Lecture 3: Business Ethics - Psychological

Theories
Recap – Lecture 2

 Consequentialist approach (teleology) v.

Non-Consequentialist approach (deontology)

 Utilitarianism, Duty-based theories,

Kantianism, Justice ethics & Virtue ethics.

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 Learning Overview

 Ethical decision making process

 Individual characteristics

 Organizational characteristics (situational factors)

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 Ethical decision making

• Ethical decision making is affected by two main factors:

I. Individual characteristics
II. Organizational characteristics (situational factors)

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Ethical decision making

Individual characteristics

Recognition/ Moral
Moral Intent Moral
awareness judgement behaviour

Organisational characteristics

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Ethical decision making

1. Recognition/Moral awareness: the moral

agent/individual recognizes the moral issue(s).
Witness a colleague
2. Judgement: the individual engages in some
stealing an office
form of moral reasoning (for example, using printer
utilitarianism, duty based approach, Kantianism,
justice ethics, or virtue ethics) to arrive at moral
judgement.

3. Establish Moral Intent: the individual

establishes moral intent and decides to take
moral action.

4. Moral Behaviour: the individual translates

intent to behaviour.

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Moral awareness

 Moral awareness = recognizing moral issues

i.e. recognizing that a situation/issue/decision/action

 may have consequences for other human beings, and
 must be thought about in moral terms (right or wrong).

 Moral awareness is the initial step in the ethical decision

making process.

(Trevino & Nelson 2006, p 121; Jones 1991)

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Moral awareness at work …

 Moral awareness about an issue is more

likely to arise if an individual believes that
co-workers will also see the issue as
ethically problematic.
 Example:
o Ann is required by her boss to write a fake
report to cover up information about a defective
car model.
o She believes that her co-workers would see
such a fake report as a normal thing in doing
business.
o Is her moral awareness more or less likely to
arise?
o What if she believes that her co-workers would (Trevino & Nelson 2006, pp 121-4)
see such a fake report ethically problematic?

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Moral awareness at work …

 Moral awareness is more likely to arise if moral language is used to present the
situation.
o Moral language: wrong, lack of integrity, dishonest, unfair, lying, cheating,
stealing, unethical, immoral,…
o Neutral language: questionable (unethical); corporate restructuring (massive
layoffs); facilitation payments (brides);
 Example:

o In a meeting, the manager said that “Some of you often provide false and
misleading information to consumers. Well. That’s not very nice”.

o Is it more or less likely for moral awareness to arise ?

o What if the manager said “That’s unethical” ?

(Trevino & Nelson 2006, pp 121-4)

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Moral awareness at work …

 Moral awareness is more likely if the issue potentially causes

serious harm to others.

 Example:
o John just started his work at a medical equipment company.

o On his first week at the company, he finds that some of his co-workers often use
social media at work.

o John also finds that some sales staff often provide false and misleading
information to consumers.

o In which situation, moral awareness is more likely ? Why ?

(Trevino & Nelson 2006, pp 121-4)

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 Part I:
The influence of individual characteristics
on ethical decision making

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 The influence of individual
characteristics

Individual characteristics

Recognition/ Moral
Moral Intent Moral
awareness judgement behaviour

Organisational characteristics

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Individual influences on ethical
decision making

 Age ?

 Gender ?

 National and cultural characteristics ?

 Education and employment ?

 Psychological factors:

 Cognitive moral development (Kohlberg)

(Crane & Matten, 2008)
 Locus of control
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a) Cognitive moral development

 The theory was first proposed by a Swiss

psychologist, Jean Piaget,

 It was then extended further by an American

psychologist, Lawrence Kohlberg.

 Kohlberg’s model of cognitive moral development

suggests that:

Human moral reasoning capacity develops

sequentially through three broad levels,
each composed of two stages.

(3 levels – 6 stages)

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Kohlberg’s stages of
cognitive moral development (CMD)

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 Stage 1: Focus on Punishment &
Obedience

 At this stage, individuals focus on punishment to

decide what’s the right thing to do.

 For stage 1 people, an action is wrong if it results

in punishment.

 Do you know why stage 1 people consider stealing

food from a store or crossing red lights as something
wrong ?

 Implication: stage 1 people are likely to pursue

wrong action if the perceived risk of detection is low,
and punishment from wrongful behaviour is unlikely
or insignificant.

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 Let’s consider this case …

 Evelyn works for an US automaker.

 She is responsible for investigating an operating problem developing in a
new car model.
 She finds that the brake system is defective, which potentially results in
deadly accidents.
 However, when Evelyn informs this finding to the president of the
company, he asks her to write a report concluding that the problem is just a
minor mechanical issue and does not affect the safety of the cars in that
model.
 Such a report would help the company avoid a big recall, which
undoubtedly affects the company’s profit and reputation.
 Suppose that Evelyn is at stage 1 of moral reasoning, would she write
a fake report ?
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 Stage 2: Self-interest orientation
 Individuals at stage 2 focus on self-interest to decide what’s the right
thing to do.
 For stage 2 people, an action is right if it is in their best interest.
 Do you know why a stage 2 person might share his foods to his
neighbour ?
 Why a stage 2 employee might work hard ?
 Note:
o At stage 2, people start showing a limited awareness of
others’ needs and desires, but only to a point where it might
further their self interests.
o As a result, concern for others is not a matter of moral duties or
caring, but an issue of reciprocity, i.e., “you scratch my back
and I’ll scratch yours”.
 Thus, stage 2 people will engage in behaviour that yields possible
favours in return.
 Do people at stage 2 feel obligated to repay a debt ?
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Evelyn dilemma

Suppose that Evelyn is at stage 2 of moral reasoning,

would she write a fake report ?

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 Stage 3: Emphasize others
 For people at stage 3, an action or a decision is right if…

o it pleases or helps others who are close to them (e.g.,

family members, friends, or peers); or

o it is approved by those people.

 At this stage, people live up to the expectations of others who

are close to them.

i.e., they try to be a ‘good boy’, ‘good girl’, ‘good friend’, ‘good
student’, or ‘good employee’ to please/help or to be approved by
others.

 Dou you know why stage 3 people may do what is asked by their
boss ?

 Stage 3 differs from Stage 2. In determining what is right, Stage 3

people will take others into consideration.
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Evelyn dilemma

 Suppose that Evelyn is at stage 3 of moral reasoning, would she

write a fake report ?

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 Stage 4: Duty to society – Rule
followers
 People at stage 3 only consider others who are close
to them (e.g., family, friends, peers, or boss).
 However, people at stage 4 consider the interest of
society.
 Stage 4 people believe that
o Rules (both social and legal rules) are necessary to promote
the common good.
o They should follow rules because society works better when
everyone follows rules.

 Therefore, stage 4 people tend to make decisions

that are consistent with relevant social and legal
rules.

 Do you know why a stage 4 person would stop

at red lights ?
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 Evelyn dilemma

Suppose that Evelyn is at stage 4 of moral reasoning,

would she write a fake report ?

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Stage 5: Just rules determined by
consensus
 People still regard laws as important because they maintain social
order.

 However, at stage 5, people start questioning and evaluating the laws.

 Particularly, at this stage, people become aware that sometimes laws

may work against the general welfare of society.

(e.g., one-child law: Is it just ? Is it good for society ?)

 In this case, stage 5 people would think that

o The bad law should be changed (e.g., one-child law should be changed);
or

o The bad law could be broken to promote the general welfare of society
(e.g., one-child law could be broken).
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Stage 6: Universal moral principle
orientation

 People at this stage use universal moral principles to

decide what is the right thing to do.

 Justice, equality, respecting human rights, are examples

of universal ethical principles.

 For stage 6 people, a decision is right if it accords with

universal moral principles.

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Stage 6: Universal moral principle
orientation
 If the laws violate universal moral principles, stage 6
people would uphold the later.

 Exercise:

 Ben is the CEO at a car maker company. He decides to

discontinue a car model when he learns that the model
may cause deathly accidents.

 Ben is aware that the current law does not require him to Gandhi
do so. However, he thinks that it would be unfair and
disrespectful to consumers’ safety and life if that car
model continues to be sold.

 At which stage should Ben be ?

 4 ? 5 ? or 6 ?

 Only a few people could reach stage 6 (arguably, Gandhi,

Nelson Mandela).
Nelson Mandela
 Evelyn dilemmas

Suppose that Evelyn is at stage 6 of moral reasoning,

would she write a fake report ?

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 Kohlberg’s CMD

 The pre-conventional level (stages 1 & 2) is especially common in

children, although adults can also exhibit this level.

 The conventional level (stages 3 &4) is typical of adolescents and

adults.

 Very few adults actually reach the post-conventional level (stages 5 &
6), particularly stage 6.

 Although people generally progress through the stages in the same

sequence, not everyone progresses through all the stages.

 Many people remain stuck at one of the early stages throughout

their lives.
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Kohlberg’s Central Argument

 The higher the reasoning stage, the more ethical the

decision.

(Kohlberg, 1976)

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 Limitations of Kohlberg’s Model

 Kohlberg's theory is not always correct.

 One can have a very high stage of moral reasoning, but still acts
unethically.

o “I know telling lie to consumers is unfair and dishonest, but I have to

meet the sale target”

 In business organisations, people regress morally (even though

they may be able to reason in a high level).

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Limitations of Kohlberg’s Model

 Kohlberg’s theory examines what a person thinks

rather than how he or she actually acts.

 One may think in a high level, but acts immorally. This

is because the context may affect how people behave.

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 Limitations of Kohlberg’s Model

 Kohlberg’s theory suggests that with time, education, and experience,

one may become more ethical.

 However, this may not true in reality. An “adult’ may act like a “child” and
vice versa.

 Are there distinct stages of moral reasoning ?

 In fact, stability in human’s moral reasoning capacity may not exist.

» One may justify a decision on the basis of a universal moral

principle in one situation (post conventional level), but may fall back
on the conventional level in another situation.
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Limitations of Kohlberg’s Model

 Kohlberg’s original research has limitations – data collected only

from US males.

 Gilligan (1982) conducted other research and noted that women’s

cognitive moral development is different to that of man.

 Particularly, women emphasizes more on ‘ethics of care’, whereas

men emphasizes ‘ethics of justice’

 To Gilligan, women go through three stages of moral development:

 Stage 1: Women tend to overemphasize interests of their

selves

 Stage 2: Women overemphasize others’ interests

 Stage 3: Women balance their own interests with those of

others 33
 b) Locus of control
(the theory was developed by Julian B. Rotter in 1954)

 Locus of control is defined as the degree to which people believe that

they have control over events affecting them.
 High internal locus of control: Individuals with a high internal locus of
control believe that events in their life result primarily from their own
actions/effort.
o For example, when receiving exam results, people with a high internal locus of control tend
to praise or blame themselves and their abilities .

 High external locus of control: Individuals with a high external locus of

control believe that outcomes result from fate, luck, or the influence of
others (such as parents, bosses, teachers, or government officials).
o For example, when receiving exam results, people with a high external locus of control
tend to praise or blame external factors such as the teacher, teammates, or the exam.
 Individuals with a high internal locus of control are …
o more likely to take responsibility for the consequences of actions.
o more likely to resist pressure to be unethical.
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 Part II:
The influence of organisational
characteristics on ethical decision
making

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The influence of organisational
characteristics

Individual characteristics

Recognition/ Moral
Moral Intent Moral
awareness judgement behaviour

Organisational characteristics

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The organizational characteristics

 Issue related factors

 Moral intensity

 Context related
factors
BAD APPLES OR BAD BARRELS ?
 Reward

 Work roles

 Authority

 Diffusion of responsibility

 Group norms

 Organisational culture 37
a) Moral intensity - Jones (1991)

 Moral intensity is the seriousness of the moral issue

Issue: Stealing at work

 How serious is the moral issue ?

 Very serious => High moral intensity

 Would that high moral intensity affect ethical decision making (moral
awareness, moral judgement, moral intent, or moral behaviour) ?
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Moral intensity

Issue:
Making some short personal calls at work

 How serious is the moral issue ?

 Would that high/low intensity affect ethical decision making (moral

awareness, moral judgement, moral intent, or moral behaviour) ?

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Moral intensity

 Moral intensity is affected by

 The seriousness of potential harm

o The more serious the potential harm, the more intense the moral issue
o Defective cars – How serious is the harm ? How intense is the moral issue ?
o Releasing toxic waste into the ocean – How serious is the harm ? How
intense is the moral issue ?

 Social consensus:
o The degree of social agreement that an act is evil

o Moral intensity is likely to increase when an act is considered as

unethical by many people

o Releasing toxic waste water into the ocean – Would it be considered as

wrong by many people?

o So, moral intensity is likely to increase or decrease ? (Jones 1991, 1998)

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Moral intensity

 So, moral intensity may affect the process that a decision

maker goes through when faced with an ethical issue.

 The more intense the moral issue, the more likely that a
person would

• have moral awareness,

• make a moral judgment,

• establish a moral intent, and

• engage in a moral behaviour

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b) Reward

 The reward system may affect individuals’ behaviour.

 People do what’s rewarded & avoid what's punished.

 Why ?

 Most adults are at the convectional level of moral

development so they are highly affected by external
influences.

 “THEY LOOK UP AND LOOK AROUND” to decide what

to do (Trevino & Nelson 2006, p 129)
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 c) Work roles

 When an individual is assigned a role, that individual normally

o does what’s expected by that role, and

o feels less morally responsible for what he/she’s doing.

 Examples: salesperson, security guard, policemen…

 The Zimbardo prison experiment

 This experiment confirms that individual behaviour is largely controlled by role rather
than personal characteristics

(Crane & Matten, 2007, p 161).

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Work roles - Conflicting roles

 Conflicting roles may lead to unethical behaviour

(Trevino & Nelson, 195).

 For example, nurses may be required to…

o look after patients closely and

o do the paper works (which takes them away

from patients).

 This may lead them to telling lies in the

patient’s charts.

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 d) Obedience to authority

 People do what they are told to do, even that may be an

unethical behaviour.

(Trevino & Nelson, 199)

 The Milgram experiments

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e) Diffusion of responsibility

 Look at this scenario …

 No one calls the emergency service !

 Do we have similar problems when doing a team assignment ?

(e.g., no one writes the report; no one does the proofreading, no one does the
footnotes,…)

 Why do people fail to act ?

 When a task is placed before a group of people, there's a strong tendency

for each individual to assume that someone else will take responsibility for it
- so no one does.

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f) Group Norms

 Group norms = the ways that members of a group usually do things

 Group norms affect behaviour of an individual in that group. Indeed,

1. People follow group norms. If ‘everyone’s doing it’, e.g., cheating

customers, then there seems to be a social consensus that the behaviour
(e.g., cheating customers) is not an ethical issue. Thus, ethical
concerns/awareness just won’t come up at all.

2. Group norms can be used as a justification for an unethical behaviour. A

person could rationalize an unethical behaviour by saying that ‘everyone’s
doing it’.

3. Group norms can also put pressure on an individual. He/she may need to
do what everyone does to get along with the crown, e.g., cheating
customers so that he is not excluded from the sales team
(Trevino & Nelson, 193-4) 47
 Conclusions

 The ethical decision making

process

 The process is affected by both

individual characters and

organizational/situational characters.

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 References
Crittenden, P 1990, Learning to be moral: Philosophical thoughts about moral development,
Humanities Press International New Jersey.
Chin, M.K., Hambrick, D.C., and Trevino, L.K. (2013), "Political ideologies of CEOs:
Illustrative evidence of the influence of executive values on corporate social responsibility",
Administrative Science Quarterly
Ferrell, OC, Fraedrich, J & Ferrell, L 2005, Business ethics: Ethical decision making and
cases, Houghton Mifflin, Boston.
Forsyth, DR 1992, 'Values, conceptions of science, and the social psychological study of
morality', in WM Kurtines, Azmitia, M., & Gewirtz, J. L. (ed.), The role of values in
psychology and human development, John Wiley & Sons, New York, pp. 239-55.
Gilligan, C 1982, In a different voice: Psychological theory and women's development,
Harvard University Press, Cambridge MA.
Gioia, DA 1992, 'Pinto fires and personal ethics: A script analysis of missed opportunities',
Journal of Business Ethics, vol. 11, pp. 379-89.

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 References

Janis, IL 1972, Victims of Groupthink, Houghton Mifflin, Boston.

Jones, TM 1991, 'Ethical decision making by individuals in organizations: An issue-

contingent model', Academy of Management Review, vol. 16, no. 2, pp. 366-95.

Jones, TM & Ryan, LV 1998, 'The effect of organizational forces on individual morality:
Judgment, moral approbation, and behavior', Business Ethics Quarterly, vol. 8, no. 3, pp.
431-45.

Kohlberg, L 1976, 'Moral stages and moralization: The cognitive-developmental approach', in

T Lickona (ed.), Moral development and behavior, Holt, Rinehart and Winston, New York,
pp. 31-53.

Trevino, LK, & Nelson, K. A. 2006, Managing business ethics: Straight talk about how to do it
right, 4 edn, John Wiley & Sons, New York.

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