Ethical decision making and

Ethical leadership
Pg. 128-144 (Ferrell, Fraedrich & Ferrell)

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A Framework for Ethical Decision Making
in Business

 This model of the ethical decision-making process in business includes

 ethical issue intensity
 individual factors
 organizational factors (such as corporate culture and opportunity).
 All of these interrelated factors influence the evaluations of and intentions behind the
decisions that produce ethical or unethical behavior.

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Ethical Issue Intensity

 a. The first step in ethical decision making is to recognize that an ethical issue requires an
individual or group to choose among actions that stakeholders will evaluate as right or wrong
 b. The intensity of an ethical issue relates to its perceived importance to the decision maker.
 c. Ethical issue intensity is therefore defined as “the relevance or importance of an ethical issue
in the eyes of the individual, work group, and/or organization”.
 d. Individuals are subject to six “spheres of influence” when confronted with ethical choices—
the workplace, family, religion, legal system, community, and profession.
 the level of importance of each of these influences will vary, depending on how important the decision
maker perceives the issue to be.

 e. Moral intensity relates to a person’s perception of social pressure and the harm the decision
will have on others.

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Individual Factors

 a. People often base their decisions regarding ethical issues on their own values and
principles of right or wrong. These values are subjective and can vary across cultures.
 b. Research on gender and ethical decision making suggests that women are generally
more ethical than males.
 c. Education and work experience are both positively correlated with making ethical
decisions.
 d. Nationality is the legal relationship between a person and the country in which he/she is
born. Culture differences may contribute to differing value systems.
 e. Research on age and ethical decision making reveals a complicated relationship.
Younger managers are far more influenced by organizational culture than are older
managers.

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Individual Factors

 f. Locus of control relates to individual differences in relation to a generalized belief about

how one is affected by internal versus external events or reinforcements.
 i) Those who believe in external control (externals) see themselves as going with the flow because
that is all they can do.
 ii) Those who believe in internal control (internals) believe that they control the events in their lives
by their own effort and skill and trust in their capacity to influence their environment.

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3. Organizational Factors

 a. No one operates in a vacuum.

 b. In the workplace, the organization’s values have the greatest influence on decisions. The alignment
between a person’s own values and the values of the organization help to create positive work attitudes
and organizational outcomes.
 c. A corporate culture can be defined as a set of values, norms, and artifacts, including ways of solving
problems that members (employees) of an organization share.
 d. The ethical culture reflects whether the firm also has an ethical conscience. Ethical culture is a function of
many factors, including:
 corporate policies on ethics,
 top management’s leadership on ethical issues,
 the influence of coworkers, and
 the opportunity for unethical behavior.
 The more ethical a culture is perceived to be, the less likely employees are to make unethical decisions.

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3. Organizational Factors

 e. Those who have influence in a work group, including peers, managers, coworkers, and
subordinates, are referred to as significant others.
 f. Obedience to authority helps to explain why many employees resolve business ethics
issues by simply following the directives of a superior. In organizations that emphasize
respect for superiors, employees may feel that they are expected to carry out all orders
from a supervisor.

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4. Opportunity

 a. Opportunity describes the conditions in an organization that limit or permit ethical or

unethical behavior.
 b. It results from conditions that either provide rewards or fail to erect barriers against
unethical behavior.
 c. It also relates to individuals’ immediate job context—where they work, with whom they
work, and the nature of the work.
 d. The opportunity that employees have for unethical behavior in an organization can be
greatly reduced through formal codes, policies, and rules that are adequately enforced
by management. These mechanisms for eliminating misconduct must be consistent and
aggressive.

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Business Ethics Evaluations and Intentions

 1. An individual’s intentions and the final decision regarding what action he or she will take
are the last steps in the ethical decision-making process.
 2. Guilt or uneasiness is the first sign that an unethical decision has occurred. This feeling
occurs when a person’s behaviors are inconsistent with ethical judgment.

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Using the Ethical Decision-Making
Framework to Improve Ethical Decisions

 A. The ethical decision making framework cannot tell you if a business decision is ethical or
unethical, but it does provide you with insights and knowledge about typical ethical
decision making processes in business organizations
 B. It is unlikely that an organization’s ethical problems will be solved through a thorough
knowledge about how ethical decisions are made. 1. Business ethics involves value
judgments and collective agreement about acceptable patterns of behavior.

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Using the Ethical Decision-Making
Framework to Improve Ethical Decisions

 C. Ethical decision making within an organization does not rely strictly on the personal
values and morals of individuals.
 Knowledge of moral philosophies or values must be balanced with business knowledge and
understanding of the complexities of the dilemma requiring a decision.
 Organizations take on a culture of their own, which, when combined with corporate
governance mechanisms, have a significant influence on business ethics.

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The Role of Leadership in a Corporate
Culture

 A. Top managers provide a blueprint for what a firm’s corporate culture should be.
 B. Leadership has a significant impact on ethical decision making because leaders have
the power to:
 motivate others
 enforce the organization’s rules and policies as well as their own viewpoints.
 C. Leaders are important in influencing an organization’s corporate culture.
 Leaders include the organization’s board of directors, as well as its managers and top executives.

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Influence of Leadership Styles on
Ethical/Unethical Decisions

 A. Leadership styles influence many aspects of organizational behavior, including employees’ acceptance of and adherence to
organizational norms and values.
 B. Ethical leaders need both knowledge and experience to make decisions.
 Strong ethical leaders must have the right kind of moral integrity.
 C. Six leadership styles are based on emotional intelligence (identified by Danel Goleman). Which one would be most effective in
developing an ethical culture?
 1. Coercive
 2. Authoritative
 3. Affiliative
 4. Democratic
 5. Pacesetting
 6. Coaching.

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Influence of Leadership Styles on
Ethical/Unethical Decisions

 The most successful leaders do not rely on one style but alter their techniques based on
the characteristics of the situation.
 Different styles can be effective in developing an ethical culture depending on:
 the leader’s assessment of risks, and
 desire to achieve a positive climate for organizational performance
 D. Can also classify leaders as transactional or transformational.
 1. Transactional leaders attempt to create employee satisfaction through negotiating, or
“bartering,” for desired behaviors or levels of performance.
 2. Transformational leaders strive to raise employees’ level of commitment and to foster
trust and motivation.

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Habits of Strong Ethical Leaders

 1. The “7 Habits of Highly Moral Leaders” were developed by Archie Carroll

 Based on The Seven Habits of Highly Effective People by Stephen Covey.
 2. Ethical leadership is based on holistic thinking that embraces the complex and
challenging issues companies face.
 3. Leaders need both knowledge and experience to make the right decision.
 4. They must have courage and the most complete information to make decisions that will
be the best in the long run.
 5. Leaders must stick to their principles and be ready to leave the organization if it is
impossible to make the right choice

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The 7 Habits of Highly Moral Leaders

 A. Ethical Leaders Have Strong Personal Character

 Ethical leadership is highly unlikely without a strong personal character.
 B. Ethical Leaders Have a Passion to Do Right
 Strong ethical leaders are “The glue that holds ethical concepts together.”
 C. Ethical Leaders Are Proactive
 They anticipate, plan, and act proactively to avoid potential ethical crises.
 D. Ethical Leaders Consider Stakeholders’ Interests
 Ethical leaders must consider the interests of and implications for all stakeholders, not just those
that have an economic impact on the firm.
 Ethical leaders have the responsibility to balance stakeholder interests to ensure that the
organization maximizes its role as a responsible corporate citizen.

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The 7 Habits of Highly Moral Leaders

 E. Ethical Leaders Are Role Models for the Organization’s Values

 F. Ethical Leaders Are Transparent and Actively Involved in Organizational Decision Making
 1. Foster openness, freedom to express ideas, and the ability to question conduct
 2. Encourage stakeholders to learn about and comment on what a firm is doing
 3. Personally involved in the key decisions that have ethical ramifications.
 G. Ethical Leaders Are Competent Managers Who Take a Holistic View of the Firm’s Ethical
Culture.
 They view ethics as a strategic component of decision making.

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Overall…Understanding Ethical Decision
Making

 A. Ethical issue intensity, individual factors, organizational factors, and opportunity are all
factors that result in business ethics evaluations and decisions.
 B. An ethical organizational culture is shaped by effective leadership.
 Without top level support for ethical behavior, the opportunity for employees to engage in their
own personal approach to ethical decision making will evolve.
 C. The more you know about ethical decision making in business, the more likely you will
be to make good decisions

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