What is ethical decision-making?

In business settings, leaders need to make decisions almost constantly,

and these decisions can have a significant impact on their stakeholders –
including their shareholders, their staff, and their customers – as well as
their perception with the public. Sometimes, these decisions are
extraordinarily difficult, and it’s less about choosing the best option, and
more about choosing the least-problematic option.

Ethical decision-making means evaluating these options from all angles

and selecting the one that makes the best sense for the business and
benefits as many stakeholders as possible but also considers the moral
implications. Typically underpinned by common principles like fairness,
honesty, and respect for others, ethical decision-making requires leaders
to consider the consequences of their decisions on their employees and
customers, but also on their communities and the environment. It’s about
more than compliance with laws and regulations – it’s also about
committing to integrity and social responsibility.

Ethical decision making is the process of choosing an option that

is consistent with ethical principles. It involves evaluating the
available options and their consequences and selecting the best
ethical alternative.

A 7-STep Guide to Ethical Decision-Making

The following is a summary of: Seven-step guide to ethical decision-

making (Davis, M. (1999) Ethics and the university, New York:
Routledge, p. 166-167.

1. State the problem.

o For example, "there's something about this decision that

makes me uncomfortable" or "do I have a conflict of
interest?".

2. Check the facts.

o Many problems disappear upon closer examination of the

situation, while others change radically.

o For example, persons involved, laws, professional codes, other

practical constraints.

3. Identify relevant factors (internal and external).

4. Develop a list of options.

 o Be imaginative, try to avoid "dilemma"; not "yes" or" no" but
whom to go to, what to say.

5. Test the options. Use some of the following tests:

o harm test: Does this option do less harm than the

alternatives?

o publicity test: Would I want my choice of this option

published in the newspaper?

o defensibility test: Could I defend my choice of this option

before a congressional committee or committee of peers?

o reversibility test: Would I still think this option was a good

choice if I were adversely affected by it?

o colleague test: What do my colleagues say when I describe

my problem and suggest this option as my solution?

o professional test: What might my profession's governing

body for ethics say about this option?

o organization test: What does my company's ethics officer or

legal counsel say about this?

6. Make a choice based on steps 1-5.

7. Review steps 1-6. How can you reduce the likelihood that you will
need to make a similar decision again?

o Are there any cautions you can take as an individual (and

announce your policy on question, job change, etc.)?

o Is there any way to have more support next time?

o Is there any way to change the organization (for example,

suggest policy change at next departmental meeting)?
Approaches of Ethical decision making:

1. Rights Approach

The Rights Approach focuses on respecting and protecting the moral

rights of individuals. It emphasizes that individuals have entitlements that
should be upheld.

Case Example: A company is considering implementing a new

surveillance system to monitor employee productivity. Using the Rights
Approach, the company evaluates whether this action respects
employees' rights to privacy. They decide to implement the system only in
common areas, ensuring that employees' personal spaces are not
monitored[1].

2. Utilitarian Approach

The Utilitarian Approach aims to produce the greatest good for the
greatest number of people. It evaluates the consequences of actions and
chooses the one that maximizes overall happiness and minimizes harm.

Case Example: A hospital must decide how to allocate a limited supply of

a life-saving drug. Using the Utilitarian Approach, the hospital prioritizes
patients who are most likely to benefit from the drug, thereby maximizing
the overall health benefits[2].

3. Virtue Approach

The Virtue Approach focuses on the character and virtues of the individual
making the decision. It emphasizes developing good character traits such
as honesty, courage, and compassion.

Case Example: A journalist faces a dilemma about whether to publish a

story that could harm someone's reputation. Using the Virtue Approach,
the journalist considers virtues like integrity and compassion, deciding to
verify the facts thoroughly before publishing to ensure the story is truthful
and fair[3].

4. Fairness (or Justice) Approach

The Fairness Approach emphasizes treating all people equally and fairly. It
focuses on ensuring that benefits and burdens are distributed justly.
Case Example: A manager must decide how to distribute bonuses among
employees. Using the Fairness Approach, the manager evaluates each
employee's performance and contributions, ensuring that bonuses are
awarded based on merit and not favoritism[4].

5. Common Good Approach

The Common Good Approach emphasizes actions that contribute to the

well-being of the community as a whole. It focuses on ensuring that social
systems, institutions, and environments benefit all members of society.

Case Example: A city council is deciding whether to build a new public

park. Using the Common Good Approach, they consider how the park will
benefit the community by providing a space for recreation, improving
mental health, and fostering social interactions[5].

These approaches provide different perspectives and criteria for making

ethical decisions. Do you have a specific scenario in mind where you need
to apply one of these approaches?

References

[1] Rights Approach: How to Make Ethical Decisions - MasterClass

[2] Calculating Consequences:The Utilitarian Approach to Ethics

[3] Ethics and Virtue - Markkula Center for Applied Ethics

[4] Five Approaches to Ethical Reasoning - University of Colorado

[5] The Common Good - Markkula Center for Applied Ethics

Ethical Leadership:

Northouse (2018):

 Definition: "Ethical leadership is a process in which a leader

influences a group of individuals to achieve a common goal in a
manner that is consistent with ethical principles and values."

 Explanation: Northouse highlights the role of ethical principles and

values in guiding the actions and decisions of leaders as they work
towards achieving organizational goals.

Brown, Treviño, and Harrison (2005):

"The demonstration of normatively appropriate conduct through personal

actions and interpersonal relationships, and the promotion of such
conduct to followers through two-way communication, reinforcement, and
decision-making"

This definition emphasizes two key aspects:

1. Personal Conduct: Ethical leaders’ model appropriate behavior

through their own actions and interactions.

2. Influence on Followers: They actively promote ethical behavior

among their followers through clear communication, consistent
reinforcement, and ethical decision-making processes.

Qualities of Ethical Leaders

1. Honest and Truthful in Their Dealings with Others

o Content: Ethical leaders prioritize honesty and truthfulness in all

interactions. They ensure that their actions and communications
are transparent and trustworthy, fostering a culture of integrity.

o Global Example: Johnson & Johnson's response to the Tylenol

crisis in 1982 is a classic case. When cyanide-laced Tylenol
capsules led to several deaths, the company immediately recalled
31 million bottles, prioritizing customer safety over profit[1].

o Indian Example: Ratan Tata, former chairman of Tata Group, is

known for his honesty and integrity. During the 2008 Mumbai
 attacks, he ensured that the Taj Hotel staff and guests were taken
care of, demonstrating his commitment to ethical leadership[2].

2. Open and Honest About Their Decisions and the Reasoning

Behind Them

o Content: Ethical leaders are transparent about their decision-

making processes. They openly share the reasons behind their
decisions, ensuring that their team understands and trusts their
leadership.

o Global Example: During the 2008 financial crisis, Howard Schultz,

CEO of Starbucks, held open forums with employees to discuss the
company's challenges and the tough decisions being made[1].

o Indian Example: Narayana Murthy, co-founder of Infosys, is

known for his transparency. He regularly communicated with
employees and stakeholders about the company's direction and
decisions, building a culture of trust[2].

3. Responsibility for Their Actions and the Actions of Their

Team

o Content: Ethical leaders take responsibility for their actions and

the actions of their team. They do not shift blame but instead
address issues head-on and work towards solutions.

o Global Example: In 2010, Toyota's CEO Akio Toyoda publicly

apologized and took responsibility for the company's massive
recall due to safety issues[3].

o Indian Example: Kiran Mazumdar-Shaw, founder of Biocon, has

consistently taken responsibility for her company's actions,
ensuring ethical practices in the pharmaceutical industry[2].

4. Promotes a Sense of Fairness and Equality

o Content: Ethical leaders ensure that fairness and equality are

integral to their leadership. They treat all team members equally
and make unbiased decisions.

o Global Example: Salesforce CEO Marc Benioff has been a strong

advocate for pay equality. He conducted company-wide salary
audits and adjusted pay disparities to ensure fairness and equality
among employees[3].

o Indian Example: Arundhati Bhattacharya, former Chairperson of

the State Bank of India, worked towards gender equality and
promoted fair practices within the organization[2].
5. Cares About the Well-being of Employees (Creating a Good
Environment)

o Content: Ethical leaders prioritize the well-being of their

employees. They create a supportive and positive work
environment that fosters growth and satisfaction.

o Global Example: Google is known for its employee-centric

policies, such as providing extensive health benefits, wellness
programs, and a supportive work environment.

o Indian Example: Anand Mahindra, Chairman of Mahindra Group,

is known for his focus on employee well-being and creating a
positive work culture[2].

6. Understands That Their Organization Has a Responsibility to

Society

o Content: Ethical leaders recognize their organization's broader

responsibility to society. They ensure that their business practices
positively impact the community and environment.

o Global Example: Patagonia's founder, Yvon Chouinard, has

consistently emphasized the company's responsibility to the
environment. Patagonia donates a portion of its profits to
environmental causes and encourages sustainable practices[2].

o Indian Example: Azim Premji, founder of Wipro, has dedicated a

significant portion of his wealth to philanthropy, focusing on
education and healthcare initiatives in India[2].

7. Follower First

o Content: Ethical leaders adopt a servant leadership approach,

prioritizing the needs of their followers and supporting their
growth and development.

o Global Example: Herb Kelleher, the co-founder of Southwest

Airlines, was known for his servant leadership style. He prioritized
the needs of his employees, believing that happy employees
would lead to satisfied customers[3].

o Indian Example: Vineet Nayar, former CEO of HCL Technologies,

implemented the "Employees First, Customers Second"
philosophy, empowering employees and fostering a culture of trust
and innovation[2].

8. Treats Everyone with Respect and Dignity

 o Content: Ethical leaders treat all individuals with respect and
dignity, regardless of their position or background. They create an
inclusive and respectful work environment.

o Global Example: Satya Nadella, CEO of Microsoft, has been

praised for fostering a culture of respect and inclusion. He
emphasizes empathy and respect in all interactions, creating a
positive and inclusive work environment[3].

o Indian Example: Indra Nooyi, former CEO of PepsiCo, is known for

her respectful and inclusive leadership style, treating all
employees with dignity and fostering a supportive work culture[2].

References

[1] 4 Examples of Ethical Leadership in Business | HBS Online

[2] Ethical Leadership: 20 Examples & Definition - BitGlint

[3] 7 Popular Ethical Leadership Examples | 2025 Updates

Examples of Positive and Negative Ethical Leadership

The following three examples are of companies that were faced with
ethical dilemmas and how different leadership styles led to vastly different
outcomes.

Johnson & Johnson

One of the most famous examples of ethical leadership was the case of
the Tylenol cyanide poisonings in the early 1980s. Seven people died of
cyanide poisoning, and the only connecting factor was that they had all
taken extra-strength Tylenol. During investigation, it was discovered that
the tablets were laced with cyanide.

Johnson & Johnson’s leaders acted quickly and pulled all Tylenol products
off the shelves — 31 million bottles, worth over $100 million — and
stopped all production and advertising. The swiftness of their decision,
although costly, put customers’ well-being first and saved lives.

They partnered with law enforcement to find the perpetrator and

subsequently developed the first-ever tamper-resistant packaging. They
were transparent with the public about what they were doing to ensure
this tragedy never happened again.
The Tylenol brand recovered from the incident, largely because of Johnson
& Johnson’s ethical leadership team’s swift action and transparent care for
customers.

JetBlue

In 2008, JetBlue left passengers stranded on the tarmac at the John F.

Kennedy International Airport for more than five hours during a
snowstorm. The delay had a ripple effect — JetBlue had to cancel more
than 1,000 flights over the following five days.

In response, JetBlue’s CEO wrote a letter of apology to customers. He also

directed his team to draft a customer bill of rights, which outlined
customers’ rights to information about flights and information about
compensation in the event of delays or cancellations.

The CEO also participated in a public apology tour, taking full

responsibility for the incident rather than blaming it on the weather.

His transparency and accountability created trust with customers, who

stayed loyal to the airline.

Wells Fargo

In September 2016, it was revealed that employees of Wells Fargo, one of

the largest banks in the United States, opened millions of unauthorized
accounts in order to meet aggressive sales targets.

This widespread fraudulent activity was the result of a work culture that
prioritized quantity over quality and pushed employees to engage in
unethical practices.

Company leaders denied knowledge of fraudulent practices. The bank was

hit with significant financial penalties, but because of the lack of
accountability, they damaged the trust of their customers and investors.
They reported a 50 percent profit loss in the quarter following the scandal.

1. Howard Schultz (Starbucks)

Ethical Leadership in Action:

 Initiative: Schultz prioritized employee well-being and ethical

sourcing.

 Actions:
 o Offered healthcare benefits and stock options to part-time
employees.

o Implemented the "C.A.F.E. Practices" program to ensure

ethically sourced coffee beans.

o Closed 8,000 stores for a day to conduct racial bias training

after an incident of discrimination.

 Impact:

o Built a loyal and motivated workforce.

o Enhanced Starbucks' reputation as a socially responsible

company.

2. Indra Nooyi (PepsiCo)

Ethical Leadership in Action:

 Initiative: Nooyi focused on sustainability, health, and diversity.

 Actions:

o Launched "Performance with Purpose," a strategy to reduce

sugar, salt, and fat in products while increasing nutritious
options.

o Invested in sustainable practices, such as reducing water

usage and carbon emissions.

o Promoted diversity and inclusion, ensuring women and

minorities were represented in leadership roles.

 Impact:

o Improved public perception of PepsiCo as a health-conscious

and environmentally responsible company.

o Increased long-term profitability through sustainable

practices.
Individual Factors: Moral Philosophies - Detailed Notes

Moral philosophies are systems of principles and values that guide

individuals in determining what is morally right or wrong. These
philosophies provide a framework for ethical reasoning and decision
making. Below is a detailed explanation of key moral philosophies and
their relevance to individual decision making:

1. What Are Moral Philosophies?

Moral philosophies are theoretical frameworks that help individuals

evaluate actions, behaviors, and decisions based on ethical principles.
They answer questions like:

 What is the right thing to do?

 How should we treat others?

 What makes an action morally good or bad?

2. Key Moral Philosophies

A. Teleological (Consequentialist) Theories

These theories focus on the consequences of actions. The morality of an

action is judged by its outcomes.

1. Utilitarianism:

o Principle: Choose actions that maximize overall happiness or

minimize harm ("the greatest good for the greatest number").
 o Example: A company decides to reduce its carbon footprint to
benefit society, even if it incurs higher costs.

o Strengths:

 Practical and outcome oriented.

 Encourages consideration of the broader impact of

decisions.

o Weaknesses:

 May justify unethical means if the ends are beneficial.

 Difficult to measure and compare happiness or harm.

2. Egoism:

o Principle: Choose actions that maximize self-interest.

o Example: An employee negotiates for a higher salary to

improve their personal financial situation.

o Strengths:

 Encourages self-reliance and personal growth.

o Weaknesses:

 Can lead to selfish behavior and disregard for others'

well-being.

B. Deontological (Non-Consequentialist) Theories

These theories focus on the duty or rules governing actions. The morality
of an action is judged by its adherence to principles, regardless of
consequences.

1. Kantian Ethics:

o Principle: Act according to universal moral rules (e.g., "Do

not lie," "Do not steal").

o Example: A manager refuses to falsify financial reports, even

if it could save the company from losses.

o Strengths:

 Emphasizes consistency and fairness.

 Protects individual rights and dignity.

o Weaknesses:
  Rigid adherence to rules can lead to impractical
outcomes.

 Ignores the complexity of real-world situations.

2. Rights-Based Ethics:

o Principle: Respect and protect individual rights (e.g.,

freedom, privacy, equality).

o Example: A company ensures employee privacy by not

monitoring personal communications.

o Strengths:

 Protects fundamental human rights.

 Promotes justice and equality.

o Weaknesses:

 Conflicting rights can create dilemmas.

 May overlook the broader consequences of actions.

C. Virtue Ethics

 Focus: The character and virtues of the individual.

 Principle: Act in ways that align with virtuous traits (e.g., honesty,
courage, compassion).

 Example: A leader demonstrates empathy and fairness when

resolving a conflict between team members.

 Strengths:

o Encourages personal growth and moral development.

o Flexible and adaptable to different situations.

 Weaknesses:

o Subjective interpretation of virtues.

o Lacks clear guidelines for decision making.

D. Relativism

 Principle: Ethical principles are not universal but depend on

cultural, social, or personal contexts.
  Example: A multinational company adapts its practices to align
with local customs and norms.

 Strengths:

o Respects cultural diversity and individual differences.

 Weaknesses:

o Can justify unethical behavior if it aligns with local norms.

o Lacks a universal standard for morality.

E. Justice-Based Theories

 Focus: Fairness and equality in decision making.

 Example: John Rawls’ theory of justice emphasizes fairness and

protecting the least advantaged.

 Application: A company implements policies

 to ensure equal pay and opportunities for all employees.

 Strengths:

o Promotes fairness and social justice.

 Weaknesses:

o Difficult to balance competing interests.

3. How Moral Philosophies Influence Decision Making

 Perception of Ethical Dilemmas: Individuals interpret situations

based on their moral frameworks.

o Example: A utilitarian may prioritize outcomes, while a

deontologist may focus on rules.

 Evaluation of Alternatives: Moral philosophies guide how options

are assessed.

o Example: A virtue ethicist may ask, "What would a virtuous

person do?"

 Decision Making: Values and philosophies determine the final

choice.

o Example: A person with strong honesty values may refuse to

lie, even if it leads to negative consequences.

 Behavior and Actions: Values influence how decisions are

implemented and justified.
4. Conflicts Between Moral Philosophies

 Intrapersonal Conflict: When an individual’s values or

philosophies clash (e.g., honesty vs. loyalty).

 Interpersonal Conflict: When individuals with different values or

philosophies disagree (e.g., a utilitarian vs. a deontologist).

 Resolution: Requires self-reflection, dialogue, and sometimes

compromise.

5. Developing Moral Philosophies

 Self-Reflection: Regularly assess and clarify personal values and

beliefs.

 Education: Learn about different moral philosophies and ethical

frameworks.

 Role Models: Observe and emulate individuals with strong ethical

character.

 Practice: Apply values and philosophies in real-life situations to

build ethical consistency.

6. Examples of Moral Philosophies in Action

1. Corporate Leader:

o A CEO with utilitarian values may prioritize decisions that

benefit the majority of stakeholders, even if it means laying off
some employees.

2. Healthcare Professional:

o A doctor with deontological values may refuse to compromise

patient confidentiality, even if it could benefit others.

3. Environmental Activist:

o An activist with virtue ethics may focus on cultivating

compassion and responsibility toward the planet.

7. Key Takeaways

1. Moral philosophies provide frameworks for evaluating right and

wrong.

2. Key philosophies include utilitarianism, deontology, virtue ethics,

relativism, and justice-based theories.

3. These philosophies influence how individuals perceive, evaluate,

and resolve ethical dilemmas.
 4. Conflicts between philosophies are common but can be resolved
through reflection and dialogue.

5. Developing a strong moral philosophy requires self-awareness,

education, and practice.

1. Organizational Factors
Organizational factors are the internal elements that influence how a
company operates, makes decisions, and achieves its goals. Key factors
include:
 Leadership
 Structure
 Culture
 Communication
 Ethics
 Employee Relations
Among these, ethical culture and relations play a critical role in
shaping organizational behavior and outcomes.

2. Role of Ethical Culture

Ethical culture refers to the shared values, beliefs, and practices that
promote ethical behavior within an organization.
Key Elements of Ethical Culture
1. Leadership Commitment:
o Leaders set the tone for ethical behavior by acting as role
models.
o Example: A CEO who prioritizes transparency and
accountability inspires employees to do the same.
2. Code of Conduct:
o A formal document outlining expected behaviors and ethical
standards.
o Example: Prohibiting bribery and corruption in all business
dealings.
3. Ethical Training:
o Regular training programs to educate employees about ethical
practices.
o Example: Workshops on handling conflicts of interest or
reporting unethical behavior.
4. Reward Systems:
o Recognizing and rewarding ethical behavior reinforces its
importance.
o Example: Awards for employees who demonstrate integrity in
challenging situations.
5. Whistleblower Protection:
o Ensuring employees can report unethical behavior without
fear of retaliation.
o Example: Anonymous hotlines for reporting misconduct.
Significance of Ethical Culture
1. Builds Trust:
o Enhances trust among employees, customers, and
stakeholders.
o Example: A company with a strong ethical reputation attracts
loyal customers.
2. Reduces Risks:
 o Minimizes legal, financial, and reputational risks associated
with unethical behavior.
o Example: Avoiding fines for non-compliance with regulations.
3. Improves Decision-Making:
o Encourages employees to make decisions aligned with
organizational values.
o Example: Choosing sustainable practices over short-term
profits.
4. Enhances Employee Morale:
o Employees feel proud to work for an organization that
prioritizes ethics.
o Example: Higher job satisfaction and lower turnover rates.

3. Role of Relations in Organizations

Relations refer to the interactions and connections between employees,
teams, and stakeholders. Healthy relations are crucial for organizational
success.
Types of Relations in Organizations
1. Employee Relations:
o The relationship between employees and management.
o Example: Open communication channels to address
grievances.
2. Team Relations:
o Collaboration and trust among team members.
o Example: Cross-functional teams working together on projects.
3. Stakeholder Relations:
o Interactions with external stakeholders like customers,
suppliers, and investors.
o Example: Regular updates to investors about company
performance.
4. Community Relations:
o Engagement with the local community and society.
 o Example: Corporate social responsibility (CSR) initiatives like
education programs.
Significance of Healthy Relations
1. Boosts Productivity:
o Positive relations foster collaboration and innovation.
o Example: Teams that trust each other work more efficiently.
2. Enhances Communication:
o Open and transparent communication reduces
misunderstandings.
o Example: Regular team meetings to discuss progress and
challenges.
3. Improves Employee Retention:
o Strong relations create a supportive work environment.
o Example: Employees are less likely to leave if they feel valued.
4. Builds Reputation:
o Good relations with stakeholders enhance the organization’s
image.
o Example: A company known for fair treatment of suppliers
gains trust.

4. Interconnection Between Ethical Culture and Relations

 Ethical Culture Strengthens Relations:
o When employees and stakeholders trust that the organization
operates ethically, relationships become more collaborative
and productive.
o Example: A company with a strong ethical culture is more
likely to have loyal customers and motivated employees.
 Healthy Relations Reinforce Ethical Culture:
o Open communication and trust make it easier to address
ethical issues and promote ethical behavior.
o Example: Employees are more likely to report misconduct in a
supportive environment.
Key Takeaways
1. Ethical Culture:
o Shapes behavior, builds trust, and reduces risks.
o Requires leadership commitment, training, and reward
systems.
2. Relations:
o Foster collaboration, communication, and employee
satisfaction.
o Include employee, team, stakeholder, and community
relations.
3. Interconnection:
o Ethical culture and healthy relations reinforce each other,
creating a positive organizational environment.