Ethics - 2

Class COR3302

Type Seminar

Reviewed

Status Not started

Status Done

Lecture 2: Ethical Decision Making

1. Ethics In business vs personal ethics

a. I think its possible to separate personal ethics and business ethics

because in both fields you have to deal with different types of decisions.
However, there may also be situations where you awork based on virtue. I
think separation would be important because each you look at it from
different pov’s.

b. Business ethics operate at 3 levels

i. Individuals – Individual decisions as employees or as professionals

ii. Organization - organizational culture, actions of leadership

iii. Systemic – morality of capitalism and marketplace, outside individual

control

2. A firm should care about ethical behavior because

a. Creates financial and marketing risk – bankruptcy, fraud, boycotting etc.

i. Remember bread talk’s ‘fresh’ but not really soya milk scandal

b. Can provide competitive advantage or disadvantage to firms

Improves employee performance and motivation by encouraging

trust&loyalty

1. Studies show that millennials prefer working for ethical companies

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 3. Business ethical failures can have far reaching consequences as they can
effect countless stakeholders

a. In enron, thousands of employee’s lost their jobs, stockholders lost $1

billion in stock value, Arthur Anderson(their auditor) went out of business,
and hundreds of suppliers suffered losses.

4. Why being ethical matters:

a. Higher levels of employee engagement

b. Better Value proposition for investors

Competitive differentiation to attract customers

Defensible program for regulators

1. >50% of a company’s value is in intangible assets like goodwill

5. Does Being Ethical pay?

a. Many companies hope that customers will pay a higher price for products
made with higher ethical standards but without actually testing that
assumption

b. Consumers are willing to pay a slight premium on ethically produced

products. But they went all-in on the opposite direction. They would buy
unethically made products ONLY at a steep discount.

If a company invests in even a small degree of ethical production, buyers

will reward it just as much as a company that goes much further in its
efforts.

6. Ethical decision making

a. The Hartman framework for ethical decision making

i. Determine the facts of the situation (and distinguish facts from

subjective opinions)

ii. Identify the ethical issues involved(what affects the well-being of the
ppl involved)

1. Normative myopia – inability to recognize ethical issues

Identify stakeholders and consider their points of view

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 1. Consider available alternatives(moral imagination)

2. Compare how alternatives will affect stakeholders

3. Predict foreseeable consequences to relevant stakeholders

4. Can we minimize negative consequences and maximize positive ones?

5. Make a decision

Monitor and Learn

1. Evaluate implications of decisions and learn from outcomes to modify

future actions accordingly

7. Practical aspects of ethical decision making

a. Five minds of cognitive capacities

i. Disciplined mind – to master knowledge in a field

ii. Synthesizing mind – coherently combining relevant knowledge from

different fields

Creating mind – create and innovate new things

1. Respectful mind – respect ppl to maintain relationships

2. Ethical mind – Act ethically irrespective of consequences to one’s self

8. Discussion – faking experience in the resume

a. If he doesn’t fake – deportation+lower earnings and career prospects, if he

does fake – job but later risk of deportation

b. External factors – norm to fake cv, family situation, risk to deportation,

owner of the firm told him to fake it

Ethical mind would tell him not to fake his resume because lying is wrong.
He should do the right thing despite the consequences to himself.

9. Obstacles to an ethical mind

a. Bad peer pressure – “everyone does it”

b. Bad leadership – “the leaders do it”

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 c. Not prepared to make ethical decisions on the spot – taken by surprise
when a dilemma arises

10. Influence of business leaders

a. The employees follow the actions and behaviors of the leader(‘s) and the
culture they create within the organization. Thus for a business to be
ethical, the leader should be ethical.

11. People make ethical decisions under numerous external factors that could
impede our ethical decision making. Some factors are:

a. Ill-conceived goals

i. We are incentivized to do wrong things

ii. Eg: Pressure to maximize billable hours in accounting to earn more

Eg: Commission structure in insurance agents and their unwanted

persistence

1. Remedy is to be aware of unintended consequences while designing

incentives

b. Motivated Blindness

i. Overlooking unethical behaviors of others when it’s in our interest to

remain ignorant

ii. Eg: Baseball officials is ignoring steroid uses in players because the
improved performance attracts fans

Eg: Audit performs non audit services for audit client. They risk their
independence by not diving in further on potential misstatements to
not risk their client relationships and non-audit income.

1. Remedy is to remove conflict of interest

c. Indirect Blindness

i. Holding others less accountable for their actions when the unethical
action is conducted through 3 parties

rd

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 ii. Eg: A drug company deflects attention from a price increase by selling
rights to another company which imposes the increase

Remedy is taking ownership of the 3 party actions

rd

d. Slippery Slope

i. Unable to see unethical behaviors when the shift to unethical

behaviors happens gradually

ii. Remedy is to be alert to even trivial infractions. Investigate potential

change in behaviours

Eg: Auditors may be more likely to accept questionable FS if

infractions have occurred over time

e. Overvalue Outcomes/ Undervalue the means

i. Giving a pass to unethical behavior if the outcome is good

ii. Eg: researcher who uses fraudulent clinical practices is not hunted
because in the end it saved more lives

Examine both the good and bad parts, reward solid decisions not just
good outcomes

12. When People Do Bad Things at Work

a. Scripts

i. People are in autopilot just do what they are asked to

b. Distraction

i. You are distracted from focusing on ethics due to other factors

c. Moral Exclusion

i. You categorize people into different groups, and you care less about a
specific group and are thus more acceptable of unethical actions
suffered by them. They are excluded from moral inclusion.

ii. Big Pharma companies develop drugs to help people, but the owners
rarely meet them face to face. Which is why they are more okay with

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 raising the prices of the drugs and negatively impacting the patients.

Case Study – Hartman Ethical Decision-Making Order

1. Determine the facts of the situation

a. Certain customers have paid their invoices twice.

b. Finance Director is aware of this and has written to the FD’s of the
customer

However, FD does not plan on returning the money unless they write
back

1. it might be only an opinion when he says that this is commonplace in

the industry

2. Not sure if he actually sent out those mails, sus that customer FD’s
didn’t do anything

2. Identify Ethical Issues

a. Should the money be returned unprompted or should we wait till the

customers respond

b. FD’s attitude + Failure to address overpayment

Unclear if evidence is authentic and if the customer’s FD’s are working

with the FC to fraud their companies

3. Identify stakeholders and their pov

a. FC – found the error and wants it corrected

b. FD – was aware of the error but doesn’t want it corrected unless the
customers ask for the money back

Customer – The customer’s have paid twice so should be worried about

getting their money back. Weird that they haven’t acted. If this info
goes public about how the FD didn’t immediately return money it could
make customers lose trust in the company.

1. Shareholders/Audit Company/Auditors – Receiving excess revenue or

payments without services represents a fault in the company’s internal

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 controls in revenue recognition, which is a potential concern for
shareholders, TCWG and the auditors on how the company is run

4. Consider Alternatives

a. Issue refunds

b. Bring it up to upper level of management

Whistle blow to auditors or relevant authorities

1. Investigate further

2. Do nothing

5. Compare how Alternatives affect stakeholders

a. Refund would likely prevent legal consequences but would put you at
odds with the FD

b. This has a chance to solve the problem and the control issue but once
again puts you in trouble with the FD

There is a chance that you can get away unscathed but if your name is
revealed you could get fired or lose any support by the higher
management in the organization. In (ii) If we find out that TCWG also
have the same mindset as FD we would need to whistle blow

6. Make a Decision

a. I personally would bring it up to a level of management above FD,

specifically to someone I trust.

7. Monitor and Learn

a. If the problem gets solved, all good

b. Otherwise, if I come to understand that they share the same view as the
FD I would whistle blow and if the firm turned against me, I would
subsequently have to resign from my position.

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