218 PART 3: BUSINESS

ETHICS

unit manager or department head to ask advice. Under three conditions an employee is, however,
instructed to go directly to the general counsel at headquarters in New York City. These urgent
exceptions are cases that (1) threaten the overall integrity of the company, (2) raise the possibility of
major financial loss or criminal penalty, and (3) endanger human life.
At the end of the "Statement of Business Ethics," employees are given notice that "failure to comply
with the principles described in this booklet, including the disclosure requirements, may result in
termination of employment."
This chapter discusses philosophical and practical guides for making decisions about ethical
problems both in business life and in case studies such as those in this book. Ethical decisions
cannot be programmed like production and inventory decisions, but methods discussed in this
chapter may structure them to the benefit of decision makers.

PRINCIPLES OF ETHICAL CONDUCT

Over the centuries, attempts have been made to discover rules that lead to just actions. Plato thought
he had found the right method of moral decision making when he described an intuitive leap of
revelation that would take place after years of study and character development in a Utopian
society. St. Augustine suggested that virtue came from an interior illumination that was a gift of God.
St. Thomas relied on painstaking research of Scripture to reveal the true path, and a sense of
complete certainty pervades his massive twenty-three-volume Summa Theologica, in which moral
questions are examined. Recent efforts to find a methodology for business decisions regarding ethics
have been less mystical and elaborate. They are described later in the chapter.
We begin, however, with a compendium of ethical principlessome ancient, some modernthat
are alternative decision rules for managers. We list them alphabetically. These principles are a
distillation of 2,000 years of ethical thought. To the extent that they offer ideas for resolving ethical
dilemmas, they are not vague abstractions but useful, living guides to conduct. 1
\ THE
CATEGORICAL IMPERATIVE
The categorical imperative (meaning, literally, a command that admits no exception) is a guide for
ethical behavior set forth by the German philosopher Immanuel Kant in his Foundations of the
Metaphysics of Morals, a tract published in 1785. In Kant's words: "Act only according to that maxim
by which you can at the same time will that it should become a universal law." 2
In other words, one should not adopt principles of action unless they can, without inconsistency,
be adopted by everyone. Lying, stealing, and breaking promises, for example, are ruled out because
society would disintegrate if they

1
Studies of managers show that they are guided by some but not all of these principles. See for example Phillip V. Lewis, "Ethical Principles for
Decision Makers: A Longitudinal Survey," Journal of Business Ethics, April 1989. 2Immanuel Kant, Foundations of the Metaphysics of Morals, trans.
Lewis White Beck, Indianapolis: Bobbs-Merrill, 1969, p. 44. Originally written in 1785.

replaced truth telling, property rights, and vow keeping. Using this guideline, a manager faced
with a moral choice must act in a way that he or she believes is right and just for any person in a
similar situation. Each action should be judged by asking: "Could this act be turned into a universal
code of behavior?" This quick test of universalizability has achieved great popularity.
Kant was an extreme perfectionist in his personal life. He walked the same route each day at
the same time, appearing at places along the route so punctually that neighbors set their clocks by
him. Before leaving his house he attached strings to the top of his socks and connected them to a
spring apparatus held by his belt. As he walked the contraption would pull the slack out of his
socks. To no one's surprise, his ethical philosophies are perfectionist also, and that is their
weakness. Kant's categorical imperative is too dogmatic and inflexible. It is a general rule that must
be applied in every specific situation; there are no exceptions. But real life challenges the simple,
single ethical law. If a competitor asks whether your company is planning to sell shirts in Texas
next year, must you answer the question with the truth?

THE CONVENTIONALIST ETHIC

This is the view that business is analagous to a game and special, lower ethics are permissible. In
business, people may act to further their self-interest so long as they do not violate the law. This
ethic, which has a long history, was popularized some years ago by Albert Z. Carr in Business as a
Game.3 "If an executive allows himself to be torn between a decision based on business consid -
erations and one based on his private ethical code," explained Carr, "he exposes himself to a grave
psychological strain."4
Business may be regarded as a game, such as poker, in which the rules are different from those
we adopt in personal life. Assuming game ethics, managers are allowed to bluff (a euphemism for
lie) and to take advantage of all legal opportunities and widespread practices or customs. Carr
used two examples to illustrate situations where game ethics were permissible. In the first, an out-
of-work salesman with a good employment record feared discrimination due to this age 58. He
dyed his hair and stated on his resume that he was 45. In the second, a job applicant was asked to
check off magazines that he read and felt justified in not placing check marks by Playboy, The
Nation, or The New Republic. Even though he read them, he feared being labeled controversial or
politically extreme. He checked conservative magazines such as Reader's Digest.5
The conventionalist ethic has been criticized by those who make no distinction between private
ethics and business ethics. They argue that industrial activity defines the life chances of millions
and is not a game to be taken lightly. As a principle, the conventionalist ethic provides no way to
elevate business practice. It is a thin justification for deceptive behavior in business situations.

3
New York: New American Library, 1968.
""Is Business Bluffing Ethical?," Harvard Business Review, January-February 1968, p. 149
'Albert Z. Carr, Business as a Game, p. 142.
 THE DISCLOSURE RULE
This rule has been popular in recent years and is found in many company ethics codes. The way it is stated
in IBM's Business Conduct Guidelines is, "Ask yourself: If the full glare of examination by associates,
friends, even family were to focus on your decision, would you remain comfortable with it? If you
think you would, it probably is the right decision."6
When faced with an ethical dilemma, a manager asks how it would feel to explain the decision to a
wide audience. Sometimes newspaper readers or television viewers are substituted for acquaintances as
the disclosure audience. One proponent of this ethic, Steven S. Reinemund, president and CEO of Pizza
Hut, Inc., says:
At Pizza Hut we try to apply the "Rose Bowl test": How would this marketing strategy be viewed, not in the
comfort of our internal meetings, but on the 50
yard line of the Rose Bowl before 100,000 people?7 \
This rule screens out base motivations such as greed and jealousy, which are unacceptable if disclosed,
but does not always provide strong guidance for ethical dilemmas in which strong arguments can be
made for several alternatives. Also, an action that sounds acceptable if disclosed may not, upon reflec-
tion, always be the most ethical.

THE DOCTRINE OF THE MEAN

This ethic, set forth by Aristotle in The Nicomachean Ethics and sometimes called the "golden mean," due to
subsequent but un-Aristotelian embellishment, calls for virtue through moderation. 8 Right actions are
located between extreme behaviors, which represent excess on the one hand and deficiency on the
other. When faced with a decision, a decision maker first identifies the ethical virtue involved (such as
truthfulness) and then seeks the mean or moderate course of action between an excess of that virtue
(boastfulness) and a deficiency of it (understatement). Likewise, according to Aristotle, modesty is
the mean between shyness and shamelessness. The doctrine of the mean is today little recognized and
mostly of historical interest, although the notion of moderation as a virtue lives on.
The doctrine of the mean is inexact. To observe it is simply to act conservatively, not extremely. The
moderate course and specific virtues such as honesty, however, are defined only in terms of what they
are not. What they are is open to differing interpretation.

THE GOLDEN RULE

An ideal found in the great religions, the Golden Rule has been a popular guide for ethical decisions for
centuries. Simply put, it is: "Do unto others as you would have them do unto you." It includes not
knowingly doing harm toothers. A manager trying to solve an ethical problem places himself or herself
in

'International Business Machines Corp., Business Conduct Guidelines, Armonk, New York: IBM, undated, p. 6 7Quoted in "Defining the Ethical
ChallengeA View from Above," in Theresa Brothers, ed., Corporate Efks Developing New Standards of Accountability, New York: the Conference
Board, 1991, p. 10. "The Nicomachean Ethics, trans. J. A. K. Thomson, New York: Penguin Books
the position of another party affected by the decision and tries to determine what action is most fair
to that person.
A problem with the Golden Rule is that people's ethical values differ, and they may mistakenly
assume that their preferences coincide with others'. It is primarily a perfectionist rule for
interpersonal relations. It is sometimes hard to apply in corporations where the interests of
individuals are subordinated to the needs of the firm and where competitive activities demand selfish
behavior. Marketing strategies, for example, do not treat competitors with kindness, but are based
on self-interest.

THE INTUITION ETHIC

This ethic, as defined by philosophers such as G. E. Moore in his Principia Ethica (1903), holds that
what is good is undefinable.9 Rather, it is simply understood. That is, people are endowed with a kind
of moral sense by which they can apprehend right and wrong. The solution to moral problems lies
simply in what you feel or understand to be right in a given situation. You have a "gut feeling" or "fly
by the seat of your pants."
This approach is subjective. No standard of validation outside the individual exists. Self-interest
may be confused with ethical insight. Worse, intuition may fail to give clear answers. It is
nevertheless correct that most managers rely on intuitive reasoning to resolve ethical dilemmas rather
than on principled reasoning, which requires a disciplined thought process and the application of
abstract principles.

THE MARKET ETHIC

This principle was sanctioned in the world of commerce by Adam Smith in his Wealth of Nations.
Implicit in Smith's description of a market economy is the idea that selfish actions in the
marketplace are virtuous because they contribute to efficient operation of the economy. This efficient
operation is in turn responsible for the higher goods of prosperity and optimum use of resources.
Decision makers may take selfish actions and be motivated by personal gain in their business
dealings. They should ask whether their actions in the market further financial self-interest. If so, the
actions are ethical.
This form of ethical guidance is applicable only in market situations. It is not useful in
interpersonal relations and therefore is not a universal principle. Also, there are areas of market
behavior where society has determined that the broad public interest is not furthered by selfish
market behavior. Antitrust statutes are a prime example of legislated ethics here.

THE ENDS-MEANS ETHIC

This principle is age-old, appearing as an ancient Roman proverb, existus acta probat, or "the result
validates the deeds."10 It is often associated with the Italian political philosopher Niccolo Machiavelli,
who wrote interpretive essays about Roman history. In The Prince (1513), Machiavelli argued that
worthwhile ends

9
G. E. Moore, Principia Ethica, New York: Cambridge University Press, 1948 (reprint). '"Eugene Ehrlich, Amo, Amas,
Amat and More, New York: Harper & Row, 1985, p. 123.
justify efficient means, that when ends are of overriding importance or virtue, unscrupulous means may
be employed to reach them.11 When confronted with a decision involving an ethically questionable course
of action, a decision maker should ask whether some overall goodsuch as the survival of a country or
businessjustifies corner cutting. This was the thinking of John D. Rockefeller during the period when
his Standard Oil trust carried out a triumphant strategy of horizontal integration at the refinery level,
choking competitors and requiring employees to undertake ruthless predations that surely chilled some
hearts. Late in his life, Rockefeller argued that only by smashing his competitors and controlling
refining capacity could he tidy up the oil industry and rescue it from the chaotic price fluctuations
that marked its infancy in the 1860s.12 He may have been correct.
By using unscrupulous means a manager concedes the highest virtue and accepts the necessity of
ethical compromise. But in solving ethical problems means may be as important or more important
than ends. For instance, employees subjected to hidden video surveillance in rest rooms will not
celebrate the manager who has thereby caught a drug user or petty thief. In addition, the process of
ethical character development can never be served by the use of expedient means.

THE MIGHT-EQUALS-RIGHT ETHIC

This ethic defines justice as the interest of the stronger. It is represented by Friedrich
Nietzsche's "master-morality," Marx's theories of the dominance of the ruling class, and in the
practiced ethics of drug cartels. The rationale for some competitive strategies and marketing tactics
shades into this thinking. What is ethical is what an individual or company has the strength and power
to accomplish. When faced with an ethical decision, individuals using this ethic seize what advantage they
are strong enough to take, without regard for lofty sentiments.
In the 1860s Ben Holladay, owner of the Overland Stage Line, perfected a competitive
strategy based on this thinking. He entered new routes with low-ball coach fares and subsidized his
stages with profits from monopoly service elsewhere until local competitors went bankrupt. In 1863 a
small stage line between Denver and Central City in Colorado, for example, was charging $6 per run.
Holladay put a lavish new-model stage, a Concord Coach with a leather interior, on the line and
charged only $2. The competing line soon folded, whereupon Holladay replaced the new Concord
Coach with primitive stages resembling freight wagons and raised the fare to $12.
The weakness of the might-equals-right ethic lies in its confusion of ethics with force or
physical power. Exerting such force or power is not the same as acting from ethical duty. An ethical
principle that can be invalidated by its foundation (e.g., physical force) is not a consistent, logical, or
valid principle. The might-equals-right ethic is not seen as legitimate in civilized settings. Its
observance invites retaliation and condemnation, and it is not to be used for
"Niccolo Machiavelli, The Prince, T. G. Bergin, trans. and ed., New York: Appleton-Century-Crofts, 1947. Written
in 1513 and first published in 1532.
12
Allan Nevins, Study in Power: John D. Rockefeller, vol. 2, New York: Charles Scribner's Sons, 1953, p. 433.

long-term advantage. Seizure by power violates established rules of cooperation and reciprocity on
which societies are based, and the social fabric would be torn apart by widespread use of this
principle. Holladay, incidentally, sold the Overland Stage Line to Wells, Fargo & Company in
1866 when he sensed that railroads were about to end the dominance of stages in transportation west
of the Mississippi. He started a railroad, which failed, and died an alcoholic in 1887.

THE ORGANIZATION ETHIC

Simply put, this principle is: "Be loyal to the organization." It helps organizations endure. Many
employees have a deep sense of loyalty to their organization that far transcends their self-interest.
We have seen people jeopardize their health and work excessively long hours without pay, contrary
to their selfish interests, because of their loyalty to their task and/or company. Similar personal
loyalties are found within organizations frombne individual to another such as the loyalty of a
subordinate to a supervisorwhen they are acting in official capacities.
In practice, the organization ethic implies that the wills and needs of individuals should be
subordinated to the greater good of the organization (be it church, state, corporation, university, or
military). An individual should ask whether actions are consistent with organizational goals and
do what is good for the organization.
The weakness of this principle is that service to the organization is a tempting way to rationalize
behavior that would be unethical for an individual. The Nuremberg trials, which tried Nazis for war
crimes, taught that Western society expects members of organizations to follow their conscience.
Just as no Nazi war criminal argued successfully that he was forced to follow an order in an
impersonal military chain of command, so no business manager may claim to be the helpless
prisoner of corporate loyalties that crush free will and justify unethical actions. Of course, the
greatest virtue may result when individuals are served by organizations rather than subservient to
them.

THE PRACTICAL IMPERATIVE

In addition to the categorical imperative, a second and related imperative or universal ethical
command suggested by Immanuel Kant in the Foundations of the Metaphysics of Morals is: "Act so
that you treat humanity, whether in your own person or in that of another, always as an end and
never as a means only." 13 Simply translated, this principle admonishes a manager to treat other
persons as ends in themselves and not means to ends or objects of manipulation. Each person, by his or
her very existence as a rational, thinking being, is entitled to be treated in this fashion. No person
should manipulate others for selfish ends. A manager may comply with this dictum by using the
"reversibility" test, asking if he or she would change places with the person affected by the
contemplated policy or action.
The practical imperative, like the categorical imperative, is an ideal often

"Foundations of the Metaphysics of Morals, trans. Beck, p. 54.

breached in practice. Generals send soldiers to die, and corporate presidents move managers away
from their families. In modern organizations people often deal with each other in terms of
representative roles rather than as individuals. Thus a plant manager may pressure and manipulate
corporate officials for a bigger capital expenditure budget without engaging the managers invoh ed as
individual personalities. A sales representative may self-interestedly maneuver a purchasing agent into
an order. Unless lying occurs, these actions are as ethically acceptable in American business culture as
they are unacceptable under the practical imperative.
THE PRINCIPLE OF EQUAL FREEDOM
This principle was set forth by the philosopher Herbert Spencer in his 1850 book Social
Statics. "Every man may claim the fullest liberty to exercise his faculties," said Spencer, "compatible
with the possession of like liberty by every other mam"14 Thus, a person has the right to freedom of
action unless such action deprives another person of a proper freedom. Spencer believed that this was
the first principle of ethical action in society. He thought it essential to protect individual liberty
from infringement by others; his deep faith that human progress was based on such free action was
unshakable.
In applying this principle, a decision maker asks if a contemplated action will restrict others from
actions that they have a legitimate right to undertake. This principle is still well known. One version is
"Your right to swing your fist ends where my nose beings."
A problem with this principle is that it does not provide a tie breaker for situations in
which two rights or interests conflict. Such situations require invocation of an additional principle to
decide which right or freedom is more important. Another difficulty is that some ethically
permissible management decisions may circumscribe the rights of some for the benefit of others.
For example, all employees have broad privacy rights, but management may abridge them when it
hires undercover detectives to investigate thefts.

THE PROPORTIONALITY ETHIC

Proportionality, a concept incubated in medieval Catholic theology, is an ethical doctrine
designed to evaluate actions which have both good and evil consequences. For example, the
manufacture of small-caliber, short-barreled, low-priced handguns which are irreverently called
Saturday Night Specials has a dual impact on society. It makes cheap, easily concealable weapons
available to criminals. But it also creates a supply of inexpensive self-defense weapons for poor
people in high-crime areas who cannot afford large-caliber, expensive handguns costing as much as
$500. In this and similar cases, where a manager's action results in an important good effect but also
entails an inevitable harmful effect, the concept of proportionality may be useful.
A classic formulation is that of Thomas M. Garrett, a Jesuit priest who wrote about business
ethics. Garrett developed a "principle of proportionality" which stated that managers are ethically
responsible for their actions in situations
14
Herbert Spencer, Social Statics, New York: Robert Schalkenbach Foundation, 1970 (reprint), p. 69.

where both good and evil effects might occur. They are ethically permitted to risk predictable, but
unwilled, negative impacts on people or society (for example, innocent people being shot by
handguns) if they carefully consider and balance five factors. First, according to Garrett, managers
must assess the type of good and evil involved, distinguishing between major and minor forms.
Second, they should calculate the urgency of the situation. For example, would the firm go out of
business unless stockholder dividends were cut? Third, they must assess the probability that both
good and evil effects will occur. If good effects are certain and risks of serious harm are small or
remote, the situation is favorable. Fourth, the intensity of influence over effects must be considered.
In assessing handgun injuries, for instance, manufacturers might assume that criminal action was an
intervening force over which they had little control. And finally, the availability of alternative
methods must be considered. If, for instance, an advertisement subtly encourages product misuse, a
more ethical action might be to change the ad. Garrett believed that an overall assessment which
took all these factors into consideration would bring out fully the ethical dimension in any decision.15
A simpler ethical principle derived from the concept of proportionality is the "principle of
double effect." It states that in a situation from which both good and evil consequences are bound
to result, a manager will act ethically if: (1) the good effects outweigh the evil, (2) the manager's
intention is to achieve the good effects, and (3) examination reveals that no better alternative is
available.
These are complex principles, involving a wide range of considerations. Their complexity is a
strength if it forces fuller consideration of relevant factors. But proportionality may be used
disingenuously to justify harmful acts. What kind of otherwise questionable acts, for instance, may a
failing firm take that are justified by the "proportionate reason" of the impending evil of
bankruptcy?

THE PROFESSIONAL ETHIC

In an age of specialization and education in complex skills, this ethic has gained importance. In simple
form, it holds that you should do only that which can be explained before a committee of your
peers.
This ethic is applied by doctors, engineers, architects, college professors, lawyers, and business
executives in resolving the special problems of their professions and fields of interest. It is similar to
and an application of the disclosure ethic discussed previously.
Professional people have strongly internalized ethical codes that guide their actions. Many of
these ethical standards are deep-seated. For instance, we are convinced that the high standards of
most engineers in the aerospace industry would prevent them from making a cheap lawn mower.
They are so used to working with exceedingly close tolerances and high quality that they could not
bring themselves to the task; the acceptance of lower standards would be morally repugnant to them.
The professional ethic is not a universal principle; it does not apply outside

15
Thomas M. Garrett, Business Ethics, New York: Appleton-Century-Crofts, 1966, p. 8.
of professional settings. In addition, most ethical problems in a profession can be resolved by reference
to more basic principles.

THE RIGHTS ETHIC

Rights protect people against abuses and entitle them to important liberties. A strong
philosophical movement defining natural rights, or rights that can be inferred by reason from the
study of human nature, grew in Enlightenment Western Europe as a reaction against medieval
religious persecutions. Over time many "natural" rights were given legal status and became legal
rights. Basic rights that are today widely accepted and protected include the right to life; personal
liberties such as expression, conscience, religious worship, and privacy; freedom from arbitrary, unjust
police actions or unequal application of laws; and political liberties such as voting or lobbying.
Rights imply duties. Because individuals have rights, many protected by law, other people have clear
duties to respect them. For example, management should not permit operation of an unsafe machine
because this would deprive workers of the right to a safe workplace. This right is based on the natural
right to protection from harm by negligent actions of others and is legally established in common law and
the Occupational Safety and Health Act. If some risk in operating a machine is unavoidable, workers
have the right to be given an accurate risk assessment.
Theories of rights have great importance in American ethical debates. A problem caused by
our reverence for rights is that they are sometimes wrongly expanded into selfish demands or
entitlements. Rights are not absolute and their limits may be hard to define. For example, every person
has a right to life, but industry daily exposes people to risk of death by releasing carcinogens into the
environment. An absolute right to life would require cessation of much manufacturing activity (for
example, petroleum refining). Rights, such as the right to life, are commonly abridged for compelling
reasons of benefit to the overall public welfare. In our society, however, protections for a wide spectrum
of rights are expanding.

THE THEORY OF JUSTICE

A theory of justice defines what individuals must do for the common good of society.
Maintaining the community is important because natural rights, such as the right to life, are reasonably
protected only in an orderly, civil society. A basic principle of justice, then, is to act for the common
good of the community.16 In broad terms this means acting fairly toward others. In business life the
principle of justice defines fair relationships in the work community.
In society, the nature of justice is determined by basic economic and political arrangements. The
design of institutions such as business corporations and political constitutions has a profound effect on
the well-being and life chances of individuals. A contemporary philosopher, John Rawls, has
developed an influential set of principles for a just society. In A Theory of Justice, Rawls speculated that
rational persons situated behind a hypothetical "veil of ignorance"

16
Mortimer Adler, Desires: Right and Wrong, New York: Macmillan Publishing Company, 1991, p. 61.
and not knowing their place in a society (i.e., their social status, class position, economic fortune,
intelligence, appearance, or the like) but knowing general facts about human society (such as
political, economic, sociological, and psychological theory) would deliberate and choose two rules
to ensure fairness in any society they created. First, "each person is to have an equal right to the
most extensive basic liberty compatible with a similar liberty for others," and second, "social and
economic inequalities are to be arranged so that they are both (a) reasonably expected to be to
everyone's advantage, and (b) attached to positions and offices open to all."17
The impartiality and equal treatment called for in Rawls's principles are
resplendent in theory and may even inspire some business decisions, but they
are best applied to the analysis of broad societal issues. Acting justly in busi
ness, on the other hand, is a matter of daily application of more concrete max
ims of fair treatment. Managers may find guidelines in three basic spheres of
justice. *
Distributive justice requires that the benefits and burdens of company life be distributed according
to impartial criteria. Awarding pay raises based on personal friendship rather than performance
criteria is unfair. All laws, rules, and administrative procedures should apply equally to each
employee. Retributive justice requires that punishments should be evenhanded and proportionate to
transgressions. A cashier should not be fired for stealing $5 if an executive who embezzled $10,000 is
allowed to remain on the job while paying it back. And compensatory justice requires fair
compensation to victims. A corporation that damages nearby property must restore it to its original
state; one that hurts a customer must pay damages. The general thrust of fairness in just action is
useful to maintain an orderly community or organization in which individuals secure rights and
meet needs.

THE UTILITARIAN ETHIC

The utilitarian ethic was developed between the late eighteenth century and the mid-nineteenth
century by a line of English philosophers including Jeremy Bentham and John Stuart Mill. The
principle of utility, on which this ethic is based, is that ^actions which promote happiness are right
and actions which cause unhappiness are wrong. The utilitarians advocated choosing alternatives
which led to the greatest sum of happiness or, as we express the thought today, "the greatest good for
the greatest number."
In making a decision using this principle, one must determine whether the harm in an action is
outweighed by the good. If the action maximizes benefit, then it is the optimum choice among other
alternatives that provide less benefit. Decision makers should try to maximize pleasure and reduce
pain, not simply for themselves but for everyone affected by their decision. Utilitarianism facilitates
the comparison of the ethical consequences of various alternatives in a decision. It is a popular
principle. Cost-benefit studies embody its logic and its spirit.
The major problem with utilitarianism is that in practice it has led to self-

17
John Rawls, A Theory of Justice, Cambridge, Mass.: Harvard University Press, 1971, pp. 60-71.
Do Men and Women Reason Differently
about Ethics?
Professor Lawrence J. Kohlberg of Harvard University
became famous for research showing that from
childhood on people pass through six stages of
moral development.24 These stages begin with utter
selfishness and rise to the use of ethical principles.
According to Kohlberg, not everyone gets to the
highest, or principled-reasoning, stagethe moral
development of most people is arrested at a middle
stage.
To create and test his theory, Kohlberg measured
changes over more than 20 years in the ethical
thinking of 84 boys. Others who built on his work
soon discovered that women, in particular, were
unlikely to get to the higher stages. What was the
reason? Were women less ethical than men?
Professor Carol Gilligan, a colleague of Kohlberg's at
Harvard, tried to answer these questions by studying
the moral thinking of 144 men and women ranging in
age from six to sixty.25
Gilligan learned that men and women approached
ethical reasoning from different perspectives. The
men in her studies grew to see themselves as
autonomous, separate individuals in a competitive,
hierarchical world of superior-subordinate
relationships. As a result, male ethical thinking
stressed protection of individual rights and en-
forcement of principled rules to channel and control
aggression. The women, on the other hand, tended
to see a world of relationships rather than
24
See, for example, Lawrence Kohlberg, "The Cognitive-
Development Approach to Moral Education," in Peter
Scharf, ed., Readings in Moral Education (Minneapolis:
Winston Press, 1978).
25
Carol Gilligan, In a Different Voice (Cambridge, MA:
Harvard University Press, 1982).
individuals, a world in which people were intercon-
nected in webs rather than arrayed in dominance
hierarchies. Women did not think using abstract
rules and principles that set sharp boundaries on
behavior; they focused on the importance of com-
passion, care, and responsibility in relations with
others. They were not ethically stunted; they just
thought differently than men.
Kohlberg built his stages on the way ethical rea-
soning developed in men. Gilligan's work, however,
indicated the existence of an equally valid but different
developmental process in women. Based on her
research, a care ethic exists; that is, a person should
have compassion for others, avoid hurt in
relationships, alleviate suffering, and respect the
dignity of others. The care ethic is violated in busi-
ness by, for example, cruelty toward subordinates,
exploitation of consumers, deceit in relationships,
or focus on individual performance that is indifferent
toward the welfare of co-workers.
If Gilligan is correct, men emphasize rules, indi-
vidual rights, and duties that can be fixed impar-
tially; women emphasize caring and accept an
intuitive emotional instinct as a valid criterion for
behavior. However, even if this marked contrast
exists, it seems to disappear in business. Studies of
managers, as opposed to studies of young adults and
students, fail to show gender differences in ethical
decision making.26
26
See James Weber and David Wasieleski, "Investigating
Influences on Managers' Moral Reasoning," Business 8
Society, March 2001; and Donald Robin and Laurie Babin,
"Making Sense of the Research on Gender and Ethics in
Business: A Critical Analysis and Extension," Business Ethics
Quarterly, October 1997.

is that actions that promote happiness are right and actions that cause unhappi-
ness are wrong. The utilitarians advocated choosing alternatives that led to the
greatest sum of happiness or, as we express the thought today, the greatest good
for the greatest number.
In making a decision using this principle, one must determine whether the
harm in an action is outweighed by the good. If the action maximizes benefit,
You are sailing to Rome (you tell me) to obtain the post
of Governor of Cnossus. You are not content to stay
at home with the honours you had before; you want
something on a larger scale, and more conspicuous.
But when did you ever undertake a
voyage for the purpose of reviewing your own prin-
ciples and geting rid of any of them that proved un-
sound?
Source: Epictetus, The Discourses (c. A.D. 120).

The use of ethical principles, as opposed to the intuitive use of ethical common sense, may
improve reasoning, especially in complex situations. Say a cashier pockets $20 from the register
at the end of the day. The person's supervisor strongly feels that stealing is wrong and fires the
cashier. Ethical common sense is all that is needed in this situation. But consider the following
situation.

Richard White, the night plant manager for Western Electroplating Company, recently revealed to
coworkers that he was proud to be a member of the Ku Klux Klan. Some of the employees on the night
shift have found it more difficult to cooperate with him and accept his authority since this disclosure.
White has tried to perform his job without confrontation, but a series of minor social abrasions have
occurred between him and other workers on the shift. Absenteeism has risen, the rejection rate on
completed jobs has increased by 5 percent, and there have been two minor injuries in the past month
traceable to inattentiveness of machine operators. Earl Mizushima, the assistant night manager, is popular
with the workers and well trained. He has hinted he is anxious for advancement. Should Richard White be
moved from his position?

An ethically insensitive manager might perceive this case solely as a problem of productivity, see
White as a drag on efficiency, and remove him from the position. But let us apply three
important ethical principles to the case: utilitarianism, rights, and justice.
From a utilitarian standpoint, management must calculate which course of action would result
in the greatest net benefit for the plant and all its workers. In this situation it might be
reasonable to decide that removing White would increase productivity and build morale among
many workers while hurting only one person, White.
From the standpoint of the rights ethic, however, employers must consider the idea that
employees have the right to freedom of conscience and political belief. In American society,
workers are free to hold unpopular political and philosophical views in their private lives.
Although White has brought his affiliation into the workplace by telling others about it, there is
no evidence that his personal opinions are part of his management style or that he has been
argumentative.
From the standpoint of justice, corporations are required to promote fair, evenhanded treatment
of employees. If management allows other workers to be Republicans, environmentalists, or
Muslims off the job, the same permission must be granted to White the Klansman.
Readers may make up their own minds about the case. If the productivity
problem is substantial, management must intervene. But when ethical concerns about employee
rights and equitable treatment are carefully weighed, management may consider alternatives to
removing White, including mediation by an ombudsman, counseling, or removing one or more
workers for insubordination to White. At some point, however, management may need to invoke the
utilitarian argument and remove White if his supervision becomes ineffective. The rights of one
individual cannot, in this instance, jeopardize the benefits many others derive from the company.
This case is one that might be discussed in a corporate ethics training session. The reasoning process
illustrates the application of three important and mutually reinforcing principles in a decision
technique that is popular in the literature of business ethics.22

WHY PRINCIPLES ARE NOT THE COMPLETE ANSWER

There are drawbacks to principled reasoning. As noted, specific principles have weaknesses. Some
are based on flawed thinking. There is no agreement as to which is best. And, as John Dewey
once wrote, they are "not a catalogue of acts nor a set of rules to be applied like drugstore
prescriptions or cookbook recipes."23 Their use demands interpretive thought. And such
thinking is learned only in the process of character development. Character development is a
source of ethical behavior separate from the use of principles. The theory that character
development rather than principled reasoning is the most effective source of ethical behavior might
be called the virtue ethic. It originates in Aristotle.
Aristotle wrote that moral virtue is the result of habit. 24 Ethical decisions by their nature require
choice, and we build virtue, or character, by habitually making ethical choices. Ethical choices are
those which accord with appropriate, natural human needs and do not give in to wrong desires for
false pleasures
Application of the virtue ethic requires conscious effort to develop a good disposition by making
right decisions over time. Actions are not judged by supreme rules such as the categorical
imperative or the principle of utility. Such overarching rules may apply poorly to the multitude of
specific, concrete situations they purport to judge. Rather, acts are judged by whether they rd\
the disposition of virtuous character, acquired by habitual use of common sense. An act
stemming from this character is ethical; an act which is out of character and unguided by correct
motives is unethical.
The attractive logic of the virtuous character does not require rejection oi ethical principles presented
earlier in the chapter. Virtuous individuals mi:

22
See, for example, Gerald F. Cavanagh, American Business Values, 3rd. ed., Englewood Cliffs, N.J.: Prenfo-Hi 1990, pp. 194-99. Cavanagh also
describes a "second-generation" decision technique that incorporates market values (pp. 202-5). For differing decision models see Joseph L.
Badaracco, Jr., "Business Ethics: FourSpheresoi Executive Responsibility," California Management Review, Spring 1992; and Verne E. Henderson,
What's E/fo/a Business? New York: McGraw-Hill, 1992, chap. 2. For descriptive (as opposed to normative) models see Thorn Jones, "Ethical
Decision Making by Individuals in Organizations: An Issue-Contingent Model," Academy of Man- j agement Review, April 1991; David J.
Fritzsche, "A Model of Decision-Making Incorporating Ethical Values," Journal of Business Ethics, November 1991; and Kelly C. Strong and G.
Dale Meyer, "An Integrative Descriptm j Model of Ethical Decision Making," Journal of Business Ethics, February 1992. 23John Dewey,
Reconstruction in Philosophy, New York: Henry Holt and Company, 1920, pp. 169-70. 24The Nichomachean Ethics, p. 91.
be more sophisticated in their principled reasoning than less virtuous individuals who have less
insight about principles or situations.

PRACTICAL SUGGESTIONS
FOR MAKING ETHICAL DECISIONS

Individuals in business can take a number of steps to see and resolve ethical problems.
First, learn to think in principled terms, and use concepts like universaliza- bility, reversibility,
utility,. equIfyTarTd" other ethical guidelines suggested by the list of principles earlier in this
chapter. These principles are powerful decision criteria that enhance the capacity to discover or
create ethical alternatives. Use a principle that is meaningful to you. As the famous
anthropologist Sir James Frazer remarked: "Once the harbor lights have been passed and the
ship is out of stormy waters, it matters little whether the pilot steered by a jack-o-lantern or the
stars."
Second, consider some decjstiojljacjics that illuminatejnpral choices. The ethical philosopher
Bertrand Russell advocated imaginary conversations with a hypothetical opponent as an
antidote for certitude. Have a conversation or debate with an intelligent person who takes a
different view. Seek out a more experienced, ethically sensitive person in the organization to be
your adviser. This variant of a mentor relationship is of great value in revealing the ethical
climate of your company and industry. Alternatively, write an essay in favor of a position and
then a second opposed to it. Write a case study in the third person about your situation. Try to
apply ethical principles in answer to questions raised by the case.
More than 200 years ago, a balance sheet of pros and cons was proposed as an approach to
decision making by Benjamin Franklin. Since that time numerous decision makers have used a
balance sheet approach. Richard Nixon, as President, was fond of writing down pros and cons
in columns on a yellow legal pad and then crossing out roughly equal considerations until a
preponderance was left on one side or the other.
The balance sheet has advantages. First, it organizes information. Studies have shown that the
human brain can grapple with only between five and nine bits of information simultaneously.
Because many decisions, including moral ones, involve more considerations than this, a balance
sheet may prevent chaotic thinking. Second, the use of such a procedure forces decision makers
to make entries in a number of relevant categories, and new or unconscious con siderations may
be brought to light.
Another useful method of applying principles is to draw them out in the form of questions a
manager might ask when contemplating a decision. This is known as the "critical questions
approach." John Leys surveyed the systems of the great philosophers and derived thirty-six
critical questions for the decision maker.25 The following are a few examples: What are the
authoritative rules and precedents, the agreements, and accepted practices? If there is a con-

25
In Ethics for Policy Decisions, Englewood Cliffs, N.J.: Prentice-Hall, 1952.
flict of principles, can you find a more abstract statement, a "third principle," that will reconcile the
conflicting principles? What is not within our power? What are the undesirable extremes in
human dispositions? A shorter set of leading questions by ethics consultant Laura Nash is
designed to avoid the abstract level of reasoning characteristic of broad principles. This list is shown
in Table 8-1.
Third, sort out ethical priorities before prqblgrns^jrise. If you do, you will get the benefit of
considering alternatives when you are not under stress. Clear ethics reduce stress by reducing
temptation, deflating conscience as a source of anxiety, and eliminating conflicts of interest in your
decisions. When doing the ethical thing is not the most profitable financially, for instance, it helps to
decide in advance that you will put ethics before tainted profits.
Fourth, commit yourself publicly on ethical issues. Examine your work environment, and locate
potential ethical conflicts. Then tell others of your opposition to padding expense accounts,
stealing supplies from the company, discriminating against minorities, price fixing, or harming
nature. They will be less tempted to approach you with corrupt intentions, and your public com-
mitment will force you to maintain your integrity or risk shame.
Fifth, set a ^good personal example^ for employees. This is one of the basic managerial functions. An
ethical manager can create a morally uplifting work environment. An unethical manager may make
money, but he or she and the organization pay the priceand the price is one's integrity.
Employees who see unethical competitive behavior, for instance, may wonder when their superiors
will turn on them.

TABLE 8-1 TWELVE QUESTIONS FOR EXAMINING THE ETHICS OF A BUSINESS DECISION

1. Have you defined the problem accurately?

2. How would you define the problem if you stood on the other side of the fence?
3. How did this situation occur in the first place?
4. To whom and to what do you give your loyalty as a person and as a member of the
corporation?
5. What is your intention in making this decision?
6 How does this intention compare with the probable results?
7. Whom could your decision or action injure?
8. Can you discuss the problem with the affected parties before you make your decision?
9. Are you confident that your position will be as valid over a long period of time as it seems
now?
10. Could you disclose without qualm your decision or action to your boss, your CEO, the board
of directors, your family, society as a whole?
11. What is the symbolic potential of your action if understood? If misunderstood?
12. Under what conditions would you allow exceptions to your stand?

Source: Reprinted by permission of Harvard Business Review. An exhibit from "Ethics without the Sermon" bv
Laura L. Nash, vol. 59, no. 6 (November/December 1981). Copyright 1981 by the President and Fellows of
Harvard College; all rights reserved.
Sixth, note and resist the ethical temptations to which you are most prone. Aristotle advised:
We must notice the errors into which we ourselves are liable to fall (because we all have different
natural tendencieswe shall find out what ours are from the pleasure and pain that they give us),
and we must drag ourselves in the contrary direction; for we shall arrive at the mean by pressing
well away from our failingjust like somebody straightening a warped piece of wood.26

Hence, examine your personal traits. Are you marked by greed, prejudice, sadism, cowardice?
Work to overcome these, just as the ancient Greeks worked to develop character. Ethical
behavior is conditioned by practice.
Seventh, cultivate sympathy and charity toward others. The question "What is ethical?" is one
on which well-intentioned people may differ. Marcus Aurelius wrote: "When thou art offended
at any man's fault, forthwith turn to thyself and reflect in what like manner thou dost err
thyself; for example, in thinking that money is a good thing, or pleasure, or a bit of reputation,
and the like."27 Reasonable managers differ with respect to the Tightness of factory closings, genetic
testing of workers, leveraged buyouts, and other nettlesome ethical questions. We should neither
be overly indulgent nor wholly unforgiving because of pride in high standards.
Eighth, translate your thoughts into actiondisplay courage. Knowing and doing are
different. It is often easier to reach an ethical judgment than to act on it. When you are sure
that you are right, you may be called upon to risk revenue or jeopardize your job.
Finally, remember that ethical perfection is illusory. We live in a baffling civilization with a
profusion of rules, obligations, and duties. No manager can resolve all the conflicts that arise.
There is an old story, perhaps apocryphal, about the inauguration of James Canfield as president
of Ohio State University. With him on the inaugural platform was Charles W. Eliot, president of
Harvard University for twenty years and a senior statesman in the ranks of academic
leadership. After receiving the mace of office Canfield sat next to Eliot, who leaned over and
whispered, "Now son, you are president, and your faculty will call you a liar." "Surely," said
Canfield, "your faculty have not accused you of lying, Dr. Eliot." Replied Eliot, "Not only that,
son, they've proved it!"

WHY ETHICAL DECISIONS ARE DIFFICULT

Why are ethical problems refractory even in the presence of principles and methods to guide
resolution? In this section we list ten reasons.
First, managers confront a distinction between facts and values when making ethical decisions.
Facts are statements about what is, and we can observe and confirm them. Ethical values, on the
other hand, are statements about what ought to be and are held by individuals independently of
facts. For example, several years ago Burroughs Wellcome Co., a British firm, was accused of
over-

26
The Nichomachean Ethics, p. 109.
27
Tti Meditations of Marcus Aurelius Antoninus, trans. George Long, Danbury, Conn.: Groiier Enterprises, 1980, p.
281. Originally published circa A.D. 180.
charging for azidothymidine (AZT), the drug that slows replication of the AIDS virus. A capsule that
cost $0.30 to manufacture had a retail price of $1.60 to $1.80. For AIDS victims the annual cost
was $10,000. AZT was expensive to research and develop and the company felt a high price was
justified. Was Burroughs Wellcome exploiting desperate AIDS patients, or was it entitled to retrieve
AZT's high cost of research and development and earn a profit above that? Facts, such as prices, do
not logically dictate values about what is ethical in such a situation. What is never defines what ought
to be. Pressure from gay activists led to two price cuts. But yielding to political force does not
answer the question "What ought to be?" either.
Second, it is often the case that good and evil exist simultaneously, in tandem and interlocked. Nestle's
sales of infant formula in countries such as Kenya and Zambia have led to infant deaths as mothers
mixed the powdered food with contaminated local water and their babies died of dysentery. But
evidence also shows that sales of formula have led to the saving of other infants' lives when the
mother is not available, the infant will not breast-feed, or dietary supplementation is indicated. Evil
should be minimized, but in some cases it cannot be eliminated.
Third, knowledge of consequences is limited. Many ethical theories, for instance the utilitarian theory
of the greatest good for the greatest number, assume that the consequences of a decision are
knowable. But the impact of business policy is uncertain in a complex world. In 1977, for example,
General Motors substituted Chevrolet engines in Pontiacs, Oldsmobiles, and Buicks, with a policy
that extended an old industry practice of parts switching to entire engines. The intention of the policy
was to achieve the salutary effect of makine more large block engines available over a wider range of
automobiles to satbt. consumer demand. Unpredictably (for General Motors), consumers looked
on the engine switching as an attempt to manipulate buyers and rob owner' of statusan ethical
implication perhaps entirely at odds with corporate motivations.
Fourth, the existence of multiple stakeholder groups exposes managers to competing and
conflicting ethical claims. To illustrate, tobacco firms are in a crossfire of competing ethical claims.
Customers assert their right to smoke and demand cigarettes. Tobacco farmers, representing over
275,000 farming families, give ethical priority to maintenance of the tobacco economy in southern
states. Stockholders urge the priority of profits. Many third-world governments encourage imports and
sales of tobacco products; they provide sorely needed economic benefits. On the other hand, the
Surgeon General's office and doctors condemn smoking for harming health. Feminist and minority
groups condemn advertising that targets women and minorities. Public interest groups condemn
advertising which appeals to children. Of course, companies in other industries also see conflicting
stakeholder values.
Fifth, antagonistic interests frequently use incompatible ethical arguments to justify their intentions.
Thus, the ethical stand of a corporation is often based on entirely different premises from the
ethical stand of critics or constituent groups. Many members of the Animal Liberation Front believe
that animalsare entitled to rights similar to those enjoyed by humans, including the right to life.
The group raided a northern California turkey farm, causing $12,000 in damage and freeing about
100 turkeys, which were taken to "safe homes." Later, members broke into a Delaware poultry
farm, taking twenty-five hens and drawing an analogy between Nazi death camps and factory
farms in the scrawled message they left behind: "ANIMAL AUSCHWITZ." Poultry growers, on
the other hand, accept the utilitarian argument that raising food animals brings benefits to
society greater than the harm of animal suffering. A publicist for the industry stated that the
group's viewpoint was "an insult to victims of the Holocaust."28
Sixth, some ethical standards are variable; they may change with time and place. In the
1950s, American corporations overseas routinely made payoffs to foreign officials, but managers
had to curtail this practice after public expectations changed and a new law, the Foreign Corrupt
Practices Act of 1977, prohibited most such expenditures. Certain bribes and payments are
accepted practice in Asian, African, and Latin American countries but are not regarded as
ethical in the United States. Doing business with close friends and family is standard practice in
the Arab world, but in the United States or Western Europe the same actions are often regarded as
a conflict of interest.
Seventh, ethical behavior is molded from the clay of human imperfection. Even well-
intentioned managers may be mistaken in their judgment or motivation. Dennis Levine was an
ambitious Wall Street executive who worked hard. He rose from humble origins to make over
$1 million a year honestly at Drexel Burnham Lambert. Yet for seven years he also traded on
insider information through a bank account in Switzerland. He was prosecuted and jailed. He
had never intended to be a criminal, but temptation gradually eroded his honesty. "My ambition
was so strong," he later wrote, "that it went beyond rationality, and I gradually lost sight of what
constitutes ethical behavior."29
Eighth, existing ethical standards and principles are not always adequate to resolve conflicts.
For example, a person and a corporation should obey the law. But American corporations
operating in the legal structure of racial separation in South Africa have faced a dilemma. They
have been asked to obey South African laws, but in the process had to violate standards of
equality in the United Nations "Universal Declaration of Human Rights," and the spirit of
American civil rights laws. It is always difficult to resolve such conflicts.
Ninth, the late-twentieth century presents managers with newly emerged ethical problems
that are not solved easily with traditional ethical guidelines. For example, modern ethical theory
has not yet developed an adequate principle for weighing human life against economic factors
in a decision. Cancer studies may predict that workers exposed to chemicals will become ill in
small numbers far in the future. How should this information be balanced against costs of
regulation, capital investment reduction, or job loss? Other examples of tough new ethical
problems exist. By using a gas chromatograph to chemically analyze a perfume's ingredients,
entrepreneurs are now been able to make nearly exact copies of expensive designer perfumes such
as Ralph Lauren's Polo and Calvin Klein's Obsession. Because a scent cannot be trademarked
like a brand name, the imitations are legal and can be sold cheaply enough to un-
28
Quoted in Kevin Thompson, "Meat Is Murder?" Meat and Poultry, September 1987, p. 39. 29Dennis Levine, "The Inside
Story of an Inside Trader," Fortune, May 21, 1990, p. 82.
dercut the established brand and piggyback on the expensive advertising thai built the foundation of
its popularity. Of course, product imitation is an ancient problem. But here the technology has
outraced legal remedy and ethical consensus.
Finally, growth of large-scale organizations in the twentieth century gives new significance to ethical
problems such as committee decision making that masks individual responsibility, organizational
loyalty versus loyalty to the public interest, and preferential hiring of affirmative action candidates.
These are ethical complexities peculiar to large organizations.

CONCLUDING COMMENT
i

There are many paths to ethical behavior. Not all managers may appreciate the repertoire of principles and
ideas available to help resolve problems of business ethics. By studying the principles and guidelines
presented here, a person can become more sensitive to the presence of ethical issues and more resolute in
correcting deficiencies. In addition, these principles and guidelines are applicable to ethical issues that arise
in the case studies in this book. We encourage students to refer to this chapter for conceptual tools