Business Finance - Management assignment busn 311

A Model for Ethical Decision Making in Business: Reasoning, Intuition, and Rational Moral Principles

Jaana Woiceshyn

Received: 11 February 2011 / Accepted: 16 May 2011 / Published online: 28 May 2011

� Springer Science+Business Media B.V. 2011

Abstract How do business leaders make ethical deci-

sions? Given the significant and wide-spread impact of

business people’s decisions on multiple constituents

(e.g., customers, employees, shareholders, competitors, and

suppliers), how they make decisions matters. Unethical

decisions harm the decision makers themselves as well as

others, whereas ethical decisions have the opposite effect.

Based on data from a study on strategic decision making by

16 effective chief executive officers (and three not-so-

effective ones as contrast), I propose a model for ethical

decision making in business in which reasoning (conscious

processing) and intuition (subconscious processing) inter-

act through forming, recalling, and applying moral princi-

ples necessary for long-term success in business. Following

the CEOs in the study, I employ a relatively new theory,

rational egoism, as the substantive content of the model

and argue it to be consistent with the requirements of long-

term business success. Besides explaining the processes of

forming and applying principles (integration by essentials

and spiraling), I briefly describe rational egoism and

illustrate the model with a contemporary moral dilemma of

downsizing. I conclude with implications for further

research and ethical decision making in business.

Keywords Ethical decision making � Integration

by essentials � Intuition � Moral principles � Rational egoism � Reason

Introduction

Whether people make decisions ethically or not is not a

trivial matter, as the outcome of those decisions can make a

significant difference to their lives and to the lives of

others. For example, they can choose to be honest with

themselves and others or not. They can pretend that their

business is doing well when, in fact, it is losing money or

they can face the facts and try to save the business. Or they

can defraud their customers like Bernie Madoff did or deal

with them honestly like many other business people do.

Honesty is just one moral principle, but these examples

alone illustrate the significance of ethical decisions. The

better we understand how people make ethical decisions,

the better we are equipped to make such decisions and to

affect their outcomes.

Ethical—or unethical—decisions in a business context

can have particularly far-reaching implications, as business

involves many transactions and relationships with so many

people, including shareholders, employees, suppliers, and

customers. Consider the implications of the decision by the

young Arthur Andersen to refuse the demands by the

management of a large client, a railroad company, to

overlook misrepresentations in the company’s financial

statements. Andersen maintained his integrity and stood

firm against bribes and threats, resolved not to mislead the

client’s shareholders, and went on to build one of the most

successful accounting firms for a long time. The railroad

later went bankrupt (Toffler 2003).

Or take the decision by the CEO of Steelcase, Jim

Hackett, to extend the use of fire retardant material to their

office wall panel product even when it was not required by

fire codes or demanded by customers—to deliver on a

promise that all Steelcase products would be fire retardant.

This same product was used in the office walls at the

J. Woiceshyn (&)

Haskayne School of Business, University of Calgary,

2500 University Dr. NW, Calgary, AB T2N 1N4, Canada

e-mail: [email protected]

123

J Bus Ethics (2011) 104:311–323

DOI 10.1007/s10551-011-0910-1

Pentagon—with the consequence of significantly less

damage to structures and loss of life when the September

11 terrorist attacks happened in 2001 (Tichy and Bennis

2007, p. 83). As examples of unethical decisions and their

destructive consequences, consider Bernie Madoff’s and

other pyramid schemers’ frauds, or the decisions of the

Chinese baby formula and pet food manufacturers to cut

corners in order to save money.

Due to the far-reaching implications of ethical, or

unethical, decisions in business, the processes by which

business people and executives make decisions are worth

examining, in order to discover whether and how those

decision processes affect their outcomes. And it seems that

empirical research on ethical decision making in business

is flourishing. O’Fallon and Butterfield (2005) report 174

studies published in the top 22 business journals in the

8-year period between 1996 and 2003, more than 20 arti-

cles a year, on average. More recently, there has been an

increasing interest in the role of intuition in ethical decision

making (Sonenshein 2007) and in the way the brain func-

tions during ethical decision making. These articles

examine how business people make ethical decisions (or

how their brains function during such decisions), with the

purpose of understanding and predicting ethical decision

making in business. This literature will be reviewed

shortly.

The motivation for this paper arose from an empirical

study of strategic decision making of chief executive offi-

cers (Woiceshyn 2009). The CEOs in the study employed a

dual process involving reasoning and intuition, the crucial

element of which was ‘‘integration by essentials’’ that

yielded principles applied in subsequent decision making.

During the decision process, the participants identified and

applied not just principles of strategy but ethical principles

in an iterative ‘‘spiraling’’ process involving both conscious

reasoning and subconscious processing (intuition). That

study suggested that individual managers employ the same

processes when making decisions involving ethics as they

do for any long-term decisions affecting their companies.

The moral principles that the study’s effective CEOs

applied were consistent with a relatively new ethical the-

ory, rational egoism. The purpose of this paper is to pro-

pose an integrated dual processing model for ethical

decision making with rational egoism as its substantive

component, based on the above study on strategic decision

making.

I will first review the literature on ethical decision

making, with a particular focus on the dual processing

model which depicts ethical decision making as consisting

of both conscious reasoning and subconscious, intuitive

processing. As the relationship between reasoning and

intuitive, subconscious processing has not been studied

much, I will draw from the empirical study of strategic

decision making to propose an integrated dual processing

model for ethical decisions, with a focus on the interaction

between the two processes. Following the CEOs in the

study, I employ rational egoism as the substantive ethical

component in the proposed ethical decision making model.

Rational egoism is explained briefly, followed by an

illustration as to how the proposed decision model com-

bined with egoist principles applies to a contemporary

business ethics dilemma. Finally, the paper summarizes its

contribution to the dual processing model of ethical deci-

sion making and proposes a new moral code for business

managers’ tool kit for long-term business success.

Research on Ethical Decision Making: Rational,

Intuitionist, and Dual Processing Models

Kohlberg’s (1973) description of ethical decision making

as a rational process, where people reason through moral

dilemmas by applying moral principles or some other cri-

teria, set the stage for research on ethical decision making

for a while. In his review of the literature, Sonenshein

(2007) distinguishes three types of rational ethical decision

making models. Some of the rational models assume that

managers engage in reasoning based on moral theories,

such as deontology or utilitarianism, and then act according

to the principles of these theories (such as truth-telling as a

duty, as per deontology, or benefit to the majority in util-

itarianism) (Hunt and Vitell 1984). Other rational models

propose that rather than on the basis of moral theory,

managers reason according to the stage of their moral

development, or on the basis of rewards and sanctions

(Treviño and Youngblood 1990). The third type of rea-

soning models are based on ‘‘moral intensity’’: people

respond to ethical issues on the basis of differences in the

consequences (impact on victims or beneficiaries), con-

sensus about the good or evil of the proposed act, the

probability of effect, its temporal immediacy and proximity

to its victims or beneficiaries, and other components of

moral intensity (Jones 1991).

In terms of the actual decision process, Rest’s (1986)

model has been particularly influential. It describes ethical

decision making as consisting of four generic steps: iden-

tifying the moral issue, making a moral judgment, estab-

lishing moral intent, and engaging in moral action. Most of

the studies generally validate this model and test the impact

of a wide variety of factors on the decision process. Factors

qua individual include gender and stage of moral devel-

opment; organizational factors that have been studied are

codes of ethics, magnitude of consequences and social

consensus. Of the individual factors, gender, ethical phi-

losophy (such as universalism and relativism), locus of

control, and religion most consistently showed a direct

312 J. Woiceshyn

123

effect on ethical decision making (or at least on one of the

stages of Rest’s model). Although organizational factors

were studied less than individual ones, codes of ethics,

ethical culture, and rewards and punishments were most

consistently linked to ethical decision making (O’Fallon

and Butterfield 2005).

Not all research has confirmed ethical decision making

as a rational process. Some studies have found that decision

makers do not engage in a priori ethical reasoning but

rather make sense of their decisions after the fact (Haidt

2001), including business decision makers (Sonenshein

2007). These studies propose intuitionist decision models,

according to which decision makers do not engage in moral

reasoning but process decisions ‘‘intuitively’’ outside of

conscious awareness, and only construct rationalizations

for their moral judgments afterward for the purposes of

appearance or social approval (Haidt 2001; Haidt and

Bjorklund 2008). Alternatively, decision makers engage in

post hoc collective sense-making to justify decisions

(Sonenshein 2007).

Following the developments in cognitive neuroscience

and neuroethics (Salvador and Folger 2009) and parallel-

ing the general decision making literature (Dane and

Pratt 2007), most researchers have since come to hold a

so-called dual processing model of ethical decision mak-

ing. According to this model, decision makers in various

fields rely on two modes of processing. One is automatic,

subconscious, and intuitive (Haidt 2001; Khatri and Ng

2000; Dane and Pratt 2007), labeled as pattern recognition

by some (Klein 2001) or the (reflexive) X-System

(Lieberman et al. 2002). The other mode is higher order

conscious reasoning (Reynolds 2006), termed the (reflec-

tive) C-System (Lieberman et al. 2002). The automatic,

subconscious, and intuitive processing has received atten-

tion from researchers as a means to expedite decision

making in complex situations under time pressure—which

is often the context of ethical dilemmas as well. Some

researchers suggest that intuitive processing plays a dom-

inant role in decision making, supported by rational anal-

ysis (Klein 2003), whereas others view the X-System and

the C-System as more or less equal ‘‘partners’’ (Pondy

1983; Reynolds 2006; Simon 1987).

How the two systems or modes of processing interact

has been studied relatively little by decision researchers.

Some conclude that one or the other system dominates,

depending on the situation (Cushman et al. 2006; Son-

enshein 2007). For example, Sonenshein (2007) suggests

that the reasoning mode may be dominant with novice

decision makers in conditions of low uncertainty. However,

the actual relationship between reasoning and intuition has

not been studied much. This is where the study of strategic

decision making by chief executive officers (Woiceshyn

2009) sheds some light.

Cognitive Interplay Between Reasoning and Intuition:

How CEOs Make Decisions

In a study of strategic decision making, 19 oil company

CEOs were asked to read through a realistic scenario and

think-out-loud which strategic alternative they would

choose and why. (For more details on the study’s meth-

odology and findings, see the Appendix and Woiceshyn

2009.) This process and the subsequent interviews by the

researcher revealed a decision making pattern consisting of

three elements: (1) integration by essentials, (2) use of

principles, and (3) spiraling. Although the study was not on

ethical decision making per se, there are reasons to think

that the model it yielded is applicable to ethical decisions

as well. First, the CEO participants of the study applied

certain moral principles to a decision making scenario and

when discussing how they make decisions in general.

Second, they had arrived at these principles through the

same process as with other principles, by integrating what

was essential to long-term success in business. Let us look

at the three elements of the decision making model and

specifically relate them to ethical decisions.

How Reasoning and Intuition Interact: Integration

by Essentials1

Neuro-cognitive research indicates that the relationship

between the conscious, reasoning mind, and intuition is

that of a manager and a subordinate (Reynolds 2006). The

conscious mind is like a manager who is in charge of

acquiring knowledge—vast amounts of it is required for

making effective decisions. The conscious mind cannot

hold all the knowledge in focal awareness simultaneously

and therefore delegates the storing and retrieving of

information to a subordinate, which is the subconscious

(intuition). If the manager is disorganized and fails to give

proper instructions, new knowledge gets filed randomly,

mislabeled, or ends up with no labeling at all, therefore

being difficult to find when needed to make decisions. If,

on the other hand, the manager has a logically organized

filing system, the subordinate will store and retrieve

knowledge much more effectively. How the conscious

mind integrates the newly acquired knowledge governs the

subconscious filing and retrieval process (Binswanger

1995). I propose that integration by essentials is central to

the storing and retrieval of knowledge, and thus to effective

decision making.

Human cognition is based on mental integration; our

forming and using of concepts—and thus our ability to

think and act—depends on it. First-order integrations are of

1 This section closely follows the presentation of integration by

essentials in Woiceshyn (2009).

A Model for Ethical Decision Making 313

123

perceptual data to form concepts. We perceive individual

trees, people, and tables, and integrate them into concepts

‘‘tree,’’ ‘‘man,’’ and ‘‘table.’’ For example, when we

observe several pieces of furniture with a flat surface

supported by legs and that are used to holding objects, we

integrate them into a concept ‘‘table’’ (Rand 1990, pp. 11–

12). The definition of the concept ‘‘table’’ is like a mental

file folder: it holds all our knowledge about tables. We file

information about things that belong to the same class into

a mental ‘‘file folder,’’ in order to recall it quickly when we

encounter a new item that belongs to that class, such as a

new kind of table. The recalled knowledge guides our

action, for example, by telling how to put to use a new

table we encounter.

The second-order integrations are increasingly abstract.

Instead of integrating perceptual entities into concepts,

they involve integrating first-level concepts into more

abstract ones, such as furniture and man-made objects

(Rand 1990, pp. 22–23). The highest level of integration

involves integrating concepts into principles (and making

inferences from one area of knowledge into another), such

as: when designing furniture, form should follow function.

The purpose of these higher order integrations into more

abstract concepts and principles is the same as with inte-

grating perceptual data into concepts: condensing infor-

mation so that it can be stored more easily and recalled

rapidly when needed.

Integration of perceptual data into first-level concepts

and first-level concepts into more abstract concepts and

principles is not an automatic process; people vary in the

extent and how they do it. We can also make mistakes in

integrating knowledge, for example, through logical falla-

cies that lead to invalid concepts (e.g., ‘‘grue,’’ an unnec-

essary concept, denoting blue-green color) and invalid

principles (e.g., ‘‘Speak only in abstractions’’ as a principle

of public speaking would hamper an audience’s ability to

grasp the speaker’s message, for the lack of concrete

examples). In order for thinking and decision making to be

effective, proper integration is necessary and it should be

done by essentials. Integration by essentials requires

identifying the essence of whatever one is observing

(Harung 1993). The essence of a thing or phenomenon is

its most fundamental characteristic that gives rise to and

makes possible its other characteristics (Rand 1990, p. 45).

For example, man’s ability to use reason, which governs all

the rest of his qualities, such as the ability to speak, or to

design and build furniture, or to run a business firm, is his

most fundamental characteristic. Aristotle’s definition of

man as ‘‘a rational animal’’ is based on this fundamental

characteristic (Peikoff 1991, pp. 99–100).

If knowledge is integrated into concepts and principles

based on essences, the subconscious filing and retrieving of

it will be fast and accurate, facilitating effective decision

making. For example, once a manager has grasped the

concept of rationality and that it is the essential charac-

teristic of humans, it is easy for him to file new information

he encounters about rational versus irrational people and

behaviors. And once he has grasped the principle of

rationality, he is equipped with integrated knowledge that

he can quickly recall when making decisions regarding

hiring employees, choosing business partners and inves-

tors, and finding suppliers. He knows that dealing with

people who are principally rational will profit him, and

dealing with those who display various forms of irratio-

nality (e.g., evasion of facts, non-productivity, dishonesty,

injustice, etc.) will harm him. If, on the other hand, the

manager were to file information about people on the basis

of having first met them on a sunny versus a rainy day—

which is a non-essential characteristic—his decision mak-

ing would be hampered. Note also that it is much more

difficult to retain non-essential information than essential

information. One hardly remembers whether it rained or

shined when one first met someone; it is much easier to

remember whether the person conducts himself in pri-

marily rational or irrational ways.

Guiding Principles from Integration by Essentials

Integration of knowledge by essentials makes filing and

retrieving information more efficacious and provides deci-

sion makers an invaluable tool: guiding principles (Oliver

and Roos 2005; Locke 2002). Principles are the broadest of

integrations: based on essences of things (such as rationality

as the essential characteristic of man), they uncover causal

relationships that apply to a range of specific situations (for

example, that using reason leads to positive outcomes in

hiring people, in diagnosing illness, in solving engineering

problems, etc.). Principles are generalizations drawn from

past experience or present observations on achieving goals.

There are guiding principles in every field of human

endeavor (Peikoff 1989), such as ‘‘irrigate the soil regularly

to maximize crops’’ in agriculture, ‘‘motivate the audience’’

in public speaking, and honesty in ethics.

We need principles because the human capacity to retain

knowledge in conscious awareness is limited, yet we

require significant amounts of knowledge to make complex

decisions and engage in long-range planning. Principles

condense vast amounts of knowledge—such as accumu-

lated experience about growing food crops—into a brief

statement, for example, ‘‘irrigate the soil regularly.’’ This is

easy to retain or retrieve when making farming decisions.

A principle such as this is a mental space-saver: it elimi-

nates the need to store specific reminders to irrigate dif-

ferent plants in different locations. The principle also

integrates specific knowledge which it helps to recall when

needed (Peikoff 1989).

314 J. Woiceshyn

123

Principles have two functions: in guiding decision

makers through complex choices to reach long-term goals,

they help to project the future and to choose between

concrete alternatives (Peikoff 1989). The principles of

agriculture, for example, help project the long-term con-

sequences of various agricultural practices, as well as to

decide what to do with any particular crop. A faster way of

harvesting would be rejected if it harmed the soil, making

future harvests impossible. A farmer would also know to

cultivate the soil before planting and irrigate regularly,

whether he is growing wheat or corn, or any other crop.

The principles of public speaking help project the effects of

various choices regarding a speech (e.g., what examples to

give, how to use humor, how long the speech should be,

etc.) and decide how to handle any given topic and audi-

ence in order to communicate one’s message.

Moral principles are like any others: if they are valid

(i.e., based on observation of facts and integration by

essentials), they help to see the long-term consequences of

both moral and immoral actions (e.g., what happens if one

acts honestly vs. dishonestly), and choose in any specific

situation what to do (e.g., should one lie about one’s

qualifications in a job interview or not).2

Based on the findings of the study of decision making by

CEOs (Woiceshyn 2009), the process of arriving at prin-

ciples of action—integration by essentials—applied to all

kinds of principles, including moral principles. For exam-

ple, the CEO participants of the decision making study

identified and applied a reality principle and a value cre-

ation principle as essential to the long-term profitability of

business. The reality principle emphasizes the focus on

facts, as opposed to wishful thinking or following others

blindly, as the basis of decisions. The value creation

principle emphasizes the production of material values that

customers are willing to pay for more than competitors’

offerings. It is based on a number of mid-range principles

that make value creation possible (e.g., managing risk that

could threaten value creation; exploiting comparative

advantage so as to outperform competitors; aligning a

company’s resources and capabilities with its strategy so as

to ensure effective implementation of the strategy). Other,

explicitly moral, principles also arose from the study. For

example, the CEOs used the principles of justice, honesty,

and rational self-interest.

By justice, the CEOs in the decision making study

meant evaluating and treating others—and themselves—

objectively, such as: hiring the best people possible and

rewarding them accordingly, providing honest criticism,

terminating non-performers, being accountable for one’s

own actions, and taking deserved credit. Honesty for the

study’s participants was not merely about not lying to

others but not faking reality (such as pretending that a

situation is different than it actually is) when pursuing

values. Self-interest as a principle also came up frequently

during interviews. By self-interest, the CEOs understood

pursuing their values and not putting others first, and taking

a holistic, long-term perspective to the performance of their

companies as opposed to maximizing profits on the short-

term through any means with which they could get away.

The emphasis on long-term self-interest by the CEOs of

the study—who had been nominated as ‘‘good minds,’’ or

effective thinkers, by their peers and industry observers—

suggested an alignment of the CEOs’ moral principles with

a relatively new ethical theory, rational egoism. Since the

effective CEOs, who had been running successful compa-

nies for a long time, consistently applied the principle of

self-interest and the other moral principles consistent with

egoism, I examine below the suggested connection

between rational egoism and long-term success in business.

Rational Egoism and Business Success

Rational egoism has not received much attention in the

business ethics literature (Locke 2006; for an exception,

see Maitland 2002) and is not to be confused with cynical

exploitation of others, which serves no-one’s self-interest

with its ‘‘Do unto others before they do to you’’-approach

(e.g., Ferrell et al. 2005, p. 97; DesJardins 2006, p. 27). My

presentation on rational egoism (egoism from here on) is

based on Rand (1964), Peikoff (1991), and Smith (2006),

unless otherwise cited.

Egoism starts from the premise that ethics is a necessary

guide to life; it shares the view of the ancient Greek phi-

losophers (Socrates, Plato and Aristotle) that ethics is not

merely a guide to physical survival but to the ‘‘good life’’.

This is also consistent with a common sense view of ethics

as a guide to living and prospering, without harming others

(Donaldson and Dunfee 1994). Ethics, in the egoist view,

shows us how to flourish and live a happy life. However,

we don’t have automatic knowledge as to which goals are

good for us to pursue or how to achieve them. Yet, if we

did not pursue any goals, or pursued wrong goals, we

would die. In the absence of automatic knowledge of the

right goals and means, we could choose to act in ways that

lead to destructive consequences—ultimately, death, or

failure of our business—without realizing them at the

2 This point is controversial as ethicists have not been able agree that

there is a factual basis of moral principles. In contrast to most

philosophers, there are some who start from the naturalistic premise

that facts about human nature give rise to the need of ethics; that

humans need to act according to the requirements of their nature in

order to survive and flourish (Foot 2001; Gaut 1997; Hursthouse

1999). Continuing on that premise, others have argued that ethics is

like any other science, and that facts can validate moral principles in

the same way as they validate or invalidate any other kind of

principles (Simpson 2009; Smith 2006).

A Model for Ethical Decision Making 315

123

outset. We could invest our money with a con man, lie to

our customers about product safety, abuse drugs, or eat

poison. The moral code of egoism, which consists of a set

of principles that promote long-term self-interest, such as

honesty and justice, would point out the harmful conse-

quences of such actions.

Unlike cynical egoism, rational egoism is not subjective.

Self-interest does not entail doing whatever one feels like.

Quite the contrary, egoism is based on the premise that

humans have a specific nature which requires specific

action to survive (Foot 2001; Hursthouse 1999). Humans

have specific requirements for physical survival: we need

food, water, shelter, clothing, medicine—and many other

values beyond these in order to flourish and to enjoy life.

There are also many things that are harmful to us and

hinder survival or flourishing, such as poison, arbitrary

confinement, illness, crime, or initiating physical force

against others. In egoism, man’s life is the standard of

value: that which enhances or benefits human life is the

good; that which harms or negates it, is evil—and such

actions can be objectively determined through observation

and logic. Driving while intoxicated, pursuing Ponzi

schemes, or misrepresenting the company’s financial situ-

ation in order to borrow money fall into category of

immoral actions, as they are destructive to human life—

both to the perpetrators and the victims. Productive work,

honest dealing, and trading value for value are all moral

actions, as they contribute to a flourishing human life.

An egoist is often depicted as a ruthless brute who does

not hesitate to trample on others in order to get what he

wants. However, egoism is not predatory—preying on oth-

ers is not in one’s self-interest. Obviously, predation is not in

the interest of the victims, but it is not in the self-interest of

the perpetrator, either. Even if cheating and stealing from

others can bring the perpetrator some temporary ‘‘benefits’’

in the form of loot, his continued frauds will undermine his

victims’ ability to produce—and eventually, there will be

very little, or nothing, to steal. Or, others would reciprocate

and treat the predator the same way he treats others. Instead

of such an adversarial view, egoism holds that people’s

rational interests do not conflict. People competing for the

same values—such as candidates for the same job, or busi-

nesses for the same customer—are not harmed by the

competition, even if they ‘‘lose’’ in any particular round. If

an employer is rational and hires the better candidate for the

job, the candidate who ‘‘lost’’ in the competition is better off.

The better candidate is more productive in the job he got,

which means more wealth generation, more trade and more

jobs, and thus more opportunities to the candidate who

‘‘lost’’. The same argument applies to businesses competing

for the same customers (Simpson 2009).

Business firms must pursue their owners’ self-interest:

long-term profit maximization, if they are to survive and

flourish (Jensen 2002). To ask a business firm to pursue any

other fundamental goal would be equivalent to ask it to

declare bankruptcy and to cease to exist. Therefore, it was

not surprising that the CEOs in the decision making study

were focused on the pursuit of self-interest of their firms

and had induced some virtues of rational egoism that they

used to guide their decision and actions. To give a com-

plete picture as to what kind of guidance egoism offers

business, the virtues of egoism are briefly discussed next.

Virtues of Egoism

Egoism has one primary virtue—primary in the sense that

each person’s life literally depends on it and that the rest of

the virtues are all derived from it: rationality. It guides a

person to adhere to reality by the means of reason, i.e.,

observation and logic (Rand 1964, pp. 25–26). Egoism is

based on the premise that reason is man’s main means of

survival: we survive primarily by thinking. Achieving any

of our values, whether food, shelter, a career requires that

we think and plan first, and then act on our thinking.

Rationality guides against any form of irrationality, such as

evading facts—pretending that one’s cash flow is sufficient

or technology is up-to-date when they are not, say, or

deciding on an emotion as opposed to a careful consider-

ation of facts. But how does one act rationally in daily life

and business? The rest of egoism’s virtues elaborate on

that. They are all aspects of rationality, and will be dis-

cussed in turn: productiveness, honesty, justice, indepen-

dence, integrity and pride.

Productiveness is the virtue of creating material val-

ues—which are necessary for human survival. We need a

range of values, not just to survive physically but to enjoy

life, from groceries and housing to pharmaceuticals and

hospital services to insurance policies to restaurant meals

and theatre performances. Creating such values is therefore

in one’s self-interest, and also the central activity of busi-

ness. Producing material values is an aspect of rationality

in that it requires thinking, or the use of reason. There is no

material value that can be created without the process of

thought: no product or service has been ever produced

without designing it first, whether a nutritious meal or a

complex laptop computer.

Honesty is conventionally understood to mean truth-

telling, or not lying to others. Egoism has a broader view of

this virtue. It means rejecting the unreal and remaining

honest not just to others but to oneself. Honesty means not

faking reality in order to gain a value. Whereas rationality

is the virtue reminding us to adhere to reality (so that we

can achieve our values); honesty is its reverse side,

reminding us to reject that which is unreal (Peikoff 1991,

pp. 267–268). Like all the egoist virtues, honesty is selfish.

It is in one’s self-interest not to fake reality in any

316 J. Woiceshyn

123

manner—if one wants to achieve values. Pretending that

the cash flow is sufficient and technology up-to-date is not

going to make the business succeed. Deceiving a customer

about a product’s specifications is not an exercise in rep-

utation building. Creating values requires adhering to

reality—not faking it.

Justice is conventionally understood as giving people

their due, and it is considered altruistic. In egoism, justice

is a selfish virtue. It entails evaluating other people

objectively, and granting them what they deserve.

Assessing others and granting what they deserve is in one’s

self-interest because achieving one’s values often depends

on other people, especially in business. A person needs

others to get his work done and to trade with, and if these

people are not delivering what was promised, attainment of

values is jeopardized. Therefore, objective evaluation and

treatment of others is crucial to the achievement of one’s

values (Smith 2006, pp. 135–140). Justice in the egoist

sense involves trading a value for a value. If someone has

provided a value, they deserve to be rewarded—by your

thanking them, recognizing them, patronizing their busi-

ness, recommending them to others, giving them a pro-

motion or a bonus, etc. If a person has failed to trade a

value for a value, or provided you with a disvalue, they

deserve to be punished—by being reprimanded or demo-

ted, providing a negative reference, avoiding their business,

etc. The principle is to reward a positive with a positive and

punish a negative with a negative.

Although not a conventional virtue, independence is

another aspect of rationality. It is the primary orientation to

reality, not to other people. It advises a person to do his

own thinking and not follow others blindly. Others can be

wrong; therefore understanding facts first hand is in one’s

self-interest. For example, a manager may hire a consultant

to make recommendations for improving his company’s

productivity but he still has to understand what the rec-

ommendations are based on and whether they are valid, in

order to implement them effectively. It is also much safer

to make a mistake on your own than to follow others

blindly—since mistakes made by yourself are much easier

to detect and correct. Like all the egoist virtues, indepen-

dence is not just about thinking. Independence in action

means supporting oneself by a first-handed approach in any

rational field. It means working for a living, and paying

one’s own way (Peikoff 1991, pp. 251–257).

Integrity is considered a virtue according to conventional

morality: it means adhering to one’s principles, practicing

what one preaches. The egoist virtue of integrity is consistent

with the conventional view, with one important distinction.

Integrity in the egoist sense means loyalty not to just any

principles but to rational principles—like all the other egoist

virtues, integrity is an aspect of rationality (Smith 2006, p.

176). Any employer following the principle of racism by

refusing to hire those deemed to be of a ‘‘wrong’’ race is not

an example of virtue according to egoism. Integrity means

acting according to rational principles only.

Pride is conventionally considered one of the deadly sins,

and humility a virtue. But egoism’s view of pride, like all of

its other virtues, is unconventional. Aristotle called it ‘‘the

crowning virtue;’’ Ayn Rand labeled it ‘‘the sum of all vir-

tues.’’ Some people equate pride with boastfulness or arro-

gance, but that is not the egoist view. Pride means moral

ambitiousness, striving to do one’s best. As an egoist virtue,

pride does not refer to a feeling but to a policy of action for

doing one’s best, in terms of acting morally (Smith 2006, pp.

221, 233). Practicing the virtue of pride means striving to be

rational—to adhere to facts; striving to be productive—to

produce material values; striving to be honest—not faking

reality; striving to be just—giving people what they deserve;

striving to be independent—focusing primarily on reality,

not on other people; and striving to have integrity—acting

on rational principles. Table 1 presents a summary of the

main principles of egoism.

The Process of Ethical Decision Making: Spiraling

How the ethical decision making model works is presented

diagrammatically in Fig. 1. Central to it are the two levels of

processing and their interaction, as discussed in the section

‘‘Integration by essentials.’’ The interaction is essentially a

process of spiraling between the conscious and the sub-

conscious levels. To illustrate the model, I will discuss a

decision to terminate an employee whose job has become

redundant due to outsourcing. At the conscious, rational

level of processing the decision maker (the manager) first

identifies a moral dilemma: a loyal employee’s job has

become redundant. What is an ethical course of action in this

situation? Many managers would tend to feel uncomfortable

in such a situation and to postpone the decision. The rational

decision making model would guide against procrastination

or acting on emotion and prescribe the following.

The first step at the rational processing level, after

identifying a moral dilemma, is the identification of

applicable moral principles. The two primary ones in this

case would be rationality and justice: the principle of

rationality would advise the manager to face the facts as

opposed to depending on emotions (such as wishing the

problem away), and the principle of justice would guide

him to assess others objectively and to give them what they

deserve, trading value for value.

At this point, the decision maker’s conscious mind

would send a command3 to the subconscious to search

for relevant information filed under ‘‘rationality’’ and

3 This happens automatically once a principle has been identified.

A Model for Ethical Decision Making 317

123

‘‘justice.’’ If he has integrated his knowledge by essentials,

relevant information would come up. For example, if he

has formed the principle of rationality by integrating

‘‘adherence to facts’’ with observation and logic, his sub-

conscious will bring to bear instructions such as ‘‘no

evading the fact that the job has been outsourced’’ as

opposed to ‘‘whatever I wish to be true, is true’’ or ‘‘just

follow your feelings.’’ Or, if the manager has formed the

principle of justice by integrating objective assessment and

granting what is deserved, his subconscious will provide

instructions such as ‘‘no favoritism’’ and ‘‘recognize the

employee’s contributions and compensate accordingly.’’ In

contrast, if the principle of justice was derived by inte-

grating ‘‘fair treatment’’ and ‘‘always giving preferential

treatment to racial minorities,’’ the subconscious instruction

would be to protect the person’s job no matter what the

circumstances as long as the employee was a member of a

minority group.

Table 1 The main principles and virtues of egoism

Principle/virtue Definition Example

Self-interest Each person should hold himself as the primary

value and be a beneficiary of his own actions

An oil industry entrepreneur who beats his competitors

to making a significant oil discovery and earns

superior profits as a consequence

Man’ s life as standard

of value

The goodness of a choice or action should be

gauged by its impact on human survival

and flourishing

A business person who engages in productive work and

voluntary trade with others (as opposed to defrauding

investors or customers)

Rationality The recognition and acceptance of reason as

one’s only source of knowledge, only judge

of values and only guide to action

An entrepreneur using reason to start a business:

observing facts and using logic to decide how to

finance it, who to hire, what to do when a new

competitor emerges

Productiveness The process of creating material values by adjusting

nature to man

Employees of a company wanting to produce oil need to

think and act (map geological formations to identify

oil and gas reservoirs, model the reservoirs to select

well sites, drill well bores, lift the oil, produce it)

Honesty Not faking reality in the pursuit of values A building contractor who submits a bid based on actual

costs (facts) as opposed to wishful thinking or

deliberate evasion of the actual costs

Justice Assessing men’s character and conduct objectively and

granting each person that which he deserves

A business owner assessing and choosing a potential

supplier based on factual evidence as opposed to

rumors, and then dealing with the supplier fairly

Independence Primary orientation to reality, not to other men A businessman developing his own products based on

observation of potential demand and knowledge of

technology, as opposed to imitating competitors

Integrity Loyalty to rational principles An auditor who refuses to change his reports in the face

of bribes and threats from the client

Pride The commitment to achieve one’s own moral

perfection (doing one’s best)

Employees who do their work to the best of their ability

and use their minds to the fullest to find out ever better

ways of performing it

Source for definitions of the virtues: Peikoff (1991)

LEVEL OF PROCESSING

STAGE IN THE DECISION MAKING PROCESS

CONSCIOUS/ RATIONAL LEVEL PROCESSING

Recognition of a moral dilemma

Identification of applicable moral principles

Application of principles:

• Thinking • Action

Resolution of the dilemma

SUBCONSCIOUS/ INTUITIVE LEVEL PROCESSING

Integration by essentials:

• Search of subconscious memory files

Bringing to bear relevant

information

Integration by essentials:

• Storing the conclusion in the appropriate file (under the principle(s))

Fig. 1 An integrative model for ethical decision making

318 J. Woiceshyn

123

If the subconscious processing provides relevant infor-

mation based on integration by essentials, the next step in

the rational decision making process would be to apply the

identified principles to the dilemma at hand, both in

thinking and in action. Let us use the principle of justice as

an example. Justice in thinking involves two specific steps:

(1) identifying the facts of a given case and (2) assessing

them by objective moral principles (Peikoff 1991, p. 279).

The decision to lay off an employee whose job has become

redundant involves the following facts: the competition has

intensified and made it necessary to reduce labor costs

through outsourcing; the company is fairly small and

therefore cannot just retrain and transfer employees to new

jobs elsewhere in the organization; the employee about to

be laid off has always performed his job conscientiously

and competently.

Several objective moral principles can be used to assess

these facts: self-interest, man’s life as the standard of value,

productiveness, justice, honesty. The principle of rational

self-interest tells the manager that the company cannot

keep employees that do not contribute to value creation

anymore; in other words, the company cannot act altruis-

tically if it is to survive and succeed in the long run. The

owners must be beneficiaries of the company’s actions. The

principle of man’s life as the standard of value offers a

yardstick with which to evaluate the decision to terminate

an employee. It is proper for a rational human being to seek

his self-interest, such as a competitive, profitable busi-

ness—which is good not only for the owners and remaining

employees of the business, but also for its customers,

suppliers and competitors, and even the employees who

lose their jobs due to outsourcing. (The more profitable

businesses are out there, the better their chances of finding

other employment.) The principle of productiveness tells

the manager that material values cannot be created without

making profits—which requires eliminating redundant

jobs. The principle of honesty advises against faking: not

pretending that the company can continue to offer a job

that is more profitable to outsource. Finally, the principle of

justice guides the manager to trade value for value, in other

words, recognize the employee’s contributions to the

company and compensate accordingly.

Acting according to justice simply means granting what

a person deserves. If the person to be terminated has per-

formed his job well, that warrants compensation: a sever-

ance package when previously agreed (consistent with

what the company can afford), outplacement counseling if

feasible, recommendations to other employers, and good

references.

Applying the principle of justice resolves the moral

dilemma (how to handle firing of an employee ethically).

At the subconscious (intuitive level) this decision process

reinforces integration by essentials: information about

applying objective moral principles to the case of firing due

to job redundancy gets filed in the subconscious memory

files—ready to be called up when a new, related dilemma is

encountered.

Discussion

Prompted by an empirical study of strategic decision

making that crossed over into ethics, I have proposed a

model of ethical decision making. It is consistent with the

dual processing model that now dominates the cognitive

science and general decision making literatures: both

conscious reasoning and subconscious, intuitive processes

operate when decisions are being made. The proposed

model is integrated in that it also sheds light on the rela-

tionship between conscious and subconscious processes. It

argues that the decision maker spirals back and forth

between the two levels of processing when identifying

moral dilemmas and applying moral principles and

accessing and using subconscious information about them.

The effectiveness of this spiraling interaction, and of

decision making overall, is based on a key process of

integration by essentials.

Besides a model of ethical decision making process,

the paper also proposes substantive content for the model.

Again based on the study of strategic decision making, I

argue that rational egoism is the moral code that CEOs

pursuing the long-term success of their companies arrive

at when integrating by essentials. Rational egoism is

briefly explained and used to illustrate how the interactive

spiraling model of ethical decision making works. By

incorporating both a process model and substantive con-

tent, the paper addresses the descriptive-normative gap in

ethical decision making literature. The descriptive

research typically reports how business people actually

make ethical decisions and is the basis of many of the

decision process models (O’Fallon and Butterfield 2005).

Many of these models do not have normative content that

tells people how they ought to act, or have it only

implicitly (Miner and Petocz 2003). However, while the

descriptive research helps us to understand ethical deci-

sions, practitioners turn to ethics for guidance in the face

of moral dilemmas, and therefore prescriptive ethical

decision models are also needed. The model I proposed in

this paper includes both description of how business

decision makers made ethical decisions and what sub-

stantive principles they used—those of rational egoism—

and then argues that those principles are consistent with

long-term success in business.

The primary argument for the consistency between long-

term success in business and rational egoism stems from

the primary virtue of that moral code: rationality. It has

A Model for Ethical Decision Making 319

123

been repeatedly observed that the primary requirement of

success in business is objectivity, or focus on facts (Locke

2000; Puris 1999). One cannot succeed in business, in the

long term, by pretending that one’s products meets the

specifications, or proclaimed safety requirements, or by

misleading one’s clients with fraudulent investment

schemes. Instead, one has to acknowledge facts, and base

all one’s decisions on them. This is what the egoist virtue

of rationality and all its derivative virtues uphold.

The Limitations and Suggestions for Further Research

The proposed model has some obvious limitations. It is

based on study of strategic decision making, where the

participants were all CEOs. They were also named as

effective thinkers by their peers and industry experts.

Such a group likely does not represent an average busi-

ness decision maker, and therefore the process of inte-

grating by essentials may not be utilized, at least to the

same degree, by others. Also, the fact that the study’s

participants had identified and applied moral principles

consistent with rational egoism does not suggest that other

business decision makers would do the same. In fact,

there is evidence that managers follow other moral codes,

such as pragmatism, utilitarianism, or altruistic deontol-

ogy (Singer 2010; Premeaux 2004; Frederiksen 2010).

But it is noteworthy that CEOs running successful com-

panies and known to be effective thinkers had induced

and applied rational egoist principles as critical for long-

term success in business.

To address the above shortcomings and to test the

proposed model, I make the following suggestions for

further research. First, studying ethical decision making

explicitly would be required. To tap into how business

people handle ethical dilemmas, scenario, journaling or

observation and interview methods could be used, either

on their own or in a combination. Scenario methods

suggest a focus on subjects in one industry at a time (so

that the same decision scenario can be used and com-

parisons across decision makers can be made). If the

participants are asked to reflect on their handling of eth-

ical dilemmas in a journal, industry contexts can vary

(although comparisons within an industry allow control-

ling for the industry-specific factors). The same is true of

observation and interview methods.

Second, participants for the above type of study should

be recruited from among those managers or executives

with a track record of long-term business success that are

recognized as principled or ethical decision makers, by

their peers or experts. Such a group could confirm the

prevalence of rational egoist principles or suggest alterna-

tive moral codes.

Implications for Ethical Decision Making Theory and

Practice

The identification of a critical process, integration by

essentials, as part of effective decision makers’ tool kit,

suggests it may play a role in ethical decision making in

business. If it is confirmed in future studies of effective

decision makers in successful businesses, integration by

essentials can help identify moral principles that provide

normative content to ethical decision models. Deriving

moral principles from the conduct of business decision

makers challenges the idea of the so-called naturalistic

fallacy (Moore 1903/1951, pp. 10–14) which holds that

moral norms cannot be induced from requirements of

human life, since they are considered subjective.

The proposal that acting egoistically is moral contradicts

the view held by most ethicists today (e.g., Bowie 2009;

Hills 2010; Korsgaard 1996), although not all (e.g., Mait-

land 2002; Smith 2000, 2006). Nevertheless, if integration

by essentials is applied systematically to the question:

What moral principles are required for the long-term sur-

vival and flourishing of business firms?, it results in the

principles of egoism: rational self-interest, human life as

the objective standard of value, no initiation of physical

force or fraud, rationality, productiveness, honesty, justice,

independence, integrity, and pride. Despite of widespread

dismissal of egoism among ethicists, it appeals to business

decision makers who want to pursue their self-interest

without violating the rights of others. Egoism offers solu-

tions to moral dilemmas business executives face today.

For example, egoism helps prevent environmental degra-

dation by advocating protection of property rights. Egoism

also helps prevent and resolve conflicts among the so-

called stakeholders of a firm by advocating trade as the

means of interaction (i.e., all parties should be trading

value for value, based on mutual consent and mutual

benefit). Finally, egoism guards against the temptation to

pursue short-term gains through physical force or fraud.

For these reasons alone, egoism is a moral code worth

further exploration.

Appendix: A Summary of the Methodology

and Findings of the Strategic Decision Making

Study (Woiceshyn 2009)

To identify CEOs who were effective thinkers, I asked nine

oil industry experts (such as CEOs and investment bankers)

in Calgary, Canada to name chief executive officers of

successful oil companies whom they considered ‘‘good

minds’’ or effective thinkers. Calgary is the location of the

second-largest concentration of oil company headquarters

in the world. The ‘‘oil patch’’ there is a tightly connected

320 J. Woiceshyn

123

community where most players either know each other

directly, or know of each other. I received 72 nominations,

32 of which had been suggested by two or more experts.

I asked the 32 to participate in a study of strategic decision

making. (The study also involved a comparison group of

not-so-effective thinkers. For more details, see Woiceshyn

(2009).) Sixteen of the effective CEOs agreed to partici-

pate. They either ran or had been recently running suc-

cessful oil firms, and had a median industry experience of

24 years.

At the beginning of the interview sessions, all the CEOs

were asked to read the same, realistic decision scenario

where a CEO was given three strategic alternatives (see

Woiceshyn 2009) and to think-out-loud how they would

deal with it, in order to elicit their thinking processes. The

interviews after the think-out-loud procedure included

questions beyond the scenario, about the CEOs’ motiva-

tion, decision principles, outside interests and backgrounds.

The sessions lasted for 90 min on average. Many were

followed by phone calls to clarify issues or to ask further

questions.

The interview transcripts were coded and then analyzed

in several rounds. I first grouped together the interviewees’

comments by the question, then by the similarity of their

content. I also conducted a similar analysis of the decision

processes through which the CEOs handled the scenario.

Patterns of using reason and intuition emerged from these

categories of comments and analysis of processes, rein-

forced by each additional CEO’s interview. For example, it

was directly observable from the interview transcripts that

the CEOs used various ‘‘mid-range’’ principles. I integrated

the mid-range principles into the general principles

Table 2 The moral principles applied by the effective CEOs

Principle Self-interest Rationality Honesty Justice

Hold yourself as the primary

value and pursue values

with a long-term approach

Adhere to reality through

observation and logic

Do not attempt to gain values

by faking reality

Judge people objectively and

grant them what they

deserve

Mid-range

principles

Do not sacrifice your interests

for others

Choose your work based on

what you love to do

Pursue profits

Adopt a long-term perspective

(not profit by any means)

Enjoy life (work and other

values)

Decide based on facts vs.

emotions

Do analysis before deciding

Strive for objectivity:

Seek outside expert opinion

Use diverse teams

‘‘Embrace skeptics’’

Check quality of

information

Postpone decisions until the

relevant information is in

Do not cheat or pretend to try

to gain a value

Be honest toward yourself as

well as to others

Hire best people and reward

them

Provide honest criticism

Terminate non-performers

The Golden Rule

Apply justice to yourself:

Be accountable for your

actions and take deserved

credit

Sample

quotations

from the

effective

CEOs

‘‘We want to win, fair and

square’’

‘‘You want to make a bunch

of money through the

process…but more so, I love

the business, I love coming

to work every morning’’

‘‘I would refuse to jeopardize

the long-term viability of the

company to meet some

short-term expectations by

shareholders or analysts’’

‘‘You have to keep a long-

term perspective. Certainly

the financial part

[compensation] is there but

it’s also a personal desire to

grow and build something,

to be successful’’

‘‘Have a good work ethic but

don’t go overboard. Travel

and see things. If you have

kids, spend time with them’’

‘‘If you are not excited about

what you do and a little bit

emotional, it’s a tougher

business. But at the same

time you have to pull back

and say, ‘What are the facts,

Jack?’’’

‘‘Technically it is cheap to

look at data, so we should

look at everything before we

spend money’’

‘‘…Bring in an independent

voice to provide strategic

advice, the cold hard light of

day approach’’

‘‘I would do all that

homework before I would

say yes. I would be

enthusiastic but very

thorough’’

‘‘I always ask what quality of

information is this based

on’’

‘‘I’d rather just come clean [if

we are going to have] a

shortfall and say, ‘we are

going to be short’’’

‘‘You have to be honest in all

things, especially with

yourself. And you can’t

tolerate any kind of

dishonesty, whether it is $5

on an expense account, or a

white lie, or a ‘political’

truth’’

‘‘Everyone [shareholders,

analysts, staff] gets the same

story [from me]; they may

not like the story but they

get the same facts’’

‘‘I want to hire the best people

I can attract. That has

always stood me well’’

‘‘If I give you criticism the

reason is that you have the

capacity to change… establish that kind of

honesty’’

‘‘He just didn’t have the same work ethic or enthusiasm as

everyone else. So we had to

unplug him and you can’t be

afraid to do that …I think it

is always best for

everybody’’

‘‘We treat everybody like we

would want to be treated’’

‘‘Some opportunities are

going to work out and some

won’t …I am accountable’’

A Model for Ethical Decision Making 321

123

discussed in the report, and then re-analyzed the transcripts

to validate the principles (e.g., by compiling quotations in

which the principles were manifested and also by being

alert to any evidence contradicting the principles). See

Table 2 for examples of the ethical principles used by the

CEOs. The notion of spiraling between the conscious and

subconscious processing was induced from the effective

CEO’s iterative pattern of analyzing the decision alterna-

tives and applying principles.

The model of decision making by integration by

essentials and spiraling arose from the iterative contrasting

of the transcripts and the summary tables of the effective

CEOs with those of the not-so-effective CEOs. The most

striking difference between the two groups of CEOs was

the process labeled ‘‘integration by essentials.’’ In contrast

to the effective CEOs, the latter group did not demonstrate

integration: they did not identify many principles and made

very few connections between ideas. Although the not-

so-effective CEOs did some spiraling between the decision

alternatives, they did not do it very systematically, nor did

they apply principles to their decisions.

The study received a research ethics certification from

my university’s research ethics review board. All partici-

pants gave their informed consent to participate.

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