3 Ethical Decision Making
The purpose of this chapter is to:
- 1) Outline the decision making process
- 2) Explain the nature of ethical decision making
- 3) Provide ethical frameworks used in making decision making
This chapter introduces us to the concept of ethical decision making. To properly contextualize our understanding of ethical decision making, perhaps it would be prudent to separate the two elements – decision making in general, and then ethics. Managers make thousands of decisions every day. In most cases they intuit the decision making process and can come to the best solution within nanoseconds of hearing about a problem. These are the types of problems that are routine, and have low consequences. However, the big decisions that managers have to regularly make require more due diligence, forethought, and collaborative effort with colleagues. These problems portend serious consequences, and in many cases organization performance depends on good decision making. Hannaway (1989) found that managers are in a constant state of making decisions as “[they] switch frequently from task to task, changing their focus of attention to respond to issues as they arise, and engaging in a large volume of tasks of short duration” (p. 39).
Decision making is the action or process of thinking through possible options and selecting one (Bright et. al, 2019). A rudimentary framework for how managers engage in the decision making process contains four steps.
- 1) Identify the problem
- 2) Generate alternatives
- 3) Decide on a course of action
- 4) Implement
There are several ways that a manager can use this framework to make decisions – intuition, analysis, democratic process, etc. However, they all contain the same elements of problem identification and then evaluating alternatives before deciding on a course of action. The intuitive decision maker simply “knows” what the problem and alternatives are before acting. A manager using analytical tools might uncover new insights from trying to really figure out what the problem is. A democratic manager will rely on the use of the team to work through understanding the problem and figuring out alternative courses of action.
Identify the Problem
The first challenge in decision making is working to understand what the problem is. Ineffective managers focus on the symptoms without identifying the underlying issues. A child with a runny nose does not have a runny nose problem, she has an infectious disease causing a running nose. The implication here is simple; if we treat symptoms, the problem will re-create the symptoms if given enough time. For the child, let’s say we stuff endless Kleenex up her nose. This won’t address the virus creating this symptom and others (temperature, cough, etc.) In a similar way, a firm might have a turnover issue and put resources towards paying people more, improving conditions, or added benefits. However, without truly understanding the cause of the turnover, these resources are wasted. The turnover in this scenario is being caused by an unbearable manager that makes life miserable for employees. No amount of pay raise or work condition changes will keep someone around for very long when abuse like this is happening.
A college freshman turns his paper in to the professor during the first week of class. A week later the professor calls the student into her office and states simply “You got a D on the paper, but I have good news. You don’t have a writing problem.” The student is confounded, and asks the professor to explain. “You don’t in fact have a writing problem, you have a reading problem. You write like you speak, which tells me that you do not read very much. I recommend that you read more. Anything you want, just read – Men’s Health, your textbook, Dostoevsky, and this will make you a better writer. You will naturally imitate what you are seeing.” A good manager tries to understand what is causing the symptoms. First step is to identify the real problem.
Problems come in different scopes and magnitude. In some cases they are routine, like a manager putting together a shift schedule for the week. The problem identification is simply a matter of understanding that personal preferences and personal obligations will conflict as he tries to schedule shifts. This problem does not require the manager to generate a wide list of alternatives. It might include negotiation, allowing workers to swap shifts, or simply making a schedule and forcing employees to deal with it. However, there are bigger problems that require a manager to generate a long and comprehensive list of alternatives. When problems have intense consequences, or the context is an unknown one to the organization, a wide list of alternatives is necessary. The future is unknown, and the problem is unlike one you’ve ever seen. This is the time to brainstorm, get creative, and generate alternatives.
Consider a company dealing with the aftermath of a mass shooting incident. Consider a fast food restaurant trying to remain solvent during a national pandemic that requires consumers to remain at home. Consider a company in New Mexico who screens job applicants for drug use, and they are taking job applicants from Colorado where marijuana use is legal. Consider an airplane manufacturer who lost consecutive contract bids and has to cut expenses somewhere. Each of these problems are serious that require managers to generate a wide list of alternatives.
If we encounter a problem we have seen before, we don’t need to stray too far to find viable alternatives. However, when we face a new problem in an unknown context, we need a wide range of alternatives. Here’s a simple illustration. Consider the following three questions:
Provide a range of outcomes (low and high estimates) for the following questions:
How many US Presidents have resided in the White House?
What is the population of Reykjavik?
How many Sasquatches per square mile reside in the Pacific Northwest?
If you have any frame of references for these questions, your range of outcomes will probably be narrow. If you have no idea, you need to answer the question with a wide range. Most of us have a general idea that the number of total US Presidents is somewhere in the forties, and perhaps we can recall from a high school American History class that the British burned the White House during the War of 1812, which was probably four to five presidencies in, and the White House has existed at least since then. This means we can estimate that the range is 35-45 presidents have lived there (The first was John Adams, making the correct answer 44). Reykjavik is in Iceland, and if you knew that you also know it has a small population, and the city probably does not crack the world’s top 100 most-populated cities. It sort of feels like an Cheyenne, Wyoming or a Madison, Wisconsin – enough to be a capital city, but not enough to make headlines regularly. We might give this a wider range because we are not quite sure – 50,000 to 500,000 residents. The population of Reykjavik, Iceland is 125,000. Finally, those dang sasquatches. If you have a solid frame of reference, I would like to hear it, or maybe the government has already talked to you. . . . but alas most of us have only theories and speculation (like if there really were sasquatches, don’t you think your Uncle Howard who lives in Western Oregon would have shot one by now?) We should give this question a VERY wide range of estimates. Let’s use 0 to 1,000. This is an unknown, with no frame of reference.
These three questions get progressively farther from any frame of reference you have, which requires you to expand your range of outcomes. This exercise illustrates the point that if we have a frame of reference, we don’t have to stray too far. If we are in unchartered waters, we need to widen our thinking. The same holds true for problems and generating alternatives. We need to take the time to think through all available options, and maybe even do something we never thought possible, or has ever been done before.
Decide and Implement
Once we have generated a list of alternatives, we need a way to decide which of the alternatives should be pursued. Again, managers can use intuition, analysis, or democracy to achieve this. However, a common approach is the employment of a cost benefit analysis. The cost-benefit analysis is a process by which managers evaluate a course of action based on the anticipated positive and negative effects an alternative will generate. In financial analysis the calculations can be quite complicated, but once you have an output the decision is easy – choose the project with the highest rate of return or net present value. However, when making decisions that are more difficult to quantify, a cost benefit analysis becomes more challenging. The costs can include any form of utility – capital expenditures, employee morale, loss of human life, a decrease in customer service, environmental pollution, violation of the law. The benefits are equally difficult to gauge and in many cases – revenues, company culture, respect to human dignity, customer rapport, environment stewardship, and avoidance of fines. Once the cost benefit analysis is conducted, the decision becomes clear, and this is the third step in the decision making process.
A example of this cost benefit analysis – Tara, the regional sales manager has to decide whether terminating her best salesman is in the best interest of the company. Braden is the top performer by far in the organization. However, he treats the accounting team with disdain, the logistics team hates him, and he sometimes engages in deliberately insubordinate behavior. Keeping him around would bolster sales figures for the foreseeable future, but the company will slowly leak some good talent away as Braden’s coworkers find a place to work with better workplace culture. Firing Braden comes with the benefits of retained talent in support services, improved morale, and a clear precedent for future salesmen, that this behavior won’t be allowed. The cost benefit analysis results in a decision to terminate, and to eat the costs of training a new hire, and working for a few months to get sales figures back up.
Once the alternatives are evaluated and one (or more) are selected, implementing the course of action requires the manager to put resources towards that choice. This could mean signing a check, empowering an employee to take on responsibility, or in the example above, calling William into the office to communicate a decision has been made.
Most decisions that managers make during the day are routine and do not involve the need to reflect on the ethics of the situation. However, the steps in the decision making framework need to be followed especially stringently in the situations where ethical implications loom. This begs the question – which situations present ethical dilemmas to managers?
Before we answer that question, let’s borrow some thinking from the Ancient Greeks. Socrates posed the question – “If we between us, have a heap of sand, consisting of millions of grains, and suppose I remove one grain, shall it no longer be a heap?” This question then follows, “supposing no, shall I remove two grains so that it no longer becomes a heap?” This logic follows until only one grain remains, at which point we would no longer consider the heap of sand a heap. However, is there a point between one and a million, that we can identify the heap as something other than a heap? Socrates termed this a “Sordite’s Paradox.” That is, a minor change in the condition of existence does not change the existence, but a series of consecutive minor changes would change its existence. How does this apply to ethical dilemmas?
Ethical dilemmas are situations that present various courses of moral action, none of which are clearly acceptable or preferable. This means that the ethical solution is not clear, yet a choice needs to be made. Under this definition we need to exclude decisions like cheating a customer, lying to the shareholders, polluting rivers, embezzling, money laundering, ignoring unsafe conditions, putting the public at risk, insurance fraud, extortion, bribery, copyright violations, and the long list of other white-collar crimes. These are not ethical dilemmas. These are ethical choices whereby we choose to do right or the wrong. The difference between these and ethical dilemmas is that the choice in a dilemma is not always clear. Let’s go back to Socrates to explore this.
Socrates tells us that at one point the sand heap is a heap, and at some point the heap becomes something less than a heap. There exists a gray area within the change, a point that determines whether or not it’s a heap, but that point is unclear. If you look at Figure 2.1, at which point (A, B, or C) does the sand no longer represent a heap.
Figure 3.1 – A Sordite’s Paradox
Let’s apply this to an ethical dilemma (remember, it’s a decision with a gray area and the choice is not always clear). If a business has any sort of operational component – how much to spend on employee safety can be considered an ethical dilemma. There is a wide range of expenditure options here. The company generates revenue presumably and can spend anywhere from 0% of those revenues on safety (equipment, training, compliance expenditures) all the way to 100% of their corporate revenues. As we think about the craziness of either alternative, we have just entered into the Sordite’s Paradox. We intuitively know that spending $0 on safety is unethical because it puts lives and livelihoods at risk. We violate the dignity of our workers by doing this. Well, then we ask the question, what about 1% of company revenues on safety? Still not there? What about 2%? If we take this logic all the way to 100% we would have safe working conditions with compliance rules in place, protective equipment, appropriate training, and what would be a waste of resources on anything that is not needed (you can only spend so much on training before it becomes ineffective). Workers would spend more time training than working, and we would have cumbersome and unnecessary procedures that slow production. In the 100% scenario though, there is a bigger issue – we are violating the financial obligation to shareholders of the company by not working on their behalf to improve profitability in our roles as managers. Somewhere between 0% and 100% we passed the right number to spend on safety that optimizes both safety and still allows the business to make money. 0% violates our ethics towards employee safety, and 100% violates our ethic towards shareholder obligations. The right answer lies somewhere in the gray area, and it is here that we encounter our ethical dilemma.
Figure 3.2 – An Ethical Dilemma Regarding Safety Expenditures
A final note on ethical decision making is that we generally don’t start with the extremes in ethical decision making. We naturally jump right into the middle of the gray area because we know the extremes and the fringes of the gray area are not worth pursuing. It is in the gray area that we must navigate, using ethical decision making to figure out the best solution. We can achieve good decision making using ethical frameworks.
Is the Law Enough?
Before we get to the ethical frameworks you can use to navigate ethical decision making, we need to address a common question, is the law enough to guide us in our ethics? The short answer is that the law is an insufficient means to regulate our ethical decision making. There are two primary reasons for this. First, the law gives us bare minimums in terms of safety, human dignity, and respect of rights. However, most ethical dilemmas are navigated well above these elements. For example, we are required to provide appropriate safety equipment and make sure employees have safety certifications they need. But this does not constitute the entirety of our ethical obligations in terms of safety. What is the right decision in keeping a grocery store open in a pending hurricane? OSHA has no regulation on that. Yet, we are putting our employees at risk. H-E-B (grocery chain in Texas) in Houston asked for volunteers and paid employees overtime to keep stores open so area residents. This decision went well beyond the safety minimums the law requires for a grocery store. Another example is that managers are required to respect the terms of a contract. However, the integrity of a company can be severely challenged if the focus is entirely on compliance. For example, during the 2008 financial crisis, many fertilizer manufacturers held contracts that customers bought at the top of the market. The contracts their customers entered into obliged them to pay what would become three times the market price after the crash. However, many manufacturers worked with their customers and renegotiated the contracts to make the customers competitive in the marketplace. This was well beyond the minimum legal requirements of the contracts. Minimum wage indicates the bare minimum your workers need to be compensated, however, this does not always equate to a living wage
in many metropolitan areas. Each of these examples highlight the need to navigate the ethical dilemmas we face with something more than the law.
The second reason why the law is not a good standard is that sometimes we put in place some really bad laws. Consider the United States Eugenics movement in the early 1900s. We put in place laws that allowed for the forced sterilization of 60,000 Americans that the government determined were unworthy of reproduction. This included alcoholics, criminals, intellectually disabled, and many more categorizations. Only in hindsight sometimes do we see the errors of the laws we have put on the books.
Because the law is insufficient, and the nature of ethical dilemmas is one of navigating ambiguity, we need to establish frameworks that will help us make decisions. The following ethical frameworks are intended to do that. Moral relativism offers a local solution to making ethical decisions. Utilitarianism focuses on maximizing the greatest good for the most number of people. Justice view emphasizes the relationship between members of the organization. Corporate social responsibility encourages consideration for all stakeholders affected by the decision making of an organization. By using these frameworks as a guide, we can begin to work through a reasonable solution to ethical questions that do not have a glaring, obvious solution. These frameworks give us structure in the gray area. Each has benefits, and faults, but they are at least a starting point for establishing ethical thinking.
The construct of moral relativism holds that ethical values and judgements are ultimately dependent upon one’s culture, society, or personal feelings (DesJardin, 2011). Under this framework, the right answer to the ethical dilemma will change based on who is analyzing the ethical problem. Moral relativism makes the ethical decision making simple, in that the local perspective should guide the reasoning. If a manager is making a decision that is based in China, the Chinese standards of ethics should apply. If a manager is making a decision in South Carolina, as opposed to Alaska, the South Carolina worldview would trump the decision making.
There is an important distinction that needs to be made when discussing the idea of moral relativism. That is, there is a significant difference, a giant chasm in fact, between relative truth and objective truth. An example of a relative truth is something like that of an opinion – who is the greatest between LeBron James, Michael Jordan, and Kobe Bryant. One could make the case for each of these and come to three different opinions. If I stand up and say that MJ is the best, this is a relative truth. This is my opinion and not true for everyone analyzing the same decision. Mint Oreo is the best ice cream flavor. Oh, you disagree? Under the construct of relative truths that is ok. Moral relativism works perfectly fine under these conditions. Examples of this would be in Colombian culture, its ok to show up to social gatherings a tad (I mean a lot sometimes) bit late. Colombians expect this. In Iowan culture, the expectation is that if a meeting or party is scheduled for 3pm, you should show up on time, lest you offend the host. Moral relativism is an acceptable practice for cultural norms such as these. However, when it comes to evaluating serious ethical problems, there are some inherent challenges with this framework. This is sometimes called cultural relativism, and when dealing with issues of relative truths, is a common business practice.
In stark contrast to truths that change, the objective truths never change. Objective truths can also not contradict each other, otherwise one of them would be false, rendering it not objectively true. Here’s an example: In The Hobbit (one of the best books of all time, my relative truth), Bilbo finds the ring in the cave where Gollum is hiding. Bilbo engages in a battle of riddles with Gollum, and eventually wins the intellectual battle by asking Gollum “what’s in my pocket?” (Spoiler alert) It’s the ring. At this point we can with certainty determine that there cannot be a ring in Bilbo’s pocket, and simultaneously be nothing in his pocket. One of those is true. They cannot both be true. The existence or absence of a ring is an objective truth. This is a metaphysical example showing that objective truths cannot contradict themselves. In the same way, if I say “there is a God” and an atheist says “no there is not,” there is only one thing we can agree on and that is, only one of us can be right.
Let’s bring this distinction to the ethical framework of moral relativism. When discussing matters of ethics and the human condition, objectives truths indeed exist (as illustrated with the God example). In the same way we should state “Human dignity should never be violated” or “human dignity should be compromised in some situations.” Both of those cannot be true. This means that moral relativism can contradict itself. If something is objectively true in one culture, it cannot be objectively untrue in another culture. In these situations, moral relativism would be useless as a framework for decision making.
Moral relativism has one final, fatal flaw. The major premise that moral relativism touts is that “no absolute truth exists.” Logically, this would be that any truth that we claim cannot be absolute, meaning it can only be a relative truth. However, the premise upon which moral relativism stands is itself an absolute truth. Therefore, the statement “there is no absolute truth” cannot be true, meaning that absolute truth must exist.
This question has been debated for millennia from the Romans, to the Middle Age debaters responding to Thomas Aquina’s Summa Theologie, to your high school civics teacher preparing the debate squad for a Saturday meet. Exploring it and unpacking it all here is beyond the scope of this book. Moral relativism is seriously handicapped from the aforescribed self-defeating premises. However, identifying it and illustrating the fatal inherent flaws is an important task when studying ethics because iterations and camouflaged versions of this framework are still used in modern business practice.
A final note on moral relativism – in addition to the logical fallacy that it presents, there is an inherent danger in using this as an ethical framework. If all ethical decisions are left up to the local perspective, then even atrocious practices must be tolerated. This means that we cannot condemn anything that presents a prima facie case of unethical practice. We would be unable to condemn child labor, female genital mutilation, genocide, sex trafficking, Ponzi schemes, and the litany of other wicked practices that are accepted in some cultures.
Utilitarian ethics focuses on maximizing the greatest good for the most number of people. Originally espoused by the English philosopher, John Steward Mill, this ethical framework provides us with a formula upon which to base our decisions. Ethical decisions should be based on the perceived outcomes they will lead to, and alternatives evaluated based on whether they will maximize the good from the greatest number of people. Good can be defined in several ways. Good can equate to generation of money, satisfaction, life, health, opportunity, utility, and anything that is reasonable attributed to improving the human condition. By default, this also means that utility maximization also avoids loss of good (loss of life, loss of money, etc.) Once the choices are evaluated and the estimated outcomes are determined, the ethical choice is the one that creates the most benefit.
Utilitarianism makes ethical decision making easy once the outcomes have been projected. Will this project potentially harm the local water source? What will that cost in terms of clean up or quality of life? Will building a factory create jobs? After asking a series of questions like this, the outcomes are estimated to total impact or good, however that is defined in your ethical dilemma. However, this ethical framework has two primary limitations. First, the concept of utility (or good) is not always easily defined. Financial analysts can project income and net present values of decisions, and these decisions are easy to make once the numbers are in. But how do you estimate how much satisfaction something will bring? If a decision is going to result in the loss of life, how much is a human life worth? How do you estimate the impact a decision has on the community’s culture? Determining utility and then calculating is easy in some cases, but in most it becomes a major challenge to using this framework. The second challenge for utilitarianism is that maximizing the greatest good for most, might result in the sacrifice of a few. A classic example of utilitarianism is the layoff decision. We need to lay off thirty people so that the company stays solvent, and continues to provide jobs for the remaining seventy people. In this case the company stays solvent, but the thirty workers now struggle to provide for their families. Another example is a mass casualty incident. If a trauma ward is overrun with cases, the lead doctor must make decisions about which patients receive immediate care and which ones must be put aside. In this situation, the doctor is trying to save the most human life, which might result in patients with less serious injuries have to wait hours in pain to be treated.
The justice view of ethics is one that endeavors to treat everyone fairly and impartially. A basic notion of justice is that we should give people what they are due. People are owed respect, dignity, civility, equity, and humanity for example. If we are trying to decide a path forward in an ethical dilemma, we would focus on these principles to decide which is the right path forward. If we make a decision that violates these principles, then justice has been violated, and we should consider alternatives. The justice view as an ethical framework can be further dissected into four specific forms – distributive justice, interpersonal justice, procedural justice, and commutative justice.
Distributive justice emphasizes equality when allocating resources. This means that individuals are given a fair opportunity to acquire resources. Resources can include salary, opportunities for promotion, benefits, favorable shifts, location preferences, and the like. To avoid violating distributive justice, managers should not discriminate against individuals for the inherent characteristics which would include demographic makeup like race, age, sex, and all of the other categorizations that make up protected classes in the workplace. However, we must also avoid giving preference to the best friend, the family member, the direct report who constantly flatters the manager, the person who attended the same university as the manager, and any other characteristic outside actual performance of an individual. If, however, an individual has earned privilege through their performance, it is completely justified to provide additional resources. The top performing salesman should receive a bonus. The accountant who continually catches errors should get preferential treatment for time off during tax season. The logistics scheduler who builds meaningful rapport with dispatchers should be promotion. In each of these cases, the individual has earned the right to the resource, and distributive justice has not been violated. If we as managers have some sort of preferred method for doling resources other than what people have earned through their performance, we are violating distributive justice.
Interpersonal justice an ethical framework that focuses on the communication within a relationship. The essence of this justice view is that the manner in which we communicate determines whether or not justice has been violated. Talking to people with disrespect, belittling, coercing, or being rude or uncivil in a delivery of a message all constitute interpersonal justice violations. Consider the following two scenarios. Scenario #1: Brook has continually underperformed to the point where the manager has determined that she should be terminated. The manager sits down with Brook and calmly explains the consequences of her performance, wishes her well, and on the way out the door offers a reference to her for a job opportunity. Brook is not happy about losing her job, but she does not feel like interpersonal justice has been violated. Scenario #2: Otto works as a cost accountant and recently performed above his peers during a factory expansion project. As a result, the accounting manager has rewarded him with two tickets to the Milwaukee Brewers game. As the manager hands Otto the tickets he says, “I know that if accountants don’t get out of the office, they will whine about it, so here are two tickets.” In this scenario, Otto earned the prize so distributive justice was not violated. However, the way the manager treated him makes him feel disrespected, a clear violation of interpersonal justice.
We have this unstated expectation that we should be treated with dignity. This is why any form of sexual harassment immediately elicits an indignant response. It violates the interpersonal justice view that we should not be talked to, or treated in a way counter to decency and our humanity. When we are treated with disrespect in the workplace we resent the manager or the organization in that moment, and if this happens often enough, research shows that it will affect our own performance, and the performance of the organization (Estes & Wang, 2008). In short, avoid disrespecting people and you will maintain interpersonal justice.
Procedural justice follows that as long as the protocols and rules are followed, procedural justice has not been violated. If the organization gives out promotions based on how long someone has been at the organization, and this is a clearly established rule, procedural justice would not be violated within this context. It might be the case that we disagree with this rule because being at an organization a long time does not make you good at something (like tenure at a university, high school teachers, military promotions), but as long as it is an established rule, no one will feel that procedural justice has been violated. Another example of procedural justice is the manner in which people are evaluated for their work. At a customer service call center, companies often evaluate their employees based on a set of standard metrics. Everyone knows them, there are clocks on the wall to measure them, and at the end of the evaluation period, everyone knows what to expect. These include metrics like how long calls last, did the agent resolve the issue, and did the customer have to call back later to ask more questions. Again, some of these are measures that could be improved, and we might disagree with them, but the rules are being followed and so procedural justice wins. Consider the example of a professor who has established a rubric for the midterm paper. It has been posted on the Blackboard site, and it was communicated well before the assignment was due. The students work on the paper, submit them, and receive an evaluation that falls outside the rubric metrics. The professor had not included spelling and grammar as part of the rubric, but during the grading of the papers, he hammers the students on this point. The students will feel that procedural justice has been violated because the rules (in this case an established rubric) were not followed. Under procedural justice, what the rules are do not matter. Whether they were followed do matter.
Finally, commutative justice is a form of justice that is determined based on all parties having full knowledge of the relationship or transaction. Consider the classic case of going to a car dealer, and upon going to sign the papers, you notice a charge for a warranty that you had not agreed to. The salesman put this in the contract without you asking. Immediately you get upset that the salesman tried to pull one over on you. You were not given all of the information in the transaction, and therefore commutative justice has been violated. Another scenario where this commonly occurs is in free trials for online services. You sign up for a seven day trial, and at the end of the trial period, the company charges you for the full service because you did not call to cancel. If an organization has identified some particular dangers, they should alert the employees to the danger so that they can make an informed decision regarding their employment. An example of this is crab fishing in the Bering Sea. Captains make the dangers very clear to people who want to become fisherman and as a result, commutative justice is not violated. For this same reason, if you decide to go skydiving, you have to sign an acknowledgement of risk, and waiver of liability before they will let you skydive. The risks include death, broken ankles, heart attack, and paralysis. The skydiving companies are making the risks clear so that they do not violate commutative justice.
The good news here is that the law is on your side. It would be unlawful for someone to include terms within a contract that the other party was unaware of. Additionally, the language within the contract has to be written in a way that a reasonable person can understand it. In the absence of these factors, the court has upheld that some terms within contracts are not enforceable. These clauses violate commutative justice because we have a right to know what we are agreeing to.
Corporate Social Responsibility
Finally, an ethical framework that has gained in popularity in the last two decades is corporate social responsibility (CSR). CSR is an ethical framework that takes into consideration all of the stakeholders that are impacted by a business decision. This means that in addition to considering the financial stake that shareholders have in an organization, the employees, communities, creditors, suppliers, environment, and government should also be included in the consideration of decision making. Klein (2012) states that “every corporation has an overarching social purpose that transcends the operations of corporate social responsibility and, when well understood and effectively integrated, can have profound business and social results” (para 4). The underlying premise with CSR is that business need to do more than simply make money. They need to advance the agenda of the social good as well. Other names for this approach include the triple bottom line and balanced scorecard, whereby companies report on their impact on profit, planet and people (Spreckley, 1981).
Let’s go back to the outsourcing example. If we consider this decision a gray area ethical dilemma, we can use CSR to consider how to move forward. An analysis might these questions: What is the profitability of outsourcing our production (shareholders)? How much should we pay in severance to domestic workers (employees)? What is the economic impact on local town where factory will close (community)? What economic benefit will the factory in the new country bring to its local community? Are we violating any U.S. laws with our labor practices in the new country (government)? What is the impact on our supply chain and vendors (suppliers)? And the list goes on. CSR as an ethical framework forces companies to think through all stakeholder groups as they make decisions. What should be clear as a downside to this ethical framework is that sometimes stakeholders have competing interests. Your decision to move abroad helps the new town, but hurts the old. It has profitability potential, but might require you to use a new supplier or creditor, forcing them to find new business. This is the main criticism with CSR, but the overall idea with this framework is that we need to at least be asking the questions about each group as we make decisions.
The origins of CSR come from a classic view of business that profits come first. In the 1970s, Milton Friedman famously stated that businesses have only one purpose and that was to maximize wealth for the owners. He offered that by taking care of owners, they would by default be taking care of society by virtue of providing jobs for employees, who would then be providing economic growth for society, etc. In the 1980s, this idea was challenged by Edward Freeman, who established stakeholder theory – the founding idea for what we call CSR today. Since then many businesses have gone beyond simply focusing on profits and have established clear missions on creating social value
CSR has been the focus major corporations and researchers alike over the last two decades. Much of this emphasis has been placed on a related concept of sustainability, which entails the responsible and efficient use of the earth’s natural resources. Sustainability in recent years has also expanded to enscope social and economic variables as well – treating each of the resources in these domains as resources that require attention, diligence, and consideration.
Critical Thinking Questions
Which element of the decision making process is the most important to get right? Why?
Which ethical framework makes the most sense? Why?
Why is the law not a sufficient standard to use as our ethical guide?
For each of these answers you should provide three elements.
- General Answer. Give a general response to what the question is asking, or make your argument to what the question is asking.
- Outside Resource. Provide a quotation from a source outside of this textbook. This can be an academic article, news story, or popular press. This should be something that supports your argument. Use the sandwich technique explained below and cite your source in APA in text and then a list of full text citations at the end of the homework assignment of all three sources used.
- Personal Story. Provide a personal story that illustrates the point as well. This should be a personal experience you had, and not a hypothetical. Talk about a time from your personal, professional, family, or school life. Use the sandwich technique for this as well, which is explained below.
Use the sandwich technique:
For the outside resource and the personal story you should use the sandwich technique. Good writing is not just about how to include these materials, but about how to make them flow into what you are saying and really support your argument. The sandwich technique allows us to do that. It goes like this:
Step 1: Provide a sentence that sets up your outside resource by answering who, what, when, or where this source is referring to.
Step 2: Provide the quoted material or story.
Step 3: Tell the reader why this is relevant to the argument you are making.
J., O’Rourke, J., Parboteeah, P., Pierce, J., Reece, M., Shah, A., Terjesen, S., Weiss, White, M. (2019). Principles of Management. Rice University, Open Stax: Houston, TX
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