Different people utilize different ethical value systems. These systems are based on personal experiences along with religious, educational, and family training. One manager might consider it beneficial to downsize a company’s workforce because the surviving employees, who make up the majority, will be employed by a more effective and efficient firm. Another manager might view a downsizing decision as unethical because the employees who lose their jobs are deprived of economic opportunities simply because it is cost effective. The different ethical value systems of the two managers lead them to place different judgments on the attractiveness or repulsiveness of downsizing.
Managers typically use one of four key ethical approaches when making business decisions.
They are utilitarianism, individualism, the rights approach, and the justice approach. Each takes a different view of what is most important to individuals and society.
Utilitarianism
Decisions should be made on the basis of what is good for the greatest number of people from a utilitarian perspective. To apply the utilitarian criterion, one would examine all the people affected by a decision and choose the solution that satisfies the most people. Utilitarianism is sometimes referred to as the “calculus of pain, because it tries to minimize pain and maximize pleasure for the greatest number of people.” Although utilitarianism strives to attain the ideal of democracy by promoting good for the majority, it may overlook the rights or needs of a minority of individuals.
Individualism
People who base ethical decisions on individualism believe that personal self-interests should be promoted as long as they do not harm others. Individualism as a basis for making business decisions is derived from the principles of capitalism first expressed in the 18th century by Adam Smith. In The Wealth of Nations, Smith wrote that markets should be free, that they
utilitarianism
A means of making decisions based on what is good for the greatest number of people.
individualism
The degree to which a society values personal goals, autonomy, and privacy over group loyalty, commitment to group norms, involvement in collective activities, social cohesiveness, and intense socialization; ethical decisions based on individualism promote individual self-interest as long as it does not harm others.
rights approach
A means of making decisions based on the belief that each person has fundamental human rights that should be respected and protected.
should be the basis of all transactions, and that they should be subject to a minimum of inter-ference by other forces such as governments. All available information is utilized when indi-viduals make economic choices. Lying and other unethical behavior are penalized because it is in people’s self-interest to do business with ethical firms and individuals rather than with liars and cheats.
At the same time, the costs of obtaining information about individuals’ or firms’ motives may be steep, and there are differences in power between individuals bargaining in the market. In such cases, some individuals can take advantage of their power or access to information to the detriment of others. For example, American consumers of health care have less power than insur-ance companies and have little access to specific information on the implications of choosing one policy or one doctor over another. Citizens of France, Germany, and Sweden believe individ-ualism has resulted in the lack of a national health care plan for U.S. citizens. Consequently, they believe, the weakest members of society are the ones who suffer the most.
Rights Approach
The belief that each person has fundamental human rights that should be respected and protected is the rights approach. People have the rights of freedom of speech, privacy, and due process when charged with a crime or rule infraction. They also have the right to a safe and healthy envi-ronment. These rights make it possible for them to act in their own best interests, which in turn TABLE 3.1 Selected Ethical Issues in Business
Employee–Employer Relations
䊉 Taking credit for work done by other employees
䊉 Spreading false rumors that can harm an employer’s reputation
䊉 Sharing sensitive company information with a competing firm
䊉 Recording false performance information to qualify for undeserved rewards Employer–Employee Relations
䊉 Performance evaluations that display favoritism to friends of managers
䊉 Hostile treatment of employees who report unethical conduct
䊉 Expecting that employees work “off the clock” without compensation
䊉 Being negligent at regularly maintaining the operation of machines and equipment that could break down and harm employees
Company–Customer Relations
䊉 Withholding information on products that could be harmful to customers
䊉 Making deceptive claims of a product’s performance in advertising
䊉 Selling products or services not needed by a customer by aggressive sales staff Company–Shareholder Relations
䊉 Having individuals serve on the board of directors with conflicts of interest with what is best for the shareholders
䊉 Withholding financial information that would be of material interest to shareholders
䊉 Taking excessive risks with shareholders’ financial resources Company–Local and Global Communities
䊉 Engaging in manufacturing or extraction processes that result in long-term harm to the environment
䊉 Breaking commitments made to improve the community after being granted privileges to take natural resources out of it
䊉 Exploiting labor in developing countries with low wages and poor working conditions that do not meet minimum international standards of fairness
Source: Based on A. B. Carroll and A. K. Buchholtz, Business and Society, 7th ed., Cincinnati, OH, Southwestern, 2008.
justice approach
An approach to decision making based on treating all people fairly and consistently when making business decisions.
benefits society. According to the rights approach, a decision is unethical if it deprives an indi-vidual of fundamental human rights.
The rights approach provides specific criteria for judging the ethics of a decision; however, conflicting rights must often be sorted out when making business decisions. For example, a manager who shares negative information about personal problems experienced by a former employee with another employer who is considering hiring that individual exercises the right of free speech but may also have violated the employee’s right to privacy. Whose rights should have priority?
Justice Approach
Treating all people fairly and consistently when making decisions is the basis of the justice approach. This includes considering both distributive and procedural justice. Distributive justice examines the fairness of rewards, punishments, and outcomes in an organization. It asks whether an employee received compensation equitable with performance or whether the employee was overpaid or underpaid. Procedural justice involves the fair and consistent appli-cation of rules and procedures. When an employee is disciplined for a safety rule infraction, the procedural justice standard would be violated if other employees who broke the rule were not similarly disciplined.
The justice approach is more flexible than other ethical approaches, because it recognizes that standards of fairness vary depending on the individuals involved in the decision. For exam-ple, unionized auto workers see equal raises for all workers as the fair way to distribute salary increases. Equality raises union solidarity. Managers consider rewarding people on the basis of individual performance as fair, because they believe rewards should be based on the workers’
contributions to profitability.
Applications of Ethics Approaches
To see how the four approaches to ethical decision making differ, consider the policy of random drug testing. A utilitarian sees random drug testing as ethical because more employees and customers are protected from accidents caused by drug-using employees than are angered by having to submit to random drug tests. Random drug testing would also be perceived as ethical when applying the criterion of individualism: owners are free to enact policies that make the company more efficient, and employees are free to exercise their disapproval by quitting and seeking employment at a firm that does not require random drug testing.
On the other hand, a manager who applies the rights approach may consider random drug testing unethical because it violates an employee’s right to privacy and the right of protection from searches without probable cause to justify the test. Similarly, random drug testing would be seen as unethical in the justice approach because it presumes that an employee is guilty of using drugs and makes employees prove that they are innocent based on the chemical analysis of body fluids. In American justice, a person is innocent unless proven guilty.
Comparison of Ethics Approaches
One way to compare the four approaches to ethical decision making is to view them on the basis of how well they satisfy two elements of a fair and just society: (1) the degree of eco-nomic freedom in society to earn and retain wealth compared to how wealth is redistributed and shared with the less fortunate;
and (2) the degree of concern a society has for individuals com-pared to the degree of concern for the community. Notice that in some social systems concern for the community will take precedence over concern for individuals, while in other social systems concern for individuals will matter more. Similarly in some social systems economic freedom based on free enter-prise takes precedence over having an equal distribution of the wealth in the society, while in other social systems a fair and equal distribution of the wealth produced in the society takes precedence over the freedom to accumulate individual wealth.
In 2005 former WorldCom CEO Bernard Ebbers was sentenced to 25 years in prison, one of the longest sentences ever received by a former chief executive.
The stiff sentence stemmed in large part from the estimated
$2 billion investor losses prosecutors attributed to Ebbers’ fraud at WorldCom. AP/ Wide World Photos.
Rights approach
Individualism approach
Utilitarianism approach Justice
approach
Economic freedom Egalitarian
Individuals matter
How much do individuals matter?
Community matters
Libertarian FIGURE 3.1
Comparison of Ethics Approaches
For example, we would not be surprised if employees at a Wall Street investment bank had strong preferences for economic freedom and concern for individuals, while employees who work for the Red Cross are likely to reflect strong preferences for equal distribution of wealth and concern for the community.
Figure 3.1 above compares the four approaches to ethical decision making by classify-ing them accordclassify-ing to their degree of economic freedom and concern for individuals. The individualism approach to ethics reflects a high concern for individuals and high degree of economic freedom. The justice approach to ethics reflects a high concern for the community and for an egalitarian distribution of wealth. Similarly, the rights approach to ethics displays a high concern for individualism and for an egalitarian distribution of wealth. The utilitari-anism approach to ethics reflects a high concern for the community and for economic freedom.
LOC-In 1 Learning Objective Check-In
Hillsdale Ceramics is reevaluating its approach to ethics. The firm has had problems in the past with inconsistent application of rules across different employees. Its managers also want to make sure that the decisions that are made affecting the entire company satisfy the greatest number of workers and cause “pain” to the fewest number. Lastly, the firm wants to make sure that the employees all enjoy a safe and healthy environment.
1. The decision to apply rules consistently across worker situations is demonstrative of _______.
a. distributive justice b. procedural justice c. individualism d. the rights approach
2. The approach used in making business decisions that benefit the greatest number of workers is called _______.
a. individualism b. distributive justice c. the rights approach d. utilitarianism
3. The approach of making sure no business decision deprives an individual of the right to a safe and healthy environment is called _______.
a. utilitarianism b. the rights approach c. individualism d. procedural justice
code of ethics
A formal statement of ethics and values that is designed to guide employee conduct in a variety of business situations.
corporate credo
A formal statement focusing on principles and beliefs, indicating the company’s responsibility to its stakeholders.