Ethical Business Decisions: The Lens

Since ethics is an integral part of management, it is vital for managers to become comfortable with the language of ethics, and to understand how it is inextricable from the language of business. Each business decision can break or respect rules and norms, has consequences and effects on stakeholders, and shapes and is shaped by the character of managers and their corporations. This note will examine the philosophical theories of ethics and how they can apply to management decision-making.

There is a rich history and diverse range of ethical theory. This vast range of writing focuses on three different traditions:

• The principles or standards of conduct that guide behavior
• The character of the person or company
• The consequences of a particular action

Each of these three strands of theory provides moral insight: They all capture important elements of the moral life, yet each has its limitations. For most people, and most cultures, none of the three strands of ethics by itself provides a complete set of moral considerations to live by. Each raises important themes for decision-making, and while all three strands are distinctive, there are often important tensions and interconnections among them in practice.

Principles or Standards of Conduct

This branch of ethical thought focuses on the actions people take and tries to determine whether a given act is ethically acceptable, given its relationship with relevant principles and norms. For example, if a manager is deciding whether to lie to someone, the issue is whether lying is morally defensible, not whether lying to this person will create more good outcomes than bad. This is determined relative to rules and standards of conduct in a particular community. In moral philosophy, the school of thought that focuses on this aspect of ethics is “deontology.”

In most moral dilemmas, the conflict is between two compelling morally justifiable principles rather than between a clearly good principle and a clearly bad one. There are many cases in which moral directives for action conflict and do not provide a clear answer as to what is right. Ethics involves doing the hard work of sorting out the relevant moral claims and choosing the best course of action.

This lens on ethics highlights managers’ responsibility to try to understand and respect the standards of conduct where they do business. Standards of conduct determine morally appropriate and inappropriate action and articulate the moral rules, which most people in that community live by most of the time. For corporations, we are interested in several different communities that may come into play in a given case: the firm, the industry and the local communities in which we do business, as well as the larger national and international communities.

Crucial Questions:

• Would this particular act or practice violate relevant principles or standards of conduct?
• Are there ways to pursue our strategic interests without violating the standards of conduct?
• If the public finds out about this activity, will it lead to action against the firm (e.g., lawsuits)?
• Are the standards of conduct observed within the firm defensible and consistent with the standards of conduct of the society in which it operates?

Character and Virtue

Ethics deals with more than rules and norms. It also addresses issues of character — the personal traits and qualities that define what kind of person someone is. These traits include habits, priorities and idiosyncrasies. They can change over time, with much effort, but such change is difficult to achieve. This branch of ethics, termed character or human nature ethics, focuses on the individual, specifically: how various patterns of conduct come to define the kind of person one is, what it means to live well and what it means to be a good person.

• Strength of character: This refers to the fortitude that allows individuals to adhere to their convictions or moral standards, even when the costs of doing so may be great.
• Virtues: These are forms of human excellence — traits that are morally commendable. Virtues –— such as prudence, fairness, trustworthiness, courage — are traits that we embody after years of effort and training. What counts as virtue is often determined in large part by the context in which one operates. For example, action that is praiseworthy with close friends and family (i.e., forthrightness, candor) might be considered a vice in certain business situations (such as a difficult negotiation).
• Integrity: This is a central aspect of good character. Integrity literally means wholeness or the sense that you have a clear conscience and can affirm who you are and what you have done.

From the virtue ethics perspective, firms have to “walk the talk” and find ways of doing business that enable them to embody the traits to which they aspire, such as customer service, integrity or diversity. Here we look at much more than the rhetoric of the firm and focus on what we learn from the habits of managers and ways of doing business that are common within the firm.

One area in which the character dimension of human interaction is especially important is within relationships, particularly since they focus our attention on certain underlying qualities and traits and exist over time. Having significant levels of mutual trust, respect, cooperation, teamwork and effective communication within relationships can be important both morally and strategically. For example, having morally sound relationships can create substantial saving on monitoring and transaction costs.

Crucial Questions:

• What character traits do the firm or managers need to be successful over time?
• To what extent do these actions reflect the character traits that the firm desires? Are they the basis for excellent organizational performance over time?
• To what extent is this problem a result of a poor relationship (e.g., bad communication)?
• Could improvements in how the firm communicates with and treats employees or other stakeholders improve the long-term prospects for the firm?

Consequences and Outcomes

Ethics also has to do with pursuing — and achieving — laudable ends. This branch of ethical thought focuses on the moral importance of the “ends” a person or firm sets and the desire to try to achieve them through certain actions. Thus, the moral worth of actions should be determined by the likely consequences they would generate. Do our actions create more good than harm in terms of realizing the goals or purposes set (i.e., winning a war, creating profits, helping others)? The phrase “the ends justify the means” is often used to describe this branch of ethics, known as “consequentialism.” Utilitarianism (creating the most favorable balance of benefit over harm), which has heavily influenced economics, is the most famous branch of consequentialism.

A key part of morality is selecting a set of defensible purposes and then taking actions that help achieve those purposes. A morally important part of what managers do is getting down to the hard and often dirty work of getting things done, not just espousing noble intentions. Creating favorable consequences for key stakeholders highlights the moral importance of practicality for managers — finishing projects, creating jobs and making profits.

A helpful way for managers to identify the relevant purposes and consequences in a given case is to do a stakeholder analysis — list the relevant stakeholders in the case, highlight their purposes, and consider likely courses of action in terms of those purposes. This decision rule does not presuppose that one is committed to either a stakeholder or a stockholder view. It simply asks that you look at the interests of the various groups and make decisions bearing that information in mind. It is up to you to decide which interests to prioritize.

Crucial Questions:

• Which consequences are most important? Are there any clear priorities among stakeholder claims?
• Which consequence do I want to create, and which fit with the firm’s strategy?
• Will certain stakeholders be especially harmed? Will they feel negatively toward the firm or seek to hurt the firm?
• Are there any natural alliances among key stakeholders that can be developed?

The three dimensions of moral theory help capture what is going on, morally speaking, within a given case; however, there will often be tensions between the decision rules — particularly between the desire to create good consequences for core stakeholders and the other two decision rules. This is an acute problem in many moral dilemmas in business, especially when managers face significant incentives or pressures (i.e., going out of business) to bend the rules or adopt unsavory practices. There is no simple way of resolving these conflicts. But no matter how compelling the goal, certain actions or means are always morally suspect (i.e., lying, breaking promises, stealing, violence), while others may never be acceptable (i.e., murder). To resolve such conflicts, managers need to consider the justifiability of their choices to the audiences in question and take further steps to avoid rationalizations.

This post is excerpted from Darden Professors Jared D. Harris, Bidhan L. Parmar and Andrew C. Wicks’ technical note Moral Theory and Frameworks (Darden Business Publishing). Please see its companion piece, “Ethical Business Decisions: The Framework,” for critical questions that help managers make better decisions.

Professor Parmar teaches in the Executive Education program Purpose Driven Leadership: Engaging Stakeholders Purpose Driven Leadership: Engaging Stakeholders, which delves into contemporary research in authentic, personality-driven leadership to help participants tap into their values, move beyond reactive forms of leadership and reignite a sense of purpose.