Chapter 10 4t671c

Ethical Dilemma, Sources and their Resolutions

Business Ethics and Corporate Governance, 2e

A. C. Fernando

Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.

Chapter 10

An ethical dilemma is a moral situation in which a

choice has to be made between two equally undesirable alternatives.


A. C. Fernando


What is Ethical Dilemma?

:exists when an organizational decision maker faces a choice between two or more options that impacts on

(a) the organization’s profitability and competitiveness, and (b) its stakeholders.


A. C. Fernando


What is Business Dilemma?

Either

Or

Doing what is morally right

Doing what is morally wrong

Results in

Results in


A bad outcome or bad effects

Good or at least better effects or outcome

A. C. Fernando


The Structure of Ethical Dilemma

SHARE HOLDER

EMPLOYEE

SOCIETY

Ethical dilemmas in business can best be explained by the above triangle with the stakeholders as its vertices. The stakeholders in this case can be broadly classified into shareholders, employees and the society at large. Business Ethics and Corporate Governance, 2e

A. C. Fernando


Ethical Dilemmas & Business Stakeholders?

People in business come across several ethical problems that cause ethical dilemmas. For instance, • They feel that there is lack of clear linkage between business ethics and financial success; • They are not clear as to how much they should invest in the business ethics system; • They are unclear about the right balance between business ethics and the investment required for the same; and • The seemingly long gestation periods and the lack of short term gains, also, is an obstacle.


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Corporate Dilemma Over Ethics

I.

Failure of Personal Character People whose personal values are not desirable may embezzle funds, steal supplies from the company, pad expense s, take unjustified leave, shirk obligations to fellow-workers, take bribes for favouring suppliers use inside information for their personal benefit and to the detriment of others.


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Sources of Ethical Problems

II . Conflict of Personal Values and Organizational Goals: The company uses methods or pursues goals unacceptable to the manager. Reported case: George Couto, an employee of Bayer AG, exposed that Bayer AG used to re-label Cipro and sell it to another pharmaceutical company, Kaiser Permanente, with a different identification number so that it could claim more money from the Medicaid programme.


A. C. Fernando



III. Organizational Goals Versus Social Values Activities of a company taken as unethical by stakeholders, due to changing social scenario or milieu.

the

Procter and Gamble withdrew its Relytampon promptly when its use was linked statistically to some deaths and Johnson & Johnson cleared all retail shelves of its Tylenol analgesic within days of the discovery that some containers have been poisoned.


A. C. Fernando



IV. Personal Beliefs Versus Organizational Practices Ethical dilemmas in organizations arise when they employ multi-racial and multi-religious employees. Several organizations are accused of racial discriminations and gender bias in the work place and have been paying fines of billions of dollars or opting for out-of-court settlements.


A. C. Fernando



V. Production and sale of hazardous but popular products Where does the ethical burden lie, when business sells products known to be actually or potentially harmful to society? Is the principle of caveat emptor in mercantile law to be adapted suitably? Should individual rights and free choice override social costs?


A. C. Fernando



V. Production and sale of hazardous but popular products (Contd.) Could drunken drivers and carefree smokers deprive others of their legitimate rights to life and safety? Could free trading in hard drugs, dynamite and guns be considered ethical? Will the ineffective control „Smoking is Injurious to Health‟ and that too given as a „Statutory‟ warning legitimatize the unethical business?


A. C. Fernando



VI. Other Ethical Challenges • • • • • •

Price fixing and profiteering due to monopoly, and often by artificially created scarcity. Shifting unfair shares to the producer stakeholders and employees. Discriminatory wage structure. U too fast, scarce and irreplenishable industrial resources and raw materials. Shifting or locating business at the cost of society. Overworking women and children.


A. C. Fernando



Competitive pressures, individual greed and differing cultural contexts generate ethical issues for organizational managers. Further, in almost every organization some people will have the inclination to behave unethically (the ethical egoist) necessitating systems to ensure that such behaviour is either stopped or detected (after unethical behaviour occurs) and remedied. Ethics, involves systematizing, defending, and recommending concepts of right and wrong behaviour.


A. C. Fernando


Why do Businesses have such a Negative Image?

There are a number of reasons why businesses should act ethically: • to meet stakeholder expectations (and protect the former‟s reputations), • to prevent harm to the general public, • to build trust with key stakeholder groups, • to protect themselves from abuse from unethical employees and competitors, • to protect their own employees, and • to create an environment in which workers can act in ways consistent with their values.


A. C. Fernando


Why Should Businesses Act Ethically?

Organizations have started to implement ethical behaviour by the following actions: • publishing in-house codes of ethics • employing people with a reputation for high standards of ethical behaviour at the top levels • starting to incorporate consideration of ethics into performance reviews • Starting to reward ethical behaviour • conducting an ethics audit


A. C. Fernando


How Corporates are Observing Ethics in Their Organization?

Most company codes list the following values being expected from their employees:

•

Respect confidential information to which you have access.

•

Maintain high standard of professional responsibility.

•

Avoid being placed in situations involving conflict of interest.


A. C. Fernando


Code of Personal Ethics for Employees

Most company codes list the following values being expected from their employees.

• Act with integrity. • Do not be biased against anybody or anything. • Maintain professional relations based on mutual respect for individuals and organizations. • Be committed to the goals of the organization. • Do not give up your individual professional ethics.


A. C. Fernando


Code of Personal Ethics for Employees (contd.)

• Make the decision to commit to ethics. • Recognize that you are a role model by definition, by your action, and by your values. • Assume the responsibility for instilling ethical behaviour.


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How to Create an Ethical Working Environment?

● ● ● ● ●

Articulate your values. Train your staff. Encourage open communication. Be consistent. Abide by the laws of the land.


A. C. Fernando


How to Create an Ethical Working Environment? (contd.)

Think and reflect about yourself, about the management, about the people, and about the relationship and the values you wish to incorporate.

• Create time for thinking • Reflect. • Periodically take time off to reflect and consider „where I am‟, „where I have to go‟ and „how I am going there‟.


A. C. Fernando


How do We Establish Ethical Standards?

To understand business conduct, Walton has classified them into six models

(i) The Austere Model It gives almost exclusive emphasis on ownership interest and profit objects


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Walton’s Six Models of Business Conduct

Following the concept of an extended family, the model emphasizes employee job, benefits and paternalism. (iii) The Vendor Model In this model, consumer interests, tastes and rights dominate the organization.


A. C. Fernando


(ii) The Household Model

This model focuses on the organization as an entity and thus on long-term profits and survival. In the name of enlightened self-interest, it gives some recognition to social investments along with economic ones.


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(iv) The Investment Model

Its slogan is „corporate citizenship‟. It goes beyond imposed obligations, accepts social responsibility and makes a positive commitment to social needs.


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(v) The Civic Model

This model encourages the organization to become a creative instrument, serving the cause of an advanced civilization with a better quality of life. The employees perform as artists, building their own creative ideas into actions, resulting in new contributions not originally contemplated.


A. C. Fernando


(vi) The Creative Model

Result: Employees be become proud of performance, and develop a sense of belonging and creativity.


A. C. Fernando


The above six models may be thought of as points on a continuum from low to high social responsibility.

The system must be strong enough to withstand changes by partisan pressure groups, but flexible to move with the changing society.


A. C. Fernando


Regardless of the model adopted by an organization, one of its most important jobs is to establish and blend its value together so that they become a consistent, effective system that is known and accepted by the fair primary claimant groups – investors, employees, customers and society, including the government.

 Is a policy, a decision or an action

Unethical?

Ethical?


A. C. Fernando


How to Resolve a Dilemma?

To resolve these questions that create a dilemma, ask three questions • Utility: Do the benefits exceed the cost (Share Holder)? • Rights: Do they respect human rights (Society)? • Justice: Does it distribute benefits and burdens evenly (Employees)?


A. C. Fernando


Ask Three Questions

Two basic approaches are possible in resolving ethical dilemmas: deontological and teleological Deontological (action-oriented) approach: An ethical standard consistent with the fact that it is performed by a rational and free person. These are inalienable rights of human beings and reflect the “characteristic and defining features of our nature”. These fundamental moral rights are inherent in our nature and are universally recognized.


A. C. Fernando


How to Resolve Ethical Dilemmas?

Teleological (results-oriented) ethics: The moral character of actions depends on the simple, practical matter of the extent to which actions actually help or hurt people. Actions that produce more benefits than harms are “right”; those that don‟t are “wrong”.


A. C. Fernando


How to Resolve Ethical Dilemmas? (contd.)

Center for Ethics and Business offers “a brief, three-step strategy” in which both the deontological and teleological approaches converge • • •

STEP 1: Analyse the consequences STEP 2: Analyse the actions STEP 3: Make a decision


A. C. Fernando


How to Resolve Ethical Dilemmas? (contd.)

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