CHAPTER 4 - PRACTICAL ETHICAL DECISION MAKING

Outline

Introduction – Corporate and professional codes of conduct is the 1st resource

for guidance when a businessperson or a professional accountant faces an
ethical problem
I. Motivating Developments
A. Widespread governance reform bought about by the collapse of capital
markets and Sarbanes Oxley Act of 2002
B. Business Schools required to incorporate ethics education into their
policies, practices, & curricula
C. The AACSB Ethics Education taskforce has called for business students
to be familiar with the Consequentialism, deontology, and virtue ethics
D. No longer for the decisions just to be legal but must also be ethically
defensible
II. Ethical Decision-Making Framework (EDM)
A. Incorporates traditional requirements for profitability and legality, as
well as requirements shown to be philosophically important and those
recently demanded by stakeholders
B. Designed to enhance ethical reasoning by providing
1. Insights into the identification into the identification and analysis of
key issues to be considered and questions or challenges to be
raised
2. Approaches to combining and applying decision-relevant factors
into practical action
C. Decision or action is considered ethical or right if It confirms to certain
standards.
D. The EDM Framework assesses the ethicality of a decision or action by
examining the:
1. Consequences or well-offness created in terms of net benefit or cost
2. Rights and duties affected
3. Fairness involved
4. Motivation or virtues expected
III. Philosophical Approaches – An Overview
IV. Consequentialism, Utilitarianism, or Teology
A. emphasizes the consequences of actions
B. intent on maximizing the utility produced by a deicion
C. rightness of an act depends on its consquences
V. Deontology
A. focus on the obligations or duties motivating a decision or actions
rather than on the consequences of the action
B. rightness depends on the respect shown for duty, and the rights and
fairness that those duties reflect
C. largely based on the thinking of Immanuel Kant (1964)
D. The Golden Rule
VI. Virtue Ethics
 A. concerned with the motivating aspects of moral character
demonstrated by decision makers
B. focuses on the character or integrity of the moral actor and looks to
moral communities, such as professional communities, to help identify
ethical issues and guide ethical action
Virtues need to be cultivated over time so that they become imbedded
and are therefore a consistent reference point
C. Virtues is a character trait that disposes a person to act ethically and
thereby make that person a morally good human being.
D. Criticisms
1. has to do with the process of decision making incorporating moral
sensitivity, perception, imagination, and judgment, and some claim
that this does not lead to easily useful EDM principles
2. Interpretation of a virtue and “what is justifiable or right” is culture-
sensitive
3. One’s perception of what is right is to some degree influenced by
ego or self-interest
VII. Sniff Test & Common Rules of Thumb – Preliminary Tests of the Ethicality
of a Decision
A. Rarely, by itself, represent a comprehensive examination of the
decision
B. If any negatives, back up w/ the stakeholder impact analysis
VIII. Stakeholder Impact Analysis – Comprehensive Tool for Assessing
Decisions and Actions
A. Overview
B. Fundamental Interests of Stakeholders - Taking concerns or interests of
stakeholders into account when making decisions in order to maintain
their support
1. The decision should not offend the rights of any other stakeholders
2. interest(s) should be better off as a result of the decision
3. The decision should result in a fair distribution of benefits and
burdens
4. The resulting behavior should demonstrate duties owed as
virtuously as expected
C. Measurement of Quantifiable Impacts
1. Externalities
a. cost that can be measured indirectly by using costs incurred in
similar circumstances or mirror image alternatives.
b. costs of environmental clean-ups absorbed by downstream
individuals, companies, or municipalities
2. The most common measure of shareholder well-being is profit or
loss
D. Assessment of Nonquantifiable Impacts
1. Stakeholder Rights
a. Life, health, & safety
b. Fair Treatment
 c. Exercise of conscience
d. Dignity & privacy
e. Freedom of speech
2. Expected values are the combinations of a value and the probability
of its occurrence.
E. Stakeholder Impact Analysis: Traditional Decision-Making Approaches
F. Traditional 5-Question Approach
1. Is it profitable? Is it right? Is it fair?
2. Is it legal? Is it going to further sustainable development?
G. Tradition Moral Standards Approach
1. Made up of three standards
a. Utilitarian
b. Individual rights
c. Justice
H. Traditional Pastin Approach
1. Examines four key aspects of ethics
a. Ground rule ethics – to illuminate an organization’s and/or an
individual’s rules and values
b. End-point ethics – to determine the greatest net good for all
concerned
c. Rule ethics – to determine what boundaries a person or
organization should take into account according to ethical
principles
d. Social contract ethics – to determine how to move the
boundaries to remove concerns or conflicts
2. Pastin added these to the stakeholder impact analysis
I. Extending & Blending the Traditional Approaches
IX. Integrating Philosophical & Stakeholder Impact Analysis Approaches
X. Modifying the Traditional Stakeholder Impact Analysis Approaches:
Assessing Motivation, Expected Virtues, & Character Traits
A. Why Consider Motivation and Behavioral Expectations?
B. Ethical Assessment of Motivation & Behavior
XI. Other Ethical Decision-Making Issues
A. Common Problems
1. Lack of awareness of these problems results in executives not
attributing enough value to the use of an environmental resource
B. Developing a More Ethical Action
C. Common Ethical Decision Making Pitfalls
1. Conforming to an unethical corporate culture
2. Misinterpreting public expectations
3. Focusing on short-term profit and shareholder only impacts
4. Focusing only on legalities
5. Limits to fairness
6. Limits to rights canvassed
7. Conflicts of interest
8. Interconnectedness of stakeholders
 9. Failure to identify all stakeholder groups
10. Failure to rank the specific interests of stakeholders
11. Leaving out well-offness, fairness, or rights
12. Failure to consider the motivation for the decision
13. Failure to consider the virtues that are expected to be
demonstrated
XII. A Comprehensive Ethical Decision-Making Framework
A. Summary of Steps for an Ethical Decision
1. Identify the facts and all stakeholders
2. Rank the stakeholders and their interests,
3. Assess the impact of the proposed action

Conclusion