to make people more critical of their assumptions and reasoning. Using this as a hypothetical check can help sort out whether your reasoning is sound and can be justified or is biased and self-serving. Reversibility Could you defend your reasoning if you were on the losing end of your decision? This test tries to help managers make decisions that are fair and can be defended in public. This test puts you in the position of the party who will suffer the negative consequences of a decision (for example: being fired) and asks: Could you agree with and respect the reasons for the decision? The issue is not whether the person who is being fired approves of the decision. Reversibility instead asks whether the person on the losing end could endorse the reasons for the decision.
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Generalizability Could you defend using this same reasoning in similar cases? This test also raises the issue of consistency and asks whether parties are willing to make a precedent out of their decision. Is the action one is contemplating, and the rationale behind it, something they would wish that others should do in similar circumstances? If not and if there are serious concerns about making a new standard, then it casts doubt on whether you have good reasons for your decision. For example, think about the issue of receiving gifts in the firm. You may think that it is fine for you to accept an attractive wristwatch from a supplier. However, when you try to generalize this decision to other similar cases involving other gifts, such as cash, or other nice gifts, and/or other people in the firm, such as colleagues, or subordinates, you may come to rethink your decision because you would not endorse accepting gifts in these cases. The generalizability test will remain a problem until you can develop a rationale that you can apply consistently across a range of similar cases.
Part 5: What Difference Does My Decision Make? One of the frustrating aspects of the course for many students is that the exercise of discussing cases and debating how to proceed leaves them more confused and uncertain than when they started. Rather than getting answers or coming closer to the truth, many case discussions make it seem as though these goals are more elusive than before class discussion began. Frustration can lead to apathy, raising the question of why one should engage in the process at all—if there is no clear right answer, what difference does my choice make? How is my answer any better than anyone else’s? Why “do” ethics at all? These are important and sensible questions, but the following considerations suggest why your particular decision matters: You will be held accountable by various stakeholders: The decision you make must be defensible to various stakeholder groups, particularly those to which the firm is most committed and those that have the most power to influence the fate of the firm. In many instances, your job may be at stake, the success of a particular product or project may be involved, possible legal action or public outcry could be at issue, etc. In such circumstances, you must pay careful attention to how you approach the problem, whom you decide to include, how and when you decide, as well as what you choose. Your ability to defend your decision, its rationale, and the process you went through to arrive at it are vital. Stakeholder groups that are relevant include: 1. Superiors/colleagues in your firm 2. Communities/customers and society as a whole 3. Other stakeholder groups who have an interest or stake in the outcome Ethics talk is helpful: The ability to defend your decision in ethical terms with a coherent rationale is often very important, particularly when dealing with stakeholder groups outside the
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firm (for example: the public, customers, suppliers, government) who see the issues in moral terms. Ethical problems are part of the job: Managers are asked on a daily basis to weigh or balance responsibilities to various stakeholders. Resolving conflicting demands and obligations is part of the responsibilities of managers. Just because these choices are difficult and complex doesn’t mean they can be handed off to others or to “ethics experts.” Ethics and the process of resolving ethical dilemmas is embedded within the responsibilities each person has (from their personal life, role in the organization, or both). Personal integrity: Your decision should matter to you personally, particularly if there are important values or commitments at stake about which you have strong feelings (i.e., particular decisions may make you feel very uncomfortable or violate your sense of integrity). The movie City Slickers has a scene highlighting this issue. In a conversation between Billy Crystal and one of his friends, the friend describes a scenario where Crystal could have one night of pleasure with the woman of his dreams, and no one would ever find out. If he had the chance, would he do it? Crystal responds by saying he would not, but not because he was worried his wife might find out, but because he would know (i.e., he could not live with himself if he was unfaithful to his wife). Legal reasoning is often inadequate: Doing what the letter of the law says may leave a firm open to civil and or criminal suits (see section on Ethics and the Law). Adopting a lawbased approach puts you in a adversarial posture with respect to others, which may be counterproductive to other objectives in facing a crisis, like public trust (e.g., compare Johnson & Johnson in the Tylenol case with Burroughs Wellcome and the Sudafed tampering case). The U.S. Sentencing Commission Guidelines create incentives for firms to aim at ethical performances rather than legal compliance. Taking the high road can be both cost-efficient and important for satisfying basic objectives of the firm. Part 6: Guides to Resolving Complex Cases2 Frequently when managers face complex or knotty situations, there are a variety of important duties involved that are in conflict. In contrast to more straightforward situations where there is a choice between right and wrong, these cases involve choosing among a number of apparently right answers. This is particularly apt to happen to managers because they have relationships with and responsibilities to a wide array of stakeholders: customers, fellow employees, executives, board of directors, stockholders, suppliers, as well as themselves, their families, and the public. Their duties and loyalties to these various groups are apt to conflict from time to time and sorting out how to act can be extremely difficult.
2
This section draws on ideas from the teaching note “Conflicting Responsibilities,” Harvard Business School, HBS 9-392-002.
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Managers must face these ambiguous tasks as part of their role and realize that ultimate responsibility to resolve any conflict lies with them (often because it is placed there by those higher up in the organization). In such circumstances—incomplete or ambiguous information and conflicting responsibilities—managers must find ways of sorting out their obligations, defending and justifying their actions in a way that will satisfy (not necessarily please) the key stakeholder groups involved. This task entails weighing and comparing obligations, a sort of balancing act to reconcile or prioritize these duties. The following are guides that can help clarify one’s responsibilities, recognize what actions are feasible or realistic, and help formulate a defensible rationale for making choices: 1. What are the key facts in the situation? Good analysis requires sound information upon which to reflect. It is essential that managers have the most complete information possible. Key considerations: •
Accuracy of information. Do I have this information confirmed by independent sources or by people from the other side?
•
Completeness. Are there any vital pieces of information that I lack?
•
Biases and assumptions. I need to be aware of biases and assumptions I may be making. How does the situation change if I alter my biases and assumptions? Which way of looking at the problem is most useful?
2. Process and involvement in decision-making? The process of making a decision is often as important as the decision itself. Lack of attention to which stakeholders should be consulted and included can make a good decision lead to horrible results. Key considerations: •
Authority. Is this my problem or should the decision be made by someone else? Do I have the organizational backing (i.e., formal authority) and support (i.e., informal backing) to decide?
•
Consultation. Who can I reasonably include or get input from, given the circumstances?
•
Participation. Who should I formally include? Who has a right or deserves to be involved? 3. Is there any documented organizational guidance? Many decisions can be clarified by looking to company mission statements, credos, or standards of conduct that spell out the priorities and values of the firm. When applicable, they can provide both precedent and organizational backing for decisions. 4. What action best meets my primary obligations? There are a number of staple or basic duties that most managers can consider as fundamental. Whatever decision is made should protect these obligations as far as possible. Key considerations: •
sources of organizational guidance (see #3 above),
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•
established moral guidelines and common sense (promise keeping, respect for others, refraining from lying and cheating, fairness, and nonmaleficence),
•
legal obligations.
5. Which action is likely to be effective? It is one thing to take a stance on the principles or values involved, but it is quite another matter to see what can actually or reasonably be accomplished in a given situation. Often this pragmatic consideration can shift the balance of reasons. The greater the likelihood something can be realized as compared to an otherwise equally compelling rival, the more attractive it becomes. In this sense morality is not just about noble ideals or sentiments but about practice and implementation. The likelihood of success or degree of effectiveness is a critical component of assessing the moral worth of one’s options, except in circumstances where the importance of a given principle is so great that it may lead people to take a symbolic stance (for example: speaking out against the Nazis in World War II Germany even though doing so would undoubtedly lead to one’s death; quitting your job in a firm that is corrupt as part of a formal protest even though you are virtually certain your efforts will not lead to successful lawsuits or voluntary change by the company). 6. What decision can I live with? While resolving the situation in terms of organizational imperatives and stakeholder concerns is fundamental, there are frequently situations where managers’ values and beliefs influence and guide their decision-making. If some of the proposed options or the methods to achieve them are offensive to a manager’s sense of moral integrity, such issues need to be addressed. Beyond questions of integrity, there are frequently differences between how palatable or tolerable certain solutions are compared with their alternatives. Key considerations: •
Which options are more likely to help you sleep at night six months and two years down the road?
•
If there are conflicts between your sense of integrity and the best decision for the firm, are there ways to alter how the decision is made or implemented to lessen or avoid the conflict?
•
How much of a stake do I have in the decision and its aftermath?
Part 7: Ethics and the Law3 Similarities and differences The law and ethics are interrelated but distinct. At a basic level, the law—referring primarily to criminal law—can be described as socially enforced standards of minimal moral behavior. Although people often focus on laws or specific legal rules, the law is best described as a dynamic and evolving process in which standards of minimal behavior are continuously 3
I wish to thank Tom Brucker, J.D., and senior lecturer in business law, for his suggestions on this section.
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defined and revised. Because of its pervasiveness and the formidable sanctions behind it, the law is a significant source of guidance for managerial decisions. Laws articulate a code of behavior that, if violated, results in a loss of basic rights and freedoms. At its most basic, the law tells people how not to behave. Thus, while the law is based on ethical ideas, it is largely negative and sets a floor below which no one’s behavior should fall. It does not go very far in telling people how they should behave or what sort of standards and aspirations they ought to have. These positive considerations are the domain of ethics. Ethics provides resources to help individuals order their activities in ways that advance their goals as well as the goals of others and to create agreements and arrangements that enable all to live a better life. Given this rough distinction between the two fields, it is important to point out that there is often a substantial gap between what is legal and what is ethical. Within the realms of possible legal choices, the subset of ethically sound choices may be significantly smaller. Just because there are no laws against an activity does not mean that it is ethical. Problems with the law Relying on the law or using legal reasoning as a primary mode of thinking can be problematic for a number of reasons: 1. Ambiguity: Because law is more of a process than a static set of rules, defining laws and specific statutes is only the first step in discerning what is and is not legal. Laws and statutes are often stated very generally and can be interpreted in a variety of ways. Even when there is significant case law to establish precedents, a variety of factors can affect how laws are applied—judges, juries, changes in the political climate or how the case is argued. While there are often some guidelines on what activity to avoid, there are few positions to take that will guarantee that one will not be sued or be held liable. 2. Changes in the law: Laws and the law are not static. They are subject to changes in public sentiment over time. They often lag behind new technologies, procedures, and developments. In some cases, law is created or articulated by judges even though no formal statutes exist. Just because something is legal today doesn’t mean it won’t be illegal tomorrow. Absence of a specific law does not mean that one won’t be sued. For example, A.H. Robbins met the existing legal standards of the FDA in testing the Dalkon Shield, yet when consumers experienced serious health hazards from prescribed use of the product, the courts ruled that the firm was liable to customers who were harmed, and the company had to pay millions of dollars in damages. In the face of activity that the public finds irresponsible, they may press state and federal legislators to pass laws to both punish and prevent such activity. 3. Reactive and adversarial: Shaping one’s response to a situation in legal terms typically means one is reacting to a situation that has become problematic. In general, this is a suboptimal strategy for managers. Instead of trying to resolve conflicts that arise, it is often more beneficial to search for proactive strategies that prevent confrontations with
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stakeholders and offer mutually beneficial arrangements. Frequently the adversarial posture of legal thinking creates a divide where disagreements become greater and differences are exacerbated. Overlaps between ethics and the law Ethical problems that emerge may occasionally provide the basis for legislative action: both in the form of specific statutes and other forms of regulation. The environmental movement provides an illustrative example. Numerous environmental issues that began as moral concerns among the public or a particular stakeholder group have led to a wide array of regulative organizations and laws. Thus, today’s moral problem may end up as the basis for future legislation or public policy. Ethics as sanctioned by the law The new U.S. Sentencing Commission Guidelines passed by Congress make ethics an important consideration for all corporations. The new laws tie corporate liability for misdeeds, as well as the degree of punishment, to the ethical climate of the firm (e.g., whether there are explicit codes of ethics, standards of behavior, mission statements, etc., which are comprehensive and enforced). Where such activity is present, courts are more likely to see misdeeds by employees as isolated events for which the firm as a whole is less likely to be held liable. In instances where firms are liable, the existence of effective ethics programs is specifically factored into the determination of fines and penalties. Summary The law is clearly an important source of guidance for firms, both in the operation of dayto-day business and in facing complex and difficult dilemmas. However, the above considerations suggest that it is inadequate as the sole, or even primary, source of direction. While at one level doing ethics is inescapable—given that one’s choices and priorities reflect certain values whether they are consciously adopted or not—these considerations would indicate that it can be extremely beneficial to incorporate an explicit use of ethics or ethical thinking in how firms set their priorities and deal with difficult situations. Part 8: Four Levels of Ethical Inquiry in Business4 The kinds of ethical questions that emerge in business fall into four general categories, although a particular problem may relate to more than one specific level. I begin with the broadest sorts of questions and move toward the more specific.
This section is based on a portion of R. Edward Freeman’s “A Note on Ethics and Business,” UVA-E-0071, at the University of Virginia Darden School of Business Administration. 4
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Level 4: society This level focuses on the basic institutions of society and the arrangement created to make them work. Here the focus is on the conduct of economic affairs: What are the larger goals for economic life, and how should the economy be structured to best realize them? Is capitalism the preferred method of structuring an economy? Is America’s particular version of it preferable to alternative models, such as those found in Japan, Germany, or Canada? What sort of role should government play with respect to business and the function of the economy? Level 3: corporations and corporate policies Here the emphasis is more specific, relating to the operation of a particular company and the groups that affect or can be affected by its operations (for example: suppliers, customers, stockholders, local communities, employees). Pertinent questions include: the relative importance of these groups to the firm, what sorts of obligations and duties are owed to each of these groups and vice versa, and how the firm can develop strategies and forms of interaction among stakeholders to realize its primary goals. Level 2: stakeholders (focusing on employees as an illustration) This level focuses on the approaches a firm takes in its relationships with its various stakeholders, including employees. What sorts of contracts are equitable? What employee rights (beyond what the law dictates) should the firm acknowledge and observe (for example: is e-mail confidential)? What responsibilities does a worker owe to the firm and vice versa? Issues of leadership, motivation, rewards and incentives, and layoffs are all part of this domain. Level 1: Personal This level relates to how people should treat each other in their roles within the firm. To what extent do I have duties to respect others: to be honest and open with them, to value their contributions, to empower them? How are roles defined, and do they create reasonable expectations of employees both as persons and as individuals who fill work roles? An underlying concern here is the issue of to what extent the firm treats people strictly as a means to the ends of the firm, rather than an end who ought to be treated with respect regardless of the financial status of the firm.
Summary These levels of ethical inquiry suggest that issues in business ethics extend to a broad array of problems and pervade most of the crucial questions that a firm faces. As the philosopher Mark Pastin has argued, one’s behavior in each of these areas presumes a set of ground rules that
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are already in place and shape one’s activities.5 The challenge of ethics is being willing to critically examine these ground rules and work to improve them.
5
Mark Pastin, “Ethics as an Integrating Force in Management,” Journal of Business Ethics 3 (1984): 293–304; and “Business Ethics, by the Book,” Business Horizons 28 (1986): 2–6.
