1. Ethics and Business Ethics Defined

Ethics essentially involves how we act, live, lead our lives, and treat others. Our choices and decision-making processes and our moral principles and values that govern our behaviors regarding what is right and wrong are also part of ethics.²

Normative ethics refers to the field of ethics concerned with our asking how should and ought we live and act? Business ethics is applied ethics that focuses on real-world situations and the context and environment in which transactions occur—How should we apply our values to the way we conduct business?

Ethics and business ethics continue to gain influence in corporations, universities, and colleges nationally and internationally. No longer considered a luxury but a necessity, business ethics has awakened a need in the public consciousness due to crises in many areas. For example, the 2008 subprime lending crisis—economic effects of which still persist—revealed widespread corruption of large investment banks and lending institutions internationally. Unsupported mortgages were fraudulently offered with no legitimate financial backing. Some large financial institutions, such as Lehman Brothers Holdings, Inc., went bankrupt; millions of mortgage holders lost their homes. An estimated cost of that crisis to the global economy is over $22 trillion U.S. dollars.³

In the early 2000s, CEOs and top-level leaders from notable corporations such as Enron, Tyco, WorldCom, and others were caught committing outrageously greedy and fraudulent crimes of white-collar theft from their organizations and shareholders. The now classic film The Smartest Guys in the Room depict how Enron’s leaders during that time, Kenneth Lay (now deceased), Jeff Skilling (still serving prison time), and Andrew Fastow (released from prison in 2011), deceived employees, Wall Street, and shareholders. Enron’s crisis took an estimated $67 billion of shareholder wealth out of the U.S. economy.⁴

These criminal activities ushered in national laws such as the Sarbanes-Oxley Act, which we discuss below.

While these recent historical crises illustrate the continuing relevance and importance of business ethics, ethical issues are not only concerned with financial and economically motivated crimes and misbehaviors. Fast forward to the rise of artificial intelligence (AI), which also is calling attention to the relevance and need for ethics in scientific institutions, businesses, and governments. The public needs to be informed of potential and actual harmful consequences—as well as all the recognizable benefits—of these technologies that are in large part driven by algorithms (“a sequence of instructions telling a computer what to do”).⁵

Intentional and unintentional misuses of such designs embedded in artificially intelligent technologies can negatively and harmfully affect individual lives as well as entire societies. For example, studies show that a number of minority members of society are often discriminated against by institutions using faulty algorithms to qualify customers for mortgages and to predict who is at risk of being incarcerated. Often times, racial and low-income minorities are discriminated against by such technology designs.⁶

At a societal level, another now classic film, The Minority Report, illustrates how misuses of technology can threaten individual rights, privacy, free will, and choice. While this may sound like science fiction, scientific and business luminaries such as Elon Musk, Stephen Hawking, Bill Gates, and others have openly declared that we as a society must be cautious and ethically aware and active to fend off the ill effects of the control and dominant influences of certain AI algorithms in our lives. Scientific and ethical practices in corporate social responsibility (CSR) are one way that ethicists, business leaders, and consumers can support moral self-regulation of technologies. Some scientific and technological firms have adopted ethics boards to help safeguard against harmful social uses of AI technologies.⁷

The European Union (EU) has produced policy studies that are forerunners of laws to safeguard against potentially harmful uses of robotics.⁸

Another timely ethical issue is climate change and the environment. Lack of sustainable environmental practices that curb air pollution and destructive uses of land, water, and natural resources have, according to a large community of reputable scientists, threatened Earth’s—and our neighborhoods’—atmosphere.⁹

Scientific studies and United Nations reports affirm that changes to the earth’s atmosphere, melting glaciers, and rising seas are occurring at accelerated rates. For example, “California’s coastline could rise up to 10 feet by 2100, about 30 to 40 times faster than sea-level rise experienced over the last century.”¹⁰

While university, business, and local community groups are rallying for legal actions to curtail and reverse environmental polluters, current political executive orders push against such regulations designed to protect against further erosion of the physical environment.¹¹

The point here is that as these issues described above are not only technological, economic, and political in nature, but also moral and ethical, as the public’s health, welfare, and safety are at risk.

Relevant ethical questions can be asked to prevent a crisis: Who is responsible for preventing and addressing what happens to individuals, the public, our institutions, and government and who is responsible for preventing such crises and harmful effects from occurring and reoccurring? At whose and what costs? Whose responsibility is it to protect and preserve the common good of societies? What ethical and moral principles should and can motivate individuals, groups, and society members to act to change course?

Universities and colleges are taking notice. Business ethics and corporate social responsibility courses and offerings are becoming increasingly important. The accrediting national body of business schools, AACSB (Association to Advance Collegiate Schools of Business), reported that “[i]n their curricula, research, and outreach, business schools must be advocates for the human dimension of business, with attention to ethics, diversity, and personal well-being.”¹²

In addition, NGOs (nongovernmental organizations), emergent groups internationally representing the public’s interests and common good, and political action movements are beginning again to give voice to injustices and potentially dangerous ethical as well as fiscal (income inequality), health (the environment), and discriminatory (racism and stereotyping large segments of the society) problems that require stakeholder as well as stockholder actions.

In this chapter, we begin by presenting an overview of the dimensions of business ethics at the individual, professional, and leadership levels, followed by the organizational, societal, and global levels.

Section 1 References

1. Brian Goldner, “Who Are You Really?—Brian Goldner, President & CEO for Hasbro, Inc.,” http://insights.ethisphere.com, accessed June 29, 2017; “CSR Fact Sheet,” https://csr.hasbro.com, accessed June 23, 2017; “The World’s Biggest Public Companies: Hasbro,” Forbes, https://www.forbes.com, accessed June 23, 2017; “2016 Global Philanthropy & Social Impact,” https://csr.hasbro.com, accessed June 23, 2017; Elizabeth Gurdus, “Hasbro CEO Reveals the Magic Behind the Toymaker’s Earnings Beat,” CNBC, http://www.cnbc.com, April 24, 2017; Jade Burke, “Hasbro Reaches Top spot in CSR Listing,” Toy News, http://www.toynews-online.biz, April 21, 2017; Kathrin Belliveau, “CSR at Hasbro: What It Means to Play with Purpose,” LinkedIn, https://www.linkedin.com, April 20, 2017.
2. Hartman, L., J. DesJardins and MacDonald, C. (2018). Business Ethics: Decision Making for Personal Integrity and Social Responsibility, 4th ed., McGraw-Hill, New York, New York; and Weiss, J.W. (2014). Business Ethics, A Stakeholder and Issues Management Approach, 6th ed. Oakland, CA: Berrett-Koehler Publishers.
3. Eleazar Melendez. (2013). Financial Crisis Cost Tops $22 Trillion. https://www.huffingtonpost.co/2013/02/14/financial-crisis-cost-gao_n_2687553.html
4. James Flanigan. (2002). Enron Is Proving Costly to Economy, http://articles.latimes.com/2002/jan/20/news/mn-23790
5. David Auerbach. (2015). The Programs That Become the Programmers, http://www.slate.com/articles/technology/bitwise/2015/09/pedro_domingos_master_algorithm_how_machine_learning_is_reshaping_how_we.html
6. Julia Angwin, Jeff Larson, Surya Mattu and Lauren Kirchner. (2016). Machine Bias. ProPublica analysis of data from Broward County, Fla., https://www.propublica.org/article/machine-bias-risk-assessments-in-criminal-sentencing
7. Hern, A. “Growth of AI Could Boost Cybercrime and Security Threats, Report Warns”, The Guardian, February 21, 2018. https://www.theguardian.com/technology/2018/feb/21/ai-security-threats-cybercrime-political-disruption-physical-attacks-report
8. Nevejans, N. (2016). European Civil Law Rules in Robotics, http://www.europarl.europa.eu/RegData/etudes/STUD/2016/571379/IPOL_STU(2016)571379_EN.pdf
9. Ripple, W., World Scientists’ Warning to Humanity: A Second Warning”, XXXX / Vol. XX No. X • BioScience, 2017, http://scientists.forestry.oregonstate.edu/sites/sw/files/Ripple_et_al_warning_2017.pdf.
10. Samuel Chiu. (2017). Climate experts release latest science on sea level rise projections, https://phys.org/news/2017-04-climate-experts-latest-science-sea.html
11. Friedman, Z. (2018). Trump Administration Requests $0 In Funding For Consumer Protection Agency, https://www.forbes.com/sites/zackfriedman/2018/01/19/cfpb-funding-trump/#61dd837c1826
12. AACSB, A Collective Vision for Business Education, AACSB International, 2016, https://www.aacsb.edu/-/media/aacsb/publications/research-reports/collective-vision/collective-vision-for-business-education.ashx

2. Ethical Problems vs Ethical Dilemmas

When we start to examine ethical situations in business or otherwise, we realize that something are easy for everyone to agree on what is “ethical.” These are ethical problems. In other words, these are situations when the situation presents a choice between “right” and “wrong.” For example, it is easy to get consensus when someone is doing something only for personal gain and at the cost to others.

The reason we study ethics and ethical decision-making is because the hard choices are rarely ethical problems. Managers, instead, face the most challenges when dealing with ethical dilemmas. These are situations when we are choosing between two right options (aka “right vs right”). Another way to look at it is when you are faced between choosing between two ethical outcomes. The figure below highlights the differences between ethical problems and ethical issues.

Now, in the figure the examples are outside of an organizational setting, but you can imagine that managers face ethical dilemmas all of the time. Something as simple as time off requested by two employees who both need leave for personal reasons can put a manager in either:

• a “right vs wrong” situation because one person clearly has no time off remaining or
• a “right vs right” situation because both people have time off and both have equally valid reasons for needing to take the time off.

When facing an ethical situation, the first step is to identify if this is an ethical problem or an ethical dilemma. If it’s an ethical dilemma, then it will require more analysis to get to the most ethical behaviour.

3. The Cyenfin Framework – “A Leader’s Framework for Decision-Making” (Snowden & Boone, 2007)

Ethical decisions and how you make the depend a lot on the type of situation you are facing. To help us, we are going to draw on the Cynefin framework for decision-making (Snowden & Boone, 2007). While this framework is not specifically geared towards ethical decision-making, it gives a good indication of how we should approach decision-making in general. Figure 1 below describes the different types of decisions we face.

First, we need to look at the two ends of the spectrum, ordered vs unordered. Situations that are ordered usually have structure, known methods, or accessible information. Unordered situation tend to lack those things or have obstacles obscuring those things from the view of the decision-maker. Now, in reality, situations change and can move from ordered to unordered, but more on that later.

Ordered Side of the Spectrum

On this side of the spectrum, we find simple and complicated situations.

Ordered – Simple Space – “The Domain of Best Practice” (Snowden & Boone, 2007)

In the simple down, information is ordered, clear, available, and known methods are established or available. You could bring to mind a situation that works like a flowchart. In it’s simplest form, it could be>

• Is the answer A?
  • If yes, go to B.
  • If no, go to C.

Simple problems usually have more layers than that. Please refer to the example below.

• Situation: Customer complaining about the wait time to get seated in the restaurant, pointing out the empty seats.
• Simple space approach steps: Sense, Categorize, and Respond
  • SENSE: Are the empty seats empty because we have not seated people properly or because we are not seating people based on a limitation in what the kitchen can do (e.g., lots of online orders actually keeping the kitchen busy).
  • CATEGORIZE: Let’s say in this situation, the reason the seats are empty is because the host at the front got unexpectedly sick and was not able to do the host duties.
  • RESPOND: Assign someone to cover the host duties to clear the backlog.

When a situation is in the simple space, a best practice is available or can be developed. Then, that best practice can be used every time the situation arises in the same way.

Ordered – Complicated Space – “The Domain of Experts” (Snowden & Boone, 2007)

Complicated problems are also considered on the ordered side of the spectrum, but they require more analysis to figure out because it has “known unknown” (aka we cannot see everything but we have a sense of what we cannot see). The situations in this domain usually require you to Sense the situation, Analyze through experimenting or testing, and then Respond. Here’s an example.

• Situation: Customer comes in complaining of a squeaky sound in the engine of their car. Despite the customer’s best efforts to recreate the sound, you do not know what sound the engine is making.
• Complicated space approach steps: Sense, Analyze, and Respond
  • Sense: Drive the car around the block so that you can hear that sound to identify the potential underlying causes.
  • Analyze: Then, you start analyze systematically the possible causes to rule out what is causing the problem until you identify the cause.
  • Respond: You find and implement the solution to fix the problem.

Now, that situation could have been even more complicated. Even the situation below would be complicated (not complex).

• Situation: Customer comes in complaining of a squeaky sound in the engine of their car. Despite the customer’s best efforts to recreate the sound, you do not know what sound the engine is making.
• Complicated space approach steps: Sense, Analyze, and Respond
  • Sense: Drive the car around the block so that you can hear that sound to identify the potential underlying causes, but you don’t hear the sound.
  • Analyze: Then, you start analyze systematically run diagnostics on the car to see how the car is functioning to see if any issues arise.
  • Respond: You find no issues based on your in-depth diagnostics. So, you tell the owner to record the sounds (if possible) the next time it happens, but in the meantime to keep up their regular car maintenance.

This space, as you can see from the example, lends itself to multiple right answers. Meaning in the first situation, after the analysis, the response was the right answer. In the second situation, the analysis lead to different information and the response of no action and to record the sound for next time was also the “right” answer. What that means is that in this space, we are looking for the solutions that lead to our objectives being met. In the car situation, the objective was for the customer to leave with resolution about the sound. Both responses led to that, but in different ways.

The Unordered Side of the Spectrum

The unordered spaces are marred by ambiguity and lack of clarity. In these two spaces, complex and chaos, the normal ways of doing things does not work or we do not see the results to know if it is working. So, in these spaces, we need to take different approaches to bring clarity and find solutions.

Unordered – Complex Space – “The Domain of Emergence” (Snowden & Boone, 2007)

Snowden and Boone (2007), like many management researchers and practitioners, acknowledge the society is only growing more complex with time. The methods and problem-solving of the past are not longer applicable to many of today’s managerial needs. In the complex space in particular, requires managers to be attentive to “see” to all components of the situation for what is visible and not, adaptable to find new ways of investigating and gathering information, and often creative in finding appropriate responses.

Let’s make the example with customer complaints into a complex problem. Company A has effectively sold it video recording software for 5 years. This software allows people to record videos easily and put them directly to a unique public URL. Yesterday, Company A’s service team had a service outage for the servers that hosts their service and that hosts the videos made by its employees. At first, it seems like a simple situation and that they should use their normal protocol, but when they started to implement the protocol during the rebooting stage, bugs started showing up everywhere. Their tech team was on it right away, but the problem seemed to be everywhere. When they fixed it in one area, another area would be unresponsive or would change too. Slowly though, they were able to use a few code patches here and there that brought stability. They were then able to see a theme in the patches that were working. They all had to do with the same error code. That helped them realized the root of the problem, so they were able to provide a solution and within 24 hours get everything up and running again.

• Situation: Unexplained server outages that seemed to worsen with normal protocol and was affecting the whole situation.
• Complex space approach steps: Probe, Sense, and Respond
  • Probe: The techs went right to identify all of the errors and trying patches with which they were familiar until something started to work. All of these were small probes (e.g., trial and error probes) to see what might work.
  • Sense: Once things started to improve in several areas, they sensed a pattern and for the first time were able to understand what they were facing.
  • Respond: Now that they understood what they were facing, they could solve the problem with that approach.

When responding in the complex space, you may now be faced with a simple problem. In this example, depending on what pattern they sensed, a protocol might be appropriate. That would actually move the situation into the simple space for the next steps of sensing, categorizing, or responding. Alternatively, if the pattern required further testing and analysis within the known unknowns, then they would then approach it as a complicated problem and would sense, analyze, and respond. On the other hand, the sense stage could have made the realize that it is still a complex problem, although it is now narrower in scope, so probing, sensing, and responding are the best next steps.

It is important remember that these spaces have permeable walls and that situations can move between them. The Cynefin framework is about problem-solving.

4. Factors Affecting an Individual’s Ethical Decision(s) in an Organization (the PICS Influences)

If we want to understand which influences affect a decision-maker when making an ethical decision, the PICS model can be helpful. The PICS model below incorporates several models often used in discussing ethical decision-making. This model is quite useful when you find yourself in an ethical dilemma and want to see what factors are shaping your decision (and which you may not want to). It can be a valuable tool even after an ethical decision has been made as it allows you to analyze and deconstruct possible influences on the decision.

As we look at the PISC model, we need to see that these factors can either enhance or hinder the likelihood that someone will make an ethical decision. In other words, if we have more of these factors, it increases our empowerment, another way to look at it is likelihood, of making an ethical decision or action. If those factors are missing or working against the person, it may hinder them from choosing what is ethical. Even ethical people act unethical depending on these factors’ influences on them in a given situation.