1. Copyright © Houghton Mifflin Company. All rights reserved.5-1 Chapter 5 Ethical Decision Making and Ethical Leadership

2. Copyright © Houghton Mifflin Company. All rights reserved.5-2 Understanding the Ethical Decision-Making Process The first step in ethical-decision making is to recognize that an ethical issue requires an individual or work group to choose among several actions that various stakeholders inside or outside the firm will ultimately evaluate as right or wrong.

3. Copyright © Houghton Mifflin Company. All rights reserved.5-3 Framework for Understanding Ethical Decision-Making in Business

4. Copyright © Houghton Mifflin Company. All rights reserved.5-4 Ethical Issue Intensity Ethical issue intensity is the perceived relevance or importance of an ethical issue in the eyes of the individual, work group, and/or organization. –Reflects the ethical sensitivity of the individual or work group and triggers the ethical decision process Positive or negative incentives can affect the perceived importance of an ethical issue. Employees need education regarding potential problem areas.

5. Copyright © Houghton Mifflin Company. All rights reserved.5-5 Individual Factors How people resolve ethical issues in their daily lives is often based on values and principles learned through family socialization. In the workplace, ethical issues involve honesty, conflicts of interest, discrimination, nepotism (favoritism), and theft. The individual’s stage of cognitive development can affect conduct.

6. Copyright © Houghton Mifflin Company. All rights reserved.5-6 Individual Factors Individual factors include: –Gender –Education –Work experience –Nationality –Age –Locus of control

7. Copyright © Houghton Mifflin Company. All rights reserved.5-7 Organizational Factors Corporate culture : a set of values, beliefs, goals, norms and ways to solve problems that members (employees) of an organization share – Some corporate cultures support and reward unethical behavior. – Ethical climate is a component of corporate culture.

8. Copyright © Houghton Mifflin Company. All rights reserved.5-8 Ethical Climate The character or decision processes used to determine whether actions are ethical or unethical Consists of corporate codes of ethics, top management actions, ethical policies, coworker influence, and the opportunity for unethical behavior The perceived ethics of the immediate work group has been found to be a major factor influencing ethical behavior.

9. Copyright © Houghton Mifflin Company. All rights reserved.5-9 Significant Others The work group, which includes people such as peers, managers, and subordinates Help on a daily basis with unfamiliar tasks and provide advice and information formally and informally Have more influence on daily decisions than any other factor

10. Copyright © Houghton Mifflin Company. All rights reserved.5-10 Obedience to Authority An aspect of influence that significant others can exercise Helps us explain why many employees resolve business issues by simply following the directives of a superior

11. Copyright © Houghton Mifflin Company. All rights reserved.5-11 Opportunity Relates to permitting ethical or unethical behavior Results from rewards and punishment and it plays a key role Relates to the employee’s immediate job context, where they work? Whom they work with? Nature of work? Unethical behavior can be eliminated by establishing formal codes, policies, and rules that are enforced

12. Copyright © Houghton Mifflin Company. All rights reserved.5-12 Business Ethics Evaluations and Intentions Ethical dilemmas involve problem-solving situations in which decision rules are often vague or in conflict. Critical thinking plays a key role for solving problems. A person’s intentions along with the final decision on what action to take is the last step in the ethical decision-making process. If intentions and behavior are not consistent with ethical judgments, the individual may feel guilt. Most businesspeople will make ethical mistakes.

13. Copyright © Houghton Mifflin Company. All rights reserved.5-13 The Role of Leadership in Corporate Culture Leadership is the ability or authority to guide and direct others toward achievement of a goal. Leaders are key to influencing an organization’s corporate culture and ethical posture. Leadership styles influence many aspects of organizational behavior, including employees’ acceptance of and adherence to organizational norms and values.

14. Copyright © Houghton Mifflin Company. All rights reserved.5-14 The Role of Leadership in Developing an Ethics Plan

15. Copyright © Houghton Mifflin Company. All rights reserved.5-15 Leadership Styles Coercive leaders: demand obedient and focus on achievement Authoritative leaders: The most effective styles. Affiliative leaders : Relies on friendship Democratic leaders: Relies on participation Pacesetting leaders: relies on standards and rules,procedures Coaching leaders: Developing skills, delegate responsibilities.

16. Copyright © Houghton Mifflin Company. All rights reserved.5-16 Leadership The most successful leaders do not rely on one style of leadership but alternate their technique based on the characteristics of the situation.

17. Copyright © Houghton Mifflin Company. All rights reserved.5-17 Types of Leaders Transactional leaders attempt to create employee satisfaction through negotiation, or bartering for desired behaviors or levels of performance. Transformational leaders strive to raise employees’ level of commitment and to foster trust and motivation. Transformational ethical leadership is best suited for organizations that have higher levels of ethical commitment among employees and strong stakeholder support for an ethical culture.

18. Copyright © Houghton Mifflin Company. All rights reserved.5-18 Habits of Strong Ethical Leaders 1.Ethical leaders have a strong personal character. 2.Ethical leaders have a passion to do right. 3.Ethical leaders are proactive. 4.Ethical leaders consider stakeholders’ interests. 5.Ethical leaders are role models for the organization’s values. 6.Ethical leaders are transparen t and a ctively involved in organizational decision-making. 7.Ethical leaders are competent managers who take a holistic view of the firm’s ethical culture.