Buisness and society

Read “Eight Steps to Sound Ethical Decision Making in Business”.Please write on step six and seven.

“Considering your characters and integrity” and “Think creativity and potential actions”  Write two pages on two points. 

No plagiarize.

We certainly won’t resolve the academic controversies over the “best” philosophical approach here. Even so, we believe that the approaches we’ve presented incorporate important factors that should guide ethical business decisions. All of them would have provided excellent ethical guidance to those whose actions contributed to the recent U.S. financial crisis, during which mortgage brokers sold NINJA (no income, no job or assets) loans to people who clearly couldn’t afford the homes they were buying, investment bankers packaged these risky mortgages into securities they touted as safe, and rating agency employees rated the securities AAA (without fully addressing the underlying risks). A consequentialist perspective would have focused attention on the potential harms to multiple stakeholders (customers, society) of these risky mortgages and mortgage-backed securities. A deontological approach would have focused attention on the importance of responsibility, honesty, and transparency with customers about these products. A virtue ethics approach would have asked whether a person of integrity would sell mortgages to people with little or no income or rate these securities highly despite the lack of experience with them. A serious consideration of these factors by the actors involved could have averted a systemic crisis that has harmed all of us. Next, we offer eight steps that aim to integrate the three types of analysis just discussed.16 Before presenting them, we’d like to offer a caveat. The eight steps suggest a linear decision-making process that is necessarily inaccurate. Ethical decision making is often not linear. Still, it’s helpful to cover all of these points, even if they don’t always occur in this particular sequence.

 Eight Steps to Sound Ethical Decision Making in Business 

STEP ONE: GATHER THE FACTS The philosophical approaches don’t tell us explicitly to gather the facts. But they seem to assume that we’ll complete this important step. You might be surprised at how many people jump to solutions without having the facts. Ask yourself, “How did the situation occur? Are there historical facts that I should know? Are there facts concerning the current situation that I should know?”17 THE BURNING BUILDING Assume you approach a burning building and hear voices coming from both ends, each seeking help. Assume the fire is burning so rapidly you only have time to go to one or the other end of the building. Initially, you hear multiple voices at one end and a sole voice at the other end. Which way do you go? Why? Now include some additional information. The sole voice is that of your daughter (father, mother, etc.). Do you still choose to go to the end with multiple voices (to do the greatest good for society)? If not, why not? What has changed? What will the different approaches advise? CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 51 3GCH02 10/01/2013 10:41:14 Page 52 Fact gathering is often easier said than done. Many ethical choices are particularly difficult because of the uncertainty involved in them. Facts may simply be unavailable. For example, in our layoff case, Pat may not have good information about the legal requirements on informing workers about layoffs. Also, she may not have enough information to determine how long it would take these 200 workers to find new jobs. It’s important to recognize these limitations as you do your best to assemble the facts that are available to you. In the financial crisis, decision makers not only failed to gather good information, but it appears that they may have explicitly avoided getting the facts. For example, mortgage lenders processed mortgages for unemployed people because they required no documentation to prove employment (as lenders had always done in the past). All the person had to do was claim to have a job, and the mortgage would be processed. The mortgage lender earned fees for creating and processing the loan and then sold it off in the secondary mortgage market, where it was packaged with other mortgages and sold to investors. The “fact” that the person with the mortgage was unemployed and would likely not be able to sustain payments was first ignored and then lost as the mortgage made its way through the mortgage market system.

 STEP TWO: DEFINE THE ETHICAL ISSUES Many of us have knee-jerk responses to ethical dilemmas. We jump to a solution without really thinking through the ethical issues and the reasons for our response. For example, in the layoff case, one person might say, “Oh, that’s easy; promise keeping is the ethical issue. Pat has to keep her promise to her boss and protect her job.” Another person might say that honesty is the key ethical issue: “Pat just has to tell the truth to her friend.” Don’t jump to solutions without first identifying the ethical issues or points of values conflict in the dilemma. Also recognize that the toughest situations usually involve multiple ethical issues that go back to the philosophical approaches we just discussed. For example, in the layoff case, one ethical issue has to do with the rights of both the workers and the company. How would you define the workers’ right to know about the plant closing in advance? How much advance notice is appropriate? What does the law say? Another ethical issue has to do with the company’s right to keep the information private. Furthermore, what is the company’s obligation to its workers in this regard? At a more personal level, there are the ethical issues related to principles such as honesty, loyalty, and promise keeping. Is it more important to be honest with a friend or to keep a promise to one’s boss? Who is owed more loyalty? Think about the situation from a justice or fairness perspective: What would be fair to the company and to those who would be laid off? Points of ethical conflict may go back to the conflict between consequentialist and deontological approaches. For example, if I tell the truth (consistent with the principle of promise keeping), bad things may happen (negative consequences). A consequentialist would think about the ethical issues in terms of harms or benefits. Who is likely to be harmed? Who is likely to benefit from a particular decision or action? And what is the bottom line for society overall? A virtue ethics approach would suggest thinking about the ethical issues in terms of community standards. Does your relevant moral 52 SECTION II ETHICS AND THE INDIVIDUAL 3GCH02 10/01/2013 10:41:14 Page 53 community (the one that would hold you to the highest ethical standards) identify a particular action as wrong? Why or why not? Especially when we’re under pressure or in a rush, our inclination is to stop with the first ethical issue that comes to mind. For example, in our layoff case, we might be inclined to stop with the issue of loyalty to a friend. Challenge yourself to think of as many issues as you possibly can. Here’s where talking about the problem with others can help. Present the dilemma to coworkers, to your spouse, or to friends you respect. Ask them whether they see other issues that you may have missed.

 STEP THREE: IDENTIFY THE AFFECTED PARTIES (THE STAKEHOLDERS) Both consequentialist and deontological thinking involve the ability to identify the parties affected by the decision. The consequentialist will want to identify all those stakeholders who are going to experience harm and benefits. The deontologist might want to know whose rights are involved and who has a duty to act in the situation. Being able to see the situation through others’ eyes is a key moral reasoning skill. Lawrence Kohlberg, developer of a key theory of moral reasoning, called this skill role taking. It means putting yourself in others’ shoes and being sensitive to their needs and concerns. Rawls’s veil of ignorance exercise asks you to do this as well. Frequently, you have to think beyond the facts provided in a case in order to identify all affected parties. It often helps to begin with the individuals in the case who are immediately affected (e.g., in the layoff case, it would be Pat, the worker, and Pat’s boss) and then progressively broaden your thinking to incorporate larger groups. For example, in this case, you might include the other workers, the rest of the company, the local community, and society in general. As you think of more and more affected parties, additional issues will probably come to mind. For example, think about the local community. If this is a small town with few other employers, fairness to the entire community becomes an important issue. Shouldn’t they have as much time as possible to plan for the impact of this plant closing? Try to put yourself in their shoes. How would they argue their case? How would they feel? Earlier, we introduced the concept of stakeholders, all of those individuals or groups who have a stake in the particular decision or action. In the context of ethical decision making in business, we should identify the stakeholders affected by the decision and ask how they are affected. Try to make your thinking as broad as possible here. Some of the stakeholders affected by the decision may not even be born yet. The best concrete example of unborn stakeholders might be “DES daughters.” In the 1940s, DES, a synthetic estrogen, was prescribed for pregnant women who seemed to be in danger of miscarrying. By 1971, it became clear that DES produced a birth defect in the daughters of these women. Because of the birth defect, DES daughters were more likely to develop vaginal cancer, especially between the ages of 15 and 22. They also had a higher than normal rate of cervical cancer.18 Once stakeholders are identified, role-playing can help you see the issue from different stakeholder perspectives. In your classroom or your department, get individuals to seriously play the relevant roles. You may be surprised at how perspectives change based on this simple exercise. What decision would you reach if you were CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 53 3GCH02 10/01/2013 10:41:14 Page 54 someone else (e.g., the customer?) in the situation? This step incorporates the Golden Rule to treat others as you would like others to treat you. Imagine yourself as each of the players in a decision situation. What decision would they reach, and why? Another consideration may be to ask whether you can “test” a potential decision with affected parties before your prospective course of action is made final. The objective is to gauge how various audiences will react, so that you can adjust or finetune a decision along the way.19 One question you could ask yourself is, how would this or that stakeholder react if this decision were made public? For example, imagine that ABC Co. (in our layoff case) had another thriving plant in another location. However, in the decision-making process, it was assumed that employees wouldn’t want to relocate because of their ties to the local community. Wouldn’t it be better to ask them their preferences than to assume what they would want to do? 

STEP FOUR: IDENTIFY THE CONSEQUENCES After identifying the affected parties, think about the potential consequences for each party. This step is obviously derived from the consequentialist approaches. It isn’t necessary to identify every possible consequence. You should, however, try to identify consequences that have a relatively high probability of occurring and those that would have particularly negative consequences if they did occur (even if the probability of occurrence is low). Who would be harmed by a particular decision or action? For example, in our layoff case, telling the truth to the worker might cause Pat to lose her job, which would have negative consequences for Pat and her entire family (especially if she’s a major breadwinner in her family). However, it would give her worker (and presumably others who would be told) the benefit of more time to look for a new job and perhaps save many families from negative financial consequences. Can you determine which solution would accomplish the most net good and the least net harm for society? Think about the drug thalidomide. It was prescribed to women in the late 1950s to treat morning sickness and produced devastating birth defects in 12,000 babies in Europe, Canada, Australia, and Japan (the Food and Drug Administration never approved it for use in the United States). Many of the babies died, but others were left to live with severe deformities. Randy Warren, a Canadian born in 1961, is the founder of the Thalidomide Victims Association of Canada. His mother took just two doses of thalidomide, but Warren is only a little over 3 feet tall and has no thumbs, arms that are 2 inches too short, and stumps for legs. The consequences of this drug when prescribed to pregnant women were obviously devastating; and shortly after Warren was born, the drug was banned in most places. But continued research produced renewed interest in thalidomide as an effective treatment for Hansen’s disease (a painful skin condition associated with leprosy) as well as for “wasting” disease in AIDS patients, arthritis, blindness, leukemia, and other forms of cancer. This drug that had such terrible consequences for so many was being considered for approval because it also had the potential to help many people who were dealing with other devastating illnesses. As Warren put it, “When I heard . . . that thalidomide takes people out of wheelchairs and I think of myself and others that were put in wheelchairs . . . tell me we don’t have the moral quandary of the century.” 54 SECTION II ETHICS AND THE INDIVIDUAL 3GCH02 10/01/2013 10:41:14 Page 55 In the end, Warren was consulted and became involved in the decision to return the drug to the marketplace. In 1998, the FDA approved the drug to treat Hansen’s disease under the highest level of restriction ever given to a drug. Doctors, pharmacists, and patients all must be registered with the manufacturer, Celgene. Two forms of birth control are required to prevent the possibility of pregnancy and resulting birth defects. Male patients are required to use condoms. No automatic refills of the drug are allowed. And Warren has become “something of a company conscience.” Although extremely difficult, the decision to market thalidomide in the United States was made with input from those stakeholders most familiar with its potential for both devastating consequences and remarkable benefits. Regulators at the FDA and company officials got to know Randy Warren as a real person who continues to suffer consequences that they might not have been able to imagine just by reading reports and statistics.20 Long-Term versus Short-Term Consequences In business decisions, it’s particularly important to think about short-term and long-term consequences. Are you confident that your behavior will be considered ethical over a long period of time, even if circumstances or people change? In the layoff case, is the long-term health of the company and the people who will remain employed more important than the short-term consequences to the 200 workers who will be laid off? In the U.S. financial crisis, if people had been thinking about long-term consequences, they would have been much more likely to question behaviors that focused primarily on short-term profits. Symbolic Consequences In business, it’s also extremely important to think about the potential symbolic consequences of an action. Every decision and action sends a message; it stands for something. What message will a particular decision or action send? What will it mean if it is misunderstood? For example, if Pat doesn’t tell her worker the truth, and he finds out later that she knew, what will the symbolic message be to this worker and the others who work for Pat—that she’s more interested in saving her own hide than in taking care of them? From a leader’s perspective, what are the symbolic consequences of accepting tickets to a football game from a valued client when your organization has a rule against accepting gifts from clients? Although the leader may see going to the game as important for getting the big sale, the symbolic message it will likely convey to employees is that the rule doesn’t apply to senior leaders. Such a symbolic message can have dire consequences for the organization because employees may then feel that the rule shouldn’t apply to them either. Consequences of Secrecy If a decision is made in private in order to avoid some negative reaction, think about the potential consequences if the decision were to become public. Think about the disclosure rule here. If you’re inclined to keep it a secret, that should be a clue that something isn’t right. For example, the public was outraged by the fact that tobacco executives secretly knew about the negative health effects of cigarette smoking and lied about it to the American people in testimony before Congress.21 CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 55 3GCH02 10/01/2013 10:41:14 Page 56 

STEP FIVE: IDENTIFY THE OBLIGATIONS Identify the obligations involved and the reasons for each one. For example, in the layoff case, consider Pat’s obligations toward the affected parties. When identifying Pat’s various obligations, be sure to state the reasons why she has this duty or obligation. Think in terms of values, principles, character, or outcomes. For example, if you’re considering Pat’s obligation to keep her promise to her boss, your reasoning might go like this: “Pat shouldn’t break her promise to her boss. If she does, the trust between them will be broken. Promise keeping and trust are important values in superior-subordinate relationships.” The obligations you identify will vary depending on the people involved and the roles they play. For example, our faith in our financial system depends in part on auditors’ obligation to tell the truth about a company’s financial difficulties and our faith in rating agencies to accurately grade financial instruments. Similarly, our faith in science as an institution depends on the integrity of the scientific data and how scientists report it. Individuals in these roles have a particularly strong obligation to tell the truth; and if they see themselves as moral actors, they will be motivated to do so.

 STEP SIX: CONSIDER YOUR CHARACTER AND INTEGRITY Here, think about yourself as a person of integrity. Ask yourself what a person of integrity would do in this situation. In attempting to answer this question, you may find it useful to identify the relevant moral community and consider what that community would advise. Begin by identifying the relevant professional or societal community. Then, determine how community members would evaluate the decision or action you’re considering. Remember the disclosure rule. It asks whether you would feel comfortable if your activities were disclosed in the light of day in a public forum like the New York Times or some other news medium. In general, if you don’t want to read about it in the New York Times, you shouldn’t be doing it. If you would be uncomfortable telling your parents, children, spouse, clergy, or ethical role model about your decision, you should rethink it. Thomas Jefferson expressed it like this: “Never suffer a thought to be harbored in your mind which you would not avow openly. When tempted to do anything in secret, ask yourself if you would do it in public for all to see. If you would not, be sure it is wrong.” This kind of approach can be especially valuable when a decision needs to be made quickly. Suppose someone in your organization asks you to misrepresent the effectiveness of one of your company’s products to a customer. You can immediately imagine how a story reporting the details of your conversation with the customer would appear in tomorrow’s paper. Would you be comfortable having others read the details of that conversation? The ideal is to conduct business in such a way that your activities and conversations could be disclosed without your feeling embarrassed. Another method might be to ask: “How will I be remembered when I’m gone?”22 Many people don’t often think about this question, but it’s a good one. Will you be remembered as an individual of integrity? Students often don’t realize how small professional communities can be. This is especially true in today’s world of social networking. Although you’ll likely change jobs and organizations multiple times over 56 SECTION II ETHICS AND THE INDIVIDUAL 3GCH02 10/01/2013 10:41:14 Page 57 the years, many people remain in a single industry where they have developed industry-specific expertise. A reputation for trustworthiness, respectful interaction, and integrity will open doors to new clients and career opportunities. But the opposite is true as well. A stained reputation is extremely difficult to overcome. 

STEP SEVEN: THINK CREATIVELY ABOUT POTENTIAL ACTIONS Perhaps this should be Step One. Before making any decision, be sure that you haven’t unnecessarily forced yourself into a corner. Are you assuming that you have only two choices, either A or B? It’s important to look for creative alternatives. Perhaps if you’ve been focusing on A or B, there’s another answer: C. In our layoff case, perhaps Pat could work with management to devise a fair system for alerting employees sooner, or at least she could advise them that information is forthcoming soon, and they should not make big financial commitments until the announcement is made. Perhaps she could advise her boss that she is hearing rumblings from the rumor mill and suggest moving up the timetable for telling employees. As another example, what if you received an extravagant gift from a foreign supplier? This situation could easily be conceptualized as an A or B quandary. Should you accept the gift (which is against company policy), or should you refuse it (which could be interpreted as a slap in the face by this important supplier, who is from a culture where gift giving is a valued part of business relationships)? A potential C solution might be to accept the item as a gift to the company that would be displayed in the headquarters entrance, explaining that large personal gifts are against company policy. Obviously, you would have to check with your company about the acceptability of this C solution. The idea here is to think outside the box. Here is yet another example. In an overseas location, Cummins Engine Company was having difficulty with local children cutting through a wire fence and stealing valuable electronic components. The A or B solution was to arrest or not arrest these young children when they were caught. After involving the community, the managers were able to arrive at a C solution. They discovered that the children were stealing because there weren’t enough classrooms at the local school, thus leaving the children with little to do but get into trouble. Cummins made classrooms available on their site. The mayor provided accreditation, books, and teachers. This C solution cost the company very little and accomplished a great deal. A total of 350 students were accommodated, the stealing problem disappeared, and Cummins became a valued corporate citizen. 

STEP EIGHT: CHECK YOUR GUT The emphasis in these steps has been on using a highly rational fact-gathering and evaluation process once you know that you’re faced with an ethical dilemma. But don’t forget your gut. We are all hardwired to be empathetic and to desire fairness. Empathy is an important emotion that can signal awareness that someone might be harmed, and intuition is gaining credibility as a source for good business decision making. We can’t always say exactly why we’re uncomfortable in a situation, but years of socialization have likely made us sensitive to situations where something just doesn’t feel quite right. So, if your gut is sending up red flags, give the situation more thought. In fact, this may be your only clue that CHAPTER 2 DECIDING WHAT’S RIGHT: A PRESCRIPTIVE APPROACH 57 3GCH02 10/01/2013 10:41:15 Page 58 you’re facing an ethical dilemma to begin with. Pay attention to your gut, but don’t let it make your decision for you. Once you recognize that you’re facing an ethical dilemma, use the rational decision-making tools developed here to help guide your decision making.