What are Ethics Moral Valuesbeliefs about what is

What are Ethics • Moral Values=beliefs about what is good vs bad, right vs. wrong • E. g. , it is wrong to lie • Ethics = standards of behavior consistent with one’s moral values • E. g. , I should not lie • Decision= Intention for behaving consistently with ethics • I decide not to lie even if I am disadvantaged by lying • Behavior= Action • not lying

Type of Ethics Rightness is defined by… Basis of actions End Results -effect/consequences it has --Actions are aimed to promote -utility of ends (collective) happiness, --Actions that promote more happiness are more right Duty Social Contract -obligations to apply universal standards in all situations -intentions of actor rather than effects --Customs or norms of a community Personal-isitc One’s conscience --Actions that promote virtue rather than pleasure --behaviour should be based on principles/rules --Community defines morality which defines right & wrong --Duty binds individual to community --What is best for community is ultimate standard -stand up for what one believes -no absolute formulas for living

Sources determining Managerial Ethics Org. Culture – Rituals, slogans, symbols, etc. Personal ethics – Beliefs, moral development, etc. External Stakeholders – Government, clients, market, etc. Managerial Ethics Org. Systems – Code, reward system, rules, etc. 3

How sources affect Ethical Behavior - I • Reward System – Anticipation of healthy reinforcement for following an unethical course of action, especially if no punishment is expected. • Role conflict in Code of Conduct – “Bureaucratic” role as an organizational employee is at odds with one’s role as the member of a profession. • Market: Competition – Stiff competition for scarce resources. – Temptation to make unethical decisions in situations in which essentially no competition exists.

What increases biases in judgments Type of Judgment Ambiguity Attachment Familiarity Bias in judgments Seeking Approval Discounting Escalation Disclosure

Ambiguity in accounting • Study of approx 50 tax preparers shows 83%976% difference in how much a family owes in yearly taxes – Ambiguity in Income, deductibles, depreciation schedule • Declaring items as revenue vs. expenses (early vs. later) has implications on how stockholders react • Firms hire based on how auditors interpret accounting problems

Self-serving Bias Attachment Bias in Judgment Students role playing as plaintiffs (in an accident) predicted that they would receive larger awards from the judge than did those playing the role of defendants

Types of training & self-serving bias Learning about selfserving biases Writing essays arguing for other side 0 0 Bias in judgments - Reading case FIRST before being assigned the role of plaintiff or defendant

Seeking approval • You are even more biased toward yourself when someone else is biased toward your opinion • Implications for overly biased judgments – E. g. , when auditors make judgments by themselves first vs. merely “endorsing” judgments that clients already made (they are even more biased toward their selfserving biases)

How sources affect Ethical Behavior - II • Organizational and Industry Culture – Aspects of an organization’s culture (and its subcultures) • Corporate cultures that reward unethical behaviour. • A culture of greed and a singular focus on positive financial results. Ø Stonewalling Ø Counter norms – Corporate codes of conduct might have an impact on culture and ethical decision making. Copyright © 2011 Pearson Canada Inc.

Familiarity, discounting, escalation • On-going relationships Familiarity – Decide between negatively affecting company executives (clients) vs. company investors (not clients) • Discounting – Favour immediate consequences vs. delayed uncertain consequences (see Margin Calls movie) • E. g. , damage to relationship, loss of contract, unemployment • Escalation – Sum of small biases leads to large biases (i. e. , corruption)– (see Margin Calls movie)

Auditor Attachment affects Bias in Judgment • Study of buyer, seller, buyer auditor and seller auditor – Seller valued firm more than buyer – Auditors were more biased toward client interests – Sellers auditors valued firm more than buyer auditor – Reward for accuracy for auditors did not eliminate the bias they already had

Auditor Attachment affects Bias in Judgment • Auditors who were hired by the company were more likely to conclude that the company complied with the GAAP rules rather than those auditors who were hired by the company’s business collaborator • Experience of auditor did not decrease the bias

Study of Advisors vs. estimators of how much $$ in jar Disclosure of conflict of interest Bias in Judgment • Estimator got paid for accurate judgments • Advisor got paid for how high estimator’s estimate was (i. e. , advisor had a incentive to make higher judgments)

Results • Disclosure of advisor’s motive to Disclosure of estimator did not lead estimators conflict of to discount advisor’s advice and interest make lower judgments so advisors made more than estimators Bias in Judgment

Results: Continued Disclosure of conflict of interest Bias in Judgment • Advisors who were given incentives to mislead estimators to make high judgments and whose motives were disclosed to estimators were more biased than those whose motives were not disclosed. • Advisors seemed to adjust for estimator’s discounting and made even higher judgments

Legal reform in accounting should remove the incentive for being attached and should take into account the negative effects of disclosure to the organization Legal Reform ? Increase Disclosure + Reduce Attachment Reduce Bias in Judgment

How sources affect Ethical Behavior - III • Personality & Values – Certain personality types are more prone to unethical behaviour (e. g. , economic values, high need for personal power). ØBottom line mentality - financial success is the only value to be considered ØExploitative mentality - use people in a way that promotes stereotypes and undermines empathy and compassion ØMadison Avenue mentality - anything is right if the public can be made to see it as right ØWorkers emulate the unethical behavior of their superiors Copyright © 2011 Pearson Canada Inc.

How sources affect Ethical Behavior – IV • Other individual factors – There are individual differences in the degree of sophistication that people use in thinking about moral issues. – Less disengagement and more attentiveness is associated with more ethical behaviour – Individual differences in cognitive moral development.

Kohlberg’s Theory of Moral Development Copyright © 2013 Pearson Education, Inc. , publishing as Prentice Hall 2 -20

12 -9 Guidelines for Determining Ethical Action Ethical Yes Question 3 Does the activity conform to standards of equity and justice; is it fair? Yes Question 2 Does the political activity respect the rights of the individuals affected? Question 1 Will the political tactics promote purely selfish interests (as opposed to also promoting organ-izational goals? ) No Yes No Unethical No