Business Ethics

1. THE INDIVIDUAL IN THE
ORGANIZATION
BUSINESS ETHICS
1TME 7

2. 2TME 7
The Rational Organisation
• “Rational" model of the business organization is a structure
of formal relationships designed to achieve a goal
efficiently.
• A firm's organizational chart, identifying the formal
hierarchies of authority, exemplifies the fundamental reality
of the organization
– At the bottom of the organization is the operational layer of workers
who directly produce the goods or provide the services.
– Above this are levels of middle managers who direct those below
them and are, in turn, directed by those above.
– At the top of the pyramid is the top management: the CEO, the board
of directors, and their staff.

3. 3TME 7
The Rational Organisation
• This model presupposes that information will be gathered
from the lower levels and rise to the top for policy making
• The glue that holds these layers together is contracts:
– each employee freely and knowingly agrees to accept the
organization's formal authority.
– employees have a moral responsibility to obey the employer in
pursuing the organization's goals,
– employer has a moral responsibility to provide the employee with the
pay and benefits they have promised (including fair working
conditions).

4. 4TME 7
The Employee’s Obligations to the Firm
(1)
• Employee's main moral duty is to work toward the
goals of the firm.
• This view is called "the law of agency," which
specifies the legal duties of employees toward
their employer.
• The employee, must pursue the firm's goals and do
nothing that conflicts with them while working for
the firm.

5. 5TME 7
The Employee’s Obligations to the Firm
(2)
• An employee might fail to live up to this
duty in several ways:
– might steal outright from the firm,
– act on a conflict of interest,
– use his position to leverage illicit benefits out
of others through extortion or bribery.

6. 6TME 7
Conflicts of Interest (1)
• Conflicts of interest arise when:
– employees have a private interest in the outcome of a task harmful
to the firm's interests
– it might affect the employee's independent judgment on the firm's
behalf.
– The result is that self-interest induces employees to act in ways
that may not be in the best interests of the firm.
– employees hold another job or consultancy outside the firm.

7. 7TME 7
Conflicts of Interest (2)
• Conflicts can be either actual or potential
• Actual conflicts occur when a person discharges his or her
duties in a manner prejudicial to the firm.
• A potential conflict occurs when a person is merely
motivated or tempted to do so.
• If contractual agreements impose moral duties, then actual
conflicts of interest are clearly immoral.
• Potential conflicts of interest may or may not be ethical,
depending on the probability that the employee's judgment
will be affected (or seem to be affected) by the conflict of
interest.

8. 8TME 7
Commercial Bribes/Extortion and
Gifts
• Bribes and extortion are unethical and create clear
conflicts of interest.
• Accepting gifts may or may not be ethical, depending on a
number of factors:
– What is the value of the gift?
– What is the purpose of the gift?
– What are the circumstances under which the gift was given?
– What is the position of the recipient?
– What is the accepted practice in the area?
– What is the company's policy?
– What is the law?

9. 9TME 7
Employee Theft and Computers
• Employees’ contractual agreement to accept only specific
benefits in return for services and to use the firm's
resources for the good of the firm.
• Use of company resources and other appropriation of
benefits counts as theft.
• Though theft is often petty (e.g. stealing of stationeries or
padding of expense accounts), it extends to white-collar
crimes such as embezzlement, fraud, and forgery.

10. 10TME 7
Computer Theft
• More recent forms of theft involve forms of
information and company computers.
• Copying a company's software or data, or
using a company computer for personal
business (unless explicitly allowed) are
examples of unethical forms of theft.

11. 11TME 7
Trade Secrets
• Propriety information or "trade secrets" is
information that the company owns
concerning its activities, which it explicitly
indicates that it does not want others to
have.
• Sharing such information is also unethical.

12. 12TME 7
Insider Trading
• Information can lead to other types of unethical behavior.
• Insider trading, the act of buying or selling company stock
on the basis of confidential or proprietary information, is
illegal and unethical.
• Some argue that insider trading is actually ethical and
socially beneficial; it does not harm anyone and helps the
stock price reflect its true value, they maintain.
• These arguments ignore basic facts about insider trading: the
information being proprietary, does not belong to the trader
(stolen property).
• Research shows that insider trading violates people's rights,
based on unjust advantage, harms overall utility of society.

13. 13TME 7
The Firm’s Duties to the Employee
• A firm's main moral duty to its employees is to
provide them with
– a fair wage
– fair working conditions.
• Both issues are aspects of the compensation
employees receive from their service and relate to
the question of whether the employee contracted
to take a job freely and knowingly

14. 14TME 7
Wages
• Setting a fair wage is both important and difficult,
so employers will need to consider these factors:
– What is the going wage in the industry and the area?
– What are the firm's capabilities?
– What is the nature of the job?
– What are the minimum wage laws?
– What are the other salaries in the firm?
– Were wage negotiations fair?
– What are the local costs of living?

15. 15TME 7
Working Conditions: Health & Safety
• Risks are sometimes unavoidable and acceptable, as long
as employees are fully compensated
• If wages are not proportional to the risks, or the risk is
accepted unknowingly, contract between employer and
employee is unfair, and
• Fair working conditions require:
– Studying and eliminating job risks
– Compensating for risk
– Informing worker of known risk
– Insuring workers against unknown risks

16. 16TME 7
Working Conditions: Job Satisfaction
(1)
• Because Rational model of the organization puts high
value on efficiency, jobs are specialized and job
satisfaction can suffer.
• Jobs can be specialized either horizontally (by restricting
the range of tasks contained in the job and increasing the
repetition of this narrow range) or vertically (by restricting
the range of control and decision-making that the job
requires).

17. 17TME 7
Working Conditions: Job Satisfaction
(2)
.
•Not all workers are equally affected by job specialization.
– Older workers and workers in urban areas are more tolerant
– Only about one quarter of workers would choose the same job
again if they could start over.
•Highly specialized work presents a problem of justice
•Narrowly specialized forms of work are those that require
the least skills
•Research shows that excessive job specialization can be
detrimental to efficiency.

18. 18
Working Conditions: Job Satisfaction
(3)
• To lessen the negative effects of specialization, employers
should expand jobs along these five dimensions:
– Skill variety - the job should require a variety of challenging
activities.
– Task identity - the job should require a whole and identifiable
piece of work.
– Task significance - the job should have an impact on the lives of
others.
– Autonomy - the job should give the worker freedom to determine
how he/she will carry it out.
– Feedback - the worker should get information about the value of
his/her efforts.

19. 19TME 7
The Political Organization (1)
• Rational model of organisation accounts for
much of the behavior of an organization
• A great deal of organizational behavior is
neither goal directed, efficient, or rational.
• A different model: the firm as a political
organization is needed to understand this
behavior

20. 20TME 7
The Political Organization (2)
• This model is newer than the rational model.
• Unlike that model, it does not look only at the formal lines
of authority but emphasizes the informal lines of influence
• Sees the organization as a system of competing power
coalitions.
• Focus on the competitive nature of different factions
within a firm.
• The goals of the firm are the goals established by the most
powerful or dominant coalition
• Fundamental reality of the organization is not formal
authority or contract, but power.

21. 21TME 7
The Political Organization (3)
• If power is the main organizational reality, then
the primary ethical problems in an organization
are connected with acquiring and exercising
power.
• The two main questions become:
– What are the moral limits to the power managers
acquire and exercise over their subordinates?
– What are the moral limits to the power employees
acquire and exercise on each other?

22. 22TME 7
Employee Rights (1)
• Corporate management is similar to a government:
– they are centralized decision-making bodies
– they have power and authority to enforce their decisions on
subordinates concerning the distribution of resources, benefits, and
burdens.
• Observers hold that this power is comparable that moral
limits placed on governmental officials must extend to
managers as well.
• As government must respect the civil rights of citizens,
managers must respect the moral rights of employees: the
rights to privacy, consent, and freedom of speech, among
others.

23. 23TME 7
Employee Rights (2)
• There are important differences between corporations and
governments.
• Governmental power is based on consent, corporate power is
based on ownership.
• Managers' power rests on property rights, they have the right
to impose whatever conditions they choose on their
employees who freely and knowingly contract to work there.
• Managerial power (unlike governmental power) is limited by
the power of unions,

24. 24TME 7
Employee Rights (3)
• Employees can leave firms more easily than citizens can
change countries.
• Employee rights advocates counter that dispersed ownership
means that managers no longer function as agents for the
owner of a firm (there is no single owner), so property rights
are no longer relevant.
• Unions do not protect many workers, and changing jobs can
be a very difficult and traumatic experience.

25. 25TME 7
The Right to Privacy
• Employees have some certain rights – the right to privacy
• Because of technical innovations, employees’ right to privacy
is under attack.
• This must be balanced against employers' rights to know
certain information about their activities.
• Three elements are relevant when considering this balance:
– Relevance - the employer must limit his inquiry to areas that are
directly relevant to the issue at hand.
– Consent - employees must be given the opportunity to give or
withhold consent before their private lives are investigated and
should be informed of any surveillance.
– Methods - employers must use ordinary and reasonable methods of
inquiry unless circumstances are extraordinary.

26. 26TME 7
Freedom of Conscience
• Workers may think they have freedom of conscience,
• If they found their firm doing something that harms
society, few legal options available if management does
nothing
• Company has legal right to punish employee who informs
against the firm with firing or blacklisting.
• May have a clear violation of an individual's right to
freedom of conscience, the law states that employee's duty
is to maintain loyalty and confidentiality towards employer

27. 27
Whistleblowing
• Whistle blowing - attempt by employee to disclose
wrongdoing in an organization,
• Take two forms:
– Internal - reported only to management within organization.
– External - reported to others (such as governmental agencies or the
media).
• Can have heavy personal costs,
– justified when there is clear evidence that the firm's activity is
seriously harming others
– reasonable attempts to prevent it by informing management have
failed,
– reasonably certain that whistle blowing will prevent the harm
– the harm is serious enough to justify the injuries it will bring upon
the whistleblower.

28. 28TME 7
The Right to Participate and
Participatory Management (1)
• In a democracy, citizens have the right to participate in
government to decide by majority after full, free and open
discussion.
• Theorists proposed that such ideals should be embodied in
business organizations.
1. they suggest that business decisions should be made only after
open discussion with workers.
2. workers should have the right to make decisions about their own
immediate work activities.
• Such models are not generally popular in the U.S.

29. 29TME 7
The Right to Participate and
Participatory Management (2)
• Management theorists urged managers urge to
adopt participatory leadership style assumed:
– employees want responsibility;
– can develop the capacity to accept responsibility,
– are ready to support organizational goals, can determine
the best means of achieving them.

30. 30TME 7
The Right to Participate and
Participatory Management (3)
• Following the theory of Douglas McGregor, Raymond
Miles distinguishes three models of sets of assumptions that
managers can make about employees:
1. Traditional - employees dislike work, are not capable of being
creative or self-directed, and care only about what they earn.
• 2. Human relations - employees want to belong and feel recognized,
useful, and important; meeting these needs is more important than
what they earn.
• 3. Human resources - employees like work, want to contribute to
meaningful goals that they help establish, and can be creative and
responsible.

31. 31TME 7
The Right to Participate and
Participatory Management (4)
• Another theorist, Rensis Likert, posits not three but four
"systems of organization."
– Exploitive Authoritative
– Benevolent Authoritative
– Consultative
– Participative
• Leadership ranges from absence of trust to complete mutual
trust; from no employee involvement to full employee
involvement
• If such management styles are more effective/productive,
then on utilitarian grounds firms ought to adopt them.
• However, research on this issue is not yet conclusive.

32. 32TME 7
The Right to Due Process Vs
Employment at Will (1)
• Another democratic right, the right to due process of the
law, is countered in business by the principle of
employment at will.
• Employment at Will: employers may dismiss their
employees whenever they desire, for good or no cause,
even for morally wrong causes.
• This principle has recently come under attack, and the
trend is towards the view that employees have some right
to due process, a fair process by which decisions about
their employment are made.

33. 33TME 7
The Right to Due Process Vs
Employment at Will (2)
• This is a vitally important right, since if it is not respected,
the employees have little chance of seeing any other right
respected.
• Due process plays a central role in the hearing of
grievances.
• Theorists identify five essential features of an effective
grievance procedure:
1. Three to five steps of appeal
• 2. A written account of the grievance
• 3. Alternate routes of appeal beyond the immediate supervisor
• 4. A time limit for each step
• 5. Permission for the employee to be accompanied by another

34. 34TME 7
Employee Rights and Plant Closings
(1)
• As plant closings become common, the rights of
employees need to be considered.
• Plant closings impose high costs on workers, so
when plant closings are inevitable, workers' moral
rights should continue to be respected.
• Utilitarian principles suggest that the harm caused
by layoffs should be minimized, which means that
the costs of plant closings should be borne by
those best able to bear them namely the company.

35. 35TME 7
Employee Rights and Plant Closings
(2)
• Considerations of justice further imply that workers and
communities should be repaid by the firms not unjustly
abandoning pension, health, and retirement plans.
• Companies that have to close plants can minimize the
harm they cause individuals and their communities by
giving
– advance notice,
– severance pay,
– health benefits,
– early retirement,
– transfers, retraining,
– and phasing out local taxes.

36. 36TME 7
Unions and the Right to Organize (1)
• Owners have right to establish and run business to achieve
their morally legitimate ends,
• Workers have the right to associate with each other to
establish and run unions to achieve their own morally
legitimate ends.
• The worker's right to organize derives from the right to be
treated as a free and equal person.
• Unions have traditionally been justified as an important
and legitimate means of balancing the power of large
corporations.

37. 37TME 7
Unions and the Right to Organize (2)
• Workers have the right to form unions and to strike as
well.
• Though unions have been important in the establishing of
worker rights in the U.S. and around the world, unions
represent a dwindling percentage of American workers.
• Opposition to unions is on the rise, and the use of illegal
tactics against them is rising.
• As the effectiveness of unions shrinks, it is likely that we
will need more laws to secure the rights that unions had
previously protected.

38. 38TME 7
Organizational Politics
• Organizational politics is defined as the process by which
individuals or groups within an organization use non-
formally sanctioned tactics (political tactics) to advance
their own aims
• Such aims are not necessarily in conflict with the best
interests of the organization.
• Because organizational politics aim to advance the
interests of an individual or group, political individuals
tend to be covert, which means that they can easily
become deceptive or manipulative.

39. 39TME 7
Political Tactics in Organisations
• Some of the most frequent political tactics
encountered in business organizations are:
1. Blaming or attacking others.
• 2. Controlling information.
• 3. Developing a base of support for one's ideas.
• 4. Image building.
• 5. Ingratiation.
• 6. Associating with the influential.
• 7. Forming power coalitions and developing strong allies. 8.
Creating obligations.

40. 40TME 7
The Ethics of Political Tactics (1)
• Such behavior can easily become abusive, manipulative, or
deceptive, seriously injuring others.
• It can also be used to advance laudable organizational and
social goals,
• however, sometimes the only defense a person in an
organization has is to fight fire with fire.
• The dilemma is knowing where the line is that separates
the moral from the immoral use of political tactics.

41. 41TME 7
The Ethics of Political Tactics (2)
• Perhaps the best way to approach them is to test
them against the four standards of ethics:
– the utilitarian question (are the goals of the tactics
socially beneficial?);
– the rights question (do the tactics treat others
consistently with their moral rights?);
– the justice question (will the tactics lead to an equitable
distribution of benefits and burdens?);
– the caring question (what impact will the tactics have
on the web of relationships within the organization?).

42. 42TME 7
The Caring Organization (1)
• This chapter examined organizations as
– hierarchical power relationships or
– crisscrossing lines of power.
• The Caring Organization is a network of connected
individuals all concerned with each other.
• The primary goal of the organization is not profit, but
caring for those individuals who make up the organization
and with whom the organization interacts
• Some theorists believe that organizations in such
relationships exhibit better performance.

43. 43TME 7
The Caring Organization (2)
• The essential ethical concerns that arise from this model:
– The problem of caring too much
• leading to burnout
• Conflict is between the needs of others and the needs of self
• The needs of those for whom we care can demand a response that
conflicts with what we may feel we owe others (e.g. caring for a
friend who is violating company’s policy)
– The problem of not caring enough
• because of fatigue to live up to the demands of caring
• self-interest
• disinterest