why do good managers make bad ethical decisions

Why good managers make bad ethical choices?

Chapter – 1

Introduction

Incorporating values and ethics into Business decisions have become

increasingly important. Business schools are ensuring that students

graduate with a knowledge of ethical principles and the critical thinking

skills necessary to analyze and make sound ethical decisions.

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Chapter – 2

Business Ethics

Society generally feels that there are certain values that should be set as

the minimum ethical behavior. To meet the minimum ethical standards, a

business must be honest, obey the law, and not directly infringe on the

rights that our society holds as inalienable human rights. Some of the

Ethical issues involve compensation of employees, job security for

employees, hiring practices, waste management issues, pollution, and

conflicts of interest.

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Chapter – 3

Morality & Profitability

Morality means Moral Discipline – Concerned with principles of right and

wrong or conforming to standards of behavior & character aligned with

the principles of right and wrong Profitability - generally is the making of

gain in business activity for the benefit of the owners of the business

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Chapter – 3.1

Role of morality & profitability

We are in the business of preserving & improving human life. All of our

actions must be measured by our success in achieving this goal – MERCK

& COMPANY

Putting profits after people & products was magical at Ford – Don

Petersen, Former CEO, Ford, 1994

Sequence of three P’s – People, products and profits – in this order – Don

Petersen, CEO, Ford.

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Chapter – 4

Ethical Profitability

The balance between profits and ethics is term as “Ethical Profitability”.

Example: Enron Fallout

Many investors are paying closer attention to a company's ethics, as well

as their profits. These investors realize that a corporate focus on profits

alone—with little regard to ethical standards, conduct and enforcement—

may result in short-term revenue gain, but long-term profitability may be

limited.

In cases like Enron, long-term viability is limited too.

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Chapter – 5

5 Key areas of ethical profitability

Ethical Profitability Well-balanced companies not only consistently

reward owners, investors and employees with profitable performance;

they also genuinely focus on these five key areas:

1. Leadership by example:

To manage well is to lead employees effectively, ethically and without

arrogance. Company owners, executives and managers must set the

highest examples of attitude and conduct for their employees.

2. Company-wide ethical awareness:

Employee when not at work, practice personal ethics in areas such as

caring for others, being kind and honest, and not harming others. Do

these same people, when they arrive at work, maintain their personal

guidelines? In-the-office ethical behavior includes demonstrating

trustworthiness to managers and coworkers, respecting privacy and

avoiding conflicts of interest. Ethics knows no time clock.

3. Strong management of revenue generation and reporting :

Corporate temptation to stretch ethical behavior in revenue generation

and reporting is universal. To overcome these temptations, revenue-

related managers must establish and maintain a firm stance on ethical

marketing, advertising, selling and reporting. This requires regular

dissemination and enforcement of codes of conduct.

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4. High level of internal trust:

The level of trust within a company should reflect the level of trust the

company solicits from customers. If customers are encouraged to put their

complete trust in the product or service, then company teams must do the

same with each other. An increase in trust is a reduction in risk and

uncertainty, which in turn will keep the revenue generation process

flowing smoothly.

5. Formal and active compliance program:

An organizational ethics doctrine does have legal benefits. Properly

written, published and disseminated ethical codes will reduce corporate

risk if an employee creates a criminal or civil problem because of poor

ethical behavior. The true test of ethical profitability is whether or not the

company is a positive example to its employees, to its customers and

even to other companies. Such companies practice the truest form of

leadership-by-example. They reach for a higher bar

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Chapter – Seven

Business Ethics

Business ethics defined as written and unwritten codes of principles and

values that govern decisions and actions within a company.

Business ethics can be used to describe the actions of individuals within

an organization, as well as the organization as a whole.

The organization’s culture sets standards for determining the difference

between good and bad decision making and behavior.

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Chapter – Eight

Importance of Ethical Business Decisions

Co. who wishes to thrive long-term must adopt sound ethical

decision-making practices.

Co. who behaves in a socially responsible manner is much more

likely to enjoy ultimate success than those whose actions are

motivated solely by profits.

Co. knowing the difference between right and wrong and choosing

what is right is the foundation for ethical decision making.

Doing the right thing often leads to the greatest financial, social,

and personal rewards in the long run.

Factors Impacting Business Ethics

Corporate culture

Existence and application of a written code of ethics

Formal and informal policies and rules

Norms for acceptable behavior

Financial reward system

System for recognizing accomplishment

Company attitude toward employees

How employees are selected for promotions

Hiring practices

Applications of legal behavior

Degree to which professionalism is emphasized

The company’s decision making processes

Behaviors and attitudes of the organization’s leaders

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Chapter – Nine

10 Qualities for Good Managers

1. To choose a field thoughtfully

2. To be a good mediocre

3. To create productive environment

4. To define success

5. To be a good communicator

6. To transfer the skills

7. To build morale

8. To solve the challenges

9. To be sound mind

10. To be a risk taker & solve r at times

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Chapter – Ten

Why do managers make unethical decisions?

Determinants:

1. Personal Ethics

Generally accepted principles of right and wrong governing the conduct of

individuals:

Our personal ethical code exerts a profound influence on the way we

behave as businesspeople

The first step to establishing a strong sense of business ethics is for a

society to emphasize strong personal ethics

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Ethical Behaviour

Decision Making Processes

Leadership

Unrealistic Performance

Goals

Organization Culture

Personal Ethics


Expatriate managers may experience more than the usual degree of

pressure to violate their personal ethics

2. Decision-Making Processes

Several studies of unethical behavior in business have concluded that

businesspeople sometimes do not realize they are behaving unethically

primarily because they simple fail to ask….

…. “Is this decision or action ethical?”

Often the result of applying straight-forward business calculus to a

decision without considering important ethical issues

3. Leadership

4. Organization Culture

The climate in some businesses does not encourage people to think

through the ethical consequences of business decisions

Result of an organizational culture that deemphasizes business ethics,

reducing all decisions to be purely economic

Corporate culture refers to any set of values, norms, rituals, formal rules,

and physical artifacts that exists in a company.

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5. Unrealistic Performance Expectations

Pressure from the parent company to meet unrealistic goals that can only

be attained by cutting corners or acting in an unethical manner

This often results in managers will violating their own personal ethics and

engages in unethical behavior

An organizational culture with values that reinforce ethical behavior is an

essential ethical component

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Chapter – Eleven

Co-existence of Morality & Profitability – Ideology

Companies having an ideal blend of Morality & Profitability are visionary

companies with strong ideology (ideals)

Ideology – set of basic precepts or beliefs or values that are subscribed to

Core Ideology exists in these companies not just as words but as a vital

shaping force

Combining both – Genius of the AND – ideology AND profits

These companies do pursue profits or long term shareholder wealth but

they also pursue meaningful ideals of serving humanity.

Managerial Teasers

1. You are in-charge of cash expenses – Your supervisor comes and

asks you for a cheque of Rs. 3000 towards expenses he incurred

entertaining a client last night. At lunch your supervisors girlfriend

stops by to pick him up for lunch and you overhear her telling the

receptionist what a great time she had at dinner with your

supervisor the night before

2. You are the HR manager in your company – Your Company has a

firm policy regarding cases of theft of company property. Used

company equipment is sold in a bid each month. You see a valued

employee who is 5 months away from retirement, slip an electric

drill and put it in his car.

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3. You are the buyer for a retail clothing store. Your store has a policy

of not accepting gifts. However, over the years, salesmen have

offered and other employees have accepted lunch, theater and

sporting event tickets. You arrive home from office one evening and

find a new LCD and DVD player at your doorstep with a note that

says “A personal gift for long lasting friendship “The Divikar Clothing

Company “

4. You are a bank teller working for the bank for the past 6 months,

one of the other tellers at the bank who has become a good friend

tells you that her daughter is extremely ill and has to be operated at

an expense of Rs. 9 lakh rupees. Some days later you ask about her

daughter’s health and she tells you that her daughter is just fine

now. She then confides in you and says she took the money from a

dormant account at the bank to pay for the operation. She assures

you she has started paying it back and will return the entire amount

into the account in some time.

“What do you do…….?”

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Chapter – Twelve

Hewlett Packard & Texas Instruments

Hewlett Packard – ideology

David Packard – Founder Partner

“Profit is not the proper end & aim of management – but it is what

makes all of the proper ends and aims possible” – Packard

Became public in 1957

Initiated an Management development programmed – central to the

long term health of the organization

Core Values - Hewlett Packard

Company is group of people coming together to exist as an

institution

Purpose is to accomplish something collectively in order to make a

contribution to society

Contribution – to make a product or provide service – to do

something which is of value to the society

Design, develop & manufacture finest electronic equipment for

advancement of science and welfare of humanity

Profit was one of the important objective

But Profit was seen as means to pursue the broader aims of

developing better technology for the welfare of the society

HP’s focus was to provide real satisfaction to customers and be

judged by them

Bigger Growth was ONLY WITHIN the context of making a

contribution

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Texas Instruments

Texas Instruments defined itself exclusively in terms of size, growth

& profitability

Focus was to grow from a ‘good little company’ to ‘good BIG

Company’ – Pat Haggarty, President

Corporate ideology & goals was solely on financial growth

Focus on growth – even if products were low quality or made no

technical contribution

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Chapter – Thirteen

CASE STUDIES

CASE STUDY - 1

Johnson & Johnson versus Bristol Myers

Core values – Johnson & Johnson

Emphasize is on ideals beyond profit

Founded by Robert Johnson in 1886 with the aim to alleviate pain &

disease

Business ideology placed service to customers & concern for

employees ahead of returns to shareholders.

Only when service to customers, employees & management have

been done then the stockholders should receive a FAIR return

J & J CREDO

J & J ideology was codified in the credo printed on old style

parchment

The essential ideology – Hierarchy of responsibilities descends from

Customers to Employees to Management and then to Shareholders

Emphasis on FAIR return rather than MAXIMUM return to the

company and the shareholders

Credo is the link to any Key Decisions

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J & J – translating credo into Action

1982 – Tylenol crisis

Tylenol bottles distributed in Chicago laced with cyanide (not by any

employee)

Result – Death of 7 people

J & J used the credo as the basis for its response

J & J removed all Tylenol bottles from the entire US market and not

just from Chicago

Mounted an intensive communication effort to alert the Public and

deal with the problem

At a estimated cost of $100 million – above efforts

J & J portrayed itself as a company willing to do what’s right,

regardless of cost

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Bristol Myers

Bristol Myers Pledge – only on paper and not on practice

No Link between their Pledge and core business practices

Focus is more on Profits and earnings and savings on cost

Faced an identical problem as faced by J & J

Excedrin tablets were found to be tampered with in DENVER area in

the state of Colorado

Bristol Myers recalled tablets only from the Colorado state and not

from the entire US

Did not launch any campaign to alert the Public

Focus was more on minimizing losses to the company

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CASE STUDY - 2

MERCK & Company versus Pfizer

Merck – Ideology & Values

“We are workers in industry who are genuinely inspired by the

ideals of advancement of medical science & service to Humanity” –

George Merck II, 1935

“Our Business success MEANS victory against disease and help to

humankind” – P. Roy Vagelos, 1991

Core ideal was to preserve and improve human life

These above ideals were translated into action when manufacturing

a drug to cure River Blindness

Merck -Translating Values into Action

River Blindness – a disease that infected a million people in Africa &

Latin America with parasitic worms that caused discoloring of skin,

intense itching & painful blindness

Huge market but no revenue - Million customers who could not

afford the product

Merck still went ahead with their R & D and manufactured the drug

MECTIZAN – hoping that some government or any third parties

would purchase & distribute the products once available

But the Governments themselves did not have the finance nor did

any third parties come forward

Merck elected to give the drug away free

It also involved itself directly in its distribution efforts

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Why? – Failure to go ahead with MECTIZAN would have demoralized

their scientists and would have gone against their core value of

“preserving & improving human life”

Long term benefit for the company in the form of goodwill which

“somehow always....pay off”

Merck belief – Medicine is for the patient, for the people & not for

profits.

Pfizer

Core belief – to make profit out of everything we do –John McKeen,

President

Instead of spending Cash on R & D like Merck, Pfizer went on

acquisition drive

Acquiring 14 companies & diversifying into farm products, shaving

products, etc.

Focus was on making more money regardless of line of Business

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why do good managers make bad ethical decisions

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