Aldersgate College Corporate Governance and Social Responsibility

Business Management and Accountancy

Module 6: Ethical Dilemma

Learning Objectives:
After studying the chapter, you should be able to:
1. Explain what ethical dilemma is.
2. Describe the steps in resolving ethical dilemma.
3. Enumerate and discuss the ethical decision-making process.
3. Apply the steps in resolving ethical dilemma
INTRODUCTION
An ethical dilemma is a situation a person faces in which a decision must be made about the appropriate behavior. A simple
example of an ethical dilemma is finding a diamond ring, which necessitates deciding whether to attempt to find the owner or to
keep it.
RESOLVING ETHICAL DILEMMAS
In recent years, formal frameworks have been developed to help people resolve ethical dilemmas. The purpose of such a
framework is in identifying the ethical issues and deciding on an appropriate course of action using the person's own values.
The six-step approach that follows is intended to be a relatively simple approach to resolving ethical dilemmas:
1. Obtain the relevant facts.
2. Identify the ethical issues from the facts.
3. Determine who is affected by the outcome of the dilemma and how each person or group is affected.
4. Identify the alternatives available to the person who must resolve the dilemma.
5. Identify the likely consequences of each alternative.
6. Decide the appropriate action.
ETHICAL LEADERSHIP
Ethical leadership is a leadership that is concerned in leading in a manner that respects the rights, dignity and stake of others.
In business and political context, ethical leadership focuses on how leaders employ their business and political power in the
decisions they make and actions they engage into. Leaders who are ethical demonstrate a level of integrity that is essential for
stimulating a culture of honesty and accountability. The character and integrity of the leader provide the basis for personal
characteristics that direct a leader's ethical beliefs, values, and decisions. Individual values and beliefs impacts the ethical
decisions of leaders.
Leaders who are ethical are stakeholder-oriented, and also conscious of how their decisions affect others. They use their power
to serve the greater good instead of self- serving interests. In ethical leadership it is important for the leaders, more specifically
for corporate leaders in business arena to consider how their decisions impact the internal stakeholders, the industry, customer
and ultimately to the public.
ETHICAL DECISION-MAKING PROCESS IN ORGANIZATIONS
"Right now, we know there are misdeeds going on somewhere in our company. We just hope it is small and we find it."

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Business Management and Accountancy

Warren Buffet, Chairman, Berkshire Hathaway Business Nightly interview, May 2005
Ethics in an organization refers to system, values, philosophies and principles that govern the behavior of organizational
members which are the consequences of organizational pronouncement. Ethical decision making is the process of trying to
established organizational values from which ethical decisions will be based from. part of the requisite of ethical decision-making
process in organization is answering the following questions whenever confronted with any instance that requires decision. On
the managerial side, did the leader provide leadership and oversight? On the human side, did the leader nurture individuals by
providing responsibility and accountability? In the operational corporate context, will it facilitate improvements more especially
on compliance requirement?
Decision making is an essential process for organizational effectiveness. Decision making is nearly universally defined as
choosing between choices. It is closely related to all the traditional management functions. In the context of ethical decision
making process, the following may help decision makers of organizations lay down decisions aligned with their CSR principles:
1. Withdraw.
Before you look at it objectively, step back first. Have a calibrated response for thrilling, rushed and demanding scenarios
whether self-imposed or outside-sourced. It is not popularity and power nor winning on high drama; its fairness. As much as
possible it should not be a "winner takes all" ending. Solutions should spring instead of imposing decisions which might make
some parties and stakeholders unhappy.
2. Be an Archivist.
Organizational history may have much to learn from. Review how previous situations were handled; this would reduce the
risks of making horrendous mistakes: Some of the fundamentals in this world are not really new despite how distinctive you
believe your situation to be. History is also a good warehouse of already invented wheels, which can often save you the time
and pain of trying to ineffectively invent a new one.
3. The Option of Doing Nothing.
Gather the facts from all available standpoints. More often a though issue offers three main alternatives: first, PERSONAL
VIEW; second, the MAIN ALTERNATIVE OPTION; and the third, the normally under-estimated, ever-available option of DOING
NOTHING. Doing nothing in times of real emergency can be catastrophic, but for an incredibly large number of circumstances
doing nothing is the only truly wise way.
4. Be Conscious of Long-Term Effects.
Realize the long-term consequences. Do some base-case modeling and tweaking, think of the "what-if scenarios". History
can again be a good source for models for any given situations.
5. Consider Legalities and Ethics.
There might be parties or stakeholders inside and outside of the firm that might be affected by your decision, it is basic to
check the law first. Once you are cleared on the legal bar, check its ethical issue. In a sincere CSR practice, what is legal can
just be the minimum and not all legal are ethical.
6. Ask Around.
Consult with people, more importantly to the ones you consider crucial. Get out from your close circle; be conscious, you
are not looking for a friendly advice that is most of the time bias and comforting. Consult with people or party most affected by
the situation, when you do some examination and assessment analysis, make sure your instruments is balanced and objective.
7. Be Comprehensively Sensitive.

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Be concern about the effect as deeply as possible. Any business decision big or small will have an effect in one way or
another directly or indirectly to stakeholders. Some may affect a lot of people and on the environment now and far into the future.
8. Do Not Be A Dangerous "Alpha Male".
Decision-makers should defy the illusion and arrogance that power and authority tends to be associated with. This is
particularly essential to safeguard against if you live and work in a protected, insulated or isolated situation. Being a leader for
a long time, or for any duration in a culture of arrogance, comfort and privilege, nourishes personal delusion. A good number
unethical decisions are products of arrogance and delusion.
9. Find a Win-Win Solution.
Decision-makers should detach himself from the different partialities of the issue for him to arrive at an objective decision.
Never be carried by the pressure of swelling expectation from any group or party who believe they are at the finer end of the
issue and thus, they should be favored. Find a Solomonic decision, if possible.
Illustrative Case: Resolving an Ethical Dilemma
A. Bert Cruz has been working for 6 months as a staff assistant for a law firm, Alvendia and Castro. Currently he is assigned to
the case of Ryan Manufacturing Company under the supervision of Carlos Reyes, an experienced senior lawyer. There are
three junior legal of assistants assigned to the case, including Bert, Carlos and more experienced assistant, Martha Sy.
During lunch on the first day, Carlos says, "It will be necessary for us to work a few extra hours on our own time to make sure
we come in on budget. This case isn't very profitable anyway, and we don't want to hurt our firm by going over budget.
We can accomplish this easily by coming in a half hour early, taking a short lunch break, and working an hour or so after normal
quitting time. We just won't write that time down on our time report."
Bert recalls reading in the firm's policy manual that working hours and not charging for them on the time report is a violation of
Alvendia and Castro employment policy. He also knows that seniors are paid bonuses, instead of overtime, whereas staffs are
paid for overtime but get no bonuses.
Later, when discussing the issue with Martha, she says, "Carlos does this on all of his job. He is likely to be our firm's next
manager. The partners think he is great because his job always come in under budget. He rewards us by giving us good
engagement evaluations, especially under the cooperative attitude category. Several of the other seniors staff follow the same
practice."
B. Ethical Issue
The ethical issue in this situation is not difficult to identify.
• Is it ethical for Bert to work hours and not them as hours worked in this situation?
C. Who is Affected and How is each Affected?
There are typically more people affected in situations in which ethical dilemmas occur than would normally be expected.
The following are the key persons involved in this situation:
Who How Affected?
Bert Being asked to violate firm policy. Hours of work will be affected. Pay will
be affected. Performance evaluations may be affected. Attitude about
firm may be affected
Martha Same as Bert

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Business Management and Accountancy

Carlos Success on engagement and in firm may be affected.

Hours of work will be affected.
Alvendia and Castro Stated firm policy is being violated.
May result in under billing clients in the current and future engagements.
May affect the firm’s ability to realistically budget engagements and bill
clients.
May affect the firm’s ability to motivate and retain employees.
Staff assigned to Rayon May result in unrealistic time budgets.
Manufacturing in the future May result in unfavorable time performance
evaluations
May result in pressure to continue practice of not charging for huors
worked.
Other staff firms Following the practice of this engagement may motivate others to follow
the same practice on other engagements.
D. Bert's Available Alternatives
• Refuse to work the additional hours.
• Perform in the manner requested.
• Inform Carlos that he will not work the additional hours or will charge the additional hours to the engagement.
• Talk to manager or partner about Carlos request.
• Refuse to work on the engagement.
• Quit working for the firm.
Each of these options includes a potential consequence, the worst likely one being termination by the firm.

E. Consequences of Each Alternative

In deciding the consequences of each alternative, it is essential to evaluate both the short- and long-term effects. There is a
natural tendency to emphasize the short term because those consequences will occur quickly, even when the long-term
consequences may be more important. For example, consider the potential consequences if Bert decides to work the additional
hours and not report them. In the short term, he will likely get good evaluations for cooperation and perhaps a salary increase.
In the longer term, what will be the effect of not reporting the hours this time when other ethical conflicts arise?
Consider the following similar ethical dilemmas Bert might face in his career as he advances:
• A supervisor asks Bert to work 3 unreported hours daily and 15 unreported hours each weekend.
• A supervisor asks Bert to initial certain procedures as having been performed when they were not.
• Bert concludes that he cannot be promoted to manager unless he persuades assistants to work hours that they do not
record.
• Management informs Bert, who is now a partner, that either the company gets a P400,000 legal fee or the company will
change lawyers.

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Business Management and Accountancy

• Management informs Bert that the legal fee will be increased P50,000 if Bert can find a plausible way to increase probability
or wining case.
F. Appropriate Action
Only Bert can decide the appropriate option to select in the circumstances after considering his ethical values and the likely
consequences of each option. At one extreme, Bert could decide that the only relevant consequence is the potential impact on
his career. Most of us would conclude that Bert is an unethical person if he follows that course. At the other extreme, Bert can
decide to refuse to work for a firm that permits even one supervisor to violate firm policies. Many people would consider such
an extreme reaction naive.
Posttest:
1. Describe an ethical dilemma. How does a person resolve an ethical dilemma?
2. Why is there a special need for ethical behavior by professionals?
3. In the context of ethical decision making process, what are the guidance to follow before the decision makers of organizations
lay down decisions.
4. After accepting an engagement, a consultant discovers that the client’s industry is more technical than he realized and that
he is not competent in certain areas of the operation. What are the consultant’s options?
5. David Lawyer, sets up a small loan company specializing in loans to business executives and small companies. David does
not spend much time in the business because he spends full time with his law practice. No employees of David Law firm are
involved in the small loan company. Identify and discuss the ethical implications of David’s act.
6. Frank Doran, a senior audit manager for Cruz and Santos, CPAs, has recently been informed that the firm plans to promote
him to partner within the next year or two if he continues to perform at the same high-quality level as in the past. Frank excels
at dealing effectively with all people, including client personnel, professional staff, partners, and potential clients. He has recently
built a bigger home for entertaining and has joined the city’s most prestigious golf and tennis club. He is excited about his future
with the firm.
Frank has recently been assigned to the audit of Machine International, a large wholesale company that ships goods throughout
the world. It is one of Bright and Lorren’s most prestigious clients. During the audit, Frank determines that Machine International
uses a method of revenue recognition called “bill and hold” that has recently been questioned by the SEC. After considerate
research, Frank concludes that the method of revenue recognition is not appropriate for Machine International.
In discussing the matter with the engagement partner, she concludes that the accounting method has been used for more than
10 years by the client and is appropriate, especially considering that the client does not file with the SEC. The partner is certain
the firm would lose the client if the revenue recognition method is found inappropriate. Frank argues that the revenue recognition
method was appropriate in prior years, but the new SEC ruling makes it appropriate in the current year.
Frank recognizes the partner's responsibility to make the final decision, but he feels strongly enough to state that he plans to
follow the requirements and include a statement in the working papers that he disagrees with the partner’s decision. The partner
informs Frank that she is unwilling to permit such a statement because of the potential legal implications. However, she is willing
to write a letter to Frank stating that she takes full responsibility for making the final decision if a legal dispute ever arises. She
concludes by saying, “Frank, partners must act like partners, not like loose cannons trying to make life difficult for their partners.
You have some growing up to do before I would feel comfortable with you as a partner.”
Required:
Use the six-step approach to resolve the ethical dilemma.