Business Ethics and Organizational Social Responsibility

C H A P T E R2

DECIDING WHAT’S RIGHT:

A PRESCRIPTIVE APPROACH

INTRODUCTION

This chapter begins the part of the book that focuses on ethical decision making as

something that individuals do. Many, if not most ethical decisions in business organi-

zations are made by individuals like you. In later chapters, we will address how the

organizational context and the broader business environment also affect individual

ethical decision making.

There are two ways to think about individual ethical decision making—the pre-

scriptive approach and the descriptive approach. This chapter covers the prescriptive

approach. It is derived from ethical theories in philosophy and offers decision-

making tools (ways of thinking about ethical choices) that help you decide what deci-

sion you should make as a ‘‘conscientious moral agent’’ who thinks carefully about

ethical choices 1 and who wants to make the ethically ‘‘right’’ decision. Our assump-

tion is that your intentions are good and that your goal is to do the right thing. So in

this chapter we introduce ethical decision-making tools that can help you do just that,

and we’ll explain how you can integrate them and use them in a practical way.

We know, however, that people don’t always make the best decision. Prescrip-

tions aren’t always followed. So it’s helpful to understand how people’s minds

work— how people really make decisions. The descriptive approach, discussed in

Chapter 3, relies on psychological research to describe how people actually make

ethical decisions (rather than how they should make them). It focuses in particular on

individual characteristics that influence how individuals think and on cognitive limi-

tations that often keep people from making the best possible ethical decisions. Hope-

fully, if we understand both approaches, we can improve our ethical decision making.

Now let’s learn about the prescriptive approach.

ETHICAL DILEMMAS

Many ethical choices are clear-cut enough that we can decide what to do rather easily

because they pit ‘‘right’’ against ‘‘wrong.’’ Is deciding whether to embezzle corporate

funds a tough ethical dilemma? Not really, because embezzling is stealing and it’s

38

wrong, period. There’s not much of a ‘‘dilemma’’ there. But things can get pretty

murky in situations where two or more important values, rights, or responsibilities

conflict and we have to choose between equally unpleasant alternatives. We define

an ethical dilemma as a situation where two or more ‘‘right’’ values are in conflict.

Consider the following ethical dilemma.

THE LAYOFF

Pat is the plant manager in one of ABC Company’s five plants. She’s worked

for the company for 15 years, working her way up from the factory floor after

the company sent her to college. Her boss just told her in complete confi-

dence that the company will have to lay off 200 workers. Luckily, her job

won’t be affected. But a rumor is now circulating in the plant, and one of her

workers (an old friend who now works for her) asks the question, ‘‘Well, Pat,

what’s the word? Is the plant closing? Am I going to lose my job? The clos-

ing on our new house is scheduled for next week. I need to know!’’ What

should she say? What would you say?

This is a true ethical dilemma because two values are in conflict. Two ‘‘right’’

values that can create significant conflict are truthfulness and loyalty. As illustrated

in the case, telling the truth to your friend would mean being disloyal to the com-

pany that has treated you so well. The value of loyalty can even be in conflict with

itself as you weigh loyalty to your friend against loyalty to your boss and company.

In this chapter, we introduce conceptual tools drawn from philosophical

approaches to ethical decision making that are designed to help you think through

these tough ethical dilemmas from multiple perspectives. None of the approaches

are perfect. In fact, they may lead to different conclusions. The point of using mul-

tiple ones is to get you to think carefully and comprehensively about ethical dilem-

mas and to avoid falling into a solution by accident. At the very least, you can feel

good because you’ve thought about the issue thoroughly, you’ve analyzed it from

every available angle, and you can explain your decision-making process to others

if asked to do so.

PRESCRIPTIVE APPROACHES TO ETHICAL DECISION MAKING IN BUSINESS

Philosophers have been wrestling with ethical decision making for centuries. We

certainly don’t intend to provide a philosophy course here, but we can distill

some important and practical principles that can guide you toward making the

best ethical decisions. In this section, we outline some of the major contempo-

rary approaches that we think can provide you with the most practical assist-

ance. 2 We then incorporate them into a series of steps that you can use to

CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 39

evaluate ethical dilemmas, and along the way, we apply these steps to the short

layoff case as well as other examples.

Focus on Consequences (Consequentialist Theories)

One set of philosophical theories is categorized as consequentialist (sometimes

referred to as teleological, from the Greek telos). When you’re attempting to decide

what’s right or wrong, consequentialist theories focus attention on the results or con-

sequences of the decision or action.

Utilitarianism is probably the best-known consequentialist theory. According to

the principle of utility, an ethical decision should maximize benefits to society and

minimize harms. What matters is the net balance of good consequences over bad for

society overall.

A utilitarian would approach an ethical dilemma by systematically identifying

the stakeholders in a particular situation as well as the alternative actions and their

consequences (harms and/or benefits) for each. A stakeholder is any person or group

with a stake in the issue at hand. So who are the stakeholders in the layoff situation?

Key stakeholders would include Pat’s friend, her friend’s family, Pat’s boss, Pat, her

family, other workers, and the company—quite a list! And, what would be the conse-

quences (societal harms and benefits) for each stakeholder of a decision to tell or

not tell? The consequentialist approach requires you to do a mental calculation of all

the harms and benefits of these consequences, stakeholder by stakeholder. What

would be the consequences if Pat tells her friend what she knows about the layoff?

What would be the consequences (societal harms and benefits) if Pat doesn’t share

what she knows? A potential harm of telling her friend would be that he or she might

tell other workers and send the plant into chaos. Perhaps more people would lose

their jobs as a result. Another potential harm might be that Pat could lose the trust of

her boss (another stakeholder), who provided information to her in confidence.

Pat might even lose her job, which has consequences for her family. A potential ben-

efit might be that Pat would retain the trust of a valued friend. Another potential

benefit might be that her friend could use the information to make a decision about

going through with buying the new house. After Pat conducts a thorough analysis that

estimates these harms and benefits, the ‘‘best’’ ethical decision is the one that yields

the greatest net benefits for society, and the ‘‘worst’’ decision is the one that yields

the greatest net harms for society. So if more people would be ultimately hurt than

helped if Pat were to inform her friend of the impending layoff, a utilitarian would

conclude that Pat shouldn’t tell. Keep in mind that this perspective requires you to

think broadly about the consequences for ‘‘society,’’ not just for yourself and those

close to you, as we are often inclined to do. When conducting such an analysis, you

may want to create a table for yourself like the one below that can help you sort out

the complexities by identifying the stakeholders and the anticipated harms and bene-

fits. But arriving at a bottom-line conclusion about the action that will serve the

greater good of society is easier said than done.

40 SECTION II ETHICS AND THE INDIVIDUAL

Consequentialist Analysis

Stakeholder Tell—Harms Tell—Benefits Don’t Tell—Harms Don’t Tell—Benefits

1

2

3

4

etc.

Bottom line: best decision or action is the one that produces the greatest net good and the least net harm for

society overall.

In 2005, Mark Felt, also known as ‘‘Deep Throat,’’ revealed his identity as the

source who secretly fed information to Washington Post investigative reporters Bob

Woodward and Carl Bernstein. The information ultimately led to the 1974 resigna-

tion of President Richard Nixon over his involvement in the cover-up of the 1972

burglary at Democratic headquarters in the Watergate building. Woodward and Bern-

stein turned the story into a book and later a film, All the President’s Men. We can’t

get inside Felt’s head to understand his ethical decision-making process at the time.

We will never know his true motivation, because Felt became cognitively impaired in

his later years. But we can imagine that, as the number two person at the FBI, he may

have weighed the harms and benefits of leaking information about the Watergate

break-in and the involvement of Nixon and his aides in criminal wrongdoing. Felt

certainly took a huge personal risk and may have considered the costs to others. Sev-

eral individuals went to prison as a result of the investigation, and their families suf-

fered as a result. A president also resigned in disgrace. If Felt had been discovered,

his career would probably have been ruined, and his family would have experienced

the rippling effects. But those who believe that he did the right thing would say that

Felt’s decision served the long-term greater good of American society and ultimately

helped preserve democracy in the United States.

The consequentialist approach can be extremely practical and helpful in thinking

through an ethical dilemma. Don’t we generally look at the consequences of our own

and others’ actions in trying to decide what’s right? And don’t we consider who will

benefit and who will be harmed? When the state decides to build a new highway

through your property, aren’t they using a utilitarian rationale when they argue that

the benefits to the greater community (increased development and jobs, reduced traf-

fic, fewer accidents, etc.) outweigh the harm to the few property holders who will be

inconvenienced by an eyesore in their backyard?

However, a challenge involved in using a strictly consequentialist approach is

that it is often difficult to obtain the information required to evaluate all of the conse-

quences for all stakeholders who may be directly or indirectly affected by an action

or decision. In business (or in life for that matter), when do you have all of the facts?

Could Deep Throat have known what the outcomes of his decision would be? And

even if you have all of the information, it can be extremely cumbersome to calculate

CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 41

all of the harms and benefits every time you encounter a new ethical dilemma. Try it.

Can you list all of the potential harms and benefits for everyone who may be directly

or indirectly involved in the layoff situation described above? It’s relatively easy for

Pat to list the potential harms and benefits to herself and those close to her. But can

you envision all of the potential harms and benefits to all of the other people who

may be involved? If you don’t have a crystal ball that allows you to foretell the future

(and most of us don’t), you’re unlikely to arrive at a completely accurate assessment

of all future consequences. Nevertheless, with this approach, it’s important to do your

best to accurately assess the potential consequences. You have a responsibility to

gather and use the best, most up-to-date information available. Remember, according

to this approach, the most ethical decision maximizes benefits and minimizes harm

to society. The challenge of making the best ethical decision is to step outside of

oneself and think as broadly as possible about all of the consequences for all of those

affected. Taking this step is guaranteed to widen your decision making lens and allow

you to take into account consequences that you otherwise might not consider.

Another difficulty with this type of approach is that the rights of a minority group

can easily be sacrificed for the benefit of the majority. For example, slaveholders in

the Old South argued that the greatest good for the greatest number would be served

by maintaining the system of slavery. But hopefully we all agree that such a system

did not respect the rights of the human beings who were enslaved (a deontological

perspective we discuss next).

The consequentialist approach remains particularly important to ethical decision

making in business for a variety of reasons. First, utilitarian thinking—through its

descendant, utility theory—underlies much of the business and economics literature.

Second, on the face of it, most of us would admit that considering the consequences

of one’s decisions or actions for society is extremely important to good ethical deci-

sion making. In fact, studies of ethical decision making in business have found that

business managers generally rely on such an approach. 3 As we’ll see, though, other

kinds of considerations are also important.

Focus on Duties, Obligations, and Principles (Deontological Theories)

The word deontological comes from the Greek deon, meaning ‘‘duty.’’ Rather than

focusing on consequences, a deontological approach would ask, ‘‘What is Pat’s ethi-

cal duty now that she knows about the layoff?’’ Deontologists base their decisions

about what’s right on broad, abstract universal ethical principles or values such as

honesty, promise keeping, fairness, loyalty, rights (to safety, privacy, etc.), justice,

responsibility, compassion, and respect for human beings and property.

According to some deontological approaches, certain moral principles are

binding, regardless of the consequences. Therefore some actions would be consid-

ered wrong even if the consequences of the actions were good. In other words, a

deontologist focuses on doing what is ‘‘right’’ (based on moral principles or

values such as honesty), whereas a consequentialist focuses on doing what will

42 SECTION II ETHICS AND THE INDIVIDUAL

maximize societal welfare. An auditor taking a deontological approach would

likely insist on telling the truth about a company’s financial difficulties even if

doing so might risk putting the company out of business and many people out

of work. A consequentialist auditor would weigh the societal harms and benefits

before deciding what to do. If convinced that by lying now he or she could save a

good company in the long term, the consequentialist auditor would be more will-

ing to compromise the truth.

Knowing what values are important to you and how you prioritize them is an

important first step toward understanding and applying this approach in your own life

(now is a good time to complete the end-of-chapter exercise, ‘‘Clarifying Your Val-

ues’’). Which values are most important to you? Which ones are you willing to adhere

to consistently, and how do you prioritize them if they conflict? Try to keep your list

of values to just a few that you believe are truly the most important ones. In attempting

to decide which values are most important to you, it’s helpful to think back to recent

ethical dilemmas you have faced. Which ones guided your behavior? Which ones

trumped other conflicting values? Think carefully when selecting your ethical values.

For example, students often select promise keeping as a value. But what if keeping a

promise requires you to breach another more important value such as honesty or jus-

tice? If promise keeping is important to you, be careful what you promise. Should you

promise to lie to authorities for a friend who has broken the law and harmed others? If

you select loyalty, you’ll need to think about ‘‘loyalty to whom,’’ because multiple

loyalties can conflict as they do in the layoff situation we’ve been discussing.

Some deontological theories focus on rights rather than duties, values, or princi-

ples. The concept of rights goes back to classical Greek notions of ‘‘natural rights’’

that emerge from ‘‘natural law.’’ Rights can be thought of as ‘‘negative rights,’’ such

as the limits on government interference with citizens’ right to privacy or the pursuit

of happiness. Or rights can be thought of in more positive terms, such as the individ-

ual’s rights to health and safety. The rights of one party can conflict with the rights of

another party, as when the rights of a company to seek profits for its shareholders

conflict with the rights of a community to clean air or water or the rights of a con-

sumer to buy a safe product. Furthermore, the rights of one party are generally related

to the duties of another. So, if we agreed that communities have the right to clean

water, businesses would have the duty to protect that right.

How does a deontologist determine what rule, principle, or right to follow? One

way is to rely on moral rules that have their roots in Western biblical tradition. For

example, the Golden Rule, a basic moral rule found in every major religion, is famil-

iar to most of us and provides an important deontological guide: The most familiar

version tells us to ‘‘Do unto others as you would have them do unto you.’’ In our

layoff situation, the Golden Rule would suggest that Pat should tell her friend what

she knows because she would want her friend to do the same for her if the situation

were reversed. But note that the Golden Rule leads you to the best decision only if

you’re highly ethical. For example, do you think that the Golden Rule would expect

you to lie for a friend who has broken the law because you would want the friend to

do that for you? No, because a highly ethical person wouldn’t ask a friend to lie. The

CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 43

ethical person would be responsible and would accept the consequences of his or her

illegal actions.

The German philosopher Emmanuel Kant provided another useful moral rule

with his categorical imperative: ‘‘Act as if the maxim of thy action were to become

by thy will a universal law of nature.’’ This rule asks you to consider whether the

rationale for your action is suitable to become a universal law or principle for every-

one to follow. For example, if you break a promise, the categorical imperative asks,

‘‘Is promise breaking a principle everyone should follow?’’ The answer is no; if

everyone did this, promises would become meaningless. In fact, they would cease

to exist.

A practical deontological question to ask might be, ‘‘What kind of world would

this be if everyone behaved this way or made this kind of decision in this type of

situation?’’ What kind of world would this be if everyone broke promises at will?

Consider the following example:

A DRUG STUDY

A number of physicians are recruited to participate in a large-scale, multi-

center study to investigate the survival rates of breast cancer victims who are

being treated with a new drug. Strict rules are developed regarding inclusion

of patients in the study. Only those who have had surgery within the last three

months can be included. Dr. Smith has a patient who hears about the study

and wants very much to participate. Because Dr. Smith thinks the drug could

really help this patient, he agrees to include her even though her surgery took

place six months ago. He changes the dates on her charts to conform with the

study requirements and reasons that this one little change shouldn’t affect the

study results.

According to the categorical imperative, we must ask whether the rationale for

Dr. Smith’s action (helping his patient by breaking the study rules) is suitable to

become a principle for all to follow. The answer is clearly no. What if other doctors

did the same thing as Dr. Smith? What if those involved in medical research followed

their own preferences or motives rather than the rules guiding the study? Society

would be unable to rely on the results of medical research. What kind of a world

would it be if researchers were routinely dishonest? It would be one where we simply

couldn’t depend on the integrity of scientific research, and most of us would deem

that kind of world unacceptable. Interestingly, given the potential for societal harm

of a decision to be dishonest and enroll the patient in the study, consequentialist

thinking would lead to the same decision. Only the patient would potentially benefit,

and society as a whole would be harmed.

Additional moral rules come from the work of the highly regarded American

political philosopher John Rawls. Rawls proposed that decision makers use a veil of

ignorance exercise to arrive at fundamental principles of justice that should guide

ethical decision making. In his approach, imaginary people come together behind a

44 SECTION II ETHICS AND THE INDIVIDUAL

hypothetical veil of ignorance. These imaginary people do not know anything about

themselves, their identities, or their status. They don’t know if they are male or

female, young or old, rich or poor, black or white, the CEO or a janitor, intelligent

or mentally retarded, physically fit or disabled, sick or healthy, patient or doctor.

According to Rawls, rational people who use this veil of ignorance principle will be

more likely to develop ethical rules that do not unfairly advantage or disadvantage

any particular group. 4 Because humans are fundamentally risk averse and wary of

being the worst off, such neutral people would arrive at fair principles that grant all

individuals equal rights to basic liberties and equality of opportunity and that benefit

the least advantaged in society. This approach was designed to be used as a guide in

any ethical decision, but it may be most useful when fairness concerns are central to

the decision at hand. It offers yet another way to broaden your view and urges you to

consider the needs of those who are less advantaged than yourself. So, following

Rawls, if a business needs to downsize, what kind of process would the group of

imaginary people behind the veil of ignorance devise for deciding whom to lay off

and when to tell employees? How should doctors decide who will be included in

drug studies? How should lifesaving prescription drugs be priced? Would sweatshop

working conditions ever be acceptable?

A major challenge of deontological approaches is deciding which duty, obliga-

tion, right, or principle takes precedence because, as we said earlier, ethical dilem-

mas often pit these against each other. What does the deontologist do if one binding

moral rule clashes with another? Can it be determined which is the more important

right or principle? Because the U.S. Constitution is based on a rights approach,

many U.S. public policy debates revolve around questions such as these. For exam-

ple, the abortion debate rests on the question of whether the rights of the mother or

the fetus should take precedence. In ethical dilemmas at work, loyalty to your boss

or organization can easily clash with other strongly held values such as compassion

or fairness. What if your boss tells you that you must lay off a subordinate—an

excellent performer—because he was hired last, and the principle guiding the

layoff is ‘‘the last hired is the first fired’’? But imagine that this subordinate will

lose his health insurance with the layoff, and you know that his child is seriously

ill. Another subordinate who has been with the company somewhat longer is also

a good performer but is single and has no family obligations. What is the most

ethical decision here?

Another difficulty of deontological approaches arises when they conflict with

consequentialist reasoning. First, what happens when following a rule will have dev-

astating consequences? For example, in World War II Germany, telling the truth

to the Nazis about whether Jews were hiding in your attic would have devastating

consequences—the Jews would be taken and killed. In response to such concerns,

some philosophers argue that deontological principles (i.e., truth telling, promise

keeping) don’t have to be regarded as absolute. For example, one could violate a rule

or principle for a good reason (according to Kant, a reason that you would be willing

to accept for anyone in the same position). 5 In the Nazi scenario, Kant’s categorical

imperative would be helpful because most of us would not want to live in a world

CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 45

where people are expected to tell the truth when doing so means the death of an inno-

cent human being. Respect for human life trumps honesty.

Consider yet another example of conflict between a consequences and a princi-

ples approach. In 2009, the owner of a shipping company had to decide whether to

pay ransom to pirates who were holding his ship and its crew hostage and who threat-

ened to kill everyone if the ransom were not paid. This business owner acknowledged

that paying the ransom would reinforce the pirates’ behavior and would likely lead to

more kidnappings and hostage takings, an outcome that is clearly to the detriment of

society overall. However, having considered this, he nevertheless concluded that he

would pay the ransom because he felt strongly that his primary responsibility as an

employer was to his people. His values of respect for human life and compassion for

the employees’ families were more important to him in this situation than the poten-

tial longer-term broader harm.

Sometimes, a decision with good consequences contradicts an important ethical

principle. For example, the state of Virginia developed a method for sentencing crim-

inals that incorporates risk of recidivism. Using factors such as gender, age, employ-

ment status, and prior criminal record, the state learned that it can predict the

likelihood of an individual’s committing another crime. This calculation is designed

to protect the public and save taxpayer money, and many felons are being released

from jail and returned to the community successfully. The system works; and one

could argue, based on consequentialist thinking, that it benefits most people. But

some argue, based on principle, that those who commit crime deserve to be punished

and that it is unfair to treat offenders who committed the same crime differently.

Under the system, a young, unemployed male is more likely to go to jail than an older

woman who has a job. 6 The consequences are good for society, but is the system fair?

Focus on Integrity (Virtue Ethics)

The virtue ethics approach focuses more on the integrity of the moral actor (the per-

son) than on the moral act itself (the decision or behavior). The goal here is to be a

good person because that is the type of person you wish to be. Although virtue ethics

as a philosophical tradition began with Aristotle, a number of contemporary ethicists

(including business ethicists) have returned it to the forefront of ethical thinking. 7

A virtue ethics perspective considers the actor’s character, motivations, and

intentions (something we didn’t discuss at all under the other two perspectives).

According to virtue ethics, it is important that the individual intends to be a good

person and exerts effort to develop him or herself as a moral agent, to associate with

others who do the same, and to contribute to creating an organizational context that

supports ethical behavior. 8 This doesn’t mean that principles, rules, or consequences

aren’t considered, just that they’re considered in the context of assessing the actor’s

character and integrity. One’s character may be assessed in terms of principles such

as honesty, in terms of rule following (did this actor follow his profession’s ethics

code?) or in terms of consequences (as in the physician’s agreement to, above all, do

no harm).

46 SECTION II ETHICS AND THE INDIVIDUAL

Motivations and intentions are important to ethical decision making, as the law

acknowledges. If a person harms another, society judges that person less harshly if he

or she did not intend to do so, if it was an accident. In thinking about Mark Felt’s deci-

sion to provide information to Woodward and Bernstein in the Watergate affair, virtue

ethics would ask us to think about his intentions and motivation. Was he motivated by

revenge because he was passed over for the top job at the FBI (as some have suggested),

or was he guided by broader concerns about doing the right thing as a conscientious

moral agent who was concerned about sustaining the American system of government?

In virtue ethics, one’s character may be defined by a relevant moral community,

a community that holds you to the highest ethical standards. Therefore it’s important

to think about the community or communities the decision maker operates within.

Mark Felt was an FBI man who was sworn to keep confidences. That makes it hard

for some in the FBI community to accept his talking to journalists, even if the long-

term consequences contributed to the greater good of the country. But the broader

community, the U.S. public at large, likely judges Felt more kindly if they think of

him as someone who took a great personal risk to do what he thought was right.

Think about yourself. What community or communities do you look to for guidance

in deciding whether you acted as a person of integrity? Are you guided by the stan-

dards of your professional association, the regulatory community, your religious

community, your family, your company’s ethics office, the broader public? Note that

unless you work in a highly ethical organizational context, the relevant moral com-

munity is not your own work group or your organization. A virtue ethics perspective

requires that you look to the community that will hold you to the highest ethical stan-

dard and support your intention to be a virtuous person.

A virtue ethics approach is particularly useful for individuals who work within a

professional community that has developed high standards of ethical conduct for

community members. For example, the accounting profession has developed a code

of conduct for professional accountants. Being a virtuous accountant would mean

abiding by that code of professional responsibility. The same goes for certified finan-

cial consultants, engineers, lawyers, physicians, and psychologists who all agree to

abide by their profession’s rules and standards. Such professional codes are generally

living documents that evolve with changing times. For example, building on 20 years

of thinking about ethics and torture, a committee of the American Psychological

Association (APA) developed new standards in 2009, consistent with its ‘‘do no

harm’’ principle: without exception, the new APA standards prohibit professional

psychologists from participating in torture. Psychologists are required to disobey

orders to torture, intervene to stop torture, and report torture if they become aware

of it. 9 A decision maker can often rely on such relevant community standards to

guide decisions and actions. The assumption is that the professional community has

already done this type of thinking and has done it carefully.

Consider this fascinating example from the U.S. legal profession. The rule of

attorney-client privilege requires criminal defense lawyers to keep information

shared by their clients completely confidential. This rule is based on the idea that,

in order for defendants to get the best possible defense, they must feel free to be

CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 47

completely truthful with their lawyers. The underlying principle of the U.S. system of

justice says that everyone deserves a vigorous defense and that defense lawyers must

act in the interests of their clients. Then it is up to judges and juries to decide guilt

and innocence. That all makes a lot of sense in the abstract. But a recent case

in Illinois (profiled on 60 Minutes) 10

was particularly challenging for nonlawyers to

understand. Here’s what happened. Two criminal defense lawyers went public

to share information that their client had committed a murder for which another man,

Alton Logan, was erroneously convicted. When the lawyers went public, Logan had

already served 26 years in prison for a crime he did not commit! Most observers’

immediate reaction was to say that the lawyers should have spoken up right away

because it just isn’t fair for someone to go to jail for a crime he didn’t commit, and

they could and should have stopped it. But because of attorney-client privilege, a

central ethical principle in the legal profession, the lawyers were not allowed to share

this private information. As lawyers, they understand that the larger system of justice

depends on that principle, even if some individuals are harmed in the process of

upholding it. Interestingly, they also noted that if they had shared the information, it

would not have been admissible in court and could not have helped Alton Logan. The

lawyers were able to finally come forward only because, years before, they had con-

vinced their client to sign an affidavit saying that they could share the information

about his admission of guilt after he died. That’s what they did when their client died

in prison (where he was serving a life sentence for committing a different crime), and

Alton Logan was finally released. Interviews with the lawyers suggested that they

understood and were guided by the ethics of the legal profession. However, impor-

tantly, they also went beyond professional community expectations when they asked

their client to sign the affidavit that ultimately allowed them to share the information.

So from a virtue ethics perspective, they followed their community’s guidance. But

as thoughtful moral agents who were motivated to do the right thing, they didn’t

completely surrender to legal community standards. They used their own thinking to

devise a plan that ultimately resulted in Logan’s release (although a deontologist

might say that it was 26 years too late).

It’s important to do your own thinking because some professional communities pro-

vide limited guidance or none at all. For example, management is not a ‘‘profession’’

with explicit ethical standards and acknowledged responsibilities to society (although

some influential thinkers believe and argue that it could and should be). 11

In fact, the

authors of a 2008 Harvard Business Review article 12 offer ‘‘A Hippocratic Oath for Man-

agers’’ that calls on managers to commit to the following (adapted from the original):

1. Service to the Public and Society. Recognize the manager’s responsibility

to serve the public interest by creating sustainable value for society in the

long term.

2. Balance Multiple Stakeholders’ Interests. Recognize that managers must

balance the often-conflicting needs of many stakeholders to enhance enter-

prise value in a way that is consistent with societal well-being. The authors

48 SECTION II ETHICS AND THE INDIVIDUAL

note that ‘‘this may not always mean growing or preserving the enterprise

and may include such painful actions as its restructuring, discontinuation, or

sale if these actions preserve or increase value.’’

3. Acting with Integrity in the Enterprise’s Interest. Put the interests of the

enterprise ahead of personal interests while behaving as a person of integ-

rity, consistent with personal values, and leading others to do the same. This

means avoiding behavior that advances personal ambitions that harm either

the business or society. It also means reporting the ethical or legal violations

of others.

4. Adherence to the Law. Make a commitment to adhere to the spirit and the

letter of the law and contracts in personal and enterprise action.

5. Accurate and Transparent Reporting. Report enterprise performance accu-

rately and transparently to all relevant stakeholders (e.g., investors, consum-

ers, the public, etc.) so that they can make informed decisions.

6. Respectful and Unbiased Decision Making. Make decisions in an unbiased

and respectful manner without considering race, gender, sexual orientation,

religion, nationality, politics, or social status. The goal is to protect the inter-

ests of the less powerful who are affected by these decisions.

7. Professional Development. Commit to continuous professional develop-

ment for the self and others with the goal of always using the best and most

current available knowledge to make informed decisions.

8. Responsibility to Protect the Profession. Recognize that being considered

a professional has privileges that come with responsibilities to uphold

and protect the standards, and continue to develop them in a way that

contributes to the trust, respect, and honor associated with them and

with the profession.

Interestingly, if you study these principles carefully, you can find evidence of all

three ethical decision-making approaches. Can you identify consequentialist think-

ing, deontological thinking, or virtue ethics thinking? Do you think management is

ready to become a profession that requires its members to adhere to such a code?

Should it?

Whether or not your own professional community provides guidance, it remains

essential that you think for yourself because a professional community can be wrong.

For example, auditors are professional accountants with a fiduciary responsibility to

the public. Their audits provide investors with assurance that public companies’

financial statements can be trusted. The American Institute of Certified Public

Accountants (AICPA) is the national, professional organization for all certified pub-

lic accountants (www.aicpa.org). It has a code of conduct for members and a mission

that includes establishing and enforcing conduct standards. But the institute also acts

as a lobbying organization. During the 1990s, auditing firms got into the business of

providing consulting to their audit clients; this was an ethically dangerous practice

CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 49

because of its potential for conflict of interest. However, because consulting was

more lucrative than auditing, firms lobbied hard to protect their relationships with

these clients and their rights to both consult and provide audit services to the same

firms. As a result, the AICPA was blamed for contributing to an environment that led

to financial scandals at Enron, WorldCom, and other companies. 13

So if you’re look-

ing for solid ethical guidance, it’s important to scrutinize the source and make sure

that it is free of conflicts of interest.

When a professional community isn’t available, doesn’t provide good guidance,

or seems wrong, it can be wise to turn to the broader community and societal stan-

dards for guidance. A useful decision-making shortcut based on the broader commu-

nity as a guide is known as the disclosure rule. This practical shortcut is widely used

by managers and executives. The disclosure rule asks, ‘‘How would you feel if your

behavior appeared on ___? You fill in the blank of a particular media outlet. Is it the

front page of the New York Times, the Wall Street Journal, your hometown news-

paper, 60 Minutes, CNN? The assumption behind the disclosure rule is that commu-

nity standards do exist for most situations, and at a gut level, most of us know what

those are. If our gut tells us it wouldn’t look good to have our behavior appear in one

of these media outlets, we simply shouldn’t be doing it because it means that if we

did, we wouldn’t be considered persons of integrity in society’s view.

If your goal is to be considered a person of integrity, another useful question to

ask yourself is how your harshest moral critic or ethical role model would advise you.

Who serves in that role for you? Is it someone in your family or a respected teacher,

coach, or spiritual adviser? Identify your strongest ethical role model or harshest

moral critic and consider what this individual would think of the behavior you’re

contemplating. Most of us have people in our lives whose integrity we respect and

whose moral judgment of us we value.

Finally, a virtue ethics perspective assumes that your identity as a moral actor is

important to you and that you are devoted to continuously developing that aspect of

yourself. Being an ethical person is just an important part of who you are. Those of us

who have made such a commitment know that life and career present ongoing ethical

challenges and opportunities to work on the ethical aspect of ourselves. Are you

following an ethical fitness program by practicing good behavior over time and

developing good habits? Just as an exercise program challenges your muscles,

balance, and coordination, an ethical fitness program challenges your ethical thinking

and leads to improvement. Such an ethical fitness program can help you develop your

comfort with speaking up on behalf of your values. It can also reinforce your view of

yourself as a person of integrity and contribute to improving your ethical fitness over

time. Identifying ethical role models in your life, choosing to interact with people of

integrity, and choosing to work in an ethical environment can all be ways to support

this aspect of your personal development. 14

We’ve now considered consequentialist, deontological, and virtue ethics

approaches. These are just a few of the philosophical approaches that may be applied

in ethical dilemma situations. We’ve introduced the approaches we believe have the

most practical benefit to business managers, and, admittedly, we’ve introduced them

50 SECTION II ETHICS AND THE INDIVIDUAL

in a rather general way, without many of the nuances developed by philosophers over

the years. We’ve suggested that all of the approaches have limitations. No one of

them, by itself, provides perfect guidance in every situation. Obviously, if all of the

approaches lead to the same solution, the decision is a relatively easy one. The tough

ones arise when the approaches conflict. When that happens, it will be up to you to

consider the situation as comprehensively as possible and make the best decision you

can based upon societal good, your most important values and principles, and consid-

erations of what a person of integrity would do. Stuart Youngblood, professor of

management at Texas Christian University in Fort Worth, suggested the following

example that he has used in his business ethics class:

THE BURNING BUILDING

Assume you approach a burning building and hear voices coming from both

ends, each seeking help. Assume the fire is burning so rapidly you only have

time to go to one or the other end of the building. Initially, you hear multiple

voices at one end and a sole voice at the other end. Which way do you go?

Why? Now include some additional information. The sole voice is that of

your daughter (father, mother, etc.). Do you still choose to go to the end with

multiple voices (to do the greatest good for society)? If not, why not? What

has changed? What will the different approaches advise?

We certainly won’t resolve the academic controversies over the ‘‘best’’ philo-

sophical approach here. Even so, we believe that the approaches we’ve presented

incorporate important factors that should guide ethical business decisions. All of

them would have provided excellent ethical guidance to those whose actions contrib-

uted to the recent U.S. financial crisis, during which mortgage brokers sold NINJA

(no income, no job or assets) loans to people who clearly couldn’t afford the homes

they were buying, investment bankers packaged these risky mortgages into securities

they touted as safe, and rating agency employees rated the securities AAA (without

fully addressing the underlying risks). A consequentialist perspective would have

focused attention on the potential harms to multiple stakeholders (customers, society)

of these risky mortgages and mortgage-backed securities. A deontological approach

would have focused attention on the importance of responsibility, honesty, and trans-

parency with customers about these products. A virtue ethics approach would have

asked whether a person of integrity would sell mortgages to people with little or no

income or rate these securities highly despite the lack of experience with them. A

serious consideration of these factors by the actors involved could have averted a

systemic crisis that has harmed all of us.

Next, we offer eight steps that aim to integrate the three types of analysis just

discussed. 15

Before presenting them, we’d like to offer a caveat. The eight steps sug-

gest a linear decision-making process that is necessarily inaccurate. Ethical decision

making is often not linear. Still, it’s helpful to cover all of these points, even if they

don’t always occur in this particular sequence.

CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 51

EIGHT STEPS TO SOUND ETHICAL DECISION MAKING IN BUSINESS

Step One: Gather the Facts

The philosophical approaches don’t tell us explicitly to gather the facts. But they

seem to assume that we’ll complete this important step. You might be surprised at

how many people jump to solutions without having the facts. Ask yourself, ‘‘How

did the situation occur? Are there historical facts that I should know? Are there facts

concerning the current situation that I should know?’’ 16

Fact gathering is often easier said than done. Many ethical choices are particu-

larly difficult because of the uncertainty involved in them. Facts may simply be un-

available. For example, in our layoff case, Pat may not have good information about

the legal requirements on informing workers about layoffs. Also, she may not have

enough information to determine how long it would take these 200 workers to find

new jobs. It’s important to recognize these limitations as you do your best to assem-

ble the facts that are available to you.

In the financial crisis, decision makers not only failed to gather good informa-

tion, but it appears that they may have explicitly avoided getting the facts. For exam-

ple, mortgage lenders processed mortgages for unemployed people because they

required no documentation to prove employment (as lenders had always done in the

past). All the person had to do was claim to have a job, and the mortgage would be

processed. The mortgage lender earned fees for creating and processing the loan and

then sold it off in the secondary mortgage market, where it was packaged with other

mortgages and sold to investors. The ‘‘fact’’ that the person with the mortgage was

unemployed and would likely not be able to sustain payments was first ignored and

then lost as the mortgage made its way through the mortgage market system.

Step Two: Define the Ethical Issues

Many of us have knee-jerk responses to ethical dilemmas. We jump to a solution

without really thinking through the ethical issues and the reasons for our response.

For example, in the layoff case, one person might say, ‘‘Oh, that’s easy; promise

keeping is the ethical issue. Pat has to keep her promise to her boss and protect her

job.’’ Another person might say that honesty is the key ethical issue: ‘‘Pat just has to

tell the truth to her friend.’’

Don’t jump to solutions without first identifying the ethical issues or points of

values conflict in the dilemma. Also recognize that the toughest situations usually

involve multiple ethical issues that go back to the philosophical approaches we just

discussed. For example, in the layoff case, one ethical issue has to do with the rights

of both the workers and the company. How would you define the workers’ right to

know about the plant closing in advance? How much advance notice is appropriate?

What does the law say? Another ethical issue has to do with the company’s right to

52 SECTION II ETHICS AND THE INDIVIDUAL

keep the information private. Furthermore, what is the company’s obligation to its

workers in this regard? At a more personal level, there are the ethical issues related

to principles such as honesty, loyalty, and promise keeping. Is it more important to be

honest with a friend or to keep a promise to one’s boss? Who is owed more loyalty?

Think about the situation from a justice or fairness perspective: What would be fair to

the company and to those who would be laid off?

Points of ethical conflict may go back to the conflict between consequentialist

and deontological approaches. For example, if I tell the truth (consistent with the

principle of promise keeping), bad things may happen (negative consequences). A

consequentialist would think about the ethical issues in terms of harms or benefits.

Who is likely to be harmed? Who is likely to benefit from a particular decision or

action? And what is the bottom line for society overall? A virtue ethics approach

would suggest thinking about the ethical issues in terms of community standards.

Does your relevant moral community (the one that would hold you to the highest

ethical standards) identify a particular action as wrong? Why or why not?

Especially when we’re under pressure or in a rush, our inclination is to stop with

the first ethical issue that comes to mind. For example, in our layoff case, we might

be inclined to stop with the issue of loyalty to a friend. Challenge yourself to think of

as many issues as you possibly can. Here’s where talking about the problem with

others can help. Present the dilemma to coworkers, to your spouse, or to friends you

respect. Ask them whether they see other issues that you may have missed.

Step Three: Identify the Affected Parties (the Stakeholders)

Both consequentialist and deontological thinking involve the ability to identify the

parties affected by the decision. The consequentialist will want to identify all those

stakeholders who are going to experience harm and benefits. The deontologist might

want to know whose rights are involved and who has a duty to act in the situation.

Being able to see the situation through others’ eyes is a key moral reasoning

skill. Lawrence Kohlberg, developer of a key theory of moral reasoning, called this

skill role taking. It means putting yourself in others’ shoes and being sensitive to their

needs and concerns. Rawls’s veil of ignorance exercise asks you to do this as well.

Frequently, you have to think beyond the facts provided in a case in order to identify

all affected parties. It often helps to begin with the individuals in the case who are

immediately affected (e.g., in the layoff case, it would be Pat, the worker, Pat’s boss)

and then progressively broaden your thinking to incorporate larger groups. For exam-

ple, in this case, you might include the other workers, the rest of the company, the

local community, and society in general. As you think of more and more affected

parties, additional issues will probably come to mind. For example, think about the

local community. If this is a small town with few other employers, fairness to the

entire community becomes an important issue. Shouldn’t they have as much time as

possible to plan for the impact of this plant closing? Try to put yourself in their shoes.

How would they argue their case? How would they feel?

CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 53

Earlier, we introduced the concept of stakeholders, all of those individuals or

groups who have a stake in the particular decision or action. In the context of

ethical decision making in business, we should identify the stakeholders affected

by the decision and ask how they are affected. Try to make your thinking as broad

as possible here. Some of the stakeholders affected by the decision may not even

be born yet. The best concrete example of unborn stakeholders might be ‘‘DES

daughters.’’ In the 1940s, DES, a synthetic estrogen, was prescribed for pregnant

women who seemed to be in danger of miscarrying. By 1971, it became clear that

DES produced a birth defect in the daughters of these women. Because of the

birth defect, DES daughters were more likely to develop vaginal cancer, espe-

cially between the ages of 15 and 22. They also had a higher than normal rate of

cervical cancer. 17

Once stakeholders are identified, role-playing can help you see the issue from

different stakeholder perspectives. In your classroom or your department, get individ-

uals to seriously play the relevant roles. You may be surprised at how perspectives

change based on this simple exercise. What decision would you reach if you were

someone else in the situation? This step incorporates the Golden Rule to treat others

as you would like others to treat you. Imagine yourself as each of the players in a

decision situation. What decision would they reach, and why?

Another consideration may be to ask whether you can ‘‘test’’ a potential decision

with affected parties before your prospective course of action is made final. The

objective is to gauge how various audiences will react, so that you can adjust or fine-

tune a decision along the way. 18

One question you could ask yourself is, how would

this or that stakeholder react if this decision were made public? For example, imagine

that ABC Co. (in our layoff case) had another thriving plant in another location.

However, in the decision-making process, it was assumed that employees wouldn’t

want to relocate because of their ties to the local community. Wouldn’t it be better to

ask them their preferences than to assume what they would want to do?

Step Four: Identify the Consequences

After identifying the affected parties, think about the potential consequences for

each party. This step is obviously derived from the consequentialist approaches. It

isn’t necessary to identify every possible consequence. You should, however, try

to identify consequences that have a relatively high probability of occurring and

those that would have particularly negative consequences if they did occur (even

if the probability of occurrence is low). Who would be harmed by a particular

decision or action? For example, in our layoff case, telling the truth to the worker

might cause Pat to lose her job, which would have negative consequences for Pat

and her entire family (especially if she’s a major breadwinner in her family).

However, it would give her worker (and presumably others who would be told)

the benefit of more time to look for a new job and perhaps save many families

from negative financial consequences. Can you determine which solution would

accomplish the most net good and the least net harm for society?

54 SECTION II ETHICS AND THE INDIVIDUAL

Think about the drug thalidomide. It was prescribed to women in the late 1950s

to treat morning sickness and produced devastating birth defects in 12,000 babies in

Europe, Canada, Australia, and Japan (the Food and Drug Administration never

approved it for use in the United States). Many of the babies died, but others were

left to live with severe deformities. Randy Warren, a Canadian born in 1961, is the

founder of the Thalidomide Victims Association of Canada. His mother took just two

doses of thalidomide, but Warren is only a little over 3 feet tall and has no thumbs,

arms that are 2 inches too short, and stumps for legs. The consequences of this drug

when prescribed to pregnant women were obviously devastating; and shortly after

Warren was born, the drug was banned in most places. But continued research pro-

duced renewed interest in thalidomide as an effective treatment for Hansen’s disease

(a painful skin condition associated with leprosy) as well as for ‘‘wasting’’ disease in

AIDS patients, arthritis, blindness, leukemia, and other forms of cancer. This drug

that had such terrible consequences for so many was being considered for approval

because it also had the potential to help many people who were dealing with other

devastating illnesses. As Warren put it, ‘‘When I heard . . . that thalidomide takes

people out of wheelchairs and I think of myself and others that were put in wheel-

chairs . . . tell me we don’t have the moral quandary of the century.’’

In the end, Warren was consulted and became involved in the decision to return

the drug to the marketplace. In 1998, the FDA approved the drug to treat Hansen’s

disease under the highest level of restriction ever given to a drug. Doctors, pharma-

cists, and patients all must be registered with the manufacturer, Celgene. Two forms

of birth control are required to prevent the possibility of pregnancy and resulting birth

defects. Male patients are required to use condoms. No automatic refills of the drug

are allowed. And Warren has become ‘‘something of a company conscience.’’

Although extremely difficult, the decision to market thalidomide in the United States

was made with input from those stakeholders most familiar with its potential for both

devastating consequences and remarkable benefits. Regulators at the FDA and com-

pany officials got to know Randy Warren as a real person who continues to suffer

consequences that they might not have been able to imagine just by reading reports

and statistics. 19

LONG-TERM VERSUS SHORT-TERM CONSEQUENCES In business decisions,

it’s particularly important to think about short-term and long-term consequences.

Are you confident that your behavior will be considered ethical over a long period of

time, even if circumstances or people change? In the layoff case, is the long-term

health of the company and the people who will remain employed more important

than the short-term consequences to the 200 workers who will be laid off? In the

U.S. financial crisis, if people had been thinking about long-term consequences, they

would have been much more likely to question behaviors that focused primarily on

short-term profits.

SYMBOLIC CONSEQUENCES In business, it’s also extremely important to think

about the potential symbolic consequences of an action. Every decision and action

CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 55

sends a message; it stands for something. What message will a particular decision or

action send? What will it mean if it is misunderstood? For example, if Pat doesn’t tell

her worker the truth, and he finds out later that she knew, what will the symbolic

message be to this worker and the others who work for Pat—that she’s more inter-

ested in saving her own hide than in taking care of them? From a leader’s perspective,

what are the symbolic consequences of accepting tickets to a football game from a

valued client when your organization has a rule against accepting gifts from clients?

Although the leader may see going to the game as important for getting the big sale,

the symbolic message it will likely convey to employees is that the rule doesn’t apply

to senior leaders. Such a symbolic message can have dire consequences for the orga-

nization because employees may then feel that the rule shouldn’t apply to them either.

CONSEQUENCES OF SECRECY If a decision is made in private in order to avoid

some negative reaction, think about the potential consequences if the decision were

to become public. Think about the disclosure rule here. If you’re inclined to keep it a

secret, that should be a clue that something isn’t right. For example, the public has

been outraged by the fact that tobacco executives secretly knew about the negative

health effects of cigarette smoking and lied about it to the American people in testi-

mony before Congress. 20

Step Five: Identify the Obligations

Identify the obligations involved and the reasons for each one. For example, in the

layoff case, consider Pat’s obligations toward the affected parties. When identifying

Pat’s various obligations, be sure to state the reasons why she has this duty or obliga-

tion. Think in terms of values, principles, character, or outcomes. For example, if

you’re considering Pat’s obligation to keep her promise to her boss, your reasoning

might go like this: ‘‘Pat shouldn’t break her promise to her boss. If she does, the trust

between them will be broken. Promise keeping and trust are important values in

superior-subordinate relationships.’’

The obligations you identify will vary depending on the people involved and the

roles they play. For example, our faith in our financial system depends in part on

auditors’ obligation to tell the truth about a company’s financial difficulties and our

faith in rating agencies to accurately grade financial instruments. Similarly, our faith in

science as an institution depends on the integrity of the scientific data and how scien-

tists report it. Individuals in these roles have a particularly strong obligation to tell the

truth; and if they see themselves as moral actors, they will be motivated to do so.

Step Six: Consider Your Character and Integrity

Here, think about yourself as a person of integrity. Ask yourself what a person of

integrity would do in this situation. In attempting to answer this question, you may

find it useful to identify the relevant moral community and consider what that com-

munity would advise. Begin by identifying the relevant professional or societal

56 SECTION II ETHICS AND THE INDIVIDUAL

community. Then, determine how community members would evaluate the decision

or action you’re considering.

Remember the disclosure rule. It asks whether you would feel comfortable if

your activities were disclosed in the light of day in a public forum like the New York

Times or some other news media. In general, if you don’t want to read about it in the

New York Times, you shouldn’t be doing it. If you would be uncomfortable telling

your parents, children, spouse, clergy, or ethical role model about your decision, you

should rethink it.

Boris Yavitz, the former dean of Columbia University’s Graduate School of

Business, offered another version of the test for New Yorkers: ‘‘Unless you would do

it in Macy’s department store window at high noon, don’t do it.’’ And Thomas Jeffer-

son expressed it like this: ‘‘Never suffer a thought to be harbored in your mind which

you would not avow openly. When tempted to do anything in secret, ask yourself if

you would do it in public. If you would not, be sure it is wrong.’’

This kind of approach can be especially valuable when a decision needs to be

made quickly. Suppose someone in your organization asks you to misrepresent the

effectiveness of one of your company’s products to a customer. You can immediately

imagine how a story reporting the details of your conversation with the customer

would appear in tomorrow’s paper. Would you be comfortable having others read the

details of that conversation? The ideal is to conduct business in such a way that your

activities and conversations could be disclosed without your feeling embarrassed.

Another method might be to ask a question asked by the Seneca people (one of

the five original nations of the great Iroquois Confederacy located in the northeastern

United States and southeastern Canada) in their guidelines for self-discipline: ‘‘How

will I be remembered when I’m gone?’’ 21

Many people don’t often think about this

question, but it’s a good one. Will you be remembered as an individual of integrity?

Students often don’t realize how small professional communities can be. This is

especially true in today’s world of social networking. Although you’ll likely change

jobs and organizations multiple times over the years, many people remain in a single

industry where they have developed industry-specific expertise. A reputation for

trustworthiness, respectful interaction, and integrity will open doors to new clients

and career opportunities. But the opposite is true as well. A stained reputation is

extremely difficult to overcome.

Step Seven: Think Creatively about Potential Actions

Perhaps this should be Step One. Before making any decision, be sure that you

haven’t unnecessarily forced yourself into a corner. Are you assuming that you have

only two choices, either A or B? It’s important to look for creative alternatives. Per-

haps if you’ve been focusing on A or B, there’s another answer: C. In our layoff case,

perhaps Pat could work with management to devise a fair system for alerting employ-

ees sooner; or at least she could advise them that information is forthcoming soon,

and they should not make big financial commitments until the announcement is

made. As another example, what if you received an extravagant gift from a foreign

CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 57

supplier? This situation could easily be conceptualized as an A or B quandary.

Should you accept the gift (which is against company policy), or should you refuse it

(which could be interpreted as a slap in the face by this important supplier, who is

from a culture where gift giving is a valued part of business relationships)? A poten-

tial C solution might be to accept the item as a gift to the company that would be

displayed in the headquarters entrance, explaining that large personal gifts are against

company policy. Obviously, you would have to check with your company about the

acceptability of this C solution. The idea here is to think outside the box.

Here is yet another example. In an overseas location, Cummins Engine Company

was having difficulty with local children cutting through a wire fence and stealing

valuable electronic components. The A or B solution was to arrest or not arrest these

young children when they were caught. After involving the community, the managers

were able to arrive at a C solution. They discovered that the children were stealing

because there weren’t enough classrooms at the local school, thus leaving the chil-

dren with little to do but get into trouble. Cummins made classrooms available on

their site. The mayor provided accreditation, books, and teachers. This C solution

cost the company very little and accomplished a great deal. A total of 350 students

were accommodated, the stealing problem disappeared, and Cummins became a

valued corporate citizen.

Step Eight: Check Your Gut

The emphasis in these steps has been on using a highly rational fact-gathering and

evaluation process once you know that you’re faced with an ethical dilemma. But

don’t forget your gut. We are all hardwired to be empathetic and to desire fairness

Empathy is an important emotion that can signal awareness that someone might be

harmed. And intuition is gaining credibility as a source for good business decision

making. We can’t always say exactly why we’re uncomfortable in a situation. But

years of socialization have likely made us sensitive to situations where something

just doesn’t feel quite right. So if your gut is sending up red flags, give the situation

more thought. In fact, this may be your only clue that you’re facing an ethical

dilemma to begin with. Pay attention to your gut, but don’t let it make your decision

for you. Once you recognize that you’re facing an ethical dilemma, use the rational

decision-making tools developed here to help guide your decision making.

PRACTICAL PREVENTIVE MEDICINE

Doing Your Homework

There’s no doubt that you’ll encounter ethical dilemmas—every employee probably

encounters hundreds of them during a career; the only thing in doubt is when. Your

mission is to be as prepared as possible before you run into a problem. The more

informed you are, the more effective you’ll be in protecting yourself and your

employer. The best ways to do that are to learn the rules of your organization

58 SECTION II ETHICS AND THE INDIVIDUAL

and your profession, and to develop relationships that can help you if and when the

need arises.

You can learn the rules in various ways. First, read your company’s code of

ethics (if it has one) and policy manual. Since most policy manuals are huge, you

obviously can’t memorize one. If you skim the contents, some of the rules will sink

in—you may not remember the exact policy, but at least you’ll probably remember

that one exists and where to find it.

Second, ask questions. Managers, executives, and peers will admire your initia-

tive when you ask what they think is ‘‘important around here.’’ Since many organiza-

tional standards are unwritten, and they differ from company to company, the best

way to find out about them is by asking. Query your coworkers (including manage-

ment) about what kinds of ethical situations are most common in your organization

and how your organization generally handles those issues. Ask your manager how to

raise ethical issues within your organization. Since he or she will certainly tell you to

raise an issue with him or her first, be sure to find out how you raise an issue in your

manager’s absence. This not only gives you a road map for raising issues, but it also

sends a signal to your manager that ethics are important to you.

Finally, develop relationships with people outside of your chain of command.

Get to know people in human resources, legal, audit, and other departments; they

might be able to provide information, help you raise an issue or determine if some-

thing even is an issue, or vouch for your credibility in a crisis. You might also want to

join a professional group or association. Many professions have developed ethical

standards apart from those that may exist in your company, and it can be helpful to

know other people in your profession who can advise you if a crisis arises in your

company. Some may say this is being political, but we think it’s just plain smart to

network with people outside of your immediate job and company. It’s the difference

between being a victim of circumstance and having the power, the knowledge, and

the network to help manage circumstances.

After you’ve done your homework and learned about your company’s standards

and values, you may find that your values and your employer’s values are in conflict.

If the conflict is substantial, you may have no choice but to look for work in another

organization. We’ll be addressing issues of company values and codes more in Chap-

ters 5 and 6.

When You’re Asked to Make a Snap Decision

Many businesspeople place value on the ability to make decisions quickly; and, as a

result, many of us can feel pressure to make up our minds in a hurry. This can be a

particular issue when people are inexperienced for whatever reason—this may be

their first job or a new company or industry—and they may feel a need to prove their

competence by making decisions quickly. Obviously, that can be dangerous. The

ethical decision-making tools described earlier in the chapter assume that you’ll have

some time to devote to the decision—to consider multiple sides of the issue and

the inherent conflicts with any one course of action. Do your best to get the time to

CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 59

assess, think through, and gather more information. Also consider the following

guidelines when a quick decision seems called for:

1. Don’t underestimate the importance of a hunch to alert you that you’re

facing an ethical dilemma. Your gut is your internal warning system. As

one senior executive at a multinational computer company said, ‘‘The gut

never lies.’’ When your gut tells you something’s wrong, consider it a

warning siren.

2. Ask for time to think it over. Most snap decisions don’t have to be that way.

Say something like, ‘‘Let me think about it, and I’ll get back to you soon.’’

Bargaining for time is a smart way to give yourself a break—then you can

really think about the decision and consult with others. It’s better to take the

time to make a good decision than it is to make a bad decision quickly and

have lots of time to regret it. Would you rather be known as cautious or

reckless?

3. Find out quickly if your organization has a policy that applies to your

decision.

4. Ask your manager or your peers for advice. You should consider your man-

ager the first line of defense when you encounter an ethical dilemma.

Regardless of your level within the organization, never hesitate to ask for

another opinion. This is where a trusted network comes in handy. If you

have friends in human resources or the legal department, you can float the

issue with them on a casual basis to see if there even is an issue.

5. Use the quick-check New York Times test (the disclosure rule). If you’d be

embarrassed to have your decision disclosed in the media or to your family,

don’t do it.

SHOULD JORDAN ACCEPT THE PRINTER DISCOUNT?

Jordan is upgrading his department’s data processing capabilities and has just

placed an order for four personal computers and two laser printers with a

computer company representative. When he mentions that he wishes he had

a printer at home like the ones he just ordered, the representative tells him

that because of his large order, she can give him a 50 percent discount on a

printer for his home. Jordan feels that this is not quite right, but he’s not sure

why and would like some time to think about her offer.

In this case, Jordan could have real doubt about whether or not to accept a

50 percent discount on a printer for his home. Even though he feels funny about the

offer, he might be thinking that he does a lot of work at home, so accepting a discount

on a personal printer could be justified. And since the computer representative made

the offer after the order was placed, there’s no conflict of interest—Jordan’s decision

to purchase obviously wasn’t influenced by the offer of a discount.

60 SECTION II ETHICS AND THE INDIVIDUAL

But he should listen to his gut, which is feeling that this isn’t quite right. He can

first stall the computer representative by telling her he’ll get back to her later in the

day or tomorrow. He can find out what his company policy says about making pur-

chases. (Many companies would equate the discount with a gift and forbid accepting

it unless it’s available to all employees.)

Suppose he finds nothing in the policy manual to prohibit the discount, and other

workers have said ‘‘go for it.’’ Then he can use the New York Times test. How would

the public react to his decision? Some people would probably think that his order

was influenced by the offer of a discount. He knows that’s not true, but it might

be difficult to convince other people of that. This is called an appearance of a conflict

of interest, an appearance can be as damaging as an actual conflict. If someone

could think your judgment has been affected by a relationship—or in this case, a

discount—it could be viewed as the appearance of a conflict and should be avoided.

Appearances are extremely important in business and may not be accounted for by

the philosophical tools provided earlier in the chapter. Whether you appear to be fair

may be as important as whether you’re really fair.

Here’s the bottom line: If you think that your decision could be misinterpreted

or if someone could think the objectivity of your decision has been compromised,

rethink the decision. In the example, Jordan can politely refuse the representative’s

offer by saying something like, ‘‘My company doesn’t allow personal discounts,’’ or

‘‘I just don’t feel right about it.’’

If you ever feel that accepting a favor from a vendor will place you under an

obligation to the vendor in the future, be very careful. For example, a public relations

manager, Mary, described an incident with a printing company (we’ll call it Type

Co.) sales representative who was trying to get her business. Type Co. already did

business with a number of departments within her company, but Mary was satisfied

with her current printer and saw no reason to switch. Just before the holidays, Type

Co. sent a popular electronic device (worth about $250) to Mary and to all of its

customers in her company. Mary immediately felt that the gift was inappropriate; but

to check out her judgment, she called one of Type Co.’s other customers in her com-

pany. Mary’s colleague assured her that there was nothing wrong with accepting

the gift and that it was simply a token of good will. (If Mary had been friendly with

one of her company’s lawyers or human resources managers, she probably would

have received very different advice.) Mary listened to her internal warning system,

despite what her colleague said. She sent back the gift.

When asked why she returned the gift, Mary said, ‘‘I felt like I was being

bribed to do business with Type Co.’’ A reader of the New York Times would

probably agree.

CONCLUSION

This chapter has presented a prescriptive approach to individual ethical decision

making. When you’re confronted with an ethical dilemma, you should find it helpful

to inform your choice by considering the ideas and steps offered in this chapter. The

CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 61

The Seneca (one of the five tribes of the Iroquois Nation) people’s guidelines for self-

discipline also include these questions: 23

& Am I happy in what I’m doing?

& Is what I’m doing adding to the confusion?

& What am I doing to bring about peace and contentment?

& How will I be remembered when I am gone?

Could these tests serve as guides for ethical decision making in business? Why or

why not?

6. The last question leads us to a useful exercise. If you had to write your own

epitaph, what would it say? How would you like to be remembered? What kind

of life do you hope to lead?

7. Albert Schweitzer (the philosopher and mission doctor) said, ‘‘Success is not

the key to happiness. Happiness is the key to success. If you love what you are

doing, you will be successful.’’ What do you think? How does this relate to the

prescriptive approaches discussed in the chapter?

8. What do you think of the proposed Hippocratic oath for managers? 24

9. What limitations, if any, can you think of to the prescriptions provided in this

chapter? Can you think of reasons why they might not work?

10. If you were to design an ethical fitness program for yourself, what would you

include?

EXERCISE

Clarifying Your Values

If you wish to be better prepared to make tough ethical decisions at work or else-

where in your life, it can be extremely helpful to clarify your personal ethical

values before they’re seriously challenged. Following is a selected list of values

(in alphabetical order). Feel free to add one or more if you have a deeply held

value that is not represented on this list (it is not meant to be exhaustive). In

priority order (with 1 being the most important value), list from three to six val-

ues that are most important to you personally in making decisions. That’s the

easy part. Next, think seriously about what happens when two or more of these

values conflict. For example, what happens if you value both honesty and success

and they come into conflict? Are you willing to forgo financial success in order to

be completely honest with customers or suppliers? Next, if you’re working, think

about the values of your organization and how those are prioritized. Are there

serious conflicts between your personal values and the organization’s values?

Finally, list those values that you would choose to serve as the basis for business

dealings in an ideal society. Be prepared to discuss.

CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 63

C H A P T E R3

DECIDING WHAT’S RIGHT: A

PSYCHOLOGICAL APPROACH

INTRODUCTION

Chapter 2 introduced prescriptive ethical theories, developed by philosophers, that

are designed to help individuals decide what they should do in response to ethical

dilemmas. But psychology teaches us that people often don’t even recognize the

ethical dimensions of the situation at hand. And, when they do, they often don’t think

about it in expected ways. So, this chapter is designed to help you understand how

people actually think and what people actually do by introducing the psychological

factors—the individual differences and mental processes that influence how people

think and behave. It also explains some factors that can keep well-intentioned people

from making good ethical decisions and suggests some ways to overcome them.

Finally, this chapter introduces relevant new neuroscience research and research on

the role of emotions in ethical decision making.

ETHICAL AWARENESS AND ETHICAL JUDGMENT

If a decision maker is to engage in ethical judgment processes (like those discussed in

Chapter 2) that will eventually lead to ethical action, she or he must first recognize

the ethical nature of the situation at hand.

Ethical Awareness ! Ethical Judgment ! Ethical Action

We refer to this initial step in the ethical decision-making process as ethical aware-

ness. With ethical awareness, a person recognizes that a situation or issue is one that

raises ethical concerns and must be thought about in ethical terms. It is an important

step that shouldn’t be taken for granted. Sometimes people are simply unaware that

they are facing an issue with ethical overtones. And, if they don’t recognize and label

the issue as an ethical one, ethical judgment processes (like those we studied in Chap-

ter 2) will not be engaged. In fascinating new research, parts of the brain that are

associated with recognizing the ethical nature of an issue were differentiated from

those involved in other kinds of thinking. Researchers used functional magnetic

71

resonance imaging (fMRI) in a study showing that when Executive MBA students

identified ‘‘an important point or issue’’ in scenarios, a different part of the brain was

more active when the issue had ethical overtones compared to more neutral issues. 1

In a different study, a part of the brain associated with emotional processing was

activated when participants viewed morally relevant pictures compared to more neu-

tral ones. 2 So, it seems that something different happens in our brains when we begin

thinking about an issue we recognize as having ethical overtones.

Consider the following ethical awareness example. Students are doing more

online research for classroom assignments. The technology makes it easy to find

up-to-date information, download it, and cut and paste it right into a paper that

then gets submitted to a professor for a grade. Perhaps you have done this without

thinking too much about it. However, in this process, students often overlook the

fact that they may be plagiarizing—‘‘stealing’’ someone else’s intellectual prop-

erty. Intellectual property is protected by copyright and patent laws in the United

States. These laws are important because there would simply be no incentive to

write a book, publish a magazine, or develop a new product if anyone could sim-

ply reproduce it freely without any attention to the rights of the person or com-

pany that invested time and resources to create it. The education community has

adopted academic integrity rules that guide how students can fairly use intellec-

tual property. In keeping with those rules, students are expected to paraphrase and

then carefully reference all sources of information. When you’re quoting someone

else’s words, these words must be put in quotation marks, and the exact citation

to the source must be provided. In the pre-Internet days, this kind of research

meant physically going to the library, searching the shelves for information, copy-

ing pertinent information by hand, making careful notes about the sources, and

then organizing the information into a paper that had to be typed from scratch.

Plagiarism actually required conscious effort in those days. Now, information is

so accessible and it’s so easy to simply cut and paste that it can be harder to

recognize the ethical issues involved. But if your college has an academic integ-

rity policy or honor code, your professor takes the time to explain the importance

of academic integrity, the role of intellectual property in our society, the defini-

tion of plagiarism, and your responsibilities as a member of the higher education

community, you should be more aware of the ethical issues involved. Under those

circumstances, when you’re tempted to just cut and paste, you’ll be more likely to

think about the ethical dimensions of your actions—the rights of the intellectual

property owner, and whether your actions would be considered plagiarism by

your professor and others in your academic community.

Now for a work-related example.

You’ve just started a new job in the financial services industry. One after-

noon, your manager tells you that he has to leave early to attend his son’s

softball game, and he asks you to be on the lookout for an important check

that his boss wants signed before the end of the day. He tells you to do him a

favor—simply sign his name and forward the check to his boss.

72 SECTION II ETHICS AND THE INDIVIDUAL

To a naive employee, this may seem like a straightforward and easily

accommodated request. But if the company trained you well, you would

immediately be aware of the ethical nature of the situation. Your manager

has asked you to engage in forgery, a serious ethical lapse, especially in the

financial services industry where the validity of signatures is essential to

system functioning and trust. Recognizing the ethical nature of the situation

would likely lead to some very different thinking about how to respond.

Research has found that people are more likely to be ethically aware, to recog-

nize the ethical nature of an issue or decision, if three things happen: (1) if they

believe that their peers will consider it to be ethically problematic; (2) if ethical

language is used to present the situation to the decision maker; and (3) if the decision

is seen as having the potential to produce serious harm to others. 3

Let’s take these factors one at a time. First, as we’ll see later, most people look to

others in their social environment for guidance in ethical dilemma situations. So, if

you believe that your coworkers and others around you are likely to see a decision as

ethically problematic, it probably means that the issue has been discussed, perhaps in

a company-sponsored ethics training program or informally among coworkers or

with your manager. Such discussions prime you to think about situations in a particu-

lar way. When a similar situation arises, it triggers memories of the previous ethics-

related discussion, and you are more likely to categorize and think about the situation

in ethical terms. 4 Using the forgery example, perhaps a company training program

provided instruction on the importance of signatures in the financial industry and

labeled signing for someone else as forgery. Perhaps the company even presented a

similar problem to trainees and you all agreed that signing someone else’s name to

the check would be wrong. Having participated in such a discussion, you would rec-

ognize that signing the check would be ethically problematic and you would be more

likely to see your boss’s request as an ethical problem.

Second, situations can be represented or ‘‘framed’’ in different ways—using eth-

ical language or more neutral language. Using ethical language (positive words like

integrity, honesty, fairness, and propriety, or negative words such as lying, cheating,

and stealing) will trigger ethical thinking because these terms are attached to existing

cognitive categories that have ethical content. For example, if the manager in the

example above had asked you to forge the check for him, the word forge would be

more likely to trigger legal or ethics-related concerns than if he simply asked you to

sign the check (more neutral language). In response to the term forgery, you would

more likely wonder if signing the check was ethically wrong, if anyone was being

hurt, and what the consequences would be if you did or didn’t do it. The term plagia-

rism would likely trigger similar thinking.

Think about the power of the word genocide. If you’ve seen the film Hotel

Rwanda, you know about the horrible killing in 1994 of some 800,000 Tutsi men,

women, and children by Hutu extremists while the rest of the world, including the

United States, did nothing to help. According to President Clinton’s national security

advisor, the administration refused to allow use of the word genocide for six weeks

CHAPTER 3 DECIDING WHAT’S RIGHT: A PSYCHOLOGICAL APPROACH 73

because ‘‘if you used the word, then you’re required to take action.’’ 5 Former Presi-

dent Clinton has said that failing to help in Rwanda is one of his ‘‘greatest regrets.’’ 6

Avoidance of the morally powerful term genocide likely contributed to the adminis-

tration’s inaction and the public’s lack of support.

Neutral language can be used to make an unethical action seem less problematic.

The use of such euphemistic language can easily keep individuals from thinking

about the ethical implications of a decision or action. With euphemistic language, we

name or label actions in ways that minimize their ethical overtones. For example,

troubled assets don’t seem nearly as problematic as ‘‘toxic’’ assets. And the term no-

doc loans (used to describe new high-risk loans that were made to mortgage

customers who were not required to provide documentary evidence of their job secu-

rity or income) raises ethical antennae much less than does the term liars’ loans. The

latter term (actually used by some in the mortgage industry before the meltdown),

acknowledges that borrowers were lying about their incomes on their loan applica-

tions. The use of euphemistic language may not be intentionally unethical, but it

certainly has the effect of allowing us to feel okay about what we’re doing when

perhaps we should be thinking much harder about the ethical overtones.

Here is a great business example of euphemistic language. In 2006, Hewlett-

Packard’s (HP) then chairwoman of the board of directors, Patricia Dunn, was upset

about boardroom leaks to the press about HP’s strategy. In an attempt to learn the

leaker’s identity, the company hired investigators who were allowed to misrepresent

their identities to the phone company (they lied) in order to obtain cell phone records

of board members and a journalist; they referred to this behavior as ‘‘pretexting.’’

When the press learned about it, they (perhaps more properly) used ethically charged

language to label the behavior as spying, and a high-profile scandal ensued. Dunn

was replaced, along with two other board members and the executive heading the

company ethics program (who knew about the investigation). The CEO testified in

congressional hearings, and HP (a company that had long claimed privacy as a core

value) had to scurry to try to overcome the company’s association with spying, lying,

and invasion of privacy. 7 If someone involved in approving this investigation had

labeled the behavior using ethical language (lying, spying, invasion of privacy)

instead of the more neutral-sounding pretexting, red flags would have more likely

gone up to stop the investigators’ behavior.

Finally, and perhaps most important, an issue or situation that has the potential to

produce serious harm to others is more likely to be seen as an ethical issue. If HP

executives could have imagined the potential damage to board members or the jour-

nalist, or the resulting scandal and implications for the company’s reputation, they

would have been more likely to raise ethical concerns. In the forgery example, if you

see that forging the check could result in serious harm to customers, you would more

likely see it as a serious issue than if no one would be harmed. Thomas Jones pro-

posed that individuals are more likely to recognize the ethical nature of issues that

are morally intense. 8 The moral intensity of an issue is higher when the consequences

for others are potentially large, these consequences are relatively immediate and

likely to occur, and the potential victims are psychologically or physically close to

74 SECTION II ETHICS AND THE INDIVIDUAL

the decision maker. For example, a decision to allow toxic chemicals to leak into

the local water supply is very likely to harm many people in one’s own community.

Such a decision is ‘‘morally intense,’’ and therefore the decision maker is more likely

to see it as an ethical issue. In contrast, a decision that might require laying off a

few individuals in a foreign subsidiary would be less likely to trigger ethical aware-

ness. Only a few people will be affected, the consequences will occur in the future,

and these individuals are both psychologically and physically distant from the

decision maker.

So managers can encourage employees to be ethically aware by providing train-

ing and by talking with employees about the types of ethical issues they’re likely to

face and why these issues are ethically problematic. They can also encourage

employees to have these discussions themselves, to use ethical language in such

interactions, and to think about the consequences of their actions and take responsi-

bility for the consequences of the decisions they make.

On the other hand, all of us should be on the lookout for situations that are likely

to reduce our chances of seeing the ethical overtones in a situation. For example,

downloading music from the Internet may seem benign if one doesn’t recognize that

the American economy loses an estimated $12.5 billion dollars a year from it. That

includes jobs and tax revenues that are lost because of what the industry has termed

‘‘music piracy.’’ 9 Investment bankers who pay for mutual fund managers to go to the

Super Bowl and lavishly entertain clients are not likely to think that they are engaged

in ‘‘bribery’’ or that their behavior is anything more than what ‘‘every one else does.’’

Never mind that the average investor is likely disadvantaged by the wining and

dining. If we think about issues in ethical terms, the ethical judgment processes we

discuss next are more likely to be triggered.

INDIVIDUAL DIFFERENCES, ETHICAL JUDGMENT, AND ETHICAL BEHAVIOR

Once people are aware of the ethical dimensions of a situation or decision, they

engage in ethical judgment processes that can contribute to ethical (or unethical) con-

duct. By ethical judgment, we mean making a decision about what is the right thing

to do. As with ethical awareness, neuroscience (fMRI) research is finding that certain

parts of the brain are activated more during ethical decision making compared to

when the same individuals are making other kinds of decisions. 10 These findings sug-

gest that ethical judgment is truly a unique form of decision making.

The next part of this chapter focuses on individual differences that influence

ethical judgment and action. Much of this book will focus on situational pushes and

pulls. For example, people follow leaders or their peers. They tend to do what’s

rewarded. Yet, despite these powerful pushes and pulls, people do bring something

of their unique selves to situations. Heroes emerge when you least expect it. People

blow the whistle despite fear of retaliation. Others embezzle funds or lie to customers

despite all of management’s efforts to support good conduct. One way to explain

CHAPTER 3 DECIDING WHAT’S RIGHT: A PSYCHOLOGICAL APPROACH 75

these ethical and unethical behaviors is to focus on characteristics of individuals that

differentiate one person from another, making one person more predisposed to think

and behave ethically while another is predisposed to think and behave unethically.

Research has uncovered a number of individual differences that influence the

way people think and behave in response to ethical dilemma situations. In this sec-

tion, we discuss several of these differences and how they influence ethical judgment

and/or ethical action. They’re illustrated below:

Individual Differences

Ethical decision-making style

Cognitive moral development

Locus of control

Machiavellianism

Moral disengagement

Ethical Awareness ! Ethical Judgment ! Ethical Action

Ethical Decision-Making Style

In Chapter 2, we introduced different frameworks for making ethical decisions and

advised that individual decision makers should use these in combination if they wish

to make the best decisions. But research suggests that individuals have preferences

for particular prescriptive ethical theories. Forsyth proposed that we think about these

individual preferences in terms of two factors: (1) idealism or the person’s concern

for the welfare of others; and (2) relativism or the person’s emphasis on ethical prin-

ciples being dependent on the situation rather than being applicable to all situa-

tions. 11

Idealism is related to what we referred to as thinking about consequences in

Chapter 2. For example, individuals high on idealism believe that one should always

avoid harming other people in ethical dilemma situations, while non-idealists believe

that ‘‘it depends’’ because ‘‘harm is sometimes . . . necessary to produce good’’ 12

Relativism is more related to deontological theories and our focus on principles in

Chapter 2. For example, individuals who are low on relativism believe that all situa-

tions are subject to universal ethical principles (such as honesty). On the other hand,

individuals who are high on relativism believe that people should weigh the particu-

lar circumstances in a situation when making decisions, because there are no univer-

sal ethical principles that determine right action in every situation. Research suggests

that those high on idealism are more likely to have ethical intentions and to be critical

of unethical behavior. 13

This is probably because idealists are more concerned about

anything they might do that would harm others. 14

By contrast, high relativism has

been found to be associated with unethical intentions, perhaps because relativists

who do not follow clear ethical principles find it easier to rationalize unethical behav-

ior. 15

You can discover your own style by taking a survey that your professor may

make available to you. The relationship between ethical decision style and ethical

76 SECTION II ETHICS AND THE INDIVIDUAL

action has not yet been tested, but it seems logical that the way an individual thinks

about a situation and that person’s ethical or unethical intentions will influence the

action he or she takes. As we did in Chapter 2, we continue to strongly recommend

systematically considering ethical dilemma situations from multiple perspectives.

Still, it can be useful to understand that you (or the people who work with you or for

you) likely have a preference for one approach over another. If so, you may be able

to improve your own ethical decision making by forcing yourself to consciously con-

sider all angles. You may also be able to influence ethical decision making in discus-

sions with others by pointing them to these alternative perspectives.

Cognitive Moral Development

One important explanation for both ethical judgment and action based on individual

characteristics comes from the moral reasoning research of Lawrence Kohlberg. 16

When people respond to ethical dilemma situations, they must, among other things,

decide what course of action is ethically right (as we discussed in Chapter 2), and

they must choose the ethically right path over others. 17

In other words, if they decide

that blowing the whistle is the ethically right path, they must follow through and do it

(take the ethical action).

Kohlberg’s moral reasoning theory is a cognitive developmental theory that

focuses primarily on how people think about and decide what course of action is

ethically right. His research began by following 58 American boys ranging in age

from 10 to 16 years old. He interviewed them regularly, asking for their open-ended

responses to hypothetical moral dilemmas. Their responses were analyzed and

resulted in new understanding of how moral reasoning in human beings gradually

develops over time through brain development and life experience.

Kohlberg’s cognitive moral development theory proposes that moral reasoning

develops sequentially through three broad levels, each composed of two stages. As

individuals move forward through the sequence of stages, they are cognitively capa-

ble of comprehending all reasoning at stages below their own, but they cannot com-

prehend reasoning more than one stage above their own. Development through the

stages results from the cognitive disequilibrium that occurs when an individual

perceives a contradiction between his or her own reasoning level and the next higher

one. This kind of development can occur through training, but it generally occurs

through interaction with peers and life situations that challenge the individual’s

current way of thinking. You can think of those conversations parents sometimes

have with children at the dinner table as attempts to challenge the child’s thinking

and influence moral reasoning and moral development. According to Kohlberg, the

actual decision an individual makes isn’t as important as the reasoning process used

to arrive at it. However, he argued—and this is an important concept—that the higher

the reasoning stage, the more ethical the decision, because the higher stages are more

consistent with prescriptive ethical principles of justice and rights (like those dis-

cussed in the deontological approach in Chapter 2).

CHAPTER 3 DECIDING WHAT’S RIGHT: A PSYCHOLOGICAL APPROACH 77

Kohlberg’s theory has been successfully applied to studies of adults in business

settings. 18

For example, James Weber interviewed business managers about their

responses to the following hypothetical dilemma:

Evelyn worked for an automotive steel casting company. She was part of

a small group asked to investigate the cause of an operating problem

that had developed in the wheel castings of a new luxury automobile and

to make recommendations for its improvement. The problem did not

directly create an unsafe condition, but it did lead to irritating sounds.

The vice-president of engineering told the group that he was certain that

the problem was due to tensile stress in the castings. Evelyn and a lab

technician conducted tests and found conclusive evidence that the prob-

lem was not tensile stress. As Evelyn began work on other possible

explanations of the problem, she was told that the problem had been

solved. A report prepared by Evelyn’s boss strongly supported the tensile

stress hypothesis. All of the data points from Evelyn’s experiments had

been changed to fit the curves, and some of the points that were far from

where the theory would predict had been omitted. The report ‘‘proved’’

that tensile stress was responsible for the problem. 19

A number of questions were presented to the interviewees. For example, they

were asked whether Evelyn should contradict her boss’s report and why. We will

use this hypothetical dilemma to understand the theory and how responses to the

above question (along with others) help identify an individual’s placement in

Kohlberg’s moral reasoning stage framework. Table 3.1 outlines the levels and

stages involved.

LEVEL I: PRECONVENTIONAL A level I individual (labeled the preconventional

level and including stages 1 and 2) is very self-centered and views ethical rules as

imposed from outside the self. Unfortunately, a small percentage of adults never

advance beyond this stage, and managers must be ready for that possibility. As you

read the following descriptions, see if you know anyone who thinks this way.

Stage 1 individuals are limited to thinking about obedience to authority for its

own sake. Avoiding punishment by authority figures is the key consideration. It’s

easy to imagine a child thinking, ‘‘I should share my toy because, if I don’t, Mom

will yell at me’’ (i.e., I’ll be punished). A stage 1 response to the Evelyn situation

might argue that it would be wrong to contradict her boss because she must obey her

superiors, and she would certainly be punished if she disobeyed.

At stage 2, concern for personal reward and satisfaction become considerations

in addition to a kind of market reciprocity. What is right is judged in terms of a ‘‘you

scratch my back, I’ll scratch yours’’ reciprocal relationship. A stage 2 child might

think, ‘‘If I share my toy with my brother, he might share his with me later.’’ A stage 2

response in the Evelyn situation might argue that Evelyn should support her boss

because he is responsible for her performance appraisals; and, if she lets this one go,

78 SECTION II ETHICS AND THE INDIVIDUAL

he might overlook some of her problems from the past. Also, if her boss has been

kind or helpful to her in the past, she may consider her obligation to repay the favor.

In general, a level I person can be expected to consider questions like ‘‘What’s in

it for me?’’ At stage 1, the questions might be ‘‘Can I get away with it?’’ or ‘‘Will I

get caught, punished?’’ At stage 2, the questions might be ‘‘How will I benefit or

what will I get in return if I do this?’’

LEVEL II: CONVENTIONAL At level II (labeled the conventional level and includ-

ing stages 3 and 4), the individual is still externally focused on others but is less self-

centered and has internalized the shared moral norms of society or some segment like

a family or work group. What’s ethically right is explained in terms of living up to

roles and the expectations of relevant others, fulfilling duties and obligations, and

following rules and laws.

At stage 3, what’s right is thought to be that which pleases or helps others or is

approved by those close to you. Interpersonal trust and social approval are important.

Table 3.1 Levels of Cognitive Moral Development According to Kohlberg

Stage What Is Considered to Be Right

Level I: Preconventional

Stage 1: Obedience and

Punishment Orientation

Obedience to authority for its own sake.

Sticking to rules to avoid punishment.

Stage 2: Instrumental Purpose and

Exchange

Following rules only when it is in one’s

immediate interest. Right is an equal exchange,

getting a good deal.

Level II: Conventional

Stage 3: Interpersonal Accord,

Conformity, Mutual Expectations

Stereotypical ‘‘good’’ behavior. Living up to what

is expected by peers and people close to you.

Stage 4: Social Accord and System

Maintenance

Fulfilling duties and obligations of the social

system.

Upholding laws and rules except in extreme

cases where they conflict with social duties.

Level III: Postconventional or Principled

Stage 5: Social Contract and

Individual Rights

Upholding rules because they are the social

contract if they are consistent with values such as

fairness and rights and the greater good (not

because of the majority opinion).

Stage 6: Universal Ethical

Principles

Following ethical principles of justice and rights.

Acting in accord with principles when laws violate

principles.

Source: Adapted from L. Kohlberg, ‘‘Moral Stages and Moralization: The Cognitive-

Developmental Approach,’’ in Moral Development and Behavior: Theory, Research, and

Social Issues, ed. T. Lickona (New York: Holt, Rinehart and Winston), 34–35.

CHAPTER 3 DECIDING WHAT’S RIGHT: A PSYCHOLOGICAL APPROACH 79

For example, a stage 3 response to the Evelyn dilemma might say that Evelyn

shouldn’t contradict her boss because he would perceive her as disloyal, and she

might lose the social approval and trust of her boss and peers. On the other hand,

what if Evelyn shares her dilemma with close family members whose opinions are

important to her, and they feel strongly that she must contradict her boss? In this

case, she would likely reason that she should contradict her boss because the people

she trusts and whose approval she values say that it’s the right thing to do.

At stage 4, the perspective broadens to consider society. The individual is con-

cerned about fulfilling agreed-upon duties and following rules or laws that are

designed to promote the common good. A stage 4 person recognizes that rules and

laws often exist for good reason, and she follows them because the social system

works better when everyone does that. Therefore, a stage 4 response might say that

Evelyn should contradict her boss because of her duty to society. What if the noises

do represent a safety problem? She has a responsibility as a good member of society

to report it. She would feel particularly strongly about this if she were aware of

product safety laws that required her to report the problem.

So, a level II person is looking outside the self for guidance when deciding what

to do. A stage 3 person would likely ask, ‘‘What would my peers do?’’ or ‘‘What

would my trusted supervisor advise?’’ At stage 4, the considerations would be broader,

such as ‘‘What do the rules or laws prescribe?’’ Kohlberg’s research placed most

American adults at this conventional level, and Weber’s research found that most

managers’ responses to the Evelyn dilemma were at the conventional level as well.

LEVEL III: POSTCONVENTIONAL A level III (postconventional, sometimes called

principled reasoning—stages 5 and 6) principled individual has developed beyond

identification with others’ expectations, rules, and laws to make decisions more

autonomously. Such an individual looks to ethical principles of justice and rights

(similar to the deontological principles we discussed in Chapter 2). Note that stage 6

is thought to be a theoretical stage only, so we focus below only on stage 5.

At stage 5, the emphasis is still on rules and laws because these represent the

recognized social contract, but stage 5 thinkers are willing to question the law and to

consider changing the law for socially useful purposes. A stage 5 individual would

take into account moral laws above society’s laws, such as considering what decision

would create the greatest societal good. A stage 5 Evelyn might reason that she

should contradict her boss because doing so would be consistent with the ethical prin-

ciple of the greatest societal good, particularly if she considered safety of the automo-

biles to be a potential problem. Her responsibility goes beyond that of a good law-

abiding member of society and certainly beyond doing what her boss thinks is right.

A stage 5 Evelyn is also responsible to principles of justice and rights. So, even if

no law requires her to report what she knows, a stage 5 Evelyn would consider the

automobile consumers’ rights to safety as an important reason for her to tell. When

deciding what to do, a stage 5 person would likely ask, ‘‘What does the law say?’’

and then ‘‘Is the law consistent with principles of justice and rights? and ‘‘What’s

best for society?’’

80 SECTION II ETHICS AND THE INDIVIDUAL

Students sometimes get confused by this idea of what it means to be principled

according to Kohlberg. We’re often asked questions such as, weren’t the 9/11 hijack-

ers principled? Although a definitive answer would require probing interviews with

the hijackers to determine the reasoning for their behavior (not possible now), the

answer is that their thinking likely represented lower-level reasoning (e.g., the leader

told me to do it; I did it to receive a reward in heaven; etc.). So, it’s important to note

that Kohlberg is quite precise about the kinds of principles that qualify as principled

thinking. Broadly defined, level III principles are principles of justice and rights

similar to the principles introduced in Chapter 2 under deontological theories.

Wrongdoers often appeal to what they call principles, such as when the members of

a violent Mexican drug cartel claimed to train its members in ethical principles. But

the purpose of these principles (e.g., sobriety) was to keep members in line and

obedient to cartel authorities. The ethical trainer in this case is accused of ordering

murders and running prostitution rings with young girls; such behavior is not

supported by principles of justice and rights. 20

Finally, the principle ‘‘I always do what my religion tells me to do because

the deity will punish me if I don’t’’ would not qualify as principled thinking. In

Kohlberg’s model, this type of thinking actually represents a low level of cognitive

moral development because it is based on unquestioning obedience and fear of pun-

ishment. Often religious prescriptions such as the golden rule are consistent with

theories of justice and rights. To be considered a principled decision maker, an indi-

vidual would have to be capable of thinking through the ethical situation on his or her

own (reasoning according to principles of justice and rights), and not just blindly

follow a particular religious authority.

So don’t be confused just because someone uses the term principled. To be

principled in terms of cognitive moral development theory, one must have arrived at

the decision autonomously based on principles of justice, rights, and the greater good.

To understand Kohlberg’s theory, you must also remember that it is a cognitive

theory. What matters are the reasoning processes and considerations involved in a

decision. Although these considerations are likely to affect the decision made, it is

the reasoning process that counts.

The cognitive moral development exercise at the end of the chapter will test your

understanding of cognitive moral development. You may want to try it now.

ARE WOMEN AND MEN DIFFERENT? In 1982, the psychologist Carol Gilligan

published In a Different Voice, a book about women’s cognitive moral development.

Gilligan claimed that Kohlberg’s theory was flawed because he had studied only

boys. Her research led Gilligan to question the almost exclusive focus on justice in

Kohlberg’s higher moral reasoning stages. She argued that females were more likely

to use a ‘‘morality of care’’ that emphasized relationships—raising issues related to

caring for others, responsibility to others, and the continuity of interdependent

relationships. 21

Gilligan’s claims received a great deal of attention. But the applicability of her

ideas to adults working in business organizations is quite limited. Gilligan’s own

CHAPTER 3 DECIDING WHAT’S RIGHT: A PSYCHOLOGICAL APPROACH 81

research comparing the moral reasoning of male and female medical students found

no significant difference between the genders, suggesting that both men and women

are strongly influenced by the powerful socialization and cultural norms of medical

practice. 22

Similarly, an interview study of business managers based on Gilligan’s

theory found no gender differences. 23

All but one of the managers (male and female)

who described a moral conflict at work based their moral reasoning on rights, not

care. Finally, many cognitive moral development studies based on Kohlberg’s theory

have found only trivial, if any, gender differences. Interestingly, when differences

have been found, females generally have scored higher than men in justice-based

reasoning. 24

Business ethics researchers now agree that additional research on the

question of gender differences is unnecessary and likely to be fruitless. 25

We can now begin to address the second requirement for ethical behavior: doing

what’s right, or ethical action. Recall that to behave ethically, people must first

decide what course of action is ethically right (probably depending to a large degree

on their ethical awareness and ethical judgment (stage of cognitive moral develop-

ment). Then they must choose the ethically right path over others. 26

LOOKING UP AND LOOKING AROUND One reason understanding cognitive

moral development is so important is that most adults are at the conventional level

of cognitive moral development (level II). This means they’re highly susceptible to

external influences on their judgment about what is ethically right and their subse-

quent action. Their decision about what’s ethically right, and therefore their likely

action, is inextricably linked with what others think, say, and do. We call this ‘‘look-

ing up and looking around’’ for ethical guidance. 27

These individuals aren’t autonomous decision makers who strictly follow an

internal moral compass. They look up and around to see what their superiors and

their peers are doing and saying, and they use these cues as a guide to action. There-

fore most people are likely to do what’s expected of them as a result of the reward

system, role expectations, authority figure demands, and group norms. That’s why

the remainder of this book focuses so heavily on these external influences on ethical

action and why it’s so important that managers structure the work environment to

support ethical conduct and lead followers in the right direction. The large majority

of employees will be looking for guidance, and they’ll do what’s right if guided and

supported along those lines by managers and peers.

AUTONOMOUS PRINCIPLED THINKING AND ACTION Higher-stage thinking is

more independent of these external influences. The postconventional principled thinker

looks to justice and rights-based principles to guide ethical decision making. Research

has demonstrated that these people are also more likely to behave consistently with

their principle-based decisions—they’re more likely to carry through and do what they

think is right. More principled individuals also have been found to be less likely to

cheat, more likely to resist pressure from authority figures, more likely to help some-

one in need, and more likely to blow the whistle on misconduct. 28

So the theory

82 SECTION II ETHICS AND THE INDIVIDUAL

suggests that whistle-blowers such as Sherron Watkins, who tried to convince Kenneth

Lay (Enron’s CEO) to address the company’s financial shenanigans before it was too

late, are likely principled thinkers. But it’s important for managers to remember that

level III individuals are in the minority in most organizations. Autonomous decision

making based on principles of justice and rights is the exception rather than the rule.

Also keep in mind that cognitive moral development represents a cognitive

‘‘capacity’’ to reason about ethical dilemmas at a particular level and that it is possi-

ble to act below one’s capacity. However, cognitive moral development theory

argues that this inconsistency would be difficult to sustain over time because of the

cognitive strain that would come from thinking at one level and acting at another. 29

Such a person might think, ‘‘I know this is wrong—why am I doing it?’’ So a

principled-level individual who found himself or herself in a situation that required

unethical action would be more likely to try to change that situation or leave.

The bottom line for managers is this: Cognitive moral development theory and

research tell us that most of the people you manage are going to be strongly influenced

by what you do, say, and reward. They can be thought of as ‘‘good soldiers’’ who are

looking up and looking around for guidance from you and their peers, and they’re

likely to mimic what they see around them. Therefore, it’s the manager’s responsibil-

ity to structure the work environment in a way that supports ethical conduct. If you

avoid this responsibility, these people will look elsewhere for guidance, probably to

their peers, and the guidance they receive may not support ethical conduct at all.

A small percentage of individuals may never advance beyond preconventional

thinking. Such individuals can be thought of as ‘‘loose cannons.’’ They will do what-

ever they can get away with. People like this require close supervision and clear dis-

cipline when they get out of line.

Those individuals who have reached principled levels of moral reasoning

should be singled out to lead key decision-making groups, to manage situations

where ethical ambiguities are likely to arise, and to lead organizations. Research

on ethical decision making in groups has found that when less-principled individu-

als lead a group, the group’s ethical decision-making performance decreases. On

the other hand, groups with leaders higher in moral reasoning either improve or

stay the same. 30

Also, when an organization’s leader is high in cognitive moral

development, the entire ethical climate of the organization is stronger. This is par-

ticularly true for leaders whose choices are consistent with their ethical reasoning

capacity and for leaders who run young organizations that are more open to their

influence. Finally, when employees and the organization’s leader are similar in

their level of cognitive moral development, the employees are more satisfied and

more committed to the organization. Employee satisfaction and commitment are

especially negative when the leader’s cognitive moral development is lower than

the moral development of employees. 31

Cognitive moral development can be assessed by using instruments designed by

cognitive moral development researchers. Moral reasoning can also be increased

through training. Over the years, Kohlberg and his students and colleagues have

designed training approaches based on cognitive moral development theory. In this

CHAPTER 3 DECIDING WHAT’S RIGHT: A PSYCHOLOGICAL APPROACH 83

type of training, facilitators give participants hypothetical ethical dilemmas for dis-

cussion. The facilitator promotes movement through ethical reasoning stages by chal-

lenging participants’ thinking and by exposing individuals to reasoning higher than

their own. This approach creates cognitive conflict, leading the participant to ques-

tion and eventually revise his or her own reasoning upward. Research has supported

the effectiveness of this type of training with adults in dental, medical, and business

schools. 32

Managers may want to consider incorporating these ideas into their firms’

ethics training.

Locus of Control

Another individual characteristic that has been found to influence ethical action is

locus of control. 33 Locus of control refers to an individual’s perception of how much

control he or she exerts over life events. Locus of control can be thought of as a

single continuum from a high internal locus of control to a high external locus of

control. An individual with a high internal locus of control believes that outcomes

are primarily the result of his or her own efforts, whereas an individual with a high

external locus of control believes that life events are determined primarily by fate,

luck, or powerful others.

External Locus of Control Internal Locus of Control

Locus of control develops over a long period of time through interaction with

other people and the social environment. At any particular time, however, locus of

control can be thought of as a stable individual characteristic that differentiates peo-

ple from each other. Some individuals are more internal and others are more external

in their locus of control. In that way, locus of control is similar to a personality trait

that characterizes a person’s thinking and action across situations. It does not shift

from one situation to another. Therefore it’s not appropriate to say, ‘‘My locus of

control was external in this situation because my boss made me fudge the numbers.’’

What has shifted in this situation is the control exerted by the boss, not the employ-

ee’s locus of control. An employee with an internal locus of control who has a con-

trolling boss will be uncomfortable with the boss’s request to do something

inappropriate. So, due to that high internal locus of control, this employee will be

more likely to resist the boss’s influence and more likely to look for an opportunity

to leave and find a more compatible boss and work situation. An employee with an

external locus of control is more likely to see his or her fate in the boss’ hands and

simply do what the boss asks. You can test your own locus of control through a

survey measure that your professor may make available to you.

A caveat—although locus of control does not shift easily, it can change over

time due to strong life interventions or compelling situations. For example, if some-

one with a very high internal locus of control became a prisoner of war with little

chance of escape, he or she would likely develop a more external locus of control

over time.

84 SECTION II ETHICS AND THE INDIVIDUAL

RELATIONSHIP TO ETHICAL JUDGMENT AND ACTION How is locus of control

related to ethical judgment and action? It likely has a lot to do with taking responsi-

bility for one’s behavior. First, in their judgment, individuals with a high internal

locus of control see the relationship between their behavior and its outcomes more

clearly than do those with an external locus of control. Internals see themselves as

being in control of things that happen in their lives. Thus they’re more likely to take

responsibility for the consequences of their actions. It would be more difficult for

such an individual to say, ‘‘Well, it’s not my responsibility; I just work here,’’ or

‘‘I’m just following orders.’’ If an individual takes personal responsibility for his

or her behavior, it seems likely that person will also behave more ethically. For

example, studies have found that internals are more likely to help another person,

even if there’s a penalty for doing so. 34

Internals see themselves as being in charge of their own fates. Therefore, they

should also be less willing to be pressured by others to do things they believe to be

wrong. One interesting study asked subjects to complete a story in which the main

character was pressured to violate a social norm. 35

The more internal the subject’s

locus of control, the more likely the story completion had the hero resisting the

pressure. In an obedience-to-authority experiment (explained in more detail in

Chapter 7), externals were more likely than internals to give apparently (but not

really) harmful electric shocks to someone if told to do so by the experimenter. 36

For managers, it may be helpful to know where you stand and where your work-

ers fit on the locus of control continuum. It can help you understand how they think

and how they might react in a variety of situations, including ethical situations. For

example, workers who constantly blame bad luck and other external factors for per-

formance failures or ethical lapses may be doing so because of an external locus of

control—that’s the way they view the world. Managers can work with such individu-

als to help them see the relationship between their actions and the outcomes by con-

sistently holding them responsible and accountable for what they do. As a result, their

locus of control may shift over time, and they will take more responsibility for the

consequences of their actions.

Machiavellianism

Whereas internal locus of control and more principled thinking are generally associ-

ated with ethical action, another individual difference, Machiavellianism, has been

associated with unethical action. Perhaps you have heard the term Machiavellian

used to describe individuals who act in self-interested, opportunistic, deceptive, and

manipulative ways to win no matter what the cost or how it affects other people. The

personality trait known as Machiavellianism was named after Niccol!o Machiavelli, a

sixteenth-century philosopher, statesman, and political theorist who is associated

with promoting a pragmatic leadership style that included amoral, if not clearly un-

ethical, behavior with the aim of achieving self-interested outcomes. The idea that

‘‘the ends justify the means’’ is often associated with Machiavelli. In his most famous

publication, The Prince, Machiavelli famously said that a ruler should ‘‘do good if he

CHAPTER 3 DECIDING WHAT’S RIGHT: A PSYCHOLOGICAL APPROACH 85

can, but . . . commit evil if he must.’’ 37

Research using a survey that assesses an

individual’s Machiavellianism has found that individuals high on Machiavellianism

are significantly more likely to have unethical intentions and to engage in unethical

action such as lying, cheating, and accepting kickbacks. 38 Managers should be on the

lookout for employees who they think might be high on Machiavellianism because

they are likely to engage in self-interested action that can put the entire organization

at risk. Organizations may also want to consider including Machiavellianism among

other personality characteristics when assessing job applicants.

Moral Disengagement

The idea behind moral disengagement 39

is that most of us behave ethically most of

the time because we’ve internalized standards of good conduct and judge our behav-

ior against these standards. If we consider behaving unethically, we feel guilty and

stop ourselves. All of us probably recognize that process. But research has found that

individual people have a higher (or lower) propensity to deactivate that self-control

system through eight moral disengagement mechanisms. These moral disengagement

mechanisms allow individuals to engage in unethical behavior without feeling bad

about it.

Moral disengagement mechanisms can be organized into three categories. One

of these categories involves ways of thinking about our behavior that makes bad be-

havior seem more acceptable. A mechanism in this category is the use of euphemistic

language (discussed earlier in relation to ethical awareness). Another is called moral

justification, whereby unethical behavior is thought to be okay because it contributes

to some socially valued outcome. For example, mortgage lenders may have believed

that it was okay to sell those no-doc loans to people because they were helping indi-

viduals who would otherwise not be able to purchase a home to take part in the

‘‘American dream.’’ A related moral disengagement tactic is called advantageous

comparison, whereby people compare their own behavior to more reprehensible be-

havior and thus make their own behavior seem more okay. For example, the same

mortgage lender may feel okay about selling these loans because she counsels clients

to be sure to pay the mortgage every month and avoid credit card debt, while col-

leagues in her office don’t bother to do any counseling and care only about making

their commissions.

A second category of moral disengagement mechanisms has to do with distorting

consequences or reducing personal responsibility for bad outcomes. For example,

with displacement of responsibility, individuals will reduce personal accountability

by thinking of their actions as resulting from an authority figure’s dictates (‘‘my boss

made me do it’’). With diffusion of responsibility, individuals will reduce personal

accountability by looking to others or the group (‘‘it’s not my job,’’ or ‘‘my team

made the decision’’). With distorting consequences, individuals will think of nega-

tive consequences as less serious than they are (it’s ‘‘no big deal’’ to fudge the num-

bers on my expense report).

86 SECTION II ETHICS AND THE INDIVIDUAL

The third category of moral disengagement mechanisms reduces the person’s

identification with the victims of unethical behavior. With dehumanization, individu-

als make those who would be harmed less worthy of ethical consideration because

they’re thought to be different, stupid, or not even human. This mechanism character-

izes thinking among those who commit genocide. One can also imagine mortgage

lenders thinking that people who took out loans they clearly couldn’t afford were just

dumb and not worthy of concern. Attribution of blame lays blame on the victims of

harm for a variety of reasons (‘‘it’s their own fault’’).

Some of these mechanisms lend themselves to certain situations more than

others. So if you have an authoritarian and unethical boss, displacement of

responsibility (‘‘my boss made me do it’’) may be used more than other tactics.

Still, research does show that some individuals are more likely to engage in this

kind of thinking overall, regardless of the situation. And those individuals with a

high propensity to morally disengage have been found to have reduced empathy

for other people, to be more cynical, to see their behavior as resulting from

chance or fate (more external locus of control), and to have a reduced moral iden-

tity relative to their other identities—a weaker sense of themselves as ethical

beings. Most important, these individuals are more likely to behave unethically. 40

You can test your own propensity to morally disengage with a short survey that

your professor may make available to you. And you can reduce that propensity by

being on the lookout for certain justifications that come up in your own mind or in

discussions with others. When you find yourself thinking the following (or hear

something like this in a meeting), ‘‘stop and think’’ about whether what you’re doing

is right:

STOP

AND

THINK

STOP

AND

THINK

It’s not my responsibility—my boss told me to do it.

It’s not my responsibility—my team decided this.

It’s no big deal.

It’s not as bad as (what someone else) is doing.

They deserve whatever they get.

They brought this on themselves.

CHAPTER 3 DECIDING WHAT’S RIGHT: A PSYCHOLOGICAL APPROACH 87

FACILITATORS OF AND BARRIERS TO GOOD ETHICAL JUDGMENT

In the previous section, we discussed characteristics that distinguish individuals from

each other. But individual differences aside, as human beings, we all share ways

of thinking about the world that can facilitate or interfere with good ethical judgment.

The steps offered in Chapter 2 assume a rational and ethical decision-making pro-

cess that prescribes how an ethical decision should be made. However, studies have

found that actual human decision making doesn’t match this rational ideal. Although

people generally intend to be rational in their decision making, they’re often not.

In recent years, psychologists have discovered a number of weaknesses and

biases in how human beings make decisions. 41 Some of these decision-making weak-

nesses have direct implications for ethical decision making in organizations and for

the advice given in Chapter 2. 42 So think of this part of the chapter as a kind of reality

check. If you’re going to manage your own and others’ ethical behavior, you need to

understand how people really think in addition to how they should think.

As a backdrop, recognize that the cognitive weaknesses and biases we will be

discussing operate primarily because people try to reduce uncertainty and simplify

their world. Although uncertainty is a fact of organizational life, businesspeople

want very much to deny the uncertainty they face. Therefore they tend to act as if the

world is rational and they’re in control. Being ‘‘in charge’’ and able to predict events

is a highly valued characteristic, especially in business. But this focus on being in

charge is an illusion that can get managers into trouble. What if you really don’t

know all of the facts about the risks, the potential affected parties, and all the conse-

quences of your decisions? You’ll see below that the best way to avoid decision-

making weaknesses and biases is to become aware of them and to incorporate steps

into your decision making that are explicitly aimed at reducing their impact.

Thinking about Fact Gathering

In Chapter 2, we advised you to ‘‘get the facts’’ as an important first step in good

ethical decision making. Be aware, though, that your thinking about the facts is likely

to be biased. Research evidence suggests that you may look for the wrong ones or

stop looking too soon because you think you already have all the facts you need.

We know that most people, including business students and business executives,

are overconfident about their knowledge of the facts. For example, in research stud-

ies, people were asked factual questions. Then they were asked to judge the probable

truth of their answers. For example, in response to the question, ‘‘Is Rome or New

York farther north?’’ most people chose New York, and they believed that the proba-

bility was about 90 percent that they were right. Actually, they were wrong. Rome is

slightly north of New York. Being overconfident can make you fail to search for

additional facts or for support for the facts you have. 43

Even if you gather additional facts or support, another cognitive bias termed the

confirmation trap may influence your choice of which facts to gather and where to

88 SECTION II ETHICS AND THE INDIVIDUAL

look. 44

All of us have the tendency to look for information that will confirm our pre-

ferred answer or choice and to neglect to search for evidence that might prove us

wrong. If you were an investment banker who wanted to believe that mortgage-

backed securities were safe (because they were so profitable at the time), you were

more likely to look for supportive information and ask a question like, ‘‘Historically,

what percentage of mortgages have defaulted?’’ Given that question, the banker will

probably underestimate the risk involved. Because of no-doc loans and other new and

riskier subprime mortgages, relying on historical default patterns no longer made

sense. The meeting might take a very different turn if the banker were to ask, ‘‘What

future problems are possible with this type of new product? What has changed? What

haven’t we thought of?’’ 45

In an attempt to overcome the confirmation trap, it’s important that you con-

sciously try to think of ways you could be wrong. Incorporate questions in your indi-

vidual and group decision-making processes such as, ‘‘How could I/we be wrong?’’

‘‘What facts are still missing?’’ and ‘‘What facts exist that might prove me/us to be

wrong?’’ You may still miss some important facts, but you’ll miss less of them than if

you didn’t ask these questions at all.

Thinking about Consequences

In Chapter 2, we also advised you to think about all the potential consequences of

your decision for a wide variety of stakeholders. Who can argue with such sage

advice? But psychologists have found a number of problems with how people think

about consequences.

REDUCED NUMBER OF CONSEQUENCES One way people simplify their deci-

sions and make them more manageable is to reduce the number of consequences

they consider. They’re especially likely to ignore consequences that are thought to

affect only a few people. But consequences that affect only a few people can be seri-

ous. For example, a highly beneficial drug may have positive consequences for many

and adverse consequences for only a few people. But what if those few people could

die from side effects of the drug? 46

Obviously, you wouldn’t want to ignore such

serious consequences no matter how few people are affected. In attempting to con-

sciously deal with this situation, it helps to consult a broad range of people who have

a stake in the decision you’re making. Invite input from all interested parties, espe-

cially those who disagree with you and those with the most to lose. Ask them what

consequences they’re concerned about and why. Then, incorporate these conse-

quences in your decision making.

CONSEQUENCES FOR THE SELF VERSUS CONSEQUENCES FOR OTHERS

Consequentialist theories require us to think about costs and benefits for society—for

multiple stakeholders. But psychological research suggests people tend to make deci-

sions in a self-interested manner. For example, they’re inclined to give more weight

to the consequences of a decision or action for themselves (or those close to them)

CHAPTER 3 DECIDING WHAT’S RIGHT: A PSYCHOLOGICAL APPROACH 89

than for others. That may be because consequences to the self are more immediate or

more imminent. In addition, when the consequences of multiple alternatives are

ambiguous, people tend to choose the alternative they personally prefer rather than

the one that is more just. To make matters worse (from an ethics perspective), people

underestimate the extent to which they are self-interested and the extent to which

they rationalize their own behavior. They just aren’t aware of their own cognitive

biases. Again, it can help to consciously consider those outside of yourself who are

going to be affected by a decision or action. As a manager, you can ask your people

to make a list of those individuals or groups who might be affected and seek their

input, or have your employees try to imagine themselves in the shoes of those stake-

holders. How would they react? 47

CONSEQUENCES AS RISK One way to think about consequences is to think in

terms of decision making about risk. Managers are in the business of assessing risk.

But, research suggests that people tend to underestimate potential risks because of an

illusion of optimism. They overestimate the likelihood of good future events and

underestimate the bad. For example, even though around one-half of marriages end

in divorce, newlyweds are highly optimistic that their own new marriages will be

everlasting. And, although some analysts may knowingly have lied about the future

prospects of mortgage-backed securities, it’s likely that many were simply overly

optimistic and believed that the housing market would never simultaneously crash

everywhere in the country, bringing down an entire market and the U.S. economy

with it.

People also generally believe that they’re less susceptible to risks than other

people are. This belief is supported by the illusion of control, the general belief that

we really are in charge of what happens. And if we think we can control events, we

also think bad things are less likely to happen. This illusion of control has been dem-

onstrated to exist in MBA students from top U.S. business schools, suggesting that

managers are certainly vulnerable. 48

Managers whose judgment is influenced by

these cognitive biases are likely to underestimate the risk facing the firm as a result

of a particular decision. But if managers ignore risks, they’re also ignoring important

consequences. So it’s important to recognize this tendency to ignore risk, and design

risk analysis into your decision-making processes.

Even if we attend to risks, we still have difficulty thinking about them in a com-

pletely rational way. One tendency that can contribute to downplaying risk was already

discussed—the tendency to attend to information that will help confirm the decision

we would prefer to make (confirmation bias). In the famous space shuttle Challenger

disaster that killed all the astronauts on board, everyone knew that risk existed. The

question was how much, and was it too much? Many economic and political factors

were pushing NASA to launch this shuttle. The media were paying more attention to

the launch than they usually would because a schoolteacher was on board. Researchers

now believe that confirmation bias may have influenced decision makers to focus on

the information that confirmed their preference, which was to launch, and to discount

available information about risks that would have supported a delay. 49

90 SECTION II ETHICS AND THE INDIVIDUAL

CONSEQUENCES OVER TIME: ESCALATION OF COMMITMENT The prescrip-

tion to think about consequences also fails to account for the fact that decisions are

not isolated choices, but often become part of a series of choices within the context of

a larger decision or project. Consider the following scenario:

You finally graduated from college and landed a great job, and you’ve

invested most of your savings in the car of your dreams—a used BMW. But

in a short time, the car begins having mechanical problems. Every time you

bring it to the mechanic, he claims that it is fixed for good; but the problems

continue and your bank account is being drained. Should you quit trying to

fix the car?

Because you’ve already made the decision to buy the car, and you’ve already in-

vested a lot of money in it, your tendency will be to continue your commitment to

this previously selected investment. This tendency has been called ‘‘escalation of

commitment to a losing course of action’’ or ‘‘throwing good money after bad.’’ 50

A

perfectly rational decision maker would consider the time and expenses already

invested as ‘‘sunk costs.’’ They aren’t recoverable and shouldn’t be considered in a

decision about what to do. Only future costs and benefits should be considered. But

this is difficult. Norms in our society and in our organizations support trying, persist-

ing, and sticking with a course of action. Also, if others are involved, we’re likely to

feel the need to justify our original decision—whether it was to buy a car, a piece of

equipment, or land.

So when you’re in a situation that involves decisions about whether to continue

to invest in an ongoing project, be careful! One way to overcome escalation of com-

mitment is, as with many biases, to recognize that it exists and try to adjust for it. Ask

yourself explicit questions about whether you’re committed to a decision just because

failure would make your original decision look bad. Ask yourself, ‘‘If I took over the

project today, with no personal investment, would I support the project?’’ Another

approach is to bring in outsiders and ask for their opinions, or turn the project over to

them completely. That gets your own ego out of the decision-making process.

Thinking about Integrity

In Chapter 2, you were also advised to think about your own character and integrity—

to ask yourself what a person of integrity in a highly ethical community would do in

the particular situation. But cognitive biases can get in the way here too. First, if your

thoughts about yourself are controlled by illusion rather than reality, how can you

make a good decision about your integrity? The basic idea here is that individuals

are likely to think positively about their own ethics. They will unconsciously filter

and distort information in order to maintain a positive self image. Psychologists

know that people have an illusion of superiority or illusion of morality. Surveys have

found that people tend to think of themselves as more ethical, fair, and honest than

most other people. 51

It’s obviously an illusion when the large majority of individuals

CHAPTER 3 DECIDING WHAT’S RIGHT: A PSYCHOLOGICAL APPROACH 91

claim to be more honest than the average person, or more ethical than their peers. It’s

a little like Garrison Keillor’s mythical Lake Wobegon, where all the children are

above average. There isn’t a whole lot you can do here except try to be honest with

yourself. But this kind of illusion can lead to bad decisions—when physicians take

gifts from salespeople because they’re sure they’re ethical and their decisions won’t

be affected, 52

or when mortgage lenders selling subprime loans convince themselves

that what they’re doing is contributing to the American dream.

Second, the virtue ethics approach suggests that you rely on the ethics of your

profession (or other relevant moral community) to guide you. But consider the

accounting professionals in recent cases, as when Arthur Andersen auditors signed

off on audits that misrepresented the finances of companies such as Waste Manage-

ment, Enron, and Adelphia Communications.

Certified public accountants are supposed to be guided by the AICPA code of

professional ethics. The code says that, as professionals, auditors have a responsibil-

ity to act in the public interest to provide objective opinions about the financial state

of the organization—be free of conflicts of interest, not misrepresent facts, or subor-

dinate professional judgment to others. Given human cognitive limitations, however,

this expectation is probably unrealistic. Consider what is likely to go through an audi-

tor’s mind when deciding whether to provide a negative audit opinion on the financial

statements of a big client. Auditors work closely with their audit clients, often over a

long period of time. By contrast, auditors have no personal relationship with the

‘‘public’’ they are supposed to represent. Therefore, as biased information processors,

their thinking is likely to emphasize the potential negative consequences of a quali-

fied (or negative) audit opinion for themselves and the client—not for the public. The

negative consequences for themselves and the client are clearer and more immediate.

The auditor who offers a qualified audit may very well lose the client (and the money

associated with that client) as well as the personal relationships forged over time. On

the other hand, the consequences for the public of a qualified audit opinion are more

ambiguous and likely spread over more people and time. It isn’t clear how much

specific members of the public will gain or lose, especially if the misrepresentation is

deemed to be small or unclear. So auditors can easily rationalize a decision that is

consistent with their own and their company’s self-interest and downplay the poten-

tial consequences to an ambiguous, unknown public. 53

What is a professional organization to do? It is important to recognize that audi-

tors (and other professionals) are human beings who are affected by cognitive limita-

tions and biases. Given what we know about these biases, here are some potential

solutions. First, auditors should be discouraged from developing personal relation-

ships or socializing with their clients. Companies should change auditors every few

years to avoid forging such personal ties. Second, audit firms should work hard to

sensitize auditors to the likely negative consequences of financial misrepresenta-

tion for their own firms and the public. The Enron bankruptcy contributed to huge

financial losses to its employees and investors and to the ultimate demise of Arthur

Andersen. Regular attention to the importance of maintaining the integrity and long-

term reputation of the audit firm is essential, as is the leader’s role in creating a strong

92 SECTION II ETHICS AND THE INDIVIDUAL

ethical climate. The reward system (discussed more fully in later chapters) can be

used to send important signals about what’s expected. For example, auditors who

turn down client business or risk losing a client by providing a negative audit opinion

should be supported and reinforced for doing so. Those auditors who risk the reputa-

tion of the firm should be disciplined.

STOP

AND

THINK

STOP

AND

THINK

Given the above discussion, we might suggest other ‘‘red flags’’ for you to be on

the lookout for. If you find yourself thinking (or others saying) the follow-

ing, consider whether your biases are showing!

The facts support our decision.

Nothing bad will happen.

We’re ethical—we wouldn’t do anything bad.

We’ve already invested so much—we can’t afford to quit now.

Thinking about Your Gut

Our last piece of advice in Chapter 2 was to listen to your gut. But in this chapter,

we’ve spent a great deal of time telling you that your gut may well be wrong—led by

cognitive limitations and biased thinking.

Yet, your gut can still be useful in alerting you that something might be wrong—

that you’re facing an ethical dilemma—in the first place. But once that decision is

made, you should temper your gut with careful analysis guided by the knowledge

gained in this chapter and the rest of the book. Hopefully, the combination of your

gut and an informed brain will help you make better decisions.

YOUR GUT—‘‘AUTOMATIC’’ ETHICAL DECISION MAKING In Chapter 2, we

treated ethical decision making mostly as a systematic and rational step-by-step

process. Even in this chapter, we have thus far discussed how ethical awareness leads

to ethical judgment, which then leads to ethical action in a seemingly systematic and

deliberative way. But new research from moral psychology, which is often backed

up by neuroscience and brain imaging studies, finds that ethical judgments are

often more intuitive, impulsive, and automatic. Jonathan Haidt, a psychologist at the

University of Virginia, has argued that much ethical judgment occurs ‘‘quickly,

CHAPTER 3 DECIDING WHAT’S RIGHT: A PSYCHOLOGICAL APPROACH 93

effortlessly, and automatically,’’ 54

often operating below conscious awareness. Haidt

has been particularly interested in people’s automatic reactions of disgust. For exam-

ple, in his research, he has used a vignette about a family that accidentally runs over

and kills the family dog and then reacts by cooking and eating it! Most of us recoil

instantly at the thought. It seems disgusting to us and wrong to eat the family dog.

When asked why, however, we can’t explain our very strong gut reactions. After all,

most of us eat other animals. So, clearly, something besides a purely rational process

is at work—something that’s more intuitive and emotional. (You can learn more

about Haidt’s research and even participate yourself at www.yourmorals.org).

Even more intriguing is research suggesting that individuals who rely only

on more conscious, deliberative approaches to ethical decision making may ar-

rive at worse ethical decisions than do those who use moral intuition and who

have strong emotional responses to ethical situations. 55

Much more research will

be required to fully understand these important processes, when they operate,

and when they interfere with good ethical decision making rather than actually

improve it.

Unconscious Biases

One relatively new research tool that can help us understand the potential (often

negative) role of the unconscious in a certain type of ethical thinking is the

Implicit Association Test (IAT). Results reveal most people’s preferences for

young people over old, straight people over gay, able people over disabled, and a

variety of other categories. For example, hundreds of studies with the ‘‘race IAT’’

lead to the conclusion that the large majority of us have an unconscious tendency

to value white people more than black people even if we consciously disavow

such views and truly believe that we have no racial bias. Here’s how the race

IAT works. Participants are asked to press a key on the computer keyboard when

they see a black person’s face or a word that has negative connotations (e.g., rot-

ten, bad) and to press another key when they see a white person’s face or a word

with positive connotations (love, good). Then the task is reversed, and participants

are told to press the same keyboard key in response to black faces and pleasant

words or white faces and unpleasant words. It turns out that most of us respond

more quickly when we’re linking the black faces with negative words and white

faces with positive words because such links are cognitively easier for us—they

fit with our unconscious, implicit attitudes. Although some have criticized these

studies as simply representing higher familiarity with some groups than others,

and as unable to predict behavior in real-life situations, research has found that

the IAT results can predict troubling behavior in experiments. For example, a per-

son with a strong implicit bias against blacks is more likely to be rude in

an encounter with a black person, and white physicians with a strong implicit

bias against blacks were found to prescribe the latest heart treatment less often

for blacks than for whites. Our goal is not to defend or criticize the IAT. Rather,

we use it to point out that unconscious attitudes probably influence our behavior

94 SECTION II ETHICS AND THE INDIVIDUAL

more than we think. Given the importance of fair treatment in all kinds of ethical

decisions at work (hiring, performance appraisal, layoffs, compensation, etc.),

understanding the potential impact of such unconscious bias should help us under-

stand why we need to put organizational procedures in place that provide less

opportunity for these unconscious biases to influence our decisions. 56

(To experi-

ence the IAT for yourself, go to https://implicit.harvard.edu/implicit/.)

Emotions In Ethical Decision Making

Age-old philosophical prescriptions assume cool, rational, ethical decisions. But we

are also beginning to understand how important emotions are to the ethical decision-

making process. 57

Importantly, emotions are not just an interference to good ethical

judgment, as many used to believe. Instead, emotions often lead to right action.’’ 58

For example, when we consider hurting someone, our brain reacts with a visceral

negative emotion (‘‘an internal alarm’’) that keeps violence in check. 59

And these

reactions tend to happen very quickly, before we even have time to engage in rational

thought.

Consider two classic philosophical dilemmas. In one, a runaway train is headed

for five people who will die if nothing is done. You can save the five by diverting the

train to a different track, where it would kill only one person. Should you divert

the train?

In the second dilemma, you’re standing next to a stranger on a bridge over the

tracks. The only way to save the five people is to push the stranger onto the tracks,

where his body would stop the train. Should you push the stranger?

To philosophers, the rational logic in these scenarios is similar; in both cases,

you would be intentionally sacrificing one person in order to save five people.

But, when asked, most people say that you should divert the train in the first

dilemma but not push the stranger onto the tracks in the second. Psychologists

now tell us that emotions explain the difference between the scenarios because

the second scenario engages emotions more than the first. This hypothesis was

supported in an experiment that used brain scans to track brain activity during

decision making. In dilemmas like the second one, parts of the brain associated

with emotional processing were more active, and those who decided that pushing

the stranger would be right took longer to make a decision because emotions

slowed down their thought processes. 60

Most normal people would find it diffi-

cult, if not impossible, to actually take another’s life in such a situation. This

reluctance is attributed to the strong feelings of revulsion that come up from just

thinking about taking a human life. These reactions are likely hardwired into hu-

man beings through evolution because they aid our survival. Interestingly though,

people who have damage to the prefrontal cortex of the brain have no such re-

action. They are much more likely to simply make the utilitarian analysis and say

they would kill one person to save the others. 61

(If you want to get a ‘‘feel’’ for

this type of exercise, try taking the moral sense test at http://moral.wjh.harvard.

edu. It presents complex ethical dilemmas that have no clearly right answer.)

CHAPTER 3 DECIDING WHAT’S RIGHT: A PSYCHOLOGICAL APPROACH 95

So emotions are clearly important in ethical decision making, and continuing

research will help us more fully understand the process. It seems clear that emo-

tions can aid us in doing the right thing when they alert us to ethical concerns,

cause us to act to help others in need, or keep us from violent reactions (because

of sympathy for another, pangs of guilt, or automatically triggered negative feel-

ings). 62

Feelings of betrayal or moral outrage can also cause people to act in the

interest of fairness. 63

For example, people may be more willing to speak up about

the unfair treatment of a coworker if they feel moral outrage about it. 64

Interest-

ingly, research has found that people will even forgo financial benefits if they feel

they’re being unfairly treated. In some fascinating experiments, researchers have

demonstrated that individuals will punish another individual they perceive to be

unethical even if there is nothing for them to gain and something to lose. They

will do this even if they don’t know the person who has been offended. 65

Accord-

ingly, research has shown that the parts of our brains associated with feeling

satisfaction are activated when we consider retaliating against someone who

has unfairly harmed us. 66

The bottom line here is that we often act not because

we have coolly and rationally decided on the best course of action, but rather

because it ‘‘feels’’ like the right thing to do at the time. Often, such emotions can

lead us to act ethically. But emotions can also interfere with good decision mak-

ing when they lead to a (perhaps irrational) desire for revenge. For example,

when a competitor ‘‘poaches’’ one of your best people, do you try to recruit

someone away from the competitor just to get even or to do damage to the com-

petitor when you should be focusing more rationally on who is best prepared to

do the job? 67

Consider how General Motors managers handled a four-year legal battle with

VW over their allegation that a 56-year-old GM executive, Jose Lopez, took 20 boxes

of GM proprietary documents when he left GM to join Volkswagen in 1993. In 1992,

Lopez was GM’s worldwide purchasing czar, known for his ability to cut costs ruth-

lessly. The missing documents included information about GM’s suppliers and their

prices for auto parts, as well as information about upcoming Opel car models in the

GM Europe division. Fortune magazine referred to the four-year legal battle that

ensued as a tale of ‘‘betrayal’’ and ‘‘revenge.’’ Lou Hughes, head of GM Europe, was

furious that Lopez would take proprietary documents to its fiercest competitor. He

insisted that there would be no settlement with VW as long as Lopez remained there.

When asked what he hoped to gain from the litigation, Hughes replied, ‘‘Look, this is

not a question of business. This is a question of ethics.’’ 68

Years of investigation

yielded no hard evidence to suggest that anyone at VW had actually used the secret

GM information. Fortune suggested that at the time, ‘‘one might have expected GM

to act pragmatically, find some face-saving exit, and return its attention to the car

business.’’ 69

That might have been the ‘‘rational,’’ coolheaded thing to do. Instead,

GM escalated the fight, bringing a racketeering suit that was expected to drag on for

years and cost tens of millions of dollars. When pragmatic board members ques-

tioned the action, the board chairman insisted that the company had to pursue the suit

96 SECTION II ETHICS AND THE INDIVIDUAL

because it ‘‘had been terribly wronged.’’ ‘‘Some things aren’t measured in time and

money. They’re just who we are.’’ 70

Finally, in January 1997, the two companies

settled the case. Lopez, who had already resigned from Volkswagen, was barred

from doing any work for VW through the year 2000. Volkswagen paid GM $100

million and agreed to buy $1 billion worth of GM parts over seven years. Fortune

asked, ‘‘But what, in the end did the long, bitter, and costly struggle accomplish?

In the cold light of day, the answer seems simple and shocking: not much.’’ 71

A

huge company devoted years of attention and spent millions of dollars because its

managers were morally outraged that their former friend had betrayed them. It was

obviously an emotional reaction.

Clearly, anger and other emotions can influence thoughts and actions. Whether

that is good or bad depends on whether the emotion leads to ‘‘right’’ or ‘‘wrong’’

action. If empathy or guilt lead you to recognize an ethical issue or think about the

consequences of your actions for others, that’s a good thing. If moral outrage leads

you to seek justice, that’s good as well. But moral outrage can also lead to a desire

for revenge, and that may be the time to bring cooler heads to the decision to deter-

mine whether action based upon revenge is a good ethical (and business) decision.

Those who are not as emotionally involved in the interpersonal issues may be able

to offer a more rational and balanced assessment of the situation. In the GM–

Volkswagen case, those pragmatic board members may have been right to support

a quick settlement.

TOWARD ETHICAL ACTION

Most of this chapter has focused on ethical awareness and ethical judgment pro-

cesses. We’ve seen that these also influence ethical action. For example, those who

are higher in ethical awareness are more likely to make ethical choices because they

think about the harm they’re doing, they use ethical language to label the situation, or

they recognize that others would see an action as ethically problematic. Also, we

know that some individuals are more prone to think in ways that make ethical action

more likely. Individuals who are higher in cognitive moral development, internal

locus of control, and idealistic decision-making style, and those who are lower in

Machiavellianism and less prone to use morally disengaged thinking, are all more

likely to behave ethically.

But we’ve also seen that, as human beings, we’re all prone to cognitive biases

that can get in the way of good thinking and interfere with ethical action. Beyond

that, it’s sometimes hard to do what’s right even for those of us with the best thinking

and intentions. We may have an unethical boss who insists that we do inappropriate

things, we may find ourselves in an unethical culture, or we may fear repercussions

for speaking the truth. Next, you’ll read an article that addresses some of these issues:

Dennis Gioia’s reflections on his involvement in the Pinto Fires case. In future chap-

ters, we’ll focus more on how you can find your moral voice and do what’s right

despite the challenges.

CHAPTER 3 DECIDING WHAT’S RIGHT: A PSYCHOLOGICAL APPROACH 97

C H A P T E R4

ADDRESSING INDIVIDUALS’

COMMON ETHICAL PROBLEMS

INTRODUCTION

Here’s the bad news about business ethics: your career can be irrevocably damaged if

you mishandle an ethical issue. But there’s also good news: many ethical issues in

business are quite predictable. You can be fairly certain that during the course of

your career, you’ll run into myriad ethical problems such as a customer who asks for

a special deal or terms in order to make the sale, or questions about the appropriate

use of corporate resources, or discrimination of one sort or another. Since many

ethical issues are somewhat predictable, you have a better chance of dealing appro-

priately with ethical problems if you think about what’s likely to happen before it

occurs. And you should now have tools to help you make better decisions.

Before we get into a discussion of ethical issues, however, it’s important to look

at the relationship that exists between you and your employer. Although most people

don’t sign a written contract on the day they join a company or organization, there is

an implied contractual relationship of sorts between workers and employers. Both

parties have expectations, and rights, and offer consideration to the other—all are

characteristics of a contractual relationship. Your employer pays you in salary and

benefits to perform a job, and your organization expects you to behave in a certain

way; you have a responsibility to be ‘‘part of the family’’ and exhibit loyalty and

other corporate ‘‘virtues’’ and to refrain from other, less desirable behaviors. On the

other hand, you expect not only a salary for the work you perform but also a modi-

cum of fairness. Most people expect employers to treat them decently and to provide

an appropriate work environment. Whenever we discuss the employer-employee con-

tract in this chapter, it’s this complicated set of expectations that we’re referring to.

So what are some typical ethical problems individuals face at work? We’ve com-

piled some of the more obvious ones and divided them into broad categories, includ-

ing human resources issues, conflicts of interest, customer confidence issues, and the

use of corporate resources. We address a number of specific topics under each broad

category. To make it easy to follow, each topic contains the following information:

& What it is (a definition of the issue)

& Why it is an ethical problem

111

& How we can think about the issue

& Professional costs and possible penalties for ethical or legal transgressions

& Special notes and some topics that may include important information

related to the topic

Identifying Your Values—and Voicing Them

Before we explore the various types of ethical problems covered in this chapter, we

would like you to think again about what’s important to you—in other words, what

do you value? In Chapter 2, we discussed the various philosophical approaches

to ethics, all of which can help you think through a dilemma. The principle-based

approach encouraged you to think about your most cherished values. So, what

happens if you think through a situation, figure out what to do based upon those

values, and then hesitate to say or do what you believe to be ethical because of pres-

sure that you feel from your organization’s reward system or your boss or your peers?

Once you’ve determined the right thing, how do you then do it? Well, according to

some ethics experts at the Aspen Institute, it helps to practice. 1

After World War II, researchers found that many of the people in Europe who

had risked their own well-being to help others who were threatened by the Nazis did

so because they had ‘‘practiced’’ making ethical decisions earlier in their lives by

imagining themselves in hypothetical situations that challenged their values. They

not only imagined these situations, but they also discussed their potential actions

with others—what they might actually do if they encountered such a situation.

Researchers theorize that this was a kind of ‘‘pre-scripting’’ that laid the groundwork

for these people’s later heroic actions. It was as if thinking about ethical issues long

before they were actually confronted by the issues gave people a sort of head start in

the moral courage department. The ‘‘Giving Voice to Values’’ program at the Aspen

Institute is rooted in this interesting, worthwhile premise. Mary C. Gentile, the pro-

gram director, writes that the approach starts with ‘‘the assumption that we know

what we want to do and then figuring out how we might make that happen—and then

practicing our voice.’’

The program encourages students of all ages to first consider their values (as we

encouraged you to do in Chapter 2). What do you care about? When you think deeply

about your life, what are the values that attract you or stir deep feelings within you?

Most people, for example, gravitate toward honesty, respect, responsibility, compas-

sion, fairness, and other similar values.

In addition to values, we all have a personal narrative, a self-story that can help

us when we face tough ethical issues. As you think about your life story, it can be

helpful to look back on your life and search for experiences that might provide a

source of passion or strength in difficult times. We often think of these as life situa-

tions that build character. Many of the best leaders say that difficult life experiences

were transformative and provided new meaning and direction to their lives. For exam-

ple, surviving a life-threatening illness can make other workplace threats seem much

112 SECTION II ETHICS AND THE INDIVIDUAL

less dire. You might say to yourself, ‘‘Speaking up to my boss in a respectful way

isn’t going to kill me,’’ so why not? Daniel Vasella, CEO and chairman of the phar-

maceutical company Novartis, had his first hospital experience at age 4 as a result of

food poisoning. He contracted tuberculosis and then meningitis at age 8 and spent a

year in a sanatorium. At age 10, he lost his older sister. These are just a few of the

challenges Vasella faced as a boy. He vividly recalls the loneliness and pain of these

experiences, but he also remembers the powerful impact of a few special people who

treated him with care and compassion and who fueled his desire to help other people,

ultimately by becoming a physician. He later decided that by becoming a leader in a

health-care business, he could have even more impact and help more people than he

could as a single practitioner. 2 So think about what your personal narrative is. What

aspects of it might help give you the courage to do the right thing in tough situations?

Here’s an abbreviated list of other self-assessment questions students are encour-

aged to consider as part of the Giving Voice to Values program:

1. Questions of purpose. What are your personal and professional goals? What

do you hope to accomplish? What would make your professional life

worthwhile?

2. Questions of risk. What is your risk profile? Are you a risk taker, or are you

risk averse? What are the greatest risks you face in your line of work? What

levels of risk can you live with, and which ones can’t you live with?

3. Questions of personal communication style or preference. Do you deal well

with conflict, or are you nonconfrontational? Do you prefer communicating

in person or in writing? Do you think best from the gut and in the moment,

or do you need time to reflect on and craft your communication?

4. Questions of loyalty. Do you tend to feel the greatest loyalty to family, work

colleagues, your firm/employer, or other stakeholders, such as customers?

5. Questions of self-image. Do you identify yourself as being shrewd or naive?

As idealistic or pragmatic? As a learner or as a teacher?

The point of this self-analysis is to first identify your own ‘‘self-story’’ or narrative—

we all have one or are able to build one. Then, consider other personal character-

istics that will help you find ways of behaving that align with your image of your-

self. For example, if your own image of yourself is one of a bold, courageous

character, you might be able to find a brave way of reacting to a situation—one that

is aligned with the bold person you believe you are. And the converse is also true.

If you are risk averse and timid, you may be able to find a way of reacting to a

situation that is more ‘‘compliant’’ and that aligns with who you really are. The

objective here, as you have probably already guessed, is to make it easier for you to

voice your values and beliefs by creating a response and behavior that reflects your

unique personality. Evaluating a dilemma through the lens of your own story makes

it more likely that you will voice your values, and playing to your strengths makes it

more likely that you’ll stand up for what you believe.

CHAPTER 4 ADDRESSING INDIVIDUALS’ COMMON ETHICAL PROBLEMS 113

The Giving Voice to Values program also encourages students to understand that

values conflicts are absolutely normal. Far from being unusual or rare, ethical dilem-

mas happen all the time to everyone. The ethical dilemmas that we face every day

test our ability to make good choices. If we anticipate the need to take risks—to

make decisions that might turn out to be good ones or not—we will prepare our-

selves. We’ll internalize the idea that these situations are normal and survivable and

that others are experiencing the same thing. These situations won’t paralyze us.

Another important element of the program is to understand various communica-

tion techniques. Voice can mean dialogue or listening or other communication tech-

niques such as researching and providing new data, questioning, negotiating, leading

by example, identifying allies, and so forth. The point is that voice is not always

about sounding off. In fact, it’s more often about analyzing the situation, your audi-

ence, your own motivations and style, and then figuring out the best way to get your

point across to others. In organizations, it can help greatly to find allies to support

your viewpoint instead of being a lone voice, especially if you’re bucking the system.

Taking the time to convince allies to stand up with you for what you think is right can

increase the chance that your viewpoint will prevail in the end.

The program also addresses the barriers we encounter in making decisions and

voicing our beliefs—the reasons and rationalizations that can short-circuit our

resolve. This part of the program asks us to identify the arguments that we’re trying

to counter, what’s at stake for the various participants in the situation, how we might

influence those we disagree with, and what is our most powerful argument. Some of

these arguments are likely influenced by the barriers to good ethical judgment we

discussed in Chapter 3.

Finally, the Giving Voice to Values program encourages students to consider

choice: we all are capable of acting on our values, but sometimes we don’t. The point

of thinking about the issue of choice is to ensure that we understand that even the most

ethical person may not always do the right thing. We make choices all the time that can

reinforce our decision-making patterns or change them. If and when we make a mis-

take, we are capable of redefining ourselves the next time. The important point is to be

self-aware, to acknowledge mistakes, and to be able to learn from them. To find out

more about this impressive program, go to www.aspencbe.org/teaching/gvv/index.html.

Sometimes, voicing your values at work takes significant courage because of the

risks involved. We’ll talk later in this chapter about some of the potentially riskiest

situations, where whistle-blowing (on your boss or your organization) becomes a

possibility.

PEOPLE ISSUES

We use the term people issues to describe the ethical problems that occur when peo-

ple work together. They can include privacy, discrimination, sexual and other types

of harassment, or simply how people get along.

The word to remember when considering these issues is fairness. When most

people think about fairness, they mean equity, reciprocity, and impartiality. 3 A

114 SECTION II ETHICS AND THE INDIVIDUAL

situation is said to be equitable when something is divided between two people

according to the worth and inputs of the two individuals. For example, in a situation

where two people have shared responsibility for a project, one might ask: ‘‘Did we

work equally hard? Did we receive equal shares? Most people think it’s unfair when

two people have performed the same duty but receive a different share of the reward.

Another measure of fairness is reciprocity, or the fairness of exchanges: ‘‘You did

this for me and I’ll do that for you.’’ Most people perceive a situation as being unfair

if one person fails to hold up his or her part of a bargain. A third measure of fairness

is impartiality: ‘‘Is the person who’s going to listen to my story biased in some way,

or has he or she prejudged the situation?’’ Most people think of fairness as being

inconsistent with prejudice and bias.

Most protective legislation and corporate human resources policies also try to

incorporate those elements. The goal is to hire, treat, promote, appraise, and lay off

or fire employees based on their qualifications and not on factors like sex, race, or

age. The goal is to level the playing field and create a fair environment where per-

formance is the only factor that counts (equity), where employer-employee expect-

ations are understood and met (reciprocity), and where prejudice and bias are not

factors (impartiality).

It’s important to remember that, to employees, fairness is not just about the out-

comes they receive (pay, promotion, etc.). Employees care at least as much about the

fairness of decision-making procedures and about the interpersonal treatment they

receive when results are communicated. People are more likely to accept bad news if

they believe the decision was made fairly and if the supervisor or organization

explains the decision with sensitivity and care. An organization that uses fair proce-

dures and treats employees with sensitivity sends a powerful message to all employ-

ees that it values them as important members of the community. 4

Discrimination

You and Lisa met five years ago when you were hired into the management

training program of a large utility. Although you’re now in different parts

of the organization, you have managed to stay close over the years. Lisa

recently had a baby and plans to take advantage of the full six months of

maternity leave the company offers. She told you that she’s definitely coming

back to work after her leave and that her department has promised to hold her

job for her. Meanwhile, you’ve seen a posting for her job on the company’s

website. You run into one of Lisa’s colleagues in the hall and ask about the

posting. He says, ‘‘Oh yeah, they’re going to fill that job. But don’t tell Lisa.

She’s got five more months to be a happy mom. Besides, they’ll find some-

thing for her to do if she decides to come back.’’

Since discrimination by race, religion, national origin, sex, disability, and age is

prohibited by federal law in the United States, many companies have defined policies

prohibiting any kind of discrimination. Unfortunately, there can be quite a gulf

CHAPTER 4 ADDRESSING INDIVIDUALS’ COMMON ETHICAL PROBLEMS 115

between where corporate policy leaves off and reality begins. When people from var-

ious backgrounds get together to provide a service or manufacture a product, there

surely will be people who have conscious or unconscious biases toward various

groups, and there will be others who are simply ignorant of the effect their behavior

has on others.

WHAT IS IT? Discrimination occurs whenever something other than qualifications

affects how an employee is treated. Unequal treatment, usually unfavorable, can take

many forms. Older workers who suddenly find themselves reporting to younger ones

can be resentful since they feel younger workers lack experience. Younger employ-

ees can be tempted to ignore advice from older workers, who they feel are out of

touch. The attitudes toward age will most likely become increasingly important over

the next decade as the general population grows older.

Racial, ethnic, religious, or sexual stereotypes can creep into the behavior of

even the most sophisticated individuals, even without their conscious awareness. The

importance of being able to manage different types of people can’t be overstated. In

the United States, ethnic and racial minorities are growing faster than the population

as a whole, and the U.S. workforce is becoming increasingly diverse.

In the case involving Lisa, the new mother, her maternity leave could result in

discrimination. Although pregnant employees are protected by law (see ‘‘Why Is It

an Ethical Problem?’’ which follows), in this case her time away from her job is

clearly being viewed as a liability. Of course, employers have the right to replace

workers who are on extended leave because of illness, disability, or other reasons

such as finishing an education. The problem in Lisa’s case is that her department

seems to be doing an end run around her by keeping her in the dark while her job is

filled. If Lisa knew what the department’s plans were, she might shorten her leave or

arrange a part-time working situation for a few months. But unless you, her col-

league, tell her what you have found out, the job she left won’t be the one she comes

back to. It seems unfair to keep Lisa in the dark.

Discrimination can be a subtle or not-so-subtle factor not only in working rela-

tionships but also in hiring, promotions, and layoff decisions. People who don’t fit a

‘‘corporate profile’’ may be passed over for advancement because they’re female, or

a member of a minority group, or too old, or for other reasons that may or may not be

covered in protectionist legislation. Surely there are many barriers in the workplace,

not just the glass ceiling that refers to barriers to female advancement. There proba-

bly are also barriers for people who are over 50 years old, or who have medical prob-

lems, or who are short, disabled, overweight, bearded, balding, or homosexual—any

quality that varies from the ‘‘norm.’’ And some employers create job requirements

that could automatically eliminate certain employees, not because of their qualifica-

tions, but because of personal circumstances.

HOW CAN WE THINK ABOUT THIS ISSUE We can use the various theories

described in Chapter 2 to analyze the situation. These theories can serve as various

‘‘lenses’’ that we can use in viewing a problem. None of these theories are likely to

116 SECTION II ETHICS AND THE INDIVIDUAL

give us the perfect answer, but they’ll help us think through the implications of an

issue so that we can make a good decision.

Suppose we look though the consequentialist lens? Who are the stakeholders,

and what are the harms and benefits to each? What could we do in this situation that

would benefit the most people? If we think about it in that way, we might conclude

that it’s better to say nothing to Lisa. We might imagine that more people would

benefit (at least in the short term) by Lisa’s manager filling her old job right away.

After all, Lisa’s being away could cause problems for her coworkers. However, a

longer-term perspective might cause us to ask how other women employees would

respond to Lisa’s seemingly unfair treatment. Their dissatisfaction could seriously

harm the company. So, what is the best decision for society overall?

Looking through a deonotological lens would cause us to ask whether we have a

duty or obligation to Lisa, our employer, or both. What values or principles are

involved in this case? Using the Golden Rule, think of how you would want Lisa or

your colleague to behave if the situation was reversed. Following Kant’s categorical

imperative, what kind of world would it be if employers routinely treated employees

in this way? And, using Rawls’s veil of ignorance, how would you make this decision

if you had no idea if Lisa was a man or a woman?

Finally, if we think about virtue ethics and our own character, we would consider

our intentions and motivations. We would also consider how professional human

resources managers would think about this decision. We would ask ourselves how

our decision would look to others if it were made public. What would our ethical role

model or harshest moral critic think? If you consider your own character and what

you value, what decision feels best? We might also consider some of the psychologi-

cal issues described in Chapter 3. Are we considering all of the consequences of tell-

ing Lisa, or not? What could happen to her and you if you tell, or if you don’t tell?

This situation could test what you as an individual really care about, which is

important if you’re going to lead an ethical life. It’s also a way to begin assessing your

own values and asking how you can act more consistently with those values, as we

suggested earlier in this chapter when discussing the Giving Voice to Values program.

If you decided that the right thing to do was to take action on Lisa’s behalf, how

might you go about it? Whom would you approach, and what would you say? Or,

would you consider providing Lisa with information so that she could act on her

own behalf?

WHY IS IT AN ETHICAL PROBLEM? Discrimination is an ethical issue—beyond

any legal protections—because it’s at the core of fairness in the workplace. While

concepts of fairness are incorporated in business law around the world, in the United

States fairness is considered to be an inalienable right. 5 The U.S. government has

attempted to ensure fairness and justice; the word trust is on every piece of currency,

and the Pledge of Allegiance declares ‘‘with liberty and justice for all.’’ In addition,

the entire U.S. legal system has justice and the protection of individual rights as its

cornerstone. Consequently, people expect fairness from organizations in general and

specifically from their employers.

CHAPTER 4 ADDRESSING INDIVIDUALS’ COMMON ETHICAL PROBLEMS 117

COSTS While laws and regulations governing fairness differ around the world, in

the United States victims of discrimination can file under Title VII of the Civil Rights

Act of 1964 with the Equal Employment Opportunity Commission (EEOC) or bring

suit under tort or contract law. This legislation specifically prohibits discrimination

based on race, religion, sex, color, and national origin. Groups specifically protected

by Title VII include women, African Americans, Hispanics, Native Americans, and

Asian Pacific Islanders. (Some states and local communities have added more protec-

tions, like sexual orientation and marital status, to that list.) The Pregnancy Discrimi-

nation Act of 1978 prohibits discrimination against pregnant women. The 1967 Age

Discrimination in Employment Act extends protection to people 40 years of age and

older. The 1973 Rehabilitation Act was the first federal legislation to protect disabled

Americans against discrimination by federal, state, and local governments, agencies,

and contractors. The Americans with Disabilities Act (ADA) of 1990 extended pro-

tection to the private sector by requiring all companies with more than 15 employees

to make reasonable accommodations to employ workers with disabilities. Although

the law doesn’t list conditions or diseases that are protected—since people react dif-

ferently to disease, some may be disabled and some may not be—some conditions

are specifically included or excluded. HIV infection, for example, is considered a

disability; people who have it are protected by the ADA law. Indications of how

costly bias suits can be for corporations are evident in several recent judgments: in

2005, UBS (Europe’s largest bank) was ordered to pay damages of $29 million to a

single plaintiff—a woman who complained of unequal treatment. 6 In other cases, a

judge awarded $70 million for gender discrimination to 2,800 female employees of

Morgan Stanley who were registered financial advisors, 7 and an arbitration panel in

New York ordered Merrill Lynch to pay more than $100 million to a group of women

who were found to have been discriminated against. 8

Discrimination lawsuits can be costly for employers not simply in terms of legal

fees and damages and media coverage. The morale of victims certainly suffers as

they endure discrimination lawsuits, but the morale of other employees can also

suffer. Imagine how the thousands of employees of Texaco must have felt when their

company was under siege for a discrimination lawsuit. It’s embarrassing for employ-

ees when the company they work for is publicly accused of wrongdoing.

If you’re an individual accused of discriminating against another employee,

the least you’ll endure is an investigation. If you’re found guilty, you’ll probably

be penalized or even fired. If you’re found innocent, you or your accuser will

most likely be counseled about your behavior and its effects, and one or both of you

may be transferred to another area. If you manage someone who has been accused of

discrimination, expect a lot of questions concerning why you were unaware of it or

tolerated it. If you were aware of it and didn’t do anything about it, be prepared for

disciplinary action, particularly if a lawsuit results.

SPECIAL NOTE The many programs that train employees to ‘‘value diversity’’ can

seem at odds with the efforts to assimilate various groups and especially with the

laws and policies that prohibit discrimination. Learning to appreciate differences flies

118 SECTION II ETHICS AND THE INDIVIDUAL

in the face of what many of us are taught from the time we’re children—that we

should ‘‘fit in.’’ Many of us are taught not only to downplay our own uniqueness in

an effort to blend in but also to ignore differences in other people. We usually are

taught ‘‘not to notice’’ different colors, religions, accents, ways of dressing, and

physical disabilities or abilities. Even sexual differences, which can be hard to

ignore, have been played down in the not-too-distant past.

Valuing diversity means treating people equally while incorporating their

diverse ideas. Discrimination means treating people unequally because they are, or

appear to be, different. Valuing diversity is a positive action, while discrimination is

a negative action. Valuing diversity tries to incorporate more fairness into the system,

while discrimination incorporates unfairness into the system. The key to valuing

diversity is understanding that different doesn’t mean deficient, and it doesn’t mean

less. Different means different.

Harassment, Sexual and Otherwise

As women began to enter the workforce in great numbers in the 1970s and 1980s, and

as social and business mores began to change, sexual harassment became an issue in

the workplace. Forty years later, it is still an issue and many companies have paid

huge fines in sexual harassment lawsuits. As a result, the EEOC now requires all

organizations with more than 15 employees to have a sexual harassment policy and

to train employees in these issues. Another result was a growing apprehension by

employees, especially men, toward workers of the opposite sex. Sometimes the line

between friendly and offensive is blurry.

One of your coworkers is Joanne, a computer whiz with an offbeat style and a

great sense of humor. Two of Joanne’s favorite ‘‘targets’’ are you and Bill,

another coworker who tends to be quite standoffish in his business relation-

ships. Joanne is the department clown and is forever goading you and Bill;

you, because you’re a great audience and clearly think she’s hilarious;

Bill, because she likes to try to get him to be more approachable. Joanne

frequently alludes to sexual subjects and has called both you and Bill ‘‘little

alley cats’’ and ‘‘studs.’’ While Joanne’s behavior doesn’t offend you at all,

you’re surprised when Bill approaches you in the men’s room and bitterly

complains about Joanne’s constant teasing.

WHAT IS IT? Sexual harassment is defined as unwelcome sexually oriented behav-

ior that makes someone feel uncomfortable at work. It usually involves behavior by

someone of higher status toward someone of lower status or power. Sexual harass-

ment claims are not limited to women either. The EEOC (www.eeoc.gov), reported

receiving 11,731 sexual harassment charges in 2008, and almost 16 percent of sexual

harassment claims were made by men.

Federal law has defined two types of sexual harassment: quid pro quo and hostile

work environment. Quid pro quo harassment means that sexual favors are a

CHAPTER 4 ADDRESSING INDIVIDUALS’ COMMON ETHICAL PROBLEMS 119

requirement—or appear to be a requirement—for advancement in the workplace.

Hostile work environment means that a worker has been made to feel uncomfortable

because of unwelcome actions or comments relating to sexuality. This type of sexual

harassment is especially murky because it is like beauty: it’s in the eye of the

beholder. What constitutes sexual harassment for one person may not be so for

another. Putting an arm around a person’s shoulder may feel like harassment to one

individual, and someone else may be comfortable with such a gesture. This type of

sexual harassment includes not only physical gestures but also remarks of a sexual

nature—even compliments—and displays of sexually provocative material, like

nude or revealing photographs, in an office.

In both types of sexual harassment, the decision about whether the behavior con-

stitutes harassment is determined from the viewpoint of a ‘‘reasonable’’ person, and

the harasser’s intentions aren’t considered. This is why sexual harassment issues can

be confusing. Since sexual harassment is determined by the reaction of the victim,

you have to consider not what you mean by your comments or actions, but how they

might be interpreted by the other person.

Most people will readily agree that patting a coworker on the rear end is sexual

harassment. But are you sexually harassing someone if you compliment her appear-

ance, or touch his arm, or make jokes of a sexual nature? In Joanne’s case, she hasn’t

done a very good job of considering exactly who her audience is and how each of her

two coworkers might react to her jokes. While you might think it’s funny to be called

a little stud, Joanne probably should think more carefully about how someone like

Bill might react to being called a name with sexual connotations. Is Joanne out of

line? Is Bill overreacting? According to the law, it doesn’t matter if you and Joanne

think Bill is overreacting. The yardstick for determining whether sexual harassment

occurred will be how uncomfortable a reasonable person would be with Joanne’s

comments, and not what Joanne intended with her remarks. How Bill felt will be

considered more than what Joanne intended.

HOW WE CAN THINK ABOUT THIS ISSUE Consider how a consequentialist might

think about this situation. Can you identify all of the stakeholders and the harms and

benefits to each? What are your options? What action on your part would benefit the

most people and harm the least, thus contributing the most to societal good? Now use

another lens: Do you have ethical duties or obligations here? What are those and to

whom? What ethical principles apply to this situation, and what rules would help you

decide what’s right? For example, if the situation was reversed and you were in either

Bill’s or Joanne’s shoes, how would you like them to help you?

You might think about the ‘‘reasonable person standard’’ as providing insight

into the relevant ethical community. How would a reasonable person assess the situa-

tion and determine the right thing to do? How would you feel if Bill spoke to a

reporter and this situation appeared in the local newspaper? If you do nothing in this

case, would you be chagrined to read about it in the newspaper? Could you proudly

describe your actions to your mother or your priest (or minister, rabbi, imam, etc.)

without embarrassment?

120 SECTION II ETHICS AND THE INDIVIDUAL

Think about your organization’s culture. What values does your organization

hold dear? Most companies pride themselves on being places where all employees

can feel respected. If you look at your company’s values statement, you’ll likely find

verbiage about respect. Given that value of respect, what would your manager and

others in positions of authority in your organization want you to do?

If you decide to act on your values, you have quite a few options. One option is

to nip this issue in the bud by helping Bill address it with Joanne. Perhaps Joanne is

unaware of the effect her comments are having on Bill. You could encourage Bill to

talk with her, explain his reaction, and request that she stop. You could role-play

Joanne to give Bill the opportunity to practice what he is going to say. What could

Bill say to Joanne, and how could he say it in a way that will likely achieve his

intended result and allow the parties to continue working together in the future? If

Bill is unwilling to do this, what other options do you have? You could report the

issue to the organization’s ethics help line, but would it be appropriate to do that

without Bill’s permission? Under what circumstances would you report something

that affected a coworker without that person’s permission?

WHY IS IT AN ETHICAL PROBLEM? Harassment (sexual or otherwise) is consid-

ered to be a form of discrimination. It is therefore an ethical issue because it unfairly

focuses job satisfaction, advancement, or retention on a factor other than the employ-

ee’s ability to do the job. Most instances of sexual harassment have nothing to do

with romance and everything to do with power and fairness.

COSTS Victims of sexual harassment can file under Title VII of the Civil Rights

Act of 1964 with the EEOC, or they can bring suit under tort or contract law. An

employer can be held liable for an employee’s sexual harassment activities if the

employer had knowledge of the conduct and did nothing to correct it. As a result,

most companies take a sexual harassment charge very seriously.

Responsible companies will launch an immediate investigation if someone is

accused of sexually harassing another employee. If this is a first-time event and

the incident that prompted it is not determined to be lewd or violent—think of the

scenario featuring Joanne, discussed earlier—the employee may be warned, disci-

plined, or transferred to another area. (However, in some major companies a first-

time offense is enough to get someone fired.) If the behavior is judged to be lewd

or forceful, or if there’s evidence that the employee has demonstrated a pattern of

behavior, the employee will most likely be fired—and often very quickly. (One

corporation was able to conduct an investigation, find evidence of a pattern, and

terminate the harasser in less than 48 hours.) If the accused is found innocent, or if

it’s determined that a misunderstanding exists between the two parties, the accused

and the accuser will probably be counseled by human resources professionals. If

necessary, one of the parties may be transferred to another area. The manager of a

sexual harasser can expect a lot of questions. If the manager was aware of harassment

and did nothing about it, he or she should be prepared for disciplinary action, particu-

larly if a lawsuit results.

CHAPTER 4 ADDRESSING INDIVIDUALS’ COMMON ETHICAL PROBLEMS 121

Nearly a third of the claims filed with the EEOC are sexual harassment claims.

And sexual harassment lawsuits are very expensive for corporations. Awards to vic-

tims have been substantial, as is the toll such charges can take on coworker’s morale

and on the firm’s ability to hire qualified candidates. For example, in June 1998,

Mitsubishi Motors’ North American division agreed to pay $34 million to settle its

sexual harassment case. The settlement was based on charges brought by 350 female

factory workers at an Illinois factory. The women alleged that coworkers and super-

visors kissed and fondled them, called them ‘‘whores’’ and ‘‘bitches,’’ posted sexual

graffiti and pornography, demanded sex, and retaliated if they refused. They also

complained that managers did nothing to stop the harassment. Besides paying the

fine, Mitsubishi fired 20 workers and disciplined others. The company also agreed

to provide mandatory sexual harassment training, revise its sexual harassment policy,

and investigate future sexual harassment allegations within three weeks of a

complaint. 9

A NOTE ABOUT OFFICE ROMANCE Flirtations and office romance are a part of

work life. After all, we spend most of our time at work, interacting with people

who share our interests, and we have an opportunity to really get to know them.

So why not engage in a consensual relationship with a coworker? Well, it’s true

that most office romances are benign, and quite a few of them either end quietly or

may even lead to happy marriages. But such relationships can also be dangerous;

in fact, these are the stories we end up hearing about. For example, if a relationship

ends badly, one party may accuse the other of sexual harassment or retaliation,

thus requiring the company to get involved after the fact. From an ethics perspec-

tive, it’s most important to avoid romance with anyone you supervise or who

supervises you because of the conflict of interest involved and the potential for

unfair treatment of other direct reports (most companies have antinepotism polic-

ies). The supervisor’s judgment is likely to be compromised by the relationship,

and others in the work group are likely to lose respect for both parties and be con-

cerned about preferential treatment. Honesty is another ethical issue that emerges.

Because you don’t know where the relationship is going, it’s tempting to keep it to

yourselves at first. Even if you’re discreet, word travels fast in work groups, and

others are likely to find out via the grapevine. It’s best to be honest and keep

your supervisor in the loop. If you work in the same department, the organization

may want to move one of you to avoid any negative repercussions. And finally,

remember—if you don’t think your behavior would look good on the front page,

it’s best not to engage in it. 10

CONFLICTS OF INTEREST

People and corporations are naturally involved in a tangle of relationships, both per-

sonal and professional. Your personal reputation and the reputation of your company

are inextricably tied to how well you handle relationships with other employees, cus-

tomers, consultants, vendors, family, and friends. Your ability to act impartially, and

122 SECTION II ETHICS AND THE INDIVIDUAL

look as if you are acting impartially, is key to your fulfilling your end of the

employer-employee contract.

Your daughter is applying to a prestigious university. Since admission to the

school is difficult, your daughter has planned the process carefully. She has

consistently achieved high marks, taken preparatory courses for entrance

exams, and participated in various extracurricular activities. When you tell

one of your best customers about her activities, he offers to write her a letter

of recommendation. He’s an alumnus of the school and is one of its most

active fund-raisers. Although he’s a customer, you also regularly play golf

together, and your families have socialized together on occasion.

What Is It?

A conflict of interest occurs when your judgment or objectivity is compromised. The

appearance of a conflict of interest—when a third party could think your judgment

has been compromised—is generally considered just as damaging as an actual

conflict.

A recent example of a conflict of interest likely contributed significantly to our

financial crisis. Rating agencies such as Standard & Poor’s rated the complex mort-

gage-backed securities we described in Chapter 1. A triple-A rating made investors

feel secure about buying these securities. As Americans learned the hard way, how-

ever, many of these securities were not deserving of anything near such a high rating.

Many factors contributed to the debacle (including the fact that rating agencies were

using old methods to rate these newfangled products). A major contributor was a

serious conflict of interest—the rating agencies are paid by the companies whose

securities they rate, thus making it difficult or impossible to assign truly objective

and unbiased ratings.

Another example might be of particular interest to college students. In 2007, the

University of Texas fired its director of financial aid when it learned that he had finan-

cial ties to particular student loan companies that he then touted to students and peers.

Students were not steered toward companies that provided the best loans or service, but

toward those that provided gifts (including stock) to the director of financial aid. 11

If a customer offers to do a favor for you—or your daughter or another family

member—here are some of the questions you’ll need to ask yourself: Would your

customer’s offer influence your business relationship? Would someone think your

business judgment had been compromised by accepting your customer’s offer? Is

your relationship more than just a business one, so that accepting an offer could be

interpreted as a simple act of friendship?

Some corporations have a policy that permits the acceptance of favors from cus-

tomers or vendors if there’s also a ‘‘friendship’’ present; and these companies usually

define friendship as a long-standing relationship that’s well known in the community.

For example, in small towns where everyone knows everyone else, many of a busi-

ness owner’s customers are also his or her friends; it’s unrealistic to expect anything

CHAPTER 4 ADDRESSING INDIVIDUALS’ COMMON ETHICAL PROBLEMS 123

else. Other organizations (including government agencies) would discourage accept-

ing a favor like this one under any circumstances. Here are some things to consider

when making your decision in this case: How long have you been friends with your

customer? How well known is the relationship in your community? What is his

knowledge of your daughter’s qualifications? Does your customer expect anything in

return for his recommendation, or is the letter simply a gesture of friendship with no

strings attached? How would others perceive his recommendation?

Almost every business situation can involve conflicts of interest. A conflict can

occur when a vendor lavishly entertains you or when you entertain a customer—if the

object is influence. Both situations could prompt an observer to think that a special

deal or advantageous terms are part of the relationship. Conflicts of interest can occur

when people who report to you observe that you have an especially close friendship

with one of their coworkers. Conflicts can occur when you’re asked to judge the

creditworthiness of your neighbor or if you perform consulting work for your

employer’s competitor. They can involve accepting handtooled cowboy boots from

an advertising agency, being sponsored for membership in an exclusive private club

by a consulting company, or allowing a supplier to give you a discount on equipment

for your home when you place an order for your office.

Common conflicts of interest include overt or covert bribes and the trading of

influence or privileged information.

OVERT BRIBES OR KICKBACKS Anything that could be considered a bribe or

kickback is a clear conflict of interest. It doesn’t matter whether the bribe or kickback

is in the form of money or something else of substantial value that is offered in

exchange for access to specific products, services, or influence.

SUBTLE ‘‘BRIBES’’ Bribes can be interpreted to include gifts and entertainment.

Some organizations have instituted policies that allow no gifts at all, even gifts of

nominal value. For example, we know of one teaching hospital that does not allow

its employees to accept even a notepad or pen from pharmaceutical company repre-

sentatives. They asked themselves, how will patients feel when we write a prescrip-

tion for a product with a pen from the manufacturer? Won’t the patient wonder if

we’re writing that prescription because it’s really needed or because we’ve accepted

such gifts? Many organizations have a policy that allows gifts of small value and

places a ceiling of $25 to $100 on the value of gifts employees can accept from, or

give to, customers or vendors. Reciprocity is one yardstick often used for determin-

ing whether a gift or entertainment is acceptable. If you can’t reciprocate with the

same kind of gift or entertainment being offered to you, it’s probably inappropriate

to accept it. For example, if a supplier offers you tickets to the Super Bowl, or a

weekend of golf, or dinner for four at a $200-per-person restaurant, it’s probably

inappropriate for you to accept under any circumstances. The emphasis on reci-

procity is to maintain a fair, even playing field for all suppliers, so that you (as a

purchaser) will be unbiased when making a decision about a supplier. As mentioned

earlier, both reciprocity and impartiality are elements of fairness.

124 SECTION II ETHICS AND THE INDIVIDUAL

Accepting discounts on personal items from a vendor will also be interpreted as a

conflict. The formula to use when determining whether to accept a discount is simple:

if it’s a formal arrangement between your company and a supplier and it’s offered to

all employees, it’s probably acceptable; if the discount is being extended only to you,

it’s generally not considered acceptable.

INFLUENCE Your relationship with someone in itself can constitute a conflict of

interest. For example, if you’re in charge of purchasing corporate advertising and

your cousin or neighbor or college friend owns an advertising agency, it will be con-

sidered a conflict if you make the decision to hire that firm. That doesn’t preclude the

firm from bidding, but it does preclude you from making the decision. If a decision

involves anyone you have a personal relationship with, you should recuse yourself

from the decision making. Another way to avoid the appearance of a conflict in a

situation like this one, which is charged with issues of partiality, is to arrange for a

‘‘blind’’ competition, where the identity of various bidders is known only by some-

one not involved in the decision-making process. However, since any decision made

by you in such a case will be suspect—even in blind evaluations—you should include

other employees in the decision-making process.

PRIVILEGED INFORMATION As an employee, you’re naturally privy to information

that would be valuable to your employer’s competitors. That’s why it’s generally con-

sidered a conflict of interest if you hold a full-time job for ABC Insurance Company

and decide to do some consulting work for XYZ Insurance Company. There are cer-

tainly exceptions to this rule of thumb. If you’re a computer programmer at Green’s

Restaurant, for example, it probably isn’t a conflict to wait on tables at Red’s Restau-

rant. Two factors could make such a situation acceptable: if the work you perform at

your second job doesn’t compromise the work you do at your first one, and if both

employers are aware of your activities. Transparency is the best policy.

In addition, it can appear as if you’re involved in a conflict if you and a close

relative or friend work for competitors, or if one of you works for an organization—

such as a media company—that might have a particular interest in your company’s

activities. For example, if you work as an investment banker for Goldman Sachs and

your sister holds the same position at Morgan Stanley, you both should alert your

managers to the situation. These are potential problems that can be defused when

your manager knows about the relationship. Full disclosure removes substantial risk.

How We Can Think about This Issue

The prescriptive ethical decision-making lenses can be helpful when considering

conflicts of interest. For example, using a consequentialist approach encourages us

to think about what would benefit the most people. Suppose that your brother owns

an advertising agency, and you have to place ads as part of your job at another firm.

Will hiring your brother benefit anyone other than your brother? Might it not harm

your organization’s reputation if others learn about the relationship? Using the

CHAPTER 4 ADDRESSING INDIVIDUALS’ COMMON ETHICAL PROBLEMS 125

deontological approach raises other issues. It’s probably most relevant to consider

what’s fair. What decision would place all bidders on a level playing field? What

could you do that would make the bidding absolutely fair and unbiased? Isn’t that the

kind of world you would most like to live in? In fact, the veil of ignorance would ask

you to act as if you didn’t know that the person leading the advertising agency was

your brother. What if you were the CEO of a competing advertising firm? Wouldn’t

you want a shot at the business? Think about looking at this issue through the lens of

virtue ethics. What could you do that you wouldn’t mind reading about in your local

newspaper? You probably would want to read about your impartiality as a purchaser

and as a representative of your company. You would not want to read that the con-

tracts you enter into are rigged to benefit your family and friends.

This is also a good place to think about how you might handle these issues and to

discuss your ideas out loud and with others. You will absolutely experience some of

these conflicts—everyone does—and just as ‘‘rehearsals’’ helped the World War II

rescuers, thinking about these situations in advance could greatly help you when the

time comes—as it surely will. Imagine that your brother’s company is experiencing

rough times, and he tells you that he expects you to help. Once you have decided that

it is unethical to do so, what will you say to him to explain your decision? Do you

think you can do it in a way that will preserve your relationship? Here is where com-

pany policy can actually help employees a great deal. If you work for a company with

a clear policy regarding conflict of interest, you could point to that and explain to

your brother that you’re obligated to abide by the policy and remove yourself from

the decision making.

Why Is It an Ethical Problem?

The basis of every personal and corporate relationship is trust, and it exists only when

individuals and corporations feel they’re being treated fairly, openly, and on the same

terms as everyone else. Conflicts of interest erode trust by making it look as if special

favors will be extended for special friends; that attitude can enhance one relationship,

but at the expense of all others.

Costs

Depending on the offense, myriad federal and state laws cover conflicts of interest.

Certain professions, such as banking, accounting, law, religion, and medicine, have

special obligations—often spelled out in professional codes of ethics—commonly

referred to as fiduciary responsibilities. These professions are widely known as the trust

professions, meaning that these practitioners have been entrusted with sensitive, confi-

dential information about their clients. Fiduciary responsibilities concern the obligations

resulting from relationships that have their basis in faith, trust, and confidence. After the

financial debacle of 2008, much attention is being paid to fiduciary responsibilities. A

recent survey of private banks and wealth management companies by the accounting

firm PricewaterhouseCoopers (PWC) indicated that the ‘‘economic crisis has presented

126 SECTION II ETHICS AND THE INDIVIDUAL

client relationship managers with challenges that they have neither the experience nor

the skills to deal with.’’ In the survey, only 7 percent of the relationship managers felt

they had enough training to meet the highest standards expected of them. The PWC

survey noted that the old model for managers, which focused on sales, was being

replaced by a model that focuses on fiduciary responsibilities. 12

If you’re suspected of a conflict of interest, the least you can expect is an investi-

gation by your company. If it determines that your behavior demonstrates a conflict

or the appearance of a conflict, you may be warned, disciplined, or even fired depend-

ing on the nature of your behavior. If you’ve accepted a bribe or kickback, you could

face termination and even arrest. Being involved in a conflict of interest means that

your judgment has been compromised, and this can severely damage your profes-

sional reputation. Consider that in 2006, the Jeffries Group was fined $5.5 million by

the National Association of Securities Dealers (NASD) for conflicts of interest con-

cerning Fidelity Investments. A Jeffries trader with a $1.5 million expense account

lavished gifts and entertainment on Fidelity traders, including trips to Las Vegas and

Palm Beach, cases of wine, and custom golf clubs. Throwing money at Fidelity

apparently worked: Jeffries ranked 50th in 2002 in brokerage commissions received

from Fidelity. By 2005, Jeffries had moved up to 15th place. As a result of this activ-

ity, the Jeffries broker was fired, the firm and the industry were investigated, the firm

was fined, and the practice has received reams of negative press. 13

CUSTOMER CONFIDENCE ISSUES

We’ve all heard the saying, ‘‘The customer is always right,’’ and companies like L.L.

Bean and Sears have benefited by weaving that slogan into the fabric of their corporate

cultures. But excellent customer service is more than being able to return a defective

refrigerator or having cheerful customer service representatives (although that helps).

Excellent customer service also means providing a quality product or service at a fair

price, honestly representing the product or service, and protecting the customer’s privacy.

What Is It?

Customer confidence issues include a range of topics such as confidentiality, product

safety and effectiveness, truth in advertising, and special fiduciary responsibilities.

You work for a consulting company in Atlanta. Your team has recently com-

pleted an analysis of Big Co., including sales projections for the next five years.

You’re working late one night when you receive a call from an executive vice

president at Big Co. in Los Angeles, who asks you to immediately fax to her a

summary of your team’s report. When you locate the report, you discover that

your team leader has stamped ‘‘For internal use only’’ on the report cover.

Your team leader is on a hiking vacation, and you know it would be impossible

to locate him. Big Co. has a long-standing relationship with your company and

has paid substantial fees for your company’s services.

CHAPTER 4 ADDRESSING INDIVIDUALS’ COMMON ETHICAL PROBLEMS 127

CONFIDENTIALITY Privacy is a basic customer right. Privacy and the obligation to

keep customer information in confidence often go beyond protecting sales projec-

tions or financial information. It can also mean keeping in strict confidence informa-

tion concerning acquisitions, mergers, relocations, layoffs, or an executive’s health or

marital problems. In some industries, confidentiality is so important an issue that

companies prohibit their employees from publicly acknowledging a customer rela-

tionship. In the financial services industry, for example, it’s common practice to

refuse to divulge that XYZ Company is even a customer.

In the case involving Big Co., an executive is demanding access to a confiden-

tial report. First, are you absolutely certain that the caller is indeed a Big Co. exec-

utive? Competitive intelligence work often involves deceptively impersonating a

client or someone else. If you have conclusively verified her identity, do you know

whether she has clearance from Big Co. to examine your team’s report? If she

does have clearance, is your team’s report in a format that your company wants

to share with Big Co., or does it need revision? Think about what you read in

Chapter 2—how would you feel if your actions in this case were reported on the

front page of your local newspaper? Do you think readers would be critical of

what you plan to do? What would they say? Whenever you see ‘‘For internal use

only,’’ that’s what it means, and it can be enormously risky to release the report to

anyone—including the customer—without permission from someone within your

company who has responsibility for that client. In a case like this one, you should

track down someone who’s in a position of authority in your company—your man-

ager’s manager, perhaps—before you override the warning on the report and

release any information.

On occasion, third parties may ask for customer information. For example, a

reporter or a client may ask you about customer trends. It’s never acceptable to dis-

cuss specific companies or individuals with a third party or provide any information

that might enable a third party to identify a specific customer. If you want to provide

information, you can offer aggregate data from a number of companies, as long as the

data doesn’t allow any one customer to be identified.

You’re the head of marketing for a small pharmaceutical company that has

just discovered a very promising drug for the treatment of Alzheimer’s dis-

ease. You have spent months designing a marketing campaign that contains

printed materials and medication sample kits for distribution to almost every

family physician and gerontologist in the country. As the materials are being

loaded into cartons for delivery to your company’s representatives, your

assistant tells you that she has noticed a typographical error in the literature

that could mislead physicians and their patients. In the section that discusses

side effects, diarrhea and gastrointestinal problems are listed as having a

probability of 2 percent. It should have read 20 percent. This error appears

on virtually every piece of the literature and kits, and ads containing the

mistake are already on press in several consumer magazines.

128 SECTION II ETHICS AND THE INDIVIDUAL

PERSONAL RESPONSIBILITY Another basic customer right involves our taking

personal honesty and responsibility for the products and services that we offer.

There’s probably no issue that will more seriously affect our reputation than a failure

of responsibility. Many ethical disasters have started out as small problems that

mushroomed. Especially in service businesses, where the ‘‘products’’ are delivered

by individuals to other individuals, personal responsibility is a critical issue.

In the case concerning the typographical error about a new drug’s side effects,

the head of marketing faces a nasty dilemma. If she reproduces all of the printed

material, it could be at a very great cost to this small company, and it may result in a

significant delay in getting the drug to physicians. However, since many elderly peo-

ple are prone to gastrointestinal upsets and can become very ill and even die as a

result, this typo is a significant one. The material cannot go out as is. Certainly the

ideal solution would be to redo all of the marketing materials. However, if time and

financial considerations prohibit that, there are other solutions. One solution might be

to quickly produce a ‘‘correction’’ to be inserted into every kit. Also, a letter could be

distributed to every physician to explain the correction as well as emphasize your

company’s commitment to quality and full disclosure. This solution will still be

costly, but not nearly as costly as doing nothing and letting the kits go out with an

error. What do you suppose would be the cost of even one wrongful death lawsuit?

How about a class action? How about the accompanying publicity?

TELLING THE TRUTH Many salespeople simply exaggerate their product’s (or

service’s) benefits to consumers. Do fast sports cars automatically turn every young

man into a James Dean? Will investing in a certain bond ensure you a safe retire-

ment? Hype is generally a part of most sales pitches, and most consumers expect a

certain amount of hype. In other cases, however, fudging the truth about a product is

more than just hype—it’s unfair.

Imagine that your financial firm is offering a new issue—a corporate bond with

an expected yield of 7 to 7.5 percent. In the past, offerings like this one have gener-

ally been good investments for clients, and you have sold the issue to dozens of large

and small clients. You’re leaving on a two-week vacation and have only a few hours

left in the office when your firm announces that the yield for the bond has been

reduced; the high end will now be no more than 7 percent. The last day of the issue

will be next week, while you’re away on vacation. What should you do?

The fact is that your customers have been misled (albeit unintentionally) about the

yield on that particular bond, and now you are under an obligation to tell the truth about

the instrument before the issue closes. Why? Because another basic consumer right is to

be told the truth about the products and services purchased. Failure to tell the truth about

a product can be devastating for an organization, and it also can cause big problems for

the company employees who are involved in perpetuating the false information.

SPECIAL FIDUCIARY RESPONSIBILITIES As discussed earlier in this chapter,

certain professions, such as banking, accounting, law, religion, and medicine, have

special obligations to customers. These obligations are commonly referred to as

CHAPTER 4 ADDRESSING INDIVIDUALS’ COMMON ETHICAL PROBLEMS 129

fiduciary responsibilities. The law and the judicial system have recognized these spe-

cial obligations, and they are spelled out in the codes of ethics for those professions.

Fiduciary responsibilities hold these professionals to a high standard, and when they

violate those responsibilities, the punishment is often harsh. For example, some

employees of Arthur Andersen’s Houston office failed Enron shareholders when they

allowed the high-risk accounting practices used by Enron to continue. Although

David Duncan, leader of the Andersen auditing team at Enron, warned the Enron

board of directors in 1999 that the firm’s accounting practices were ‘‘high risk,’’ he

apparently did not take the extra steps that would have been required to get the board

to take action (in fact, the board did nothing in response to his warning). 14

For exam-

ple, Duncan could have threatened to withdraw Andersen’s services or to turn the

company in. At the time this would have looked risky because Enron might simply

have fired the auditors, and Andersen would have lost a huge client. But in hindsight,

exercising appropriate fiduciary responsibility could have saved two companies,

thousands of jobs, and a huge amount of shareholder wealth. Al Bows, an accountant

who helped open the Arthur Andersen office in Atlanta in 1941, said that the founder

of his old company, the original Arthur Andersen, would be ‘‘disgusted with what

these guys did to his company.’’ Bows went on to tell a story about a big juice com-

pany in Atlanta. He discovered that ‘‘the CEO was starting another juice company on

the side to profit for himself. I told him he’d better cut it out or I’d turn him in. He

stopped. But he was mad.’’ 15 Of course, Bows is describing the fiduciary responsibil-

ities of accountants—one of which is to ensure the financial integrity of publicly

traded companies. When Arthur Andersen employees breached their fiduciary

responsibilities in 2001, they contributed to the collapse of a major company.

Here’s another case:

For 12 years, you’ve been the financial advisor for an elderly man in his late

70s who is an active investor of his own portfolio and for a trust that will benefit

his two children. In the last few months, you’ve noticed a subtle, yet marked

change in his behavior. He has become increasingly forgetful, has become un-

characteristically argumentative, and seems to have difficulty understanding

some very basic aspects of his transactions. He has asked you to invest a sizable

portion of his portfolio and the trust in what you consider to be a very risky

bond offering. You are frank about your misgivings. He blasts you and says

that if you don’t buy the bonds, he’ll take his business elsewhere.

If you work for a large electronics chain, it’s not your responsibility to assess the

mental stability of a customer who’s purchasing a new television. You’re selling;

he’s buying. However, individuals in fiduciary professions have a responsibility to

protect their customer’s assets—and that entails ‘‘knowing’’ their customers; fre-

quently, that can mean assessing behavior and saving customers from themselves. In

this case, if a customer wants to make a risky investment against your advice, there’s

little you can do but wish him or her well. Who knows? You might be wrong, and the

customer might make a fortune. However, if a financial professional sees clear signs

130 SECTION II ETHICS AND THE INDIVIDUAL

of incompetence in a longtime customer who’s suddenly interested in making a risky

bet, he or she is under some obligation to seek help. The case involving the mental

stability of a longtime customer is one of the most common dilemmas encountered

by financial advisors. As his advisor, you could try again to dissuade the client from

making the investment, or you could involve the firm’s senior management in negoti-

ations with the client. You could contact a member of the client’s family—one of the

children perhaps—and explain your reservations. You could also possibly contact the

client’s lawyer or accountant, who also would be bound by confidentiality constraints

because of the fiduciary nature of their professions. However, most financial execu-

tives will agree that something must be done to help this long-time customer.

How We Can Think about This Issue

It’s hard to imagine that any of us would find encouragement to ignore product safety

or fiduciary responsibilities in any of the ethical theories. Producing safe products

clearly benefits the most and harms the fewest. Customer confidence is rooted in

trust. Trust is very much built slowly, over time, experience by experience. We can’t

trust something that we don’t know or that we lack confidence in. Again, this is an

area where you will no doubt experience difficulties and conflicts as you go out into

the business world. It’s another great area to discuss out loud and ahead of time—to

practice making your decisions now, and voicing your arguments aloud, as a way

to prepare for challenges you may face in the future.

Why Is It an Ethical Problem?

We use the term customer confidence issues as an umbrella to address the wide range

of topics that can affect your relationship with your customer. These are ethical

issues because they revolve around fairness, honesty, responsibility, truth, and

respect for others. Customer relationships can’t survive without those basics of trust.

Costs

On the organizational level, there are severe penalties for being dishonest in advertis-

ing or for misleading the public about the effectiveness or safety of a product or

service. While individual failures in the area of trust usually don’t warrant a lot of

publicity (although sometimes they do—think about Bernie Madoff), nothing can

destroy an individual’s reputation as much as dishonesty. When you’re a student

who hasn’t entered the workforce yet, it’s difficult to imagine that the world of work

is small, but it is. In some industries—like banking and biotech—it’s a very small

world indeed, and your reputation will follow you around like your shadow. Anyone

who has been in business for even a few years can regale you with stories of col-

leagues who are as ‘‘honest as the day is long’’ or, conversely, ‘‘can’t be trusted as

far as you can throw them.’’ Your reputation is built slowly with countless gestures,

actions, and conversations over time, but it can be destroyed in an instant by one

CHAPTER 4 ADDRESSING INDIVIDUALS’ COMMON ETHICAL PROBLEMS 131

foolish mistake. You need to safeguard your reputation carefully—it is without ques-

tion the most valuable thing you have in business.

USE OF CORPORATE RESOURCES

As discussed in the introduction, you and your employer have a special relationship,

and each owes the other a modicum of loyalty based on that relationship. In addition,

since you’re a corporate representative, you’re considered an ‘‘agent’’ of your com-

pany. This means that your actions can be considered as the actions of the corpora-

tion. This section of the chapter presents the flip side of the above section on human

resources issues—your employer’s responsibilities to you are described in that

section, and your responsibilities to your employer are described here.

What Is It?

The use of corporate resources involves your fulfilling your end of the employer-

employee ‘‘contract.’’ It means being truthful with your employer and management and

being responsible in the use of corporate resources, including its finances and reputation.

A young woman who works for you is moving with her husband to another

city, where she’ll be looking for a new job. She’s an excellent worker and

when she asks you for a reference, you’re glad to do it for her. She specifi-

cally asks for a written recommendation on your corporate letterhead.

USE OF CORPORATE REPUTATION Whenever you identify yourself as an

employee of your company, people can infer that you are speaking on behalf of it,

which is why you have to be careful how you link yourself to your company. For exam-

ple, if you use corporate letterhead to write a recommendation for someone or simply

to complain to the telephone company, it can be construed as a ‘‘corporate’’ position.

Consequently, corporate letterhead should be used only for corporate business. If, as in

the case of the recommendation, you need to identify yourself as an employee, use your

personal stationery and attach your business card. The objective is to differentiate

between your personal opinions and any official stance of your organization.

Recommendations, in particular, present a challenge for employers and individ-

uals. Many companies attempt to check with former employers when hiring some-

one. This can present a problem since most companies prohibit their personnel from

officially supplying this type of information because of lawsuits that have resulted

from employer-supplied recommendations. Today, some social networking sites

allow people to write posts about others in their professional network. But be careful,

especially if writing about someone you supervise. What if your flattering post online

differs from the more critical performance evaluation that’s on file, and what if the

employee is subsequently let go? The person’s lawyer could use the post in an unjust

termination lawsuit. (To protect themselves, many employers supply only the follow-

ing information concerning former employees: name, date of employment, and job

132 SECTION II ETHICS AND THE INDIVIDUAL

title. Most employers also require the former employee’s written consent before they

supply any salary information to a third party. That raises another ethical issue: If one

can’t get good, honest recommendation information about prospective employees

from their former employers and supervisors, poor employees can just be passed off

to other unsuspecting organizations. Is that right?)

Similarly, if you’re asked to make a speech, write an article, serve on the board

of a nonprofit organization, or participate in any activity that would identify you (and

your personal opinions) with your company, be sure to get permission from your

manager, the legal department, or human resources. You may unwittingly be support-

ing a position or organization your company may not wish to be associated with. For

example, while it might seem like a great idea for you to serve on the board of your

local Society for the Prevention of Cruelty to Animals (SPCA), if you work for a

pharmaceutical company that tests drugs on animals, you may be placing your

employer in an embarrassing position. Of course, you can serve on the board as a

private citizen, but not as an employee of XYZ Drug Company unless you’ve re-

ceived corporate authorization. Social networking, blogging, and twittering are all

adding complexity to such issues, and more and more organizations are developing

policies to guide appropriate employee conduct in these new arenas.

You joined one of the country’s largest retail chains, and already you’ve been

promoted to department manager in one of your employer’s largest stores in an

upscale shopping mall. Imagine your surprise when you log on to Facebook and

see that one of your ‘‘friends’’—a young woman who heads one of the other

departments in your store—has posted confidential store sales on her wall and

has also posted sexual comments about a young man who reports to her.

Social networking sites and other social media present new and thorny problems.

What happens when an employee posts confidential company information on a pubic

site? Is it okay to post sexual comments about a coworker or your boss on a public

site? This kind of behavior can reflect poorly on an employer as well as make the

author of such comments look like an idiot or worse. The scariest part of this scenario

is that items posted on the Internet last forever. You can’t just ‘‘erase’’ them and

ensure that they’re really obliterated forever. Organizations take this behavior very

seriously. One recent college graduate hired into a plum job by a national retailer

was fired for posting inappropriate content about his employer on his Facebook wall.

Here’s another thorny case:

You’re an employment counselor at a large outplacement firm. Your com-

pany is currently negotiating with Black Company to provide outplacement

services to 500 employees who are about to lose their jobs as the result of a

layoff. Your neighbor and good friend is a reporter for the local newspaper,

who mentions to you over coffee one Saturday that she’s writing a story

about Black Company. According to her sources, 1,500 employees are about

to lose their jobs. You know her numbers are incorrect. Should you tell her?

CHAPTER 4 ADDRESSING INDIVIDUALS’ COMMON ETHICAL PROBLEMS 133

Dealing with the press—even when the reporter is a friend or relative—is a

tricky business that shouldn’t be attempted by a novice. In a case like the one above,

where you may think your friendly reporter might have incorrect numbers, silence is

truly the best policy. Her numbers may in fact be correct, and your numbers may

represent only the employees who are eligible for outplacement services, not the total

number who are losing their jobs.

Another issue that can be confusing to businesspeople is what ‘‘off the record’’

means. For the most part, off the record means that a reporter won’t quote you

directly or attribute any remarks to you. You can’t, however, tell a reporter that your

remarks are off the record after the fact. The way to tell a reporter that remarks are off

the record is to inform him or her before offering your information. But the very best

way to make sure something is off the record is to keep your mouth shut in the first

place. Reporters with the best of intentions can very innocently get their sources into

trouble by providing information that only the source would know, thereby identify-

ing the source.

If you are contacted by the press, immediately alert your company’s public rela-

tions department. Unless you’re trained to answer press inquiries and receive authori-

zation to do it, you should not comment to the press. It’s easy to innocently supply

confidential information or cast a negative light on your company when you’re

untrained to deal with probing or ambiguous questions posed by a skilled journalist.

You’ve been working very long hours on a special project for the chairman of

your company. Your company policy states that employees who work more

than 12 hours in one day may be driven home by a company car at company

expense. Policy also states that employees who work longer than two hours

past the regular end of their day can have a meal delivered to the office at

company expense. You and your colleagues who are also working on the

project are arriving at the office at 8:00 a.m. and order dinner at 7:00 p.m.;

then you enjoy dinner and conversation for an hour and are driven home by

company cars. Is this okay?

CORPORATE FINANCIAL RESOURCES In a game entitled ‘‘Where Do You Draw

the Line: An Ethics Game,’’ produced by Simile II, players explore the differences

between taking $10 worth of pencils from their company and distributing them to

poor children, making $10 worth of personal long-distance calls at work, and taking

$10 from their company’s petty cash drawer. Do you think these scenarios are differ-

ent, or pretty much the same thing? Most people eventually conclude that all of them,

regardless of the employee’s intentions, involve stealing $10 worth of corporate

resources. The bottom line is that corporate equipment and services should be used

only for company business. Whether it involves making personal phone calls,

padding expense reports, appropriating office supplies, sending personal mail

through the company mail room, or using copy equipment to print a flyer for your

scout troop, personal or inappropriate use of corporate resources is unethical and

violates most corporate policy.

134 SECTION II ETHICS AND THE INDIVIDUAL

In a case like the one above, where you and colleagues are working long hours to

complete a special project for the company’s chairman, you are following corporate

policy to the letter; so your actions are probably acceptable to most organizations.

However, if you and your coworkers are stretching out the last hour of dinner so that

you can take a company car home, you’re getting into ethical hot water. Are you also

stretching out the work in order to have a free meal? If you would have no problem

explaining your actions to the chairman, or if you wouldn’t mind if he or she sat in on

one of those dinner hours, then the meals and the cars are perfectly acceptable. The

important thing is to treat your company’s resources with as much care as you would

your own.

Your manager is being transferred to another division of the company in

early January. He calls a meeting in early November and asks that every

department head delay processing all invoices until after January 1. He wants

to keep expenses low and revenues high so that his last quarter in your area

shows maximum revenue.

PROVIDING HONEST INFORMATION Another key issue concerns truth. We dis-

cussed truth with customers earlier in this chapter, but now we’re talking about tell-

ing the truth within your organization and providing honest information to others

within your company. Although everyone will agree that telling the truth is impor-

tant, someday you may have a manager who says something like, ‘‘These numbers

look too negative—let’s readjust them so it looks better to senior management. We’ll

make up the difference in the next quarter.’’ Many managers feel it necessary to put a

positive spin on financial reports before submitting them up through the ranks. As a

result, some companies have suffered serious financial penalties because their num-

bers have been positively spun on so many succeeding levels, they bear no resem-

blance to reality by the time they reach the top. ‘‘Fudging’’ numbers can have serious

consequences since senior management may make crucial decisions based on flawed

data. (Corporations are fined by regulators if inaccurate financial information is sub-

mitted to regulators or incorporated into formal financial statements.) If you’re asked

to skew any kind of corporate information, you should consult with someone outside

your chain of command—such as the legal, human resources, or audit department—

and then decide whether it’s time to move on. Serious corporate scandals, sometimes

leading to jail terms for those involved, often begin with these ‘‘one-time’’ requests.

Once you’re involved, it’s almost impossible to extricate yourself from an almost

inevitable downward spiral. Ask employees at HealthSouth and WorldCom; some of

them spent years in prison for going along with such requests.

In the case about a manager wishing to delay paying expenses until after he leaves

the area, think about it from a consequentialist perspective. Such creative bookkeeping

harms not only the person who is taking his place in January, but also the suppliers

who are relying on prompt payment of their invoices. It’s grossly unfair to ask suppliers

to wait almost 60 extra days before getting paid. One solution might be to approach the

other department heads and gain their cooperation in refusing to follow your manager’s

CHAPTER 4 ADDRESSING INDIVIDUALS’ COMMON ETHICAL PROBLEMS 135

request. Another course of action would be to relate the incident to the audit depart-

ment, which would surely be interested in your manager’s shenanigans.

How We Can Think about This Issue

Once again, using the various theoretical approaches can be extremely helpful.

Thinking broadly about potential harms and benefits for all stakeholders will inevita-

bly lead you to be honest in your dealings. From a deontological perspective, most of

us put honesty and integrity at or near the top of our values lists. We would certainly

want to be treated that way if the tables were reversed. And that’s certainly the ethical

standard we would want to guide our world.

Even more important, however, may be thinking about how to live your values in

this particular area. If you seriously consider who you are and what you want to be

known for, your decision making in this area will be much easier. For example, if you

want to be known as a straight shooter who can be trusted at high levels and with

delicate customer accounts, would you ever consider misusing corporate resources or

fudging the numbers? What would that say about you, and how would it affect your

reputation? It would undermine everything else you were trying to do in your profes-

sional life. In this arena, doing the right thing often requires standing up for your

values—especially standing up to those at higher levels who might be requesting or

even demanding that you go along. In such cases, you’ll need to summon up courage

to stand up for what you believe. You have a better chance of doing that if you prac-

tice what you’re going to say. Find a coworker who agrees with you and practice.

You may be surprised to find that once you get clear about your ethical stance and

can express it in a clear and nonaccusatory way, you won’t get such a request again.

If you fear for your job because you won’t go along, that’s the time to polish your

r!esum!e and begin looking elsewhere.

Why Is It an Ethical Problem?

Your use of corporate resources is an ethical issue because it represents fulfilling

your end of the employer-employee contract. Its roots are in fairness and honesty.

Costs

Obviously, if you’ve stolen corporate assets or filed an inflated expense report, you’ll

almost certainly be fired—and you may be arrested. If you have divulged confidential

information to another corporation (as in supplying a recommendation for a former

employee), your company may be placed at risk for a lawsuit. If you’ve posted derog-

atory remarks about your boss, coworkers, or company on a social networking site,

you may short-circuit your career and cause people around you to mistrust you.

If you fail to uphold your end of the employer-employee loyalty contract, your

career at your company can be damaged. Ethical corporate cultures place tremendous

importance on honesty, loyalty, and teamwork. Generally, successful corporations

136 SECTION II ETHICS AND THE INDIVIDUAL

are communities where a sense of family has been encouraged. Just as family mem-

bers try to protect one another and keep family information private, the company

community tries to encourage the same behavior. Individuals who violate the corpo-

rate ‘‘family’’ trust by squandering resources, being dishonest, or misusing the family

reputation are frequently isolated or fired.

WHEN ALL ELSE FAILS: BLOWING THE WHISTLE

A section on ethics and the individual wouldn’t be complete without a discussion of

what happens when you suspect serious wrongdoing within your organization If your

observations are serious and keeping you awake at night, you may have to report the

problem—blow the whistle—and you need to proceed with great caution. This also is

why understanding what you value and practicing living your values is so important.

If you haven’t practiced living your values by the time you get embroiled in a sticky

dilemma at work, the situation will be much more difficult for you to handle. With

practice (and a bit of luck), you may have been able to stop the problem from devel-

oping into a serious one. We hope so. But occasionally you will find yourself with

knowledge about serious wrongdoing, and blowing the whistle (either internally or

externally) may seem like your only option.

In these really tough situations, voicing your values at work takes significant

courage because of the increased risks involved. Kathleen Reardon encourages us to

think about courage at work as ‘‘calculated risk taking.’’ 16

She recommends that you

do the following:

1. Ask yourself how strongly you feel about the particular issue. When people

are asked, ‘‘where do you draw the ethical line?’’ the most important issues

are clearly over the line either because acting in a certain way or not acting

at all is likely to cause great harm or breach our most cherished values.

According to Reardon, these are ‘‘spear in the sand’’ issues that compel

action. So, ask yourself which kind of issue you’re facing.

2. Ask yourself about your intentions. Are you just advancing a personal

agenda, or do your goals serve the greater good? If you see a coworker being

treated unfairly by an abusive supervisor, what should you do? For example,

will rescuing your coworker by reporting the abusive supervisor serve the

greater good?

3. Consider power and influence. As we noted above, unless you’re the CEO,

you’re rarely in a position to make a decision for the organization. If you

feel strongly about something, you’re likely going to have to convince

others. So think about how your social network might help convince your

manager or organization to do the right thing. This usually isn’t about

following the organization chart. Rather, it’s about knowing where the

power rests and developing good, trusting relationships with those people.

But you can’t do this at the last minute. Trusting relationships are developed

CHAPTER 4 ADDRESSING INDIVIDUALS’ COMMON ETHICAL PROBLEMS 137

over time. If you have developed these, you should be able to address the

issue before it becomes a whistle-blowing possibility.

4. Weigh the risks and benefits of action. This isn’t quite the same as the conse-

quentialist analysis of harms and benefits to multiple stakeholders (discussed

in Chapter 2). That analysis is more wide-ranging and focuses on societal

good. Here, you’re looking more pragmatically at the people involved, at

whether reputations or standing in the organization (yours or others’) will be

tarnished by taking action. Perhaps you can reduce the risks and increase the

potential benefits by finding a creative way to address the issue. For example,

can you report an incident anonymously rather than confronting someone

directly? Can you offer apologies for something you have done in the past, in

hopes that the person at fault in this situation is inspired to do the same?

5. Think about timing. If the issue isn’t urgent, and especially if it isn’t a spear-

in-the-sand issue, ask yourself whether you can put off action a bit to better

prepare and to ensure that you’ve reflected on the risks and what you’re con-

sidering doing. Have you given yourself the opportunity to practice what

you would say in a meeting with your boss, for example?

6. Develop alternatives. In dicey situations, it’s extremely helpful to have alter-

natives in mind. What will you do if you don’t get your desired outcome?

Do you have an alternative in mind? For a spear-in-the-sand issue, are you

willing to either lose your job or leave it, if it comes to that?

Once you decide to blow the whistle, you need to think carefully about how to go

about it. How not to blow the whistle might be best illustrated by a case that involves

a high-level investment banker who discovered that some of his colleagues were

engaged in unethical dealings with several customers. The investment banker

brought the situation to the attention of his manager, who told him to forget it. Deter-

mined to raise the issue, the banker wrote an irate memo to his company’s CEO

outlining the situation and naming names. The banker copied the memo to several

other top managers. Even though there were only three levels of management

between the banker and the CEO, and even though the banker was right about his

colleagues and they were eventually fired, the banker was also fired.

In another large, multinational company, a young trainee in an Asian country felt

he was being treated unfairly by his local management. In a fit of anger, he wrote a

long message outlining his grievances on his company’s e-mail system (today, he

might have posted something on his blog or sent a Twitter message about his situa-

tion). Although he addressed his message to the company CEO, president, and head of

human resources (all three senior managers were based in New York), he copied

everyone else on the system—approximately 30,000 managers worldwide. The trainee

was fired not because of the message, but because of how he communicated it. The

head of human resources commented, ‘‘He was being groomed for management, and

we couldn’t have someone with such poor judgment in that role. If he had complained

only to senior management, he would have been heard, he would have been protected,

138 SECTION II ETHICS AND THE INDIVIDUAL

and we would have corrected the situation. After copying the world with his complaint,

we felt he was a loose cannon and we had no choice but to get him out.’’

Unless you want to be branded as someone with poor judgment, you have to be

very careful about how you raise ethical concerns. Usually, the CEO is one of your

last resorts, to be approached only after you’ve exhausted every other internal

resource. There are exceptions to this guideline. A notable exception occurred at

PPG Industries, where former CEO Vince Sarni asked and encouraged employees

to contact him directly with issues. A hotline for that purpose sat on his desk, and he

personally answered that phone. Warren Buffett, the CEO of Berkshire Hathaway,

also used the ‘‘call me’’ approach when he served as a director of Salomon Brothers

back in 1991. As the company became embroiled in a bid-rigging scandal (see

Chapter 10 for the details), Buffett stepped in as interim CEO. He wrote a letter to

Salomon Brothers managers that said, ‘‘Here’s my home phone number in Omaha. If

you see anything unethical, give me a call.’’ Managers did call him, and they were

able to devise a plan to save Salomon Brothers from Andersen’s fate. 17

So how do you blow the whistle? First, let’s talk about when.

A long-time customer approaches you for financing for a new business ven-

ture. The customer offers as collateral a piece of property he has purchased in

a rural location for the purpose of building a housing development. You send

an appraiser to the property, and he accidentally discovers that this property

holds toxic waste. You’re sure this customer is unaware of the waste; in fact,

the waste is migrating and in a few years will invade the water table under

a nearby farmer’s fields. You explain the situation to your manager, who

naturally instructs you to refuse to accept the property as collateral, but he

also forbids you to mention the toxic waste to the customer. ‘‘Let them find

out about it themselves,’’ he says. Do you alert the customer to the toxic

waste? Do you alert government regulators?

When Do You Blow the Whistle?

Let’s assume first that your concern involves a serious issue. Reporting toxic materials,

for example, is a serious issue, because of the potential for serious harm. Recall that

serious harm raises the moral intensity of an issue. So your ethical antennae are likely

to be highly sensitized in this situation, and you’re going to feel more compelled to do

something. A colleague padding an expense report a bit on one occasion isn’t quite

as serious. Once you’ve informed your manager about a fudged expense report, your

responsibility is probably fulfilled. However, one colleague fudging an expense report

one time is a far cry from a group of employees systematically altering all of their

expense reports with their manager’s knowledge. If you suspect something of that

magnitude, of course you should report it to someone outside your chain of command,

such as the ethics office or your organization’s internal auditor.

Many might disagree with this approach, but few people in business have the time

to be ‘‘on patrol.’’ Once a manager is alerted, it’s his or her responsibility to deal with

CHAPTER 4 ADDRESSING INDIVIDUALS’ COMMON ETHICAL PROBLEMS 139

issues like expense reports, except in extraordinary circumstances. This could be

termed ‘‘picking your battles’’ and responding appropriately to your gut feelings. Obvi-

ously, you should use the prescriptive frameworks to help you decide what to do. But

let’s also consider a number of simple triggers that can help you determine if an issue

is serious.

Some of the triggers to help you determine if an issue is serious enough to be

raised beyond your immediate manager include an issue that involves values such as

truth, employee or customer (or other stakeholder) rights, trust, fairness, harm, your

personal reputation or the reputation of your organization, and whether the law is being

broken or compromised. In the toxic dump case, for example, serious harm could

certainly result; customer (and other stakeholder) rights are involved; your organiza-

tion’s reputation is at risk; a public trust may be violated; and the law may very well

be compromised or broken if you keep quiet about toxic wastes under a proposed hous-

ing development, because the toxic wastes could ultimately affect the food supply. A

situation like this has all the earmarks of a serious ethical dilemma that requires action.

Suppose your manager asks you to supply inaccurate numbers in a financial

report to another level of management. That situation involves not only a breach of

truth but also potential harm; it could damage your reputation and ultimately your

company’s reputation. It’s a serious issue that you’ll probably want to report.

How to Blow the Whistle

Let’s assume that you’re dealing with a serious issue, you’ve assembled the facts,

they’re accurate to the best of your knowledge, you’ve asked your peers or your

manager for advice, and there’s a law or company policy about to be violated, or one

of the other triggers discussed earlier indicates a serious problem. Now what?

1. Approach Your Immediate Manager First. If your manager tells you to

ignore a situation or belittles your concern, approach him or her again. The

second time you approach your manager, you may want to write a memo and

spell out your concerns in black and white so it’s more difficult for your

manager to ignore or dismiss them. Writing a memo is frequently enough to

convince your manager that this is serious, and so you’ll get a more favor-

able response. You should also do some soul searching to make sure your

decision to pursue this issue is an objective one, and not based in any feeling

of revenge you might have for your manager, coworkers, or company. This

is also a good time to rehearse out loud and to others (maybe a trusted cow-

orker, your parents, or your spouse) what you want to say. Also, you should

find out exactly how your company wants issues raised and if there is a

special process for doing it. If there is, follow the process to the letter. 18

2. Discuss the Issue with Your Family. Since any whistle-blowing activity

can affect your family as well as yourself, it’s imperative that they know

what’s going on. It’s also the time to document your activities. Obtain copies

of correspondence that relate to the issue and any memos you’ve written in

140 SECTION II ETHICS AND THE INDIVIDUAL

an attempt to alert management. Keep a diary to track activities related to

the issue and describe any conversations you’ve had concerning the issue. 19

3. Take It to the Next Level. If you receive no satisfaction from your man-

ager, it’s time to go to the next level of management. The most diplomatic

way of going around your manager is to say to your manager something like,

‘‘I feel so strongly about this that I’d like a meeting with you and your man-

ager to discuss it.’’ The positive aspect of asking your manager to go with

you to the next level is that he or she will be less likely to feel betrayed, and

you’ll appear to be a team player. The negative aspect is that your manager

may forbid you to approach his or her manager. If that happens, or if you’re

still not satisfied after meeting with the next level of management, you’ll

need to consider going outside your chain of command.

4. Contact Your Company’s Ethics Officer or Ombudsman. Find out if

your state has any special legislation regarding whistle-blowing. Your

state may have legislative protection for whistle-blowers, but it may

require you to follow certain procedures to protect yourself. 20

You may

choose to go to these officials first, especially if your manager is part of

the problem. As a result of the U.S. Federal Sentencing Commission

Guidelines (see Chapter 6) and Sarbanes-Oxley legislation, most large

organizations now have reporting systems that allow you to report prob-

lems and to do so anonymously.

5. Consider Going Outside Your Chain of Command. If your company

has no formal department or process for handling such complaints, think

about other areas that would be receptive to your concerns. If your issue is

human resources related—if it involves relationships or activities within

your company like discrimination or sexual harassment—you may be able

to approach your human resources officer or department. If the issue is busi-

ness related—if it involves external relationships such as those with custom-

ers, suppliers, regulators—you can still approach human resources, but a

better choice would probably be the legal department or your company’s

internal auditors. Obviously, if the issue involves the law or an actual or

potential legal issue, you should contact the legal department. And if the

issue concerns a financial matter, it’s probably better to approach your orga-

nization’s auditors. Most auditors have a system of internal checks they can

trigger that will confirm or refute your suspicions and even protect you.

Also, some auditors in some industries have an underground network of

sorts; there are relationships that exist among auditors from various organi-

zations. They can quietly investigate situations and keep them from blowing

out of proportion if that’s indicated and appropriate.

Since the role of human resources, legal, and audit departments is to

protect the corporation, they should be receptive to any concerns that could

put the company at risk. If, however, the activity you’re concerned about has

been approved or condoned by the highest levels of management, these

CHAPTER 4 ADDRESSING INDIVIDUALS’ COMMON ETHICAL PROBLEMS 141

internal departments may be inclined to go along with ‘‘business as usual.’’

And since their role is to protect the company, you’re likely to find that their

first allegiance is to the company, and not to you.

It’s usually safe to approach these departments, but it’s not completely

without risk. You can reduce the risk if you can persuade one or more of

your colleagues to join you in the process. Having an ally can encourage

lawyers and auditors to take you more seriously. It also may be wise to con-

sult your personal lawyer at this point in the process. According to Hoffman

and Moore, your attorney can ‘‘help you determine if the wrongdoing

violates the law, aid you in documenting information about it, inform you of

any laws you might be breaking in documenting it, assist you in deciding to

whom to report it, make sure reports are filed on time, and help you protect

yourself against retaliation.’’ 21

Once you’ve approached your management, the ethics or compliance

office (if your company has one), and human resources, legal, or audit, you

should have received some satisfaction. The vast majority of whistle-

blowing cases are resolved at one of those levels. However, if you’re still

concerned, the risks to you personally escalate significantly from this point

on. Your last resort within your company is your organization’s senior man-

agement, including the CEO, president, or board of directors. Obviously,

you should contact whoever has a reputation for being most approachable.

Understand that your immediate management will most likely be irate if you

approach senior management. However, if you’re right about your concerns,

you may end up a hero if the issue you’re raising is a localized problem and

senior management is unaware of what’s going on.

Before contacting your senior management, be sure to have your facts

straight and documented. (This is where a diary and copies of correspondence

are useful.) If you’re wrong, few people are going to understand or forgive

you. You may be harassed, reprimanded, or penalized, or some pretext may

be found to fire you. However, there is evidence that you can contact the

CEO and keep your job. For example, Sherron Watkins, vice president of cor-

porate development at Enron, still had her job at Enron one year after CEO

Ken Lay received her fearful letter about accounting irregularities and months

after the executive team resigned. However, she wrote her letter to the CEO

and not to the local newspapers. 22

Like many other whistle-blowers, Sherron

Watkins is now making her living as a public speaker and consultant.

6. Go Outside of the Company. If you’ve raised the concern all the way to

the top of your company, still have a job, and are still unsatisfied, your only

choice now is to go outside. If your company is part of a regulated industry,

like defense contractors and commercial banks, you can contact the regula-

tors who are charged with overseeing your industry. Or you can contact the

press. However, if you’ve already contacted numerous individuals in your

company about the issue, it won’t take a genius to figure out who is talking

142 SECTION II ETHICS AND THE INDIVIDUAL

outside of the company. Even if you contact the press or the regulators anon-

ymously, your coworkers and management probably will know it’s you.

Recent legislation has made it easier and more lucrative for employees

to blow the whistle to regulators when companies are government contractors

or when the federal government has somehow been defrauded. Under the

False Claims Act, whistle-blowers who report corporate wrongdoing against

the government to prosecutors can be awarded 15 to 30 percent of whatever

damages the federal government recovers, which are to be three times the

damages the government has sustained. Because the government has recov-

ered more than $10 billion since the law’s inception, this has become a

powerful incentive for some employees to tell all to prosecutors. For exam-

ple, Jim Alderson was fired from his accounting job at Quorum Health

Group when he refused to go along with the company practice of keeping

two sets of books for Medicare reimbursements, one for the government and

one marked ‘‘confidential.’’ He filed a wrongful termination lawsuit that

developed into False Claims Act lawsuits against his employer and its parent

company for overbilling the government. The government recovered almost

$2 billion, and Alderson received $20 million. The number of such lawsuits

has grown significantly in recent years. In one of the biggest suits ever, TAP

Pharmaceuticals paid $875 million to the government for engaging in illegal

pricing and marketing practices with a cancer drug (you’ll read more about

TAP Pharmaceuticals in the end-of-chapter case for Chapter 5). 23

In 2002 Congress passed the Sarbanes-Oxley Act, which, among other

things, provides whistle-blowers in publicly traded companies with revolu-

tionary new protections if they ‘‘make a disclosure to a supervisor, law-

enforcement agency, or congressional investigator that could have a ‘material

impact’ on the value of a company’s shares.’’ 24

Under the law, board commit-

tees must set up procedures for hearing whistle-blower concerns; executives

who retaliate can be held criminally liable and can go to prison for up to

10 years; the Labor Department can force a company to rehire a whistle-

blower who has been fired; and workers who have been fired can request a

jury trial after six months. Corporate attorneys are now required to report

misconduct to top management and to the board if executives don’t respond.

But, unlike the False Claims Act, the new law does not provide for financial

incentives. And it does not protect employees at private companies.

For additional guidance about whistle-blowing, several websites can

answer myriad questions; just type the keyword whistle-blower in your

Internet search engine. Probably the most comprehensive website for

whistle-blowers is the National Whistleblower’s Center, a nonprofit, tax-

exempt organization that is dedicated to providing educational and advocacy

services to whistle-blowers (www.whistleblowers.org).

7. Leave the Company. Some situations might be so disturbing to you that you

have no alternative but to quit your job. The toxic dump situation described

CHAPTER 4 ADDRESSING INDIVIDUALS’ COMMON ETHICAL PROBLEMS 143

earlier might be one of those situations. Frankly, the stress involved in blowing

the whistle is so intense that you might consider quitting your job after step 3 or

4, and you’ll need all of the prescriptive ethical decision-making frameworks

to help you decide whether you are ethically obligated to report the problem to

someone or whether simply leaving is okay.

Whistle-blowing is so stressful that in one study, one-third of the whistle-

blowers surveyed would advise other people not to blow the whistle at all. 25

Senator Charles Grassley likened whistle-blowers to ‘‘a skunk at a pic-

nic.’’ 26

Many people, however, would find it extremely difficult—perhaps

impossible—to live with certain situations on their conscience. The know-

ledge of a toxic dump about to poison private wells would probably be

almost impossible for most people to live with without reporting. When

knowledge becomes unbearable, blowing the whistle and ultimately quitting

your job may be the only solution (or the other way around—quit first and

then blow the whistle).

Unfortunately, 2002 provided lots of opportunities for whistle-blowing.

Business Week called 2002 the ‘‘Year of the Whistleblower,’’ highlighting

the role of Joe Speaker, a manager at Rite-Aid (and son of a former Pennsyl-

vania attorney general) who alerted the audit committee of the board to

accounting chicanery at the firm. Martin Grass, the former CEO and chair-

man, was later found guilty and is serving a jail sentence. 27 Time magazine

named Cynthia Cooper, Coleen Rowley, and Sherron Watkins ‘‘persons of

the year’’ for their ‘‘exceptional guts and sense.’’ Watkins was the vice pres-

ident at Enron who first brought improper accounting methods to the atten-

tion of chairman Kenneth Lay and later testified before Congress where, she

says, she ‘‘broke out in a cold sweat.’’ Coleen Rowley is the FBI attorney at

the Minneapolis office who alerted FBI Director Robert Mueller to the fact

that the FBI had brushed off pleas to investigate Zacarias Moussaoui, now

convicted as a September 11 co-conspirator. Cynthia Cooper informed the

board at WorldCom about phony bookkeeping and the attempt to cover up

$3.8 billion losses. According to Time, ‘‘Democratic capitalism requires that

people trust in the integrity of public and private institutions alike. As

whistleblowers, these three became fail-safe systems that did not fail. For

believing—really believing—that the truth is one thing that must not be

moved off the books, and for stepping in to make sure that it wasn’t, they

have been chosen by Time as its Persons of the Year for 2002.’’ In its

attempt to identify the characteristics these three women shared, Time noted

that all three grew up in small towns and all were firstborns. All are married

and serve as chief breadwinners in their families. None of this, however,

explains why they were willing to risk so much to reveal the truth. At the

end of 2002, Watkins left Enron voluntarily to start her own consulting firm.

The other two were still employed by their organizations. That doesn’t mean

they haven’t paid a price. They claim to be hated by some colleagues, and

they laughed when asked if executives at their organizations had thanked

144 SECTION II ETHICS AND THE INDIVIDUAL