Business Ethics Chapter 3 Ethical Theories Copyright 2018

Ethical Theories • While many of the concepts and approaches discussed in Chapter 2 may help unethical behaviors, there are other business ethics factors that explain unethical behaviors that fall outside of the range of individual factors discussed in Chapter 2 • These explanations are often provided by theories • Chapter 3 will discuss these additional theories or approaches that can help explain unethical (or lack of ethical) behaviors © 2019 Taylor & Francis

Theories • Theories are frameworks that allow researchers to predict or explain some phenomena • Recent research suggests that most business ethics textbooks have ignored ethics theories • Theories are useful as they help us organize a chaotic world • • First, discussion of Kohlberg’s moral cognitive theory Second, a discussion of normative ethical theories Third, moral philosophies And finally, institutional anomie theory © 2019 Taylor & Francis

Kohlberg’s Cognitive Moral Development • Kohlberg’s six stages of individuals’ moral reasoning over time: 1. Authority/fear of punishment stage: whereby the person defines right or wrong based on the obedience to rules from those in power 2. Self-interest stage: the person chooses the action that satisfies the person’s self-interest the most © 2019 Taylor & Francis

Kohlberg’s six stages of individuals moral reasoning 3. Expectations of others stage: make their judgment about right or wrong based on the expectations of significant others and peers 4. Rules and laws stage: individual’s moral judgment is externally oriented and based on whether the action respects rules and policies © 2019 Taylor & Francis

Kohlberg’s Moral Development Stages 5. Principled stage: base their decisions on ethical principles of right and wrong and consider good to society 6. Universal ethical principles stage: the decision-maker determines whether an action is right based on universal ethical principles that everyone should follow © 2019 Taylor & Francis

Cognitive Moral Development • Six stages can be conveniently collapsed into three levels: • Pre-conventional level (stages 1 and 2): decisions are typically driven internally by either reward or punishment • Conventional level (stages 3 and 4): based on external rules and norms coming from family, friends, peers, and society • Post-conventional level (stages 5 and 6): individuals are driven by consideration of universal principles and values © 2019 Taylor & Francis

Discussion Questions • Read Business Ethics Insight on Academic Cheating • Where are you on Kohlberg’s moral development scale? • Is that consistent with the research reported in the textbook? • Are there ways you can move along the moral development scale? © 2019 Taylor & Francis

Exhibit 3. 1 % of Students Who Believed Factor Decreased Likelihood of Cheating Some classes are so hard that many students can't pass them without cheating s grading system is considered to be unfair or too hard The probability of getting caught is very low Sometimes students cheat because they do not know exactly what teaching is None of the other students are engaging in cheating Family would think poorly of a student who is cheating The teacher clearly defines procedures and consequences of cheating A student would feel guilty if caught cheating Students are afraid to be caught cheating My university deals with cheating severely Teacher has a reputation for catching/punishing cheaters 0 10 20 30 40 50 60 70 80 © 2019 Taylor & Francis

Exhibit 3. 2 Rest’s Conceptualization and Levels Kohlberg (1969) Rest (1986) Examples Stage 1: Authority/fear of punishment—You do Level 1: Preconventional level — Decision not to bribe foreign officials for fear of what you are told to avoid punishment Focus is on the self punishment if supervisor finds out Stage 2: Self-interest—You scratch my back, I Decision to bribe because bribe results in personal scratch yours gains Stage 3: Expectations of other—Decisions are Level 2: Conventional level—Focus Decision not to bribe as bribe may hurt made to please other people and to society is on relationships and other's well organization if sued being Stage 4: Rules and laws stage—Follow the laws Decision not to bribe so as not to break company and regulations code of conduct Stage 5: Principled stage—Base decisions on Level 3: Post conventional level Decision not to bribe as bribe breaks local cultural ethical principles of right and wrong —Focus is on universal rules and norms regulations Stage 6: Universal ethical principles - Follow Decision not to bribe as bribing is against universal ethical principles © 2019 Taylor & Francis

Cognitive Moral Development • The Defining Issues Test: provides the best way to measure the level of cognitive moral development for organizational use. • The approach asks respondents to activate their moral line of reasoning by presenting them with ethical dilemmas and potential solutions. © 2019 Taylor & Francis

Cognitive Moral Development • Understanding the cognitive moral development level can be useful on many levels, including: • Companies can gauge the level of cognitive moral development prior to hiring • Cognitive moral development of existing employees can be assessed © 2019 Taylor & Francis

Understanding Cognitive Moral Development • Useful on many levels, including: • Companies can also provide very explicit training by having employees consider actual ethical dilemmas and assess how employees react to these dilemmas • The cognitive moral development theory has also received cross-cultural validation © 2019 Taylor & Francis

Discussion Questions • Think of a recent ethical dilemma you faced • Some examples: you got some exam questions from a friend, you got extra change at the grocery store • How did you react to the ethical dilemma? • Why did you react the way you did? • What stage are you on Kohlberg’s moral development stages? © 2019 Taylor & Francis

Ethical Theories • Ethical theory: refers to concerns regarding acceptable ways to solve ethical

Ethical Theories: Utilitarian Ethics • The moral worth of an action is based on the consequences of the action • Based on the premise of maximization of benefits and minimization of harm • Similar to cost and benefit analysis • Involves considering the cost and benefits of any alternatives • Choose alternatives that provide more benefits than costs © 2019 Taylor & Francis

Criticisms of Utilitarian ethics • It is not always possible to precisely measure gains and losses • In the calculation of gains and losses, the needs of minorities are typically ignored • The rights of people are ignored © 2019 Taylor & Francis

Kantian Ethics • Following universal norms that prescribe what people set out to do, how they should behave, and what is right or wrong • Kantian ethics’ categorical imperatives: • The decision should have universal acceptability • A decision should respect the dignity of human beings © 2019 Taylor & Francis

Ethical Theories • Benefits of Kantian ethics for organizational decision-making: • It fosters universal decisions that are not guided by specific situations • It emphasizes treating human beings with dignity and respect • It focuses on principles rather than consequences of actions © 2019 Taylor & Francis

Ethical Theories • Criticisms of Kantian ethics: • It does not provide guidelines as useful as utilitarian ethics provides • Neglecting situations may not always be practical • It places the responsibility on each individual to make moral choices © 2019 Taylor & Francis

Benefits of Both Ethical Theories • Employees can be trained in utilitarian ethics where the strengths of utilitarian ethics can be emphasized • Employees can also be trained to use Kantian ethics, especially when decisions involve significant human costs © 2019 Taylor & Francis

Virtue Ethics • Both utilitarian and Kantian ethics place the emphasis on the behavior and whether characteristics or consequences of the behavior make the behavior ethical • Several philosophers have suggested that we should focus our attention on the persons committing the behaviors • Virtue ethics emphasizes the decisions made by individuals of good moral character and integrity © 2019 Taylor & Francis

Exhibit 3. 3 Themes of Virtue Ethics Research Main Theme Articles Overall Findings Virtues in relationships between 36 This theme rejected the individualistic view of human beings. Rather, the focus multinationals is on collectives such as organizations and markets and how such participation as moral institutions and individuals affects individual morality. Through this theme, the focus is on cultivation of virtue in companies and human beings. Model to study and teach business 33 Comparison of virtue ethics with utilitarianism and Kantian ethics in terms of ethics strengths and weaknesses. Virtues in ethical decision- 29 making and leadership Focus on how virtues in terms of habits and character influence choices and decisions with a particular emphasis on how such choices are made. Discussion of the characteristics categorizing virtuous individuals including integrity and ethical leadership. Quantitative and empirical studies 10 Examination of the influence of virtue and virtue ethics on many organizational of virtue ethics outcomes. © 2019 Taylor & Francis

Virtue Ethics • Focus on character and other aspects of the human condition provides some potential utility for stronger ethical behavior • Virtue ethics is therefore seen as having many advantages • Compared to other ethical philosophies, experts believe that employees who do things out of their moral ideals and virtue are more likely to be trusted than those who are simply following rules © 2019 Taylor & Francis

Advantages of Virtue Ethics • A manager with virtue is more likely to understand what ethical behavior should be performed and will be more likely to be motivated to engage in such behaviors • Some experts believe virtue ethics is much more developmental than both utilitarian and Kantian ethics • Virtue ethics may also be generalizable across culture © 2019 Taylor & Francis

Developing Virtue Ethics • According to experts, virtue ethics cannot be cultivated overnight • Experts suggest that experiences and work environment can be shaped to train employees in the importance of developing virtues • For example, if a company adopts ethical policies because of their values rather than rules, employees are more likely to see such companies as virtuous and embrace such values themselves. • Companies can also provide meaningful work that enables employees to developing virtues © 2019 Taylor & Francis

Moral Philosophies: Idealism and Relativism • Preferred way for individuals to approach ethical decision-making • Idealism: refers to the degree to which an individual will minimize harm and maximize gain to others when making a decision • Relativism: refers to the degree to which individuals adhere to universal rules regardless of the situation when making decisions with ethical consequences © 2019 Taylor & Francis

Exhibit 3. 4 Relativism and Idealism Questions © 2019 Taylor & Francis

Exhibit 3. 5 Relativism and Idealism Change after Business Ethics Course 4. 1 3.

Institutional Anomie Theory (IAT) • The previous approaches and theories focused on frameworks and factors that help explain why individuals cognitively decide to make ethical or unethical choices • Ethics field also includes theories that explain the environment that induces individuals to behave unethically • One of the more prominent approaches is institutional anomie theory (IAT) © 2019 Taylor & Francis

IAT • The original premise of IAT was that conflicts between the social structure of a society and the goals of that society will result in anomie • Sense of disconnect from society • For example, while US society emphasizes the American Dream, the social structures in place (high levels of social inequality and income disparities) may not always support such goals • Because of this disconnect, they are therefore willing to break social norms to reach the American dream © 2019 Taylor & Francis

New Strains of IAT • More recent extensions of IAT have proposed that this between societal goals and the means to achieve those are not as critical • What is more important is the predominance of the market • In other words, in US society, we see a focus on of the economy at the expense of other institutions • As such, when the economy starts dominating a society, other non-economic institutions weaken • Deviance increases © 2019 Taylor & Francis

IAT Studies • IAT has been used to explain the differences between countries in terms of justification of ethically suspect behaviors • IAT showed that cultural variables as well as institutions such as the education level and the degree of family strength affect how much individuals justify ethically suspect behaviors • More recent research has also shown that IAT can predict the level of company tax evasion • Findings show, consistent with IAT, firms in high achievement societies and more assertive cultures were more likely to engage in tax evasion © 2019 Taylor & Francis

Exhibit 3. 6 IAT Variables and Results Variables Achievement Orientation Family Strength Industrialization Pecuniary Materialism Universalism Definition Degree to which the society emphasizes goal achievement at the expense of reasonable expectations Degree to which families are important institutions in society Degree to which society is industrialized The degree to which the society is focused on monetary rewards or material pursuits Degree to which societies judge everyone on similar criteria Findings Achievement orientation encourages tax evasion Family strength is related to lower justification of ethically suspect behaviors Industrialization encourages justification of ethically suspect behaviors Pecuniary materialism encourages stronger justification of ethically suspect behaviors Universalism encourages lower justification of ethically suspect behaviors © 2019 Taylor & Francis

IAT—Practical Implications • Multinationals can review the findings of the cross -national IAT studies to better understand the ethical propensity of their employees in the society they want to operate in • Critical lesson from IAT research is that individuals will likely engage in unethical behavior if there is an emphasis on achievement outcomes such as profits or commissions and if there are barriers to achieve such goals • A company can therefore create an ethical culture that emphasizes more than just materialistic pursuits © 2019 Taylor & Francis

More Practice • Furthermore, IAT also emphasizes a fair system where everyone has the same opportunities to succeed as opposed to making opportunities available to a select few • Companies therefore also need to devise systems that emphasize fairness © 2019 Taylor & Francis

Conclusion • Chapter 3 discusses other key theories or frameworks determining unethical behavior • Companies that take the time and effort to properly understand these theories (in addition to the individual aspects of ethics discussed in Chapter 2) and implement the appropriate steps to ensure ethical behavior are likely to have more ethical employees • Combined with Chapter 2, Chapter 3 therefore provides you with a very thorough understanding of the determinants of unethical behavior © 2019 Taylor & Francis