CHAPTER 5

© Keith Reicher

Ethical Decision Making

and Ethical Leadership
© S. Greg Panosian
CHAPTER OBJECTIVES AN ETHICAL DILEMMA*
• To provide a comprehensive framework
for ethical decision making in business Bill Church was in a bind. A recent graduate of a prestigious
• To examine the intensity of ethical business school, he had taken a job in the auditing division
issues as an important element of Greenspan & Company, a fast-growing leader in the
influencing the ethical decision making
process accounting industry. Greenspan relocated Bill, his wife,
• To introduce individual factors that and their 1-year-old daughter from the Midwest to the
may influence ethical decision making East Coast. On arriving, they bought their first home and a
in business second car. Bill was told that the company had big plans
• To introduce organizational factors that for him. Thus, he did not worry about being financially
may influence ethical decision making
in business
overextended.
Several months into the job, Bill found that he was
• To explore the role of opportunity in
working late into the night to complete his auditing
ethical decision making in business
• To explain how knowledge about the assignments. He realized that the company did not want
ethical decision making framework can its clients billed for excessive hours and that he needed
be used to improve ethical leadership to become more efficient if he wanted to move up in
• To provide leadership styles and habits the company. He asked one of his friends, Ann, how she
that promote an ethical culture
managed to be so efficient in auditing client records.
Ann quietly explained: “Bill, there are times when being
CHAPTER OUTLINE efficient isn’t enough. You need to do what is required to
A Framework for Ethical Decision Making
in Business
get ahead. The partners just want results—they don’t care
Ethical-Issue Intensity
how you get them.”
“I don’t understand,” said Bill.
Individual Factors
“Look,” Ann explained, “I had the same problem you
Organizational Factors
have a few years ago, but Mr. Reed [the manager of the
Opportunity
auditing department] explained that everyone ‘eats time’ so
Business Ethics Evaluations that the group shows top results and looks good. And when
and Intentions
the group looks good, everyone in it looks good. No one
Using the Ethical Decision Making
Framework to Improve Ethical Decisions cares if a little time gets lost in the shuffle.”
The Role of Leadership in a Corporate Bill realized that “eating time” meant not reporting
Culture all the hours required to complete a project. He also
Leadership Styles Influence Ethical remembered one of Reed’s classic catch phrases, “results,
Decisions results, results.” He thanked Ann for her input and went back
Habits of Strong Ethical Leaders to work. Bill thought of going over Reed’s head and asking
Ethical Leaders Have Strong for advice from the division manager, but he had met her
Personal Character
only once and did not know anything about her.
Ethical Leaders Have a
Passion to Do Right
QUESTIONS • EXERCISES
Ethical Leaders Are Proactive
1. What should Bill do?
Ethical Leaders Consider
Stakeholders’ Interests 2. Describe the process through which Bill might attempt
Ethical Leaders Are Role Models
to resolve his dilemma.
for the Organization’s Values 3. Consider the impact of this company’s approach on
Ethical Leaders Are Transparent young accountants. How could working long hours be
and Actively Involved in an ethical problem?
Organizational Decision Making
Ethical Leaders Are Competent *This case is strictly hypothetical; any resemblance to real persons,
Managers Who Take a Holistic View companies, or situations is coincidental.
of the Firm’s Ethical Culture
128 Part : The Decision Making Process

T
o improve ethical decision making in business, one must first understand how
individuals make ethical decisions in an organizational environment. Too often it
is assumed that individuals in organizations make ethical decisions in the same way
that they make ethical decisions at home, in their family, or in their personal lives. Within
the context of an organizational work group, however, few individuals have the freedom
to decide ethical issues independent of organizational pressures.
This chapter summarizes our current knowledge of ethical decision making in
business and provides insights into ethical decision making in organizations. Although
it is impossible to describe exactly how any one individual or work group might make
ethical decisions, we can offer generalizations about average or typical behavior patterns
within organizations. These generalizations are based on many studies and at least six
ethical decision models that have been widely accepted by academics and practitioners.1
Based on these models, we present a framework for understanding ethical decision
making in the context of business organizations. In addition to business, this framework
integrates concepts from philosophy, psychology, sociology, and organizational behavior.
This framework should be helpful in understanding organizational ethics and developing
ethical programs.

A FRAMEWORK FOR ETHICAL DECISION

MAKING IN BUSINESS
As Figure 5–1 shows, our model of the ethical decision making process in business includes
ethical issue intensity, individual factors, and 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. This model
does not describe how to make ethical decisions, but it does help one to understand the
factors and processes related to ethical decision making.

FIGURE 51 Framework for Understanding Ethical Decision Making in Business

Ethical Issue
Intensity

Individual Factors
Business Ethics Ethical or
Evaluations and Unethical
Intentions Behavior
Organizational
Factors

Opportunity
Chapter 5: Ethical Decision Making and Ethical Leadership 129

Ethical Issue Intensity

The first step in ethical decision making is to recognize that an ethical issue requires an
individual or work group to choose among several actions that various stakeholders inside
or outside the firm will ultimately evaluate as right or wrong. The intensity of an ethical
issue relates to its perceived importance to the decision maker.2 Ethical issue intensity,
then, can be defined as the relevance or importance of an ethical issue in the eyes of the
individual, work group, and/or organization. It is personal and temporal in character to
accommodate values, beliefs, needs, perceptions, the special characteristics of the situation,
and the personal pressures prevailing at a particular place and time.3 Senior employees
and those with administrative authority contribute significantly to intensity because they
typically dictate an organization’s stance on ethical issues. In fact, under current law,
managers can be held liable for the unethical and illegal actions of subordinates. In the
United States, the Federal Sentencing Guidelines for Organizations have a liability formula
that judges those who are in positions of authority in regard to their action or inaction
regarding the unethical and illegal activities of those around them. For example, many of
the Enron employees and managers who were aware of the firm’s use of off-balance-sheet
partnerships—which turned out to be the major cause of the energy firm’s collapse—were
advised that these partnerships were legal, so they did not perceive them as an ethical issue.
Although such partnerships were in fact legal at that time, the way that some Enron officials
designed them and the methods they used to provide collateral (that is, Enron stock) created
a scheme that brought about the collapse of the company.4 Thus, ethical issue intensity
involves individuals’ cognitive state of concern about an issue, whether or not they have
knowledge that an issue is unethical, which indicates their involvement in making choices.
Ethical issue intensity reflects the ethical sensitivity of the individual or work group
that faces the ethical decision making process. Research suggests that individuals are
subject to six “spheres of influence” when confronted with ethical choices—the workplace,
family, religion, legal system, community, and profession—and that the level of importance
of each of these influences will vary depending on how important the decision maker
perceives the issue to be.5 Additionally, the individual’s sense of the situation’s moral
intensity increases the individual’s perceptiveness regarding ethical problems, which in
turn reduces his or her intention to act unethically.6 Moral intensity relates to a person’s
perception of social pressure and the harm the decision will have on others.7 All other
factors in Figure 5–1, including individual factors, organizational factors, and intentions,
determine why different individuals perceive ethical issues differently. Unless individuals
in an organization share common concerns about ethical issues, the stage is set for ethical
conflict. The perception of ethical issue intensity can be influenced by management’s
use of rewards and punishments, corporate policies, and corporate values to sensitize
employees. In other words, managers can affect the degree to which employees perceive
the importance of an ethical issue through positive and/or negative incentives.8
For some employees, ethical issues may not reach the critical awareness level if
managers fail to identify and educate employees about specific problem areas. Subprime
lenders, such as Countrywide Finance, failed to educate brokers about the damages of
misrepresenting financial data to help individuals secure loans. Organizations that
consist of employees with diverse values and backgrounds must train them in the way
the firm wants specific ethical issues handled. Identifying the ethical issues and risks that
employees might encounter is a significant step toward developing their ability to make
ethical decisions. Many ethical issues are identified by industry groups or through general
130 Part : The Decision Making Process

information available to a firm. Companies must assess areas of ethical and legal risk that are
in reality ethical issues. Issues that are communicated as being high in ethical importance
could trigger increases in employees’ ethical issue intensity. The perceived importance
of an ethical issue has been found to have a strong influence on both employees’ ethical
judgment and their behavioral intention. In other words, the more likely individuals are
to perceive an ethical issue as important, the less likely they are to engage in questionable
or unethical behavior.9 Therefore, ethical issue intensity should be considered a key factor
in the ethical decision making process.

Individual Factors
When people need to resolve ethical issues in their daily lives, they often base their decisions
on their own values and principles of right or wrong. They generally learn these values
and principles through the socialization process with family members, social groups, and
religion and in their formal education. The actions of specific individuals
in scandal-plagued companies such as AIG, Countrywide Financial, Fannie
Mae, and Freddie Mac often raise questions about those individuals’ personal
The more likely character and integrity. They appear to operate in their own self-interest or
in total disregard of the law and interests of society. Fannie Mae has become
individuals are one of the high-profile figures in the 2008–2009 financial meltdown. It is a
stockholder-owned corporation created to purchase and securitize mortgages,
to perceive an and was a key figure in the subprime mortgage debacle.10 Many people granted
ethical issue as mortgages by Fannie Mae were not strong candidates to receive mortgages,
and their homes have since been foreclosed. Civil charges had already been
important, the filed against Fannie Mae’s CEO, CFO, and the former controller, who allegedly
less likely they manipulated earnings to increase their bonuses. CEO Daniel Mudd was also
investigated for lying to investors about earnings. Bad decisions and managerial
are to engage in misconduct clearly contributed to the company’s downfall.11
In the workplace, personal ethical issues typically involve honesty, conflicts
questionable of interest, discrimination, nepotism, and theft of organizational resources.
For example, many individuals use the company computer system for several
or unethical hours of work time a day for personal reasons. Most employees limit the use of
behavior. their work time for personal use, and most companies probably overlook these
as reasonable. Some employees, however, use times in excess of 30 minutes
for personal Internet communications, which companies are likely to view as
an excessive use of company time for personal reasons. The decision to use
company time for personal affairs is an example of an ethical decision. It illustrates the fine
line between what may be acceptable or unacceptable in a business environment. It also
reflects how well an individual will assume responsibilities in the work environment. Often
this decision will depend on company policy and the corporate environment.
The way the public perceives individual ethics generally varies according to the profession
in question. Telemarketers, car salespersons, advertising practitioners, stockbrokers, and
real estate brokers are often perceived as having the lowest ethics. Research regarding
individual factors that affect ethical awareness, judgment, intent, and behavior include
gender, education, work experience, nationality, age, and locus of control.
Extensive research has been done regarding the link between gender and ethical
decision making. The research shows that in many aspects there are no differences
between men and women, but when differences are found, women are generally more
ethical than men.12 By “more ethical,” we mean that women seem to be more sensitive to
Chapter 5: Ethical Decision Making and Ethical Leadership 131

ethical scenarios and less tolerant of unethical actions. In a study on gender and intentions
for fraudulent financial reporting, females reported higher intentions to report them than
male participants.13 As more and more women work in managerial positions, these findings
may become increasingly significant.
Education, the number of years spent in pursuit of academic knowledge, is also a
significant factor in the ethical decision making process. The important thing to remember
about education is that it does not reflect experience. Work experience is defined as the
number of years within a specific job, occupation, and/or industry. Generally, the more
education or work experience that one has, the better he or she is at ethical decision making.
The type of education has little or no effect on ethics. For example, it doesn’t matter if you
are a business student or a liberal arts student—you are pretty much the same in terms of
ethical decision making. Current research, however, shows that students are less ethical
than businesspeople, which is likely because businesspeople have been exposed to more
ethically challenging situations than students.14
Nationality is the legal relationship between a person and the country in which he
or she is born. Within the twenty-first century, nationality is being redefined by regional
economic integration such as the European Union (EU). When European students are
asked their nationality, they are less likely to state where they were born than where they
currently live. The same thing is happening in the United States, as someone born in Florida
who lives in New York might consider him- or herself to be a New Yorker. Research about
nationality and ethics appears to be significant in that it affects ethical decision making;
however, the true effect is somewhat hard to interpret.15 Because of cultural differences, it
is impossible to state that ethical decision making in an organizational context will differ
significantly. The reality of today is that multinational companies look for businesspeople
who can make decisions regardless of nationality. Perhaps in twenty years, nationality will
no longer be an issue in that the multinational’s culture will replace the national status as
the most significant factor in ethical decision making.
Age is another individual factor that has been researched within business ethics.
Several decades ago, we believed that age was positively correlated with ethical decision
making. In other words, the older you are, the more ethical you are. However, recent
research suggests that there is probably a more complex relationship between ethics and
age.16 We do believe that older employees with more experience have greater knowledge
to deal with complex industry-specific ethical issues.
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. In other
words, the concept relates to where people view themselves in relation to power. Those who
believe in external control (that is, externals) see themselves as going with the flow because
that’s all they can do. They believe that the events in their lives are due to uncontrollable
forces. They consider that what they want to achieve depends on luck, chance, and powerful
people in their company. In addition, they believe that the probability of being able to
control their lives by their own actions and efforts is low. Conversely, those who believe
in internal control (that is, internals) believe that they control the events in their lives by
their own effort and skill, viewing themselves as masters of their destinies and trusting in
their capacity to influence their environment.
Current research suggests that we still can’t be sure how significant locus of control is
in terms of ethical decision making. One study that found a relationship between locus of
control and ethical decision making concluded that internals were positively related whereas
externals were negative.17 In other words, those who believe that their fate is in the hands of
others were more ethical than those who believed that they formed their own destiny.
132 Part : The Decision Making Process

Organizational Factors
Although people can and do make individual ethical choices in business situations, no
one operates in a vacuum. Indeed, research has established that in the workplace the
organization’s values often have greater influence on decisions than a person’s own values.18
Ethical choices in business are most often made jointly, in work groups and committees,
or in conversations and discussions with coworkers. Employees approach ethical issues on
the basis of what they have learned not only from their own backgrounds but also from
others in the organization. The outcome of this learning process depends on the strength
of each person’s personal values, the opportunities he or she has to behave unethically, and
the exposure he or she has to others who behave ethically or unethically. Although people
outside the organization, such as family members and friends, also influence decision
makers, an organization’s culture and structure operate through the relationships of its
members to influence their ethical decisions.
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. As time passes, stakeholders come to view the company or organization as
The more ethical a living organism, with a mind and will of its own. The Walt Disney Company, for
employees example, requires all new employees to take a course in the traditions and history
of Disneyland and Walt Disney, including the ethical dimensions of the company.
perceive an The corporate culture at American Express Company stresses that employees help
customers out of difficult situations whenever possible. This attitude is reinforced
organization’s through numerous company legends of employees who have gone above and
culture to be, beyond the call of duty to help customers. This strong tradition of customer
loyalty thus might encourage an American Express employee to take unorthodox
the less likely steps to help a customer who encounters a problem while traveling overseas.
Employees learn that they can take some risks in helping customers. Such strong
they are to traditions and values have become a driving force in many companies, including
make unethical McDonald’s, IBM, Procter & Gamble, Southwest Airlines, and Hershey Foods.
An important component of corporate, or organizational, culture is the
decisions. company’s ethical culture. Whereas corporate culture involves values and norms
that prescribe a wide range of behavior for organizational members, 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. Within the organization as a whole, subclimates can develop within individual
departments or work groups, but they are influenced by the strength of the firm’s overall
ethical culture, as well as the function of the department and the stakeholders it serves.19
The more ethical employees perceive an organization’s culture to be, the less likely they
are to make unethical decisions. Corporate culture and ethical culture are closely associated
with the idea that significant others within the organization help determine ethical decisions
within that organization. Research also indicates that the ethical values embodied in an
organization’s culture are positively related to employees’ commitment to the firm and their
sense that they fit into the company. These findings suggest that companies should develop
and promote ethical values to enhance employees’ experiences in the workplace.20
Those who have influence in a work group, including peers, managers, coworkers, and
subordinates, are referred to as significant others. They help workers on a daily basis with
unfamiliar tasks and provide advice and information in both formal and informal ways.
Chapter 5: Ethical Decision Making and Ethical Leadership 133

Coworkers, for instance, can offer help in the comments they make in discussions over
lunch or when the boss is away. Likewise, a manager may provide directives about certain
types of activities that employees perform on the job. Indeed, an employee’s supervisor
can play a central role in helping employees develop and fit in socially in the workplace.21
Numerous studies conducted over the years confirm that significant others within an
organization may have more impact on a worker’s decisions on a daily basis than any
other factor.22
Obedience to authority is another aspect of the influence that significant others can
exercise. 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, for example, employees may feel that they are expected to carry out
orders by a supervisor even if those orders are contrary to the employees’ sense of right and
wrong. Later, if the employee’s decision is judged to have been wrong, he or she is likely to
say, “I was only carrying out orders” or “My boss told me to do it this way.” In addition, the
type of industry and the size of the organization have also been researched and found to be
relevant factors; the bigger the company, the more potential for unethical activities.23

Opportunity
Opportunity describes the conditions in an organization that limit or permit ethical or
unethical behavior. Opportunity results from conditions that either provide rewards,
whether internal or external, or fail to erect barriers against unethical behavior. Examples of
internal rewards include feelings of goodness and personal worth generated by performing
altruistic acts. External rewards refer to what an individual expects to receive from others
in the social environment. Rewards are external to the individual to the degree that they
bring social approval, status, and esteem.
An example of a condition that fails to erect barriers against unethical behavior is
a company policy that does not punish employees who accept large gifts from clients.
The absence of punishment essentially provides an opportunity for unethical behavior
because it allows individuals to engage in such behavior without fear of consequences. The
prospect of a reward for unethical behavior can also create an opportunity for questionable
decisions. For example, a salesperson who is given public recognition and a large bonus
for making a valuable sale that he or she obtained through unethical tactics will probably
be motivated to use such tactics in the future, even if such behavior goes against the
salesperson’s personal value system. If 10 percent of employees report observing others at
the workplace abusing drugs or alcohol, then the opportunity to engage in these activities
exists if there is a failure to report and respond to this conduct.24
Opportunity relates to individuals’ immediate job context—where they work, whom
they work with, and the nature of the work. The immediate job context includes the
motivational “carrots and sticks” that superiors use to influence employee behavior. Pay
raises, bonuses, and public recognition act as carrots, or positive reinforcements, whereas
demotions, firings, reprimands, and pay penalties act as sticks, the negative reinforcements.
The United States Chamber of Commerce reports that 75 percent of employees steal from
their workplaces, and most do so repeatedly.25 As Figure 5–2 shows, many employees pilfer
office-supply rooms for matters unrelated to the job. It is possible that the opportunity
is provided, and in some cases, there are no concerns if employees take pens, Post-its,
envelopes, notepads, and paper. Respondents to the survey by Vault.com indicated that 25
percent felt that no one cared if they took office supplies, 34 percent said that they never
134 Part : The Decision Making Process

FIGURE 52 Items that Employees Pilfer in the Workplace

60
60

50
Percent numbers 40
40
32
30 28 28

20

10

0
Pen or Pencil Post-its Items Notepads Paper

Source: “Top Items Employees Pilfer,” the most popular items employees take from office-supply rooms for matters unrelated to the job. Vault’s office
survey of 1,152 respondents. In Snapshots, USA Today, March 29, 2006, B1.

got caught, and 1 percent said that they were caught and got in trouble. If there is no policy
against this practice, one concern is that employees will not learn where to draw the line
and will get into the habit of taking even more expensive items for personal use.
The opportunity that employees have for unethical behavior in an organization can
be eliminated through formal codes, policies, and rules that are adequately enforced
by management. For example, financial companies—such as banks, savings and loan
associations, and securities companies—have developed elaborate sets of rules and procedures
to avoid the opportunity for individual employees to manipulate or take advantage of their
trusted position. In banks, one such rule requires most employees to take a vacation and
stay out of the bank a certain number of days every year so that they cannot be physically
present to cover up embezzlement or other diversion of funds. This rule prevents the
opportunity for inappropriate conduct. Even after audits by prestigious accounting firm
PricewaterhouseCoopers, the founder and chairman of one of India’s largest technology
companies, Satyam Computer Services Ltd., admitted he invented financial results,
including a fictitious cash balance of more than $1 billion. He was able to overstate profits
and understate liabilities. This was allowed to happen, even though Satyam had independent
directors, including a Harvard business school professor, on its board. The question is:
How did the CEO manage to blatantly manipulate financial information without anyone
catching on? There had to be loopholes in the oversight of the company’s accounting, audits,
and corporate governance that allowed this fraud. In addition, government regulation of
financial reporting allowed the opportunity for misconduct. To avoid situations like this in
the future, there must be checks and balances that create transparency.26
Opportunity also comes from knowledge. Major misconduct observed among
employees in the workplace include lying to employees, customers, vendors, or the public
or withholding needed information from them.27 A person who has an information
base, expertise, or information about the competition has the opportunity to exploit this
knowledge. An individual can be a source of information because he or she is familiar with
the organization. Individuals who have been employed by one organization for many years
become “gatekeepers” of its culture and often have the opportunity to make decisions
related to unwritten traditions and rules. They help socialize newer employees to abide
Chapter 5: Ethical Decision Making and Ethical Leadership 135

by the rules and norms of the company’s internal and external ways of doing business, as
well as understanding when the opportunity exists to cross the line. They may function as
mentors or supervise managers in training. Like drill sergeants in the army, these trainers
mold the new recruits into what the company wants. This can contribute to either ethical
or unethical conduct.
The opportunity for unethical behavior cannot be eliminated without aggressive
enforcement of codes and rules. A national jewelry store–chain president explained to
us how he dealt with a jewelry buyer in one of his stores who had taken a bribe from a
supplier. There was an explicit company policy against taking incentive payments in order
to deal with a specific supplier. When the president of the firm learned that one of his
buyers had taken a bribe, he immediately traveled to that buyer’s office and terminated his
employment. He then traveled to the supplier (manufacturer) selling jewelry to his stores
and terminated his relationship with the firm. The message was clear: Taking a bribe is
unacceptable for the store’s buyers, and salespeople from supplying companies could cost
their firm significant sales by offering bribes. This type of policy enforcement illustrates
how the opportunity to commit unethical acts can be eliminated.

Business Ethics Evaluations and Intentions

Ethical dilemmas involve problem-solving situations in which decision rules are often
vague or in conflict. The results of an ethical decision are often uncertain; no one can always
tell us whether we have made the right decision. There are no magic formulas, nor is there
computer software that ethical dilemmas can be plugged into for a solution. Even if they
mean well, most businesspeople will make ethical mistakes. Thus, there is no substitute for
critical thinking and the ability to take responsibility for our own decisions.
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. When the individual’s
intentions and behavior are inconsistent with his or her ethical judgment, the person
may feel guilty. For example, when an advertising account executive is asked by her client
to create an advertisement that she perceives as misleading, she has two alternatives: to
comply or to refuse. If she refuses, she stands to lose business from that client and possibly
her job. Other factors—such as pressure from the client, the need to keep her job to pay her
debts and living expenses, and the possibility of a raise if she develops the advertisement
successfully—may influence her resolution of this ethical dilemma. Because of these other
factors, she may decide to act unethically and develop the advertisement even though she
believes it to be inaccurate. Because her actions are inconsistent with her ethical judgment,
she will probably feel guilty about her decision.
Guilt or uneasiness is the first sign that an unethical decision has occurred. The next
step is changing one’s behavior to reduce such feelings. This change can reflect a person’s
values shifting to fit the decision or the person changing his or her decision type the next
time a similar situation occurs. Finally, one can eliminate some of the situational factors
by quitting. For those who begin the value shift, the following are the usual justifications
that will reduce and finally eliminate guilt:
1. I need the paycheck and can’t afford to quit right now.
2. Those around me are doing it so why shouldn’t I? They believe it’s okay.
3. If I don’t do this, I might not be able to get a good reference from my boss or company
when I leave.
136 Part : The Decision Making Process

4. This is not such a big deal, given the potential benefits.

5. Business is business with a different set of rules.
6. If not me, someone else would do it and get rewarded.
The road to success depends on how the businessperson defines success. The success
concept drives intentions and behavior in business either implicitly or explicitly. Money,
security, family, power, wealth, and personal or group gratification are all types of success
measures that people use. The list described is not comprehensive, and in the next chapter,
you will understand more about how success can be defined. Another concept that affects
behavior is the probability of rewards and punishments. That too will be explained further
in Chapter 6.

USING THE ETHICAL DECISION

MAKING FRAMEWORK TO IMPROVE
ETHICAL DECISIONS
The ethical decision making framework presented in this chapter cannot tell you if a
business decision is ethical or unethical. It bears repeating that it is impossible to tell you
what is right or wrong; instead, we are attempting to prepare you to make informed ethical
decisions. Although this chapter does not moralize by telling you what to do in a specific
situation, it does provide an overview of typical decision making processes and factors
that influence ethical decisions. The framework is not a guide for how to make decisions
but is intended to provide you with insights and knowledge about typical ethical decision
making processes in business organizations.
Because it is impossible to agree on normative judgments about what is ethical,
business ethics scholars developing descriptive models have instead focused on regularities
in decision making and the various phenomena that interact in a dynamic environment to
produce predictable behavioral patterns. Furthermore, it is unlikely that an organization’s
ethical problems will be solved strictly by having a thorough knowledge about how ethical
decisions are made. By its very nature, business ethics involves value judgments and
collective agreement about acceptable patterns of behavior.
We propose that gaining an understanding of typical ethical decision making
in business organizations will reveal several ways that such decision making could be
improved. With more knowledge about how the decision process works, you will be
better prepared to analyze critical ethical dilemmas and to provide ethical leadership
regardless of your role in the organization. One important conclusion that should be
taken from our framework is that ethical decision making within an organization does
not rely strictly on the personal values and morals of individuals. Knowledge of moral
philosophies or principles must be balanced with business knowledge and understanding
of the complexities of the dilemma requiring a decision. For example, a manager who
embraces honesty, fairness, and equity has to understand the diverse risks associated with
a complex financial instrument such as options or derivatives. Business competence must
exist, along with personal accountability, in ethical decisions. Organizations take on a
Chapter 5: Ethical Decision Making and Ethical Leadership 137

culture of their own, with managers and coworkers exerting a significant influence on
ethical decisions.

THE ROLE OF LEADERSHIP

IN A CORPORATE CULTURE
Top managers provide a blueprint for what a firm’s corporate culture should be.28 If these
leaders fail to express desired behaviors and goals, a corporate culture will evolve on its
own but will still reflect the values and norms of the company. Leadership, the ability
or authority to guide and direct others toward achievement of a goal, has a significant
impact on ethical decision making because leaders have the power to motivate others and
enforce the organization’s norms and policies as well as their own viewpoints. Leaders
are key to influencing an organization’s corporate culture and ethical posture. However,
one poll found that less than half (47 percent) of employees in large (2,500 employees or
more) organizations think that the senior leadership in their firm is highly ethical.29
Although we often think of CEOs and other top managers as the most important
leaders in an organization, the corporate governance reforms discussed in Chapter 4
make it clear that a firm’s board of directors is also an important leadership component.
Indeed, directors have a legal obligation to manage companies “for the best interests of the
corporation.” To determine what is in the best interest of the firm, directors can consider
the effects that a decision may have on not only shareholders and employees but also other
important stakeholders.30 Therefore, when we discuss leadership, we include the corporate
directors as well as top executives.
In the long run, if stakeholders are not reasonably satisfied with a company’s leader,
he or she will not retain a leadership position. A leader must have not only his or her
followers’ respect but also provide a standard of ethical conduct to them. Former chairman
of Korean electronics giant Samsung Group, Lee Kun-hee, resigned in disgraced after
20 years on the Samsung board after being accused of evading $128 million in taxes.
His son and heir to the company, Lee Jae-yong, also resigned from the board. This was
only the final in a long string of corruption charges against Lee. He was also convicted of
bribery 10 years ago. Since his resignation, the company has sought to improve its image.31
Table 5–1 summarizes the steps executives should take to demonstrate that they understand
the importance of ethics in doing business.

TABLE 51 The Managerial Role in Developing Ethics Program Leadership

1. Organizational commitment from board of directors and top management

2. Organizational resources for ethics initiatives

3. Determine ethical risks and develop contingency plans

4. Develop an effective ethics program to address risks and maintain compliance with ethical
standards

5. Provide oversight for implementation and audits of ethical programs

6. Communicate with stakeholders to establish shared commitment and values for ethical conduct.
138 Part : The Decision Making Process

LEADERSHIP STYLES INFLUENCE

ETHICAL DECISIONS
Leadership styles influence many aspects of organizational behavior, including employees’
acceptance of and adherence to organizational norms and values. Styles that focus on
building strong organizational values among employees contribute to shared standards
of conduct. They also influence the organization’s transmittal and monitoring of values,
norms, and codes of ethics.32 In short, the leadership style of an organization influences
how its employees act. For example, the management philosophy of Mike Armstrong,
former CEO of AT&T, is characterized by the observations of its lab’s chief, David Nagel:
“Most bosses hate conflict. Mike is delighted when he sees us getting at each other.”
Armstrong has been characterized as scary, demanding, a taskmaster, and a maniac—in
an affectionate way. The fast-paced, intensely competitive telecommunications
industry requires a “nontraditional” leadership style to achieve success.33
Studying a firm’s leadership styles and attitudes can also help pinpoint where
The ethical future ethical issues may arise. Even for actions that may be against the law,
employees often look to their organizational leaders to determine how to
leadership
resolve the issue.
concept is not Although we often think of CEOs and other top managers as the most
important leaders in an organization, a firm’s board of directors is also a
only for CEOs, required leadership and an oversight component. The ethical leadership concept
is not only for CEOs, boards of directors, and managers but can also be fellow
boards of
employees. Ethical leadership by the CEO requires an understanding of the
directors, and firm’s vision and values, as well as the challenges of responsibility and the risk
in achieving organizational objectives. Lapses in ethical leadership can occur
managers but even in people who possess strong ethical character, especially if they view the
organization’s ethical culture as being outside the realm of decision making
can also be
that exists in the home, family, and community. This phenomenon has been
fellow employees. observed in countless cases of so-called good community citizens engaging in
unethical business activities. For example, Robin Szeliga, former CFO of Qwest,
who pleaded guilty for insider trading, was an excellent community leader,
even serving on a college of business advisory board.
Ethical leaders need both knowledge and experience to make decisions. Strong ethical
leaders must have the right kind of moral integrity. Such integrity must be transparent or,
in other words, do in private as if it were always public. This type of integrity relates to
values and is discussed in later chapters. They must be proactive and ready to leave the
organization if its corporate governance system makes it impossible to make the right
choice. Such right choices are complex by definition. The ethical leader must choose a
balance of all involved today as well as in the future. Such a person must be concerned
with shareholders as well as the lowest-paid employee. Experience shows that no leader
can always be right or judged ethical by stakeholders in every case. The acknowledgment
of this may be perceived as a weakness, but in reality it supports integrity and increases the
debate exchange of views on ethics and openness.
Six leadership styles that are based on emotional intelligence—the ability to manage
ourselves and our relationships effectively—have been identified by Daniel Goleman.34
1. The coercive leader demands instantaneous obedience and focuses on achievement,
initiative, and self-control. Although this style can be very effective during times of
Chapter 5: Ethical Decision Making and Ethical Leadership 139

crisis or during a turnaround, it otherwise creates a negative climate for organizational

performance.
2. The authoritative leader—considered to be one of the most effective styles—inspires
employees to follow a vision, facilitates change, and creates a strongly positive
performance climate.
3. The affiliative leader values people, their emotions, and their needs and relies on
friendship and trust to promote flexibility, innovation, and risk taking.
4. The democratic leader relies on participation and teamwork to reach collaborative
decisions. This style focuses on communication and creates a positive climate for
achieving results.
5. The pacesetting leader can create a negative climate because of the high standards that
he or she sets. This style works best for attaining quick results from highly motivated
individuals who value achievement and take the initiative.
6. The coaching leader builds a positive climate by developing skills to foster long-term
success, delegating responsibility, and skillfully issuing challenging assignments.
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.
Another way to consider leadership styles is to classify them as transactional or
transformational. Transactional leaders attempt to create employee satisfaction through
negotiating, or “bartering,” for desired behaviors or levels of performance. Transformational
leaders strive to raise employees’ level of commitment and to foster trust and motivation.35 Both
transformational and transactional leaders can positively influence the corporate culture.
Transformational leaders communicate a sense of mission, stimulate new ways of
thinking, and enhance as well as generate new learning experiences. They consider employee
needs and aspirations in conjunction with organizational needs. They also build commitment
and respect for values that provide agreement on how to deal with ethical issues.
Thus, transformational leaders strive to promote activities and behavior through a
shared vision and common learning experience. As a result, they have a stronger influence
on coworker support for ethical decisions and building an ethical culture than do
transactional leaders. Transformational ethical leadership is best suited for organizations
that have higher levels of ethical commitment among employees and strong stakeholder
support for an ethical culture. A number of industry trade associations—including the
American Institute of Certified Public Accountants, Defense Industry Initiative on Business
Ethics and Conduct, Ethics and Compliance Officer Association, and Mortgage Bankers
Association of America—are helping companies provide transformational leadership.36
In contrast, transactional leaders focus on ensuring that required conduct and
procedures are implemented. Their negotiations to achieve desired outcomes result in a
dynamic relationship with subordinates in which reactions, conflict, and crisis influence
the relationship more than ethical concerns. Transactional leaders produce employees
who achieve a negotiated level of performance, including compliance with ethical and
legal standards. As long as employees and leaders both find this exchange mutually
rewarding, the relationship is likely to be successful. However, transactional leadership
is best suited for rapidly changing situations, including those that require responses to
140 Part : The Decision Making Process

ethical problems or issues. When Eric Pillmore took over as senior vice president of
corporate governance at Tyco, after a major scandal involving CEO Dennis Kozlowski,
the company needed transitional leadership. To turn the company around, many ethics
and corporate governance decisions needed to be made quickly. The company also needed
cross-functional leadership, improved accountability, and empowered leaders in order
to improve corporate culture. Pillmore helped install a new ethics program that changed
leadership policies and allowed him direct communications with the board in order to help
implement the leadership transition.37

HABITS OF STRONG ETHICAL LEADERS

Archie Carroll, a University of Georgia business professor, crafted “7 Habits of Highly
Moral Leaders” based on the idea of Stephen Covey’s The 7 Habits of Highly Effective
People.38 We have adapted Carroll’s “7 Habits of Highly Moral Leaders”39 to create our own
“Seven Habits of Strong Ethical Leaders” (Table 5–2). In particular, we believe that ethical
leadership is based on holistic thinking that embraces the complex and challenging issues
that companies face on a daily basis. Ethical leaders need both knowledge and experience
to make the right decision. Strong ethical leaders have both the courage and the most
complete information to make decisions that will be the best in the long run. Strong ethical
leaders must stick to their principles and, if necessary, be ready to leave the organization
if its corporate governance system is so flawed that it is impossible to make the right
choice.
Many corporate founders—such as Sam Walton, Bill Gates, Milton Hershey, Michael
Dell, and Steve Jobs, as well as Ben Cohen and Jerry Greenfield—left their ethical stamp
on their companies. Their conduct set the tone, making them role models for desired
conduct in the early growth of their respective corporations. In the case of Milton Hershey,
his legacy endures, and Hershey Foods continues to be a role model for ethical corporate
culture. In the case of Sam Walton, Wal-Mart embarked on a course of rapid growth after
his death and became involved in numerous conflicts with various stakeholder groups,
especially employees, regulators, competitors, and communities. Despite the ethical
foundation left by Sam Walton, Wal-Mart, as well as most large corporations, deals with
hundreds of reported ethical lapses every month.40

TABLE 52 Seven Habits of Strong Ethical Leaders

1. Ethical leaders have strong personal character.

2. Ethical leaders have a passion to do right.

3. Ethical leaders are proactive.

4. Ethical leaders consider stakeholders’ interests.

5. Ethical leaders are role models for the organization’s values.

6. Ethical leaders are transparent and actively involved in organizational decision making.

7. Ethical leaders are competent managers who take a holistic view of the firm’s ethical culture.
Chapter 5: Ethical Decision Making and Ethical Leadership 141

Ethical Leaders Have Strong Personal Character

There is general agreement that ethical leadership is highly unlikely without a strong
personal character. The question is how to teach or develop a moral person in a corporate
environment. Thomas I. White, a leading authority on character development, believes the
focus should be on “ethical reasoning” rather than on being a “moral person.” According
to White, the ability to resolve the complex ethical dilemmas encountered in a corporate
culture requires intellectual skills.41 For example, when Lawrence S. Benjamin took over
as president of U.S. Food Service after a major ethical disaster, he initiated an ethics and
compliance program to promote transparency and to teach employees how to make
difficult ethical choices. A fundamental problem in traditional character development
is that specific values and virtues are used to teach a belief or philosophy. This approach
may be inappropriate for a business environment where cultural diversity and privacy
must be respected. On the other hand, teaching individuals who want to do the right thing
regarding corporate values and ethical codes, and equipping them with the intellectual
skills to address the complexities of ethical issues, is the correct approach.

Ethical Leaders Have a Passion to Do Right

The passion to do right is “the glue that holds ethical concepts together.” Some leaders
develop this trait early in life, whereas others develop it over time through experience,
reason, or spiritual growth. They often cite familiar arguments for doing right—to keep
society from disintegrating, to alleviate human suffering, to advance human prosperity, to
resolve conflicts of interest fairly and logically, to praise the good and punish the guilty, or
just because something “is the right thing to do.”42 Having a passion to do right indicates a
personal characteristic of not only recognizing the importance of ethical behavior but also
the willingness to face challenges and make tough choices. Courageous leadership requires
making and defending the right decision. Consider the crisis faced by Harry Kraemer, the
CEO of Baxter International, after 53 dialysis patients died during treatment. “We have this
situation. The financial people will assess the potential financial impact. The legal people
will do the same. But at the end of the day, if we think it’s a problem that a Baxter product
was involved in the deaths of 53 people, then those other issues become pretty easy. If we
don’t do the right thing, then we won’t be around to address those other issues.”43

Ethical Leaders Are Proactive

Ethical leaders do not hang around waiting for ethical problems to arise. They anticipate,
plan, and act proactively to avoid potential ethical crises.44 One way to be proactive is
to take a leadership role in developing effective programs that provide employees with
guidance and support for making more ethical choices even in the face of considerable
pressure to do otherwise. Ethical leaders who are proactive understand social needs and
apply or even develop “the best practices” of ethical leadership that exist in their industry.
One of Fortune magazine’s Best Companies to Work For in 2009, office furniture maker
Herman Miller is also known for its highly ethical culture. Fortune also has ranked it the
Most Admired Company in its industry for the past 20 years. Its strong ethical culture has
placed Herman Miller at the top of the Human Rights Campaign’s Corporate Equality
Index for years. Additionally, the company ranks as one of the safest, coolest, and most
ethical companies in its industry.45 Strong leadership is key in maintaining such impressive
credentials over the long term.
142 Part : The Decision Making Process

Ethical Leaders Consider Stakeholders’ Interests

Ethical leaders consider the interests of and implications for all stakeholders, not just those
that have an economic impact on the firm. This requires acknowledging and monitoring
the concerns of all legitimate stakeholders, actively communicating and cooperating with
them, employing processes that are respectful of them, recognizing interdependencies
among them, avoiding activities that would harm their human rights, and recognizing the
potential conflicts between leaders’ “own role as corporate stakeholders and their legal and
moral responsibilities for the interests of other stakeholders.”46
Ethical leaders have the responsibility to balance stakeholder interests to ensure that
the organization maximizes its role as a responsible corporate citizen. In addition to being
one of the world’s most admired companies, according to Fortune magazine, Xerox has
taken significant strides toward reducing its environmental impact, increasing social
responsibility, and improving diversity. Xerox is the largest document management and
technology company in the world with sales of over $17.6 billion annually, and as such a
large company it produces a lot of waste every day. Xerox is aware of its carbon footprint
and has produced such innovations as erasable paper to be used in testing machines so that
the company does not throw away so much paper each day. The company also aims to be
carbon neutral and tries to source its paper from sustainable sources.47 The company also
recently celebrated some significant diversity milestones. In 2009 Ursula Burns became
the first African American female to be the CEO of a major American company, and
Xerox was the first major company in history to have a female-to-female CEO sucession.48
The company also extends its commitment to diversity to suppliers as well, because its
own research has found that minority and women-owned businesses often have higher
standards.49

Ethical Leaders Are Role Models for the

Organization’s Values
If leaders do not actively serve as role models for the organization’s core values, then those
values become nothing more than lip service. According to behavioral scientist Brent
Smith, as role models, leaders are the primary influence on individual ethical behavior.
Leaders whose decisions and actions are contrary to the firm’s values send a signal that the
firm’s values are trivial or irrelevant.50 Firms such as Countrywide Financial articulated
core values that were only used as window dressing. On the other hand, when leaders
model the firm’s core values at every turn, the results can be powerful.
Consider Whole Foods, the world’s largest organic and natural grocer. Ever since
its conception in Austin, Texas, in 1980, Whole Foods has demonstrated a commitment
to social responsibility and strong core values. (See Table 5–3) In addition to providing
consumers with fresh, healthy foods, Whole Foods cares for its employees by creating a
transparent and friendly work environment. The company encourages a sense of teamwork
through imposing a salary cap for top executives. The company also works to support
growers and the environment through sourcing from sustainable growers and such efforts
as recycling and reducing energy whenever possible. Whole Foods donates a minimum
of 5 percent of profits to local communities in which it operates. Especially in a time of
repeated food contamination scares, many people are drawn to grocers like Whole Foods
because of its high quality standards, educational initiatives, and close relationships with
many of its suppliers.51
Chapter 5: Ethical Decision Making and Ethical Leadership 143

TABLE 53 Whole Food’s Core Values

● Selling the highest quality natural and organic products

● Satisfying and delighting our customers

● Supporting team member happiness and excellence

● Creating wealth through profits and growth

● Caring about our communities and our environment

● Creating ongoing win-win partnerships with our suppliers

● Promoting the health of our stakeholders through healthy eating education.

Source: “Our Core Values,” Whole Foods Markets, www.wholefoodsmarket.com/company/corevalues.php (accessed June 5, 2009).

Ethical Leaders Are Transparent and Actively Involved

in Organizational Decision Making
Being transparent fosters openness, freedom to express ideas, and the ability to question
conduct, and it encourages stakeholders to learn about and comment on what a firm is
doing. Transparent leaders will not be effective unless they are personally involved in the
key decisions that have ethical ramifications. Transformational leaders are collaborative,
which opens the door for transparency through interpersonal exchange. Earlier we said that
transformational leaders instill commitment and respect for values that provide guidance
on how to deal with ethical issues. Herb Baum, former CEO of the Dial Corporation,
says, “In today’s business environment, if you’re a leader—or want to be—and you aren’t
contributing to a values-based business culture that encourages your entire organization to
operate with integrity, your company is as vulnerable as a baby chick in a pit of rattlesnakes.”
Baum’s three remarkably simple principles of transparency are (1) tell the whole truth, (2)
build a values-based culture, and (3) hire “people people.”52

Ethical Leaders Are Competent Managers Who Take a

Holistic View of the Firm’s Ethical Culture
Ethical leaders can see a holistic view of their organization and therefore view ethics as
a strategic component of decision making, much like marketing, information systems,
production, and so on. Although his company is called Waste Management, CEO David
P. Steiner is as committed to renewable energy as just about anyone working for a multibillion
dollar business. Steiner was selected as one of the 100 Most Influential People in Business
Ethics by the Ethisphere Institute in 2007, and his company, Waste Management, was
chosen as one of the World’s Most Ethical Companies in 2008.53 Steiner likes to point
out that Waste Management produces more renewable energy than the entire U.S. solar
industry. In fact, nearly half of the company’s revenues come from “green” services.54
Steiner’s personal commitment to social responsibility and sustainability has dramatically
changed a company that was previously known primarily as a garbage collection service.
The challenge of being an effective leader is illustrated in Table 5–4. Most senior
executives believe that it is much more challenging to be a leader in today’s business
environment compared to five years ago. Leadership continues to be one of the most
important drivers of ethical conduct in organizations.
144 Part : The Decision Making Process

TABLE 54 Leadership Is More Challenging in Today’s Business Environment

Do you think it is more or less challenging to be a company leader
in today’s business environment compared with five years ago?
More challenging 89%

No change 9%

Less challenging 1%

Don’t know 1%
Source: Robert Half Management Resources poll of 150 senior executives at companies with revenue of $1 billion
to $40 billion. In USA Today, March 6, 2006, B1.

SUMMARY
The key components of the ethical decision making framework include ethical issue
intensity, individual factors, organizational factors, and opportunity. These factors are
interrelated and influence business ethics evaluations and intentions, which result in
ethical or unethical behavior.
The first step in ethical decision making is to recognize that an ethical issue requires that
an individual or work group choose among several actions that will ultimately be evaluated
as ethical or unethical by various stakeholders. Ethical issue intensity is the perceived
relevance or importance of an ethical issue to the individual or work group. It reflects the
ethical sensitivity of the individual or work group that triggers the ethical decision process.
Other factors in our ethical decision making framework influence this sensitivity, thus
determining why different individuals often perceive ethical issues differently.
Individual factors such as gender, education, nationality, age, and locus of control can
affect the ethical decision making process, with some factors being more important than
others. Organizational factors such as an organization’s values often have greater influence
on an individual’s decisions than that person’s own values. In addition, decisions in
business are most often made jointly, in work groups and committees, or in conversations
and discussions with coworkers. Corporate cultures and structures operate through the
individual relationships of the organization’s members to influence those members’ ethical
decisions. A corporate culture can be defined as a set of values, beliefs, goals, norms, and
ways of solving problems that members (employees) of an organization share. Corporate
culture involves norms that prescribe a wide range of behavior for the organization’s
members. The ethical culture of an organization indicates whether it has an ethical
conscience. Significant others—including peers, managers, coworkers, and subordinates—
who influence the work group have more daily impact on an employee’s decisions than any
other factor in the decision making framework. Obedience to authority may explain why
many business ethics issues are resolved simply by following the directives of a superior.
Ethical opportunity results from conditions that either provide rewards, whether internal
or external, or limit barriers to ethical or unethical behavior. Included in opportunity is a
person’s immediate job context, which includes the motivational techniques superiors use
to influence employee behavior. The opportunity employees have for unethical behavior
in an organization can be eliminated through formal codes, policies, and rules that are
adequately enforced by management.
Chapter 5: Ethical Decision Making and Ethical Leadership 145

The ethical decision making framework is not a guide for making decisions. It is
intended to provide insights and knowledge about typical ethical decision making
processes in business organizations. Ethical decision making within organizations does
not rely strictly on the personal values and morals of employees. Organizations have a
culture of their own, which when combined with corporate governance mechanisms may
significantly influence business ethics.
Leadership styles and habits promote an organizational ethical climate. Leadership
styles include coercive, authoritative, affiliative, democratic, and coaching elements.
Transactional leaders negotiate or barter with employees. Transformational leaders
strive for a shared vision and common learning experience. Strong ethical leaders have
a strong personal character, have a passion to do the right thing, are proactive, focus on
stakeholders’ interests, are role models for the organization’s values, make transparent
decisions, and take a holistic view of the firm’s ethical culture.

IMPORTANT TERMS FOR REVIEW

ethical issue intensity locus of control significant other leadership
moral intensity external control obedience to transactional leader
authority
gender internal control transformational
opportunity leader
education corporate culture
immediate job context
nationality ethical culture

RESOLVING ETHICAL BUSINESS

CHALLENGES*
Peter had been a human again. The company had
resource (HR) manager for been calling all employees
18 years and vice president (if they could locate them)
for 2 more years for Zyedego to get them to return to
Corporation, a small work. Gwyn, one of Peter’s
company in New Orleans. HR managers, was planning
In the last decade, there have on rehiring Dana Gonzales
been many changes to what but found out that Dana
potential/actual employees was pregnant. Because of
can be asked and what the “rough” condition of the
constitutes fair and equitable treatment. Frankly, the workplace, Gwyn was concerned for Dana’s safety.
situation Peter was in was partly his own fault. Gwyn felt that if Dana were rehired, employees’
The first issue began with Hurricane Katrina. hourly wages should be decreased by 25 percent
In its wake, Zyedego employees had been working because the company had experienced setbacks
around the clock to get the company up and running during the hurricane and had to work with a reduced
146 Part : The Decision Making Process

budget. In addition, Gwyn had some concerns over payments, as well as medical insurance, for the
Dana’s citizenship because her passport appeared family. Even with Social Security benefits, Martha
to be questionable. The flooding destroyed the would probably lose the house and could be forced
original documents, and although Gwyn requested to seek employment.
new documents, Dana had been slow in providing Zyedego had sustained substantial losses
them. Gwyn had asked some difficult questions, since the hurricane. Insurance companies were
and Dana stated that if not rehired she would go extremely slow concerning payments to all the
to a competitor and expected the company to pay small businesses, arguing about wind versus water
severance of two weeks’ wages for the time she was damage. Impeding the process of obtaining benefits
out of work during the hurricane. Another issue was the lack of many documents destroyed in the
is the hiring of truck drivers. Zyedego hires many storm.
truck drivers and routinely requests driving records The storm really began for Peter late last week
as part of the preemployment process. Several of when he met with the insurance company about
the potential new hires have past DWI records. All medical reimbursements, death benefits, and the
have stated that they would never do it again, have pension plans. Darrell Lambert was the chief adjuster
maintained a clean record for at least five years, and for Zyedego’s insurance and pension provider.
understand the consequences of another infraction. “Here’s another case that we will not cover,”
Gwyn has hired some drivers with infractions to said Darrell as he flipped the file to Peter. “We
secure the necessary number of drivers needed for can’t help the Martins for a variety of reasons.
the company. However, Gwyn has some concerns There is no body, which means no payment until
over whether she is exposing the company to after a judge declares him legally dead. That will
unnecessary risk because of the increased potential take at least a year. While that is being settled,
for accidents or repeat DWI violation. From Peter, Mrs. Martin and her family will not be eligible
Gwyn needs guidance related to continuing these for medical coverage unless Zyedego is going to
hiring practices. pay their amount. Finally, and I know this may
However, Zyedego has even deeper problems, sound heartless, but Mrs. Martin will only get a
which is what concerns Peter. The problem really maximum of half of Mr. Martin’s pension.”
started when Peter was still an HR manager, and “But he was killed on the job!” exclaimed
involves one “family.” Guy Martin started working Peter.
for Zyedego 20 years ago. He was married with “Did you require him to work that day? Did
two children, and had a mortgage. A little over he punch in or out? Is there any record that he
a year ago, Guy separated from his wife, and was called in from Zyedego to help? The answer
they divorced only to remarry six months later. is no to all of the above. He helped because he felt
When Guy was hired, Peter had made sure that obligated to Zyedego. But I am not Zyedego, and I
Guy’s son, who has asthma, would be covered by do not have any obligation to the Martins,” Darrell
health insurance. Peter also helped out the family said with a smile.
several times when money was tight and provided “Peter,” exclaimed Darrell, “I know that
Guy with overtime work. But tragedy struck the Zyedego is under intense financial pressure, but
Martins when Guy was killed in the hurricane. we are too. You have approximately 100 families
Police and rescue workers hunted for his body, but that we will have to pay something to. You and
it was never found. Because Martha, Guy’s wife, I can spend the next 12 months going over every
was a stay-at-home mother, their only income had case, bit-by-bit, item-by-item, but if that’s what
been from Zyedego. The company’s death benefits you want, Zyedego will go into bankruptcy. We
provide only 50 percent of the deceased’s pension don’t want that to happen. But we also are not
for a surviving spouse. Also, because the body going to pay for everything that you claim you are
had not been found, there was the legal question due. Our lawyers will stall the system until you go
of death. Usually, it takes seven years before one broke, and your 100 families will get nothing. Well,
can claim any type of insurance or death-benefit maybe something in five to seven years. What I am
Chapter 5: Ethical Decision Making and Ethical Leadership 147

proposing is a way for you to stay in business and Several hours later, Peter received a phone call
for my company to reduce its financial payouts. from upper management about the deal he was to
Remember, we have hundreds of small businesses implement to save the company.
like you to deal with.”
Darrell then calmly said, “My proposal is QUESTIONS • EXERCISES
that you look over these files and reduce your 1. What are the legal and ethical risks associated
total reimbursements to us by 40 percent. To help with the decision about hiring truck drivers
you out, I’ll start with this case [Martin’s]. You at Zyedego?
decide whether we pay out 40 percent or nothing. 2. What should Peter recommend to Gwyn
Tomorrow at 9:00 a.m., I want you to have 25 cases, about Dana’s case?
including this one, pared down by 40 percent. If 3. Do you think Peter is too emotionally
not, well, I’m sure my superiors have informed attached to the Martin case to make an
your superiors about this arrangement by now. You objective decision?
should be getting a call within the hour. So, I’ll see *This case is strictly hypothetical; any resemblance to real
you here at 9:00,” and Darrell walked out the door. persons, companies, or situations is coincidental.

CHECK YOUR EQ
Check your EQ, or Ethics Quotient, by completing the following. Assess your performance to evaluate
your overall understanding of the chapter material.

1. The first step in ethical decision making is to understand the individual factors that Yes No
influence the process.
2. Opportunity describes the conditions within an organization that limit or permit Yes No
ethical or unethical behavior.
3. Transactional leaders negotiate compliance and ethics. Yes No
4. The most significant influence on ethical behavior in an organization is the Yes No
opportunity to engage in (un)ethical behavior.
5. Obedience to authority relates to the influence of corporate culture. Yes No

of significant others and supervisors.

have more impact on ethical decisions within an organization. 5. No. Obedience to authority relates to the influence
against unethical behavior. 3. Yes. Transactional leaders barter or negotiate with employees. 4. No. Significant others
individual or work group. 2. Yes. Opportunity results from conditions that provide rewards or fail to erect barriers
Answers 1. No. The first step is to become more aware that an ethical issue exists and to consider its relevance to the