ETHICAL DECISION MAKING

Introduction:
Decisions play an important role in business. Apart from pure business or economic
decisions, ethical decisions are assuming a greater role in modern days. Ethics is one
mode of decision making in the corporate environment.

Why ethics in business decisions?

The Institute for Business, Technology and Ethics has suggested the following "Nine
good reasons" to operate a business ethically.
(1) Avoidance of litigation.
(2) Regulatory freedom.
(3) Public acceptance.
(4) Investor confidence.
(5) Trust from suppliers and partners.
(6) Customer loyalty.
(7) Employee performance.
(8) Personal pride.
(9) It is right.

Most of the modern theories of economics and ethics encourage ethical behaviour in
business. The real costs of unethical behaviour are greater than the ethical behaviour.
Economists Dwight Lee and Richard McKenzie argue that, "an economy in which people
deal with each other honestly produces more wealth than one in which people are
chronically dishonest because more exchanges occur directing resources into their most
productive employments".

In other words, when truth is broken all things will remain doubtful.
The decisions are based on perception. Perception is a process by which individuals
interpret their sensory impressions and find a meaning to the environment. In fact, the
behaviour of the people is based on their perception.

Factors influencing perception:

The following factors influence the perception of an individual:
(a) Attitudes
(b) Motives
(c) Interests
(d) Experiences
(e) Expectations
(f) Time
(g) Social setting
(h) Novelty
(i) Motion
(j) Sounds
(k) Size
(I) Similarities

Some negative factors influence the perception in a negative way.

(a) Halo effect:
This refers to the general impression from one single characteristic feature. For example
one may get a general feeling that a candidate coming from a rural background is not
efficient.
(b) Self-serving bias:
One may be biased in such a way that he may believe that any success is due to his
efforts and any failure is done by others.

Eight steps in ethical decision making:

(1) Collection of facts:
Collecting all the relevant facts and figures is the foremost step in ethical decision
making. It is a difficult exercise but it has to be done in order to get all the inputs.
(2) Defining ethical issues:
In any problem, there are many issues. But we are going to concentrate only on ethical
issues. Hence we have to identify the ethical issues involved in a problem.

(3) Affected parties:

It is necessary to identify, the affected parties. Some may be positively benefited and
others negatively affected. Some may be directly affected and some others indirectly
affected.
(4) Identification of consequences:
Both the short-term and long-term effects of the decision have to be analysed. To make
this job effective, consultations with other colleagues can be useful. The consequences
have to be analysed with a foresight and a proper perspective.

(5) Identification of obligations:

While executing ethical decisions, the managers have to make certain obligations. These
obligations have to be really carried out. Promise keeping and trust are important values
in human relationship with reference to any organisation.

(6) Character of manager:

The decision making manager should look into his past achievements, mental and ethical
strength and also future prospects. Ethical decisions are implemented based on the moral
strength of the manager. Hence only those decisions which can be implemented to be
taken.
A decision making manager should not regret for a decision taken in a future period.

(7) Creative thinking:

On ethical decisions, creative thinking is necessary. There are many ways of handling
unethical issues. Extreme steps like dismissal and punishment are bad. We should find
out the reasons for unethical behaviour. Later on, we can find out the eradication of
unethical practices. Good counseling of employees can prevent them from all
malpractices.
There are different solutions for any ethical issue.
Let us take the case of an expensive gift given to an executive by a foreign supplier.
There are three options available.
 The first option is to accept the gift which is against the policy of the company. It
is unethical and unfair to accept a gift for an economic transaction.
 The second option is to flatly refuse the gift. But it is like a slap in the face of
supplier. It is against human courtesy. This option is not good for the company in
the long-run.
 The third option is to accept the gift as a gift to the company to be displayed at
headquarters.
This is the best ethical solution for this situation.

(8) Gut of the managers:

The intuition makes a decision and the gut of the manager executes the decision.
Managers have to develop intuition and guts.

Inputs for decision making model:

(1) Problem clarity
(2) Known options
(3) Clear preferences
(4) Constant preferences
(5) No time or cost constraints
(6) Maximum pay offs

Methods of ethical decision making in organisations:

(1) Bounded rationality:
In this method, decisions are taken on the basis of some simplified models based on
rational thinking. A few variables are taken into account for making ethical decisions.
(2) Intuitive decision making:
Many decisions in general and ethical decisions in particular are taken by unconscious
process - this concept is called intuition.

(3) Heuristics:
Heuristics refers to shortcuts in decision making. Sometimes decisions are based on
information available. Based on the information available decisions are taken. Some
other times, analogies are drawn and decisions are taken. We try to see identical situation.
It should be noted that heuristics is not the effective method of ethical decision making.

(4) Escalation of commitment:

Increased commitment to previous decisions helps us to make an ethical decision based
on the previous commitment.

Constraints in ethical decision making:

1) Performance evaluation:
Performance evaluation is not giving adequate importance to ethical practices. 'Perform
and perish' is the only maxim of performance evaluation.

2) Reward systems:
The existing reward systems are not giving importance to intangible ethical practices.
The reward systems focus only on tangible achievements.

3) Formal rules and regulations:

The formal rules are not framed recently. These rules are copied from other offices or
organisations. These rules do not have a provision for ethical practices.

4) Time constraint:
In a fast moving world it is difficult to introduce ethical decisions because people are not
able to wait.
5) No historical precedence:
These is no precedence based on ethical values. Most of the decisions are taken from a
practical platform.

6) Cultural differences:
There are different ethical practices in different cultural environments. Relativism is
playing an important role in ethical management.

Criteria of good ethical decisions:

(1) Utilitarianism: Seeking the greatest good for the greatest number.
(2) Rights: Protecting the basic rights of individuals.
(3) Justice: Imposing and enforcing rules in an impartial way.

In fact, many ethical decisions are being taken according to the local cultural norms.
Creative ethical decisions are far superior than the ordinary decisions. Preparation,
concentration, incubation, illumination and verification are the important stages of
creative ethical decisions.

Why decisions fail?

(1) Copying of other decisions.
(2) The decision may be good but difficult for implementation.
(3) Not effective participation by all.
(4) There are cultural differences in making and implementing ethical decisions. For
example, the Americans are faster in implementation of ethical decisions whereas Indians
are slow in making and implementing decisions.

Check list of making ethical decisions:

Is it legal?
Is it right to all?
How willi feel about my decision after some period of time?
What will be the impact of the decision?
Integrating ethical decision making into the firm:
(1) Developing a code of ethics and following it.
(2) Establishing a procedure for reporting violations.
(3) Involving employees in identifying ethical issues.
(4) Monitoring ethical performance.
(5) Rewarding ethical behaviour.
(6) Publicity to ethical efforts.
(7) Analysing the various values involved such as honesty and good conduct.
(8) Discussion with legal experts.

Questions
Section 'A'
(1) What is an ethical decision? (2) Define perception.
(3) What is Halo effect? (4) What is creative thinking?
(5) What is bounded rationality? (6) Define heuristics.
(7) What is escalation of commitment? (8) Define utilitarianism.
Section 'B'
1) Discussthe need for ethics in business decisions?
2) Examine the factors influencing perception.
3) Describe the various steps in ethical decision making.
4) What are the inputs for decision making model?
5) Discussthe methods of ethical decision making in organisations.
6) What are the constraints in ethical decision making?
7) What are the criteria of good ethical decisions?
8) Why ethical decisions fail?
9) How ethical decision making can be integrated into the firm?
Section 'e'
1) Examine the need, steps and methods of ethical decision making in business.
2) All companies want good ethical decisions. But there are constraints and failures.
Examine the constraints and failures.