business ethics

Student Materials[footnoteRef:1] [1: These materials were prepared by The W. A. Franke College of Business’s Associate Professor Eric D. Yordy and Marketing Lecturer Jennifer M. Mitchell as a basis for class discussion. ]

I. INTRODUCTION

Imagine you work as a salesperson for a company that sells products that are potentially harmful to children and you are paid on a commission basis. How do you approach this issue when attempting to close a sale? Or imagine that you own stock in the company you work for and you have just learned that the Food and Drug Administration is going to deny an application to sell a new drug your company manufactures. Your stock prices will drop dramatically, which could cost you a large sum of money. What do you do? Or consider that you work for a company that pays you on a scale where your salary jumps dramatically when you reach certain thresholds. You come within a small number of that threshold. Do you inflate the number in order to get your increase in pay? What if there is almost no risk of getting caught?

The ethical scandals of the past decades (Enron being the most famous), indicate that some people who have reached high levels of government and business possess neither the critical thinking skills nor the ethical decision-making skills necessary for enduring success. If we give those people the benefit of the doubt and refuse to declare that they are “bad people,” at a minimum they lack the tools and awareness to recognize and analyze an ethical dilemma.

These materials are intended to approach ethics from a life-skill perspective, helping students develop those critical thinking skills and giving students at least one tool to use when faced with an ethical dilemma.

The materials on the following pages introduce a step-by-step model, named with the mnemonic “COVER” to assist in learning the philosophical theories used in the model. The model incorporates a number of ethical theories, practical applications and critical thinking skills. The COVER model contains some of the same ideas that many decision-making models include: analysis of facts, identification of issues and stakeholders and creative identification of alternatives. The COVER model supports other models by incorporating a number of different philosophical theories, encouraging students to look at each situation from a variety of perspectives and to recognize that different theories may point one to different alternatives. Students are led to evaluate the situation under all the theories incorporated, and justify their decision to take action.

II. LEARNING OBJECTIVES

Once you have learned and practiced with the COVER model, you should be able to

· Identify potential ethical dilemmas

· Ask relevant factual questions and gather appropriate information to come to a reasoned conclusion

· Think creatively about alternatives when faced with an ethical dilemma

· Identify and prioritize the stakeholders who will be affected by the decision in an ethical dilemma

· Locate and evaluate the appropriate laws, codes of conduct and codes of ethics to inform their decision making

· Perform a cost/benefit analysis on the viable alternatives in a situation

· Reflect on the impact of the business mission and culture on decision making, as well as your own personal values and beliefs

III. THE MODEL

The COVER model of ethical-decision making comes from the following mnemonic:

F irst I A sk S ome questions to COVER my bases.

1

F = Facts I = Issues A = Alternatives S = Stakeholders

C = Codes O = Outcomes V = Values E = Editorial R = Rules

The terms in the word COVER, incorporate the following ethical theories which are described in more detail below. The model combines teleological, or outcome-based, and deontological, or duty-based, theories, in order to minimize any arbitrariness in your moral reasoning.

· Code = In this step students evaluate the legal aspects of the decision as well as any Code of Conduct or Code of Ethics adopted by their company, industry or profession.

· Outcomes = Consequential theory or utilitarianism (Bentham and Mill)

· Values = Rights theory, Corporate Social Responsibility, Divine Command theory, (Aristotle, Locke)

· Editorial = Intuitionism. Some of the analysis in this step often is done as well in the Utilitarian analysis as an analysis of the financial effects of good or bad publicity on the stakeholders, but in this step, students are encouraged to think about how they feel (right or wrong) about the public affairs implications of their decisions.

· Rule = The categorical imperative or universality of decision (Kant), Social Justice theory (Rawls)

A. SOME PRELIMINARY ITEMS

a. Alternative Selection Followed by Justification

One temptation to which many decision-makers easily fall prey is to select an alternative very early in the process and then use a model to justify that decision. Some will select an alternative in the first moments and then fail to analyze any other alternative. It is important to treat the model as a true decision-making model and an information gathering tool and not a tool to justify current opinions or beliefs.

b. Alternative elimination

While it is important for you to look at legitimate alternatives seriously and not select your recommendation too early, there may be times when you can eliminate an alternative. For example, one alternative may clearly violate the law or a code of conduct for an industry. It is permissible for you to make a note of that, declare that alternative unsuitable and move forward analyzing the remaining alternatives. If you only have two alternatives and you discover that one is illegal or unsuitable, it is perhaps a good time to brainstorm other alternatives. If no other alternatives can be discovered, you should complete the model for the one remaining alternative so that future discussions with stakeholders are fully informed.

B. DUE DILIGENCE

Prior to any philosophical analysis of a situation, it is important to conduct Due Diligence. This entails defining the scope of the question and conducting an environmental scan. The first four steps of the model will walk you through this phase. The four steps are not sequential and you may find yourself moving among them. For example, you may make a list of known and unknown facts. As you begin to look at alternatives, more questions of fact may arise. With regard to the Due Diligence portion, the model includes the following steps:

1. Determine the facts

2. Identify the ethical issues

3. Consider alternatives

4. Identify the stakeholders

The performance of these tasks may not always be easy. For example, a key task when determining the facts is to determine what facts you do not know, to find those facts that you can and to note which facts you do not have the ability to determine. In identifying the ethical issue, it is quite often challenging to frame the question in a neutral way – one that does not lead you to a preselected answer. If, for example, you are faced with a situation where your company has a product that has a high risk of harming someone, you do not want to frame the question as, “Is it ethical to continue to make this product that kills people?” The answer to that question is clearly, “no.” It would be more appropriate to say, “Is it more ethical to continue to make our product as it is, to stop production entirely or to find an alternate method of production?”

When considering alternatives, it is important to be creative and use brainstorming techniques (where no idea is considered impossible or “stupid” at this stage). Often ethical dilemmas may seem to have either a yes or no answer – one should either build a factory overseas where labor is cheaper and regulation is looser than in the United States or one should not. More often than not, these yes/no answers are the result of a question that is incorrectly framed. Usually there are multiple alternatives to consider when a question is posed appropriately.

Finally, when identifying stakeholders, it is most important to prioritize them. Many times, different stakeholders have opposing interests. Looking at the impact of the potential alternatives on the stakeholders leaves the decision-maker with no viable alternative; someone will be unhappy or hurt in some way by the decision. Prioritizing stakeholders based on the mission or vision of the company can assist in selecting alternatives that hurt the most important stakeholders the least.

Once you have completed these tasks, you begin to analyze your alternatives. Please note that you may desire (or need) to return to the Due Diligence aspects throughout the philosophical analysis. The model is purposefully designed to encourage you to analyze the situation from a variety of perspectives, thus provide a well-informed and well-reasoned judgment. Because the analysis is based in philosophical theories, the following paragraphs will share some basic elements of those theories.

C. PHILOSOPHICAL ANALYSIS

The philosophical analysis of the ethical situation is comprised of numerous philosophical approaches to ethics. Each of these will be described briefly below.

1. Code (C)

In the Code analysis, you look to legalistic documents to inform their decision. You should think through areas of law with which you are familiar (any criminal implications to the alternatives, tort issues, contract issues, employment law issues, discrimination issues, etc.) and brainstorm areas of law to research further, as well as apply any areas of law with which you are familiar. You also should review relevant codes of conduct or codes of ethics for the relevant industry and/or company. For example, if a student is evaluating an ethical dilemma related to hiring a new employee, that student should look to employment discrimination laws, employment laws, other state and federal statutes (depending on the details of the scenario), and written codes of conduct and ethics for the industry and the company. As another example, accounting students facing an ethical dilemma related to accounting should look to state and federal statutes, the AICPA Code of Professional Conduct and any codes that exist in the firm or company in question.

2. Outcomes (O)

The Outcomes analysis is based in Utilitarianism. John Stuart Mill (1806-1873) stated that “actions are right in proportion to their tendency to promote happiness or absence or pain, and wrong insofar as they tend to produce pain or displeasure.”[footnoteRef:2] Another description of utilitarianism is that it is “committed to the maximization of the good and the minimization of harm and evil.”[footnoteRef:3] Cost-benefit analyses are rooted in utilitarian philosophy. You should include a financial analysis as part of the cost-benefit analysis, even if you are not given specific financial information. [2: Mill, J.S., Utilitarianism, chapter II, found in Hartman, L.P. (2005). Perspectives in Business Ethics (3rd ed.). New York: McGraw-Hill Irwin. ] [3: Beauchamp, T.L., Bowie, N.E. & Arnold, D.G. (2009). Ethical Theory and Business (8th ed.). Saddle River, NJ: Pearson Prentice Hall.]

Utilitarianism is plagued by several criticisms. First, it may be very hard to put value on consequences. For example, how does one compare the value of a pristine wildlife preserve with the financial benefit of oil drilling?[footnoteRef:4] Another criticism is that a utilitarian analysis may result in a decision that is not seen as moral by many people. For example, a medication that may cure cancer in 60% of the population but would cause painfully slow and violent deaths in the other 40% would be given to the patient population because it results in the greater good for the greater number. [4: Beauchamp. ]

Many students find it helpful to build a table for the Outcome analysis. On the left of the table are the alternatives. Across the top of the table are the words “Benefits” or “Pros” and “Costs” or “Cons.” By creating this table, you can fill in the boxes of the table and visually identify the alternatives where costs clearly outweigh benefits.

3. Values (V)

The Values analysis is rooted in many different philosophical theories which are discussed more fully below. Most of these theories are known as deontological, or duty-based, theories. In doing this analysis, you look at a number of different sources of values. Corporations commit to their values (at least on paper) with their mission statement, strategic plans, goals and similar documents. There may be a company motto related to the treatment of customers. In this section, you may have to analyze conflicting values, such as a mission statement that would direct one result, but corporate culture that may lead to a separate result. For example, a corporate mission may focus on production of quality goods, but the corporate culture may be focused entirely on maximizing profit and shareholder value. In this analysis, you are asked to evaluate stated commitments as well as your more personal feelings about the situation.

The concept of Corporate Social Responsibility (CSR) also is included in the Values analysis. CSR is the idea that corporations have a duty to go beyond obedience to the law, profit and minimal ethical standards to affirmatively reach out and promote philanthropy. It is in the Values analysis that the students looks to the culture of the corporation and its approach to social responsibility. Many corporations have established CSR programs such as the Disney’s “Voluntears,” promoting social responsibility with a very Disney-esque name.[footnoteRef:5] [5: http://disney.go.com/disneyhand/voluntears/]

4. Editorial

The Editorial analysis combines some aspects of the Outcome analysis with some aspects of the Values analysis. There may be a mention of the publicity effect in the Outcome analysis – there probably should be for any major decision. This analysis asks you to assess the most negative “newsworthy” aspect of each alternative and apply the Values analysis to determine how one could defend each alternative should it be selected. You should ask the question, “what is the most negative aspect of each alternative in the eyes of the public?” An example of this analysis could be as follows: if a student is asked whether the build a factory overseas, the negative publicity could include loss of jobs for American workers and exploitation of labor in the foreign country. If the company’s mission statement and culture are heavily focused on providing low-cost products, the manager of the company may be able to address the criticisms by stating that it is unfortunate that some jobs will be lost in America, that the company is committed to upholding human rights of its employees but that the overseas factory will allow the company to continue to produce low-cost items which is its top strategic priority.

5. Rule

The Rule analysis is based in the “categorical imperative” philosophy of Immanuel Kant (1724 – 1804). In essence, the categorical imperative asks the decision-maker to evaluate each alternative as if that alternative were to become the rule for all others to follow.[footnoteRef:6] This analysis encourages you to give importance to all decisions. It is impossible under this analysis to rely on notions like, “it is just one small violation,” “we are a small company and our pollution does not really make a difference,” and other such terms. The analysis asks you to view each alternative as if everyone in a similar situation were to choose that alternative and then asks if you believe the world is a better or a worse place with the existence of that “rule.” Students of philosophy will know that Kant’s theories are far more expansive than this one concept or idea, but for the model, this one idea brings an important perspective to the students. [6: See Beauchamp, page 27. ]

6. Conclusion

To complete the model and bring the decision-making process back to the initial question, it is important for you to make a preliminary conclusion. You may find that different sections of the philosophical analysis point to different alternatives as the appropriate choice. You should select an alternative preliminarily. It is part of the learning process to make a conclusion and justify that conclusion through evidence and analysis. It is important to point out which alternative is selected and which analyses support that conclusion.

The conclusion is typically listed as preliminary because quite often you will finish the analysis wanting more information. For example, if a short scenario is given, you may feel that you would need more information on a company’s mission statement or culture. In many courses, you may be able to identify areas of law that should be reviewed and would want to wait to commit to an alternative until that research is complete.