Ethical Challenges Managers Face

It’s late at night and the office is quiet—except that you’ve got a nagging voice in your head. Your product is already two weeks behind schedule. You’ve got to get it out this week or lose the deal. But you’ve discovered a problem. To correct the problem would mean another 3-week delay—and you know the client won’t go for that. It’s a small error—it’ll probably never become an issue. What do you do?

Managers face these kinds of issues all the time. Ethical dilemmas can arise from a variety of areas, such as:

• Advertising (desire to present your product or service in the best light)
• Sourcing of raw materials (does the company buy from a supplier who may be underpaying their people or damaging the environment?)
• Privacy (should the company have access to private e-mails that employees write on company time? or the Web sites they visit during work hours?)
• Safety (employee and community)
• Pay scales (relation of the pay of top executives to the rest of the company)
• Product pricing policies (variable pricing, discounts)
• Communication (with stockholders, announcements of plant closings, etc.)

It’s easy to think that people who behave unethically are simply bad apples or have a character flaw. But in fact, it’s often the situation or circumstances that create the ethical pressures. A global study of business ethics, published by the American Management Association, found that the main reasons for a lapse of ethics are:

1. Pressure to meet unrealistic business objectives/deadlines.
2. A desire to further one’s career.
3. A desire to protect one’s livelihood.

You may have developed your own personal code of ethics, but the social environment of the organization can be a barrier to fulfilling that code if management is behaving unethically. At Enron, vice president Sherron Watkins pointed out the accounting misdeeds, but she didn’t take action beyond sending a memo to the company’s chairman. Although she was hailed as a hero and whistleblower, she in fact did not disclose the issue to the public. Similarly, auditors at Arthur Andersen saw the questionable practices that Enron was pursuing, but when the auditors reported these facts to management, Arthur Andersen’s managers pointed to the $100 million of business they were getting from the Enron account. Those managers put profits ahead of ethics. In the end, both companies were ruined, not to mention the countless employees and shareholders left shattered and financially bankrupt.

Since 2002, when the Sarbanes-Oxley Act was passed, companies have been required to write a code of ethics. The act sought to reform corporate governance practices in large U.S. public companies. The purpose of the rules is to “define a code of ethics as a codification of standards that is reasonably necessary to deter wrongdoing and to promote honest and ethical conduct,” including the ethical handling of actual or apparent conflicts of interest, compliance with laws, and accountability to adhere to the code. The U.S. financial crisis of late 2008 pointed out that other areas, particularly in the financial services industry, needed stiffer regulations and regulatory scrutiny as well, and those moves will begin to take effect in early 2009. Some companies go a step further and articulate a set of values that drives their code of conduct, as “Procter & Gamble’s Values and Code of Ethics” shows.

Procter & Gamble’s Values and Code of Ethics
Procter & Gamble Company lives by a set of five values that drive its code of business conduct. These values are:
Integrity – We always try to do the right thing.We are honest and straightforward with each other.We operate within the letter and spirit of the law.

We uphold the values and principles of P&G in every action and decision.

We are data-based and intellectually honest in advocating proposals, including recognizing risks.
Passion for Winning – We are determined to be the best at doing what matters most.We have a healthy dissatisfaction with the status quo.We have a compelling desire to improve and to win in the marketplace.
Leadership – We are all leaders in our area of responsibility, with a deep commitment to delivering leadership results.We have a clear vision of where we are going.We focus our resources to achieve leadership objectives and strategies.

We develop the capability to deliver our strategies and eliminate organizational barriers.
Trust – We respect our P&G colleagues, customers and consumers, and treat them as we want to be treated.We have confidence in each other’s capabilities and intentions.We believe that people work best when there is a foundation of trust.
Ownership – We accept personal accountability to meet our business needs, improve our systems, and help others improve their effectiveness.We all act like owners, treating the Company’s assets as our own and behaving with the Company’s long-term success in mind.

Integrating Ethics into Managerial Decision Making

Ethics implies making a choice between decision-making rules. For instance, when choosing between two suppliers, do you choose the cheapest (decision rule 1) or the highest quality (decision rule 2). Ethics also implies deciding on a course of action when no clear decision rule is available. Dilemmas occur when the choices are incompatible and when one course of action seems to better serve your self-interest but appears to violate a moral principle. One way to tackle ethical dilemmas is to follow an ethical decision-making process, like the one described below.