What Is Managerial Ethics?

Ethics is difficult to define in a precise way. In a gen- eral sense, ethics is the code of moral principles and values that governs the behaviors  of a person or group with respect to what is right or wrong. Ethics sets standards  as to what is good or bad in conduct and decision making.5 Ethics deals with internal values that are a part of corporate culture  and shapes deci- sions concerning social responsibility  with respect to the external environment. An ethical issue is present in a situation when the actions of a person or organi-zation may harm or benefit others.6  Ethics can be more clearly understood when compared with be- haviors governed by laws and by free choice.

Exhibit 4.1 illustrates that human behavior falls into three categories. The first is codified law, in which  values and standards are written into the legal system and enforceable in the courts. In this area, lawmakers  set rules that people  and corporations must follow in a certain  way, such as obtaining licenses for cars or paying corporate taxes. The courts alleged that Enron executives broke the law, for example, by manipulating fi- nancial results, such as using off-balance-sheet  partnerships  to improperly  create income and hide debt.7  The domain of free choice, at the opposite end of the scale, pertains to be- havior about which the law has no say and for which an individual or organization enjoys complete freedom. Examples of free choice are a manager’s choice of where to eat lunch and a music company’s choice of the number of CDs to release.

Between these domains lies the area of ethics. This domain  has no specific laws, yet it does have standards  of conduct  based on shared principles  and values about  moral conduct that guide an individual or company. Executives at Enron, for example, did not break any specific laws by encouraging  employees to buy more shares of stock even when they believed the company was in financial trouble and the price of the shares was likely to decline. This behavior, however, was a clear violation  of the executives’ ethical responsibilities to employees.8 These managers were acting based on their own interests rather than their duties to employees and other stakeholders. In the domain of free choice, obedience is strictly to oneself. In the domain of codified law, obedience is to laws prescribed by the legal system. In the domain of ethical behavior, obedience is to unenforceable norms and standards about which the individual or company is aware. An ethically acceptable  decision is both legally and morally acceptable  to the larger community.

Many companies and individuals get into trouble with the simplified view that choices are governed by either law or free choice. This way of thinking leads people to mistakenly assume that if it’s not illegal, it must be ethical, as if this third domain didn’t exist.9 A better option is to recognize the domain of ethics and accept moral  values as a powerful force for good that can regulate behaviors both inside and outside corporations. As principles of ethics and social responsibility  are more widely  recognized, companies can use codes of ethics and their corporate cultures to govern behavior, thereby eliminating  the need for additional laws and avoiding the problems of unfettered choice.

Because ethical standards are not codified, disagreements and dilemmas about proper be- havior often occur. Ethics is always about making  decisions, and some issues are difficult to resolve. An ethical dilemma  arises in a situation concerning right or wrong  when values are in conflict.10  Right and wrong cannot be  clearly  identified, as  shown in the Business Blooper.

The individual who must make an ethical choice in an organization is the moral agent.11 Consider the dilemmas facing a moral agent in the following situations:

  • Your company requires a terrorist watch list screening for all new customers, which takes approximately 24 hours from the time an order is placed. You can close a lucrative deal with a potential  long-term customer if you agree to ship the products overnight, even though  that means the required watch list screening will have to be done after the fact.12
  • As a sales manager for a major pharmaceuticals  company, you’ve been asked to promote  a new drug that costs $2,500 per dose. You’ve read the reports saying the drug is only 1 per- cent more effective than an alternative drug that costs less than one-fourth as much.  Can you in good conscience aggressively promote the $2,500-per-dose drug? If you don’t, could lives be lost that might have been saved with that 1 percent increase in effectiveness?
  • Your company is hoping to build a new overseas manufacturing plant. You could  save about $5 million by not installing standard pollution  control equipment that is required in the United  States. The plant will employ many local workers in a poor country where jobs are scarce. Your research shows that pollutants from the factory potentially could damage the local fishing industry. Yet, building the factory with the pollution control equipment will likely make the plant too expensive to build.13
  • You are the accounting manager of a division that is $15,000 below profit targets. Ap- proximately $20,000 of office supplies were delivered on December 21. The accounting rule is to pay expenses when incurred. The division  general manager asks you not to re- cord the invoice until February.
  • You have been collaborating with a fellow manager on an important  project. One after- noon you walk into his office a bit earlier than scheduled and see sexually explicit images on his computer monitor. The company  has a zero-tolerance sexual harassment policy, as well  as strict  guidelines regarding  personal use of the Internet.  Your colleague was in his own office and not bothering  anyone else, though.14

These kinds of dilemmas and issues fall squarely in the domain of ethics. Now let’s turn to approaches to ethical decision making that provide criteria for understanding and resolv- ing these difficult issues.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

One thought on “What Is Managerial Ethics?

  1. zoritoler imol says:

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