Considering Ethics in Decision Making

Moral Principles in Management

Business ethics deals with the beliefs and principles that guide management decisions.

Learning Objectives

Recognize the importance of ethics in the business environment, particularly how individual managers should employ these principles

Key Takeaways

Key Points

  • Business ethics concerns the duties and obligations an organization has to its stakeholders, including employees, customers, suppliers, and communities.
  • The corporate world has taken steps to improve ethical compliance in the workplace after major corporate scandals like WorldCom, Tyco, and Enron.
  • While compliance with laws is coerced trough the threat of sanctions or litigation, ethical behavior is voluntary.
  • It is the duty of all managers to see that their organization maintains ethical practices and behaviors.

Key Terms

  • moral: Of or relating to principles of right and wrong in behavior, especially for teaching right behavior.
  • ethics: The study of principles relating to right and wrong conduct.

Morality (from the Latin moralitas, meaning “manner, character, proper behavior”) is the differentiation of intentions, decisions, and actions between those that are good (or right) and those that are bad (or wrong). Ethics, also known as moral philosophy, is a branch of philosophy that involves systematizing, defending, and recommending concepts of right and wrong conduct.

Business Ethics

Business ethics (also corporate or professional ethics) is a form of applied ethics that examines the principles and moral beliefs that guide management decisions. Ethical issues include the obligations a company has to its employees, suppliers, customers and neighbors. In particular, business ethics is concerned with situations when those obligations are inconsistent with economic or strategic choices, or are in conflict with each other. Legal obligations are not the same as ethical ones; laws are enforced through the threat or imposition of punishment by a government or through civil litigation. All individuals and organizations must follow the law, but complying with ethical beliefs is voluntary, not coerced.

Business ethics applies to all aspects of business conduct by individuals and organizations as a whole. Ethical behavior is conduct that follows one’s personal beliefs or shared organizational or institutional values. When individuals take action on behalf of an organization, they represent its ethics to society. Businesses are dependent on their reputations, so it is important for them to have clear and consistent expectations regarding ethical standards to guide employee behavior. Many employees prefer to work for organizations that share their own moral beliefs. A company’s ethical practices can thus have an effect on the recruitment and retention of employees.

In recent decades there has been widespread attention to business ethics due to highly visible cases of corporate malfeasance, such as the WorldCom, Enron, and Tyco scandals. To protect their reputations, companies have begun to form more comprehensive corporate policies concerning ethics. These policies generally offer guidance to employees and state the expectations of the company. Some companies require that employees sign a contract stating that they will follow the procedures within the handbook.

To be viewed by the public as having high moral standards, many companies have created a position called the corporate ethics officer or the corporate compliance officer. This person ensures their organization has statements of ethical principals, clear guideline about acceptable and unacceptable practices, and means of reporting ethical breaches. These executives also have the specific responsibility of monitoring ethical behavior and addressing breaches.

Promoting an Ethical Business Climate

There are at least four elements that create an atmosphere conducive to ethical behavior within an organization:

  1. A written code of ethics and standards
  2. Ethics training for executives, managers, and employees
  3. Availability for advice on ethical situations (i.e., advice lines or offices)
  4. Systems for confidential reporting

It is the duty of all managers to see that their organization maintains ethical practices and behaviors. Good leaders strive to create a better and more ethical organization. Promoting an ethical climate in an organization is critical, since it is a key component in addressing many other issues facing the organization.

Applying the Ethical Decision Tree

Decision trees are useful analytic tools for considering the ethical dimensions of a decision.

Learning Objectives

Define the concept of a decision tree as it applies to the ethical dimensions of a decision.

Key Takeaways

Key Points

  • Decision trees are used to identify alternatives and estimate their likely outcomes.
  • Managers can use decision-tree analysis to consider the effect of each alternative on stakeholders such as employees, customers, shareholders, and communities.
  • Decision-tree analysis can help identify or uncover the potential impacts of alternatives so that a decision maker can select the option that is most consistent with her ethical and moral beliefs.

Key Terms

  • ethics: The study of principles relating to right and wrong conduct.
  • decision tree: A visualization of a complex decision-making situation in which the possible decisions and their likely outcomes are organized in the form of a graph that resembles a tree.

Ethics are moral principles that guide a person’s behavior. These morals are shaped by social norms, cultural practices, and religious influences. All decisions have an ethical or moral dimension for a simple reason—they have an effect on others. Managers and leaders need to be aware of their own ethical and moral beliefs so they can draw on them when they face decisions. They can then effectively think through an ethical issue with the same types of approaches they use for other decisions.

Decision Trees

Decision trees are graphical representations of alternatives and possible outcomes. The decisions are represented by the branches of the tree. Organizations and individuals often use decision trees as part of their decision-making process because they are a means for adding formal structure to information about a decision. Identifying the range of possibilities and their potential consequences helps clarify the decision and facilitates selection of an alternative.

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Decision tree: An example of a decision tree.

Decision trees can be applied to ethical matters as well. If confronted with an ethical dilemma, creating a decision tree is a useful method for analyzing what the potential outcomes of each action would be, and ultimately, how to proceed. It is a particularly useful tool for considering stakeholders such as employees, customers, shareholders, and communities. The answers to questions about what stakeholders will be affected and what the effects will be help build the case for or against each alternative. Often there will be competing interests, or situations in which two different values are in competition. For instance, a decision to close a coal mine because coal contributes to global warming may be positive for society at large, but it imposes high costs on the employees who will lose their jobs. Decision-tree analysis can help identify or uncover the potential impacts of alternatives so that a decision maker can select the one that is most consistent with her ethical and moral beliefs.

Applying the Decision Tree

Decision tree analysis can be a useful tool for evaluating ethical decisions.

Learning Objectives

Express decision factors in an organized and structured view, allowing for systematic, ethical, and logical decision making

Key Takeaways

Key Points

  • Decision tree analysis can be a useful tool for evaluating choices involved in ethical decisions.
  • Laying out each consideration, potential action, and potential outcome can be useful in deciding which alternative is most likely to be consistent with your ethical and moral beliefs and values.
  • Decision tree analysis should capture both quantitative and qualitative consequences of each alternative.

Key Terms

  • utility: In economics, utility is a representation of preferences over some set of goods and services. Preferences have a utility representation so long as they are transitive, complete, and continuous.
  • decision tree: A visualization of a complex decision-making situation in which the possible decisions and their likely outcomes are organized in the form of a branched graph.

Decision tree analysis provides a visual tool to help individuals quantify and weigh options against one another when making a decision. A decision tree calculates the expected values of competing alternative. This tells the decision maker which decision has the highest utility (i.e., is the most preferred) to the decision maker.

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Decision tree: This example of a decision tree shows the decision maker trying to choose where to go on vacation.

Creating a Decision Tree

A decision tree consists of 3 types of nodes:

  1. Decision nodes: These are commonly represented by squares. Decision nodes are used when a decision needs to be made between at least two alternatives.
  2. Chance nodes: These may be represented by circles. Chance nodes represent points on the decision tree where there is uncertainty about outcomes (so there must be at least two possible outcomes represented).
  3. End nodes: These may be represented by triangles. An end node is where a decision is made and its value or utility is identified.

Applications of Decision Trees

Decision trees can be applied to ethical considerations. Consider an ethical dilemma involving a colleague. You are considering three options: report your colleague to a superior, confront the colleague yourself, or ignore the situation completely. The top box of the decision tree would state “Colleague Dilemma.”

The next three nodes would then read: “Report colleague to superiors,” “Confront colleague,” and “Ignore situation. ” Each of these nodes would then have a “Yes” arrow and a “No” arrow. For each “Yes” and “No,” you would list what the outcome would be, realizing that in some cases the nodes may need to continue to account for potential outcomes, some of which may link back to previous options. For example, a “Yes” decision arrow for “Report colleague to superiors” may result in the situation being taken care of—or, it could result in an investigation that would impact your standing within the company and with your peers. If you chose to ignore the colleague and his unethical behavior is discovered in the future, you could end up in trouble for choosing not to act earlier.

A decision tree for a tough problem allows the decision maker to visually lay out each scenario and make a detailed consideration. Decision trees therefore support the evaluation process and can help clarify often-complex ethical dilemmas.