Why good managers make bad ethical choices?
Chapter – 1
Introduction
Incorporating values and ethics into Business decisions have become
increasingly important. Business schools are ensuring that students
graduate with a knowledge of ethical principles and the critical thinking
skills necessary to analyze and make sound ethical decisions.
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Why good managers make bad ethical choices?
Chapter – 2
Business Ethics
Society generally feels that there are certain values that should be set as
the minimum ethical behavior. To meet the minimum ethical standards, a
business must be honest, obey the law, and not directly infringe on the
rights that our society holds as inalienable human rights. Some of the
Ethical issues involve compensation of employees, job security for
employees, hiring practices, waste management issues, pollution, and
conflicts of interest.
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Why good managers make bad ethical choices?
Chapter – 3
Morality & Profitability
Morality means Moral Discipline – Concerned with principles of right and
wrong or conforming to standards of behavior & character aligned with
the principles of right and wrong Profitability - generally is the making of
gain in business activity for the benefit of the owners of the business
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Why good managers make bad ethical choices?
Chapter – 3.1
Role of morality & profitability
We are in the business of preserving & improving human life. All of our
actions must be measured by our success in achieving this goal – MERCK
& COMPANY
Putting profits after people & products was magical at Ford – Don
Petersen, Former CEO, Ford, 1994
Sequence of three P’s – People, products and profits – in this order – Don
Petersen, CEO, Ford.
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Why good managers make bad ethical choices?
Chapter – 4
Ethical Profitability
The balance between profits and ethics is term as “Ethical Profitability”.
Example: Enron Fallout
Many investors are paying closer attention to a company's ethics, as well
as their profits. These investors realize that a corporate focus on profits
alone—with little regard to ethical standards, conduct and enforcement—
may result in short-term revenue gain, but long-term profitability may be
limited.
In cases like Enron, long-term viability is limited too.
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Why good managers make bad ethical choices?
Chapter – 5
5 Key areas of ethical profitability
Ethical Profitability Well-balanced companies not only consistently
reward owners, investors and employees with profitable performance;
they also genuinely focus on these five key areas:
1. Leadership by example:
To manage well is to lead employees effectively, ethically and without
arrogance. Company owners, executives and managers must set the
highest examples of attitude and conduct for their employees.
2. Company-wide ethical awareness:
Employee when not at work, practice personal ethics in areas such as
caring for others, being kind and honest, and not harming others. Do
these same people, when they arrive at work, maintain their personal
guidelines? In-the-office ethical behavior includes demonstrating
trustworthiness to managers and coworkers, respecting privacy and
avoiding conflicts of interest. Ethics knows no time clock.
3. Strong management of revenue generation and reporting :
Corporate temptation to stretch ethical behavior in revenue generation
and reporting is universal. To overcome these temptations, revenue-
related managers must establish and maintain a firm stance on ethical
marketing, advertising, selling and reporting. This requires regular
dissemination and enforcement of codes of conduct.
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Why good managers make bad ethical choices?
4. High level of internal trust:
The level of trust within a company should reflect the level of trust the
company solicits from customers. If customers are encouraged to put their
complete trust in the product or service, then company teams must do the
same with each other. An increase in trust is a reduction in risk and
uncertainty, which in turn will keep the revenue generation process
flowing smoothly.
5. Formal and active compliance program:
An organizational ethics doctrine does have legal benefits. Properly
written, published and disseminated ethical codes will reduce corporate
risk if an employee creates a criminal or civil problem because of poor
ethical behavior. The true test of ethical profitability is whether or not the
company is a positive example to its employees, to its customers and
even to other companies. Such companies practice the truest form of
leadership-by-example. They reach for a higher bar
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Why good managers make bad ethical choices?
Chapter – Seven
Business Ethics
Business ethics defined as written and unwritten codes of principles and
values that govern decisions and actions within a company.
Business ethics can be used to describe the actions of individuals within
an organization, as well as the organization as a whole.
The organization’s culture sets standards for determining the difference
between good and bad decision making and behavior.
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Why good managers make bad ethical choices?
Chapter – Eight
Importance of Ethical Business Decisions
Co. who wishes to thrive long-term must adopt sound ethical
decision-making practices.
Co. who behaves in a socially responsible manner is much more
likely to enjoy ultimate success than those whose actions are
motivated solely by profits.
Co. knowing the difference between right and wrong and choosing
what is right is the foundation for ethical decision making.
Doing the right thing often leads to the greatest financial, social,
and personal rewards in the long run.
Factors Impacting Business Ethics
Corporate culture
Existence and application of a written code of ethics
Formal and informal policies and rules
Norms for acceptable behavior
Financial reward system
System for recognizing accomplishment
Company attitude toward employees
How employees are selected for promotions
Hiring practices
Applications of legal behavior
Degree to which professionalism is emphasized
The company’s decision making processes
Behaviors and attitudes of the organization’s leaders
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Why good managers make bad ethical choices?
Chapter – Nine
10 Qualities for Good Managers
1. To choose a field thoughtfully
2. To be a good mediocre
3. To create productive environment
4. To define success
5. To be a good communicator
6. To transfer the skills
7. To build morale
8. To solve the challenges
9. To be sound mind
10. To be a risk taker & solve r at times
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Why good managers make bad ethical choices?
Chapter – Ten
Why do managers make unethical decisions?
Determinants:
1. Personal Ethics
Generally accepted principles of right and wrong governing the conduct of
individuals:
Our personal ethical code exerts a profound influence on the way we
behave as businesspeople
The first step to establishing a strong sense of business ethics is for a
society to emphasize strong personal ethics
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Ethical Behaviour
Decision Making Processes
Leadership
Unrealistic Performance
Goals
Organization Culture
Personal Ethics
Why good managers make bad ethical choices?
Expatriate managers may experience more than the usual degree of
pressure to violate their personal ethics
2. Decision-Making Processes
Several studies of unethical behavior in business have concluded that
businesspeople sometimes do not realize they are behaving unethically
primarily because they simple fail to ask….
…. “Is this decision or action ethical?”
Often the result of applying straight-forward business calculus to a
decision without considering important ethical issues
3. Leadership
4. Organization Culture
The climate in some businesses does not encourage people to think
through the ethical consequences of business decisions
Result of an organizational culture that deemphasizes business ethics,
reducing all decisions to be purely economic
Corporate culture refers to any set of values, norms, rituals, formal rules,
and physical artifacts that exists in a company.
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Why good managers make bad ethical choices?
5. Unrealistic Performance Expectations
Pressure from the parent company to meet unrealistic goals that can only
be attained by cutting corners or acting in an unethical manner
This often results in managers will violating their own personal ethics and
engages in unethical behavior
An organizational culture with values that reinforce ethical behavior is an
essential ethical component
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Why good managers make bad ethical choices?
Chapter – Eleven
Co-existence of Morality & Profitability – Ideology
Companies having an ideal blend of Morality & Profitability are visionary
companies with strong ideology (ideals)
Ideology – set of basic precepts or beliefs or values that are subscribed to
Core Ideology exists in these companies not just as words but as a vital
shaping force
Combining both – Genius of the AND – ideology AND profits
These companies do pursue profits or long term shareholder wealth but
they also pursue meaningful ideals of serving humanity.
Managerial Teasers
1. You are in-charge of cash expenses – Your supervisor comes and
asks you for a cheque of Rs. 3000 towards expenses he incurred
entertaining a client last night. At lunch your supervisors girlfriend
stops by to pick him up for lunch and you overhear her telling the
receptionist what a great time she had at dinner with your
supervisor the night before
2. You are the HR manager in your company – Your Company has a
firm policy regarding cases of theft of company property. Used
company equipment is sold in a bid each month. You see a valued
employee who is 5 months away from retirement, slip an electric
drill and put it in his car.
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Why good managers make bad ethical choices?
3. You are the buyer for a retail clothing store. Your store has a policy
of not accepting gifts. However, over the years, salesmen have
offered and other employees have accepted lunch, theater and
sporting event tickets. You arrive home from office one evening and
find a new LCD and DVD player at your doorstep with a note that
says “A personal gift for long lasting friendship “The Divikar Clothing
Company “
4. You are a bank teller working for the bank for the past 6 months,
one of the other tellers at the bank who has become a good friend
tells you that her daughter is extremely ill and has to be operated at
an expense of Rs. 9 lakh rupees. Some days later you ask about her
daughter’s health and she tells you that her daughter is just fine
now. She then confides in you and says she took the money from a
dormant account at the bank to pay for the operation. She assures
you she has started paying it back and will return the entire amount
into the account in some time.
“What do you do…….?”
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Why good managers make bad ethical choices?
Chapter – Twelve
Hewlett Packard & Texas Instruments
Hewlett Packard – ideology
David Packard – Founder Partner
“Profit is not the proper end & aim of management – but it is what
makes all of the proper ends and aims possible” – Packard
Became public in 1957
Initiated an Management development programmed – central to the
long term health of the organization
Core Values - Hewlett Packard
Company is group of people coming together to exist as an
institution
Purpose is to accomplish something collectively in order to make a
contribution to society
Contribution – to make a product or provide service – to do
something which is of value to the society
Design, develop & manufacture finest electronic equipment for
advancement of science and welfare of humanity
Profit was one of the important objective
But Profit was seen as means to pursue the broader aims of
developing better technology for the welfare of the society
HP’s focus was to provide real satisfaction to customers and be
judged by them
Bigger Growth was ONLY WITHIN the context of making a
contribution
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Why good managers make bad ethical choices?
Texas Instruments
Texas Instruments defined itself exclusively in terms of size, growth
& profitability
Focus was to grow from a ‘good little company’ to ‘good BIG
Company’ – Pat Haggarty, President
Corporate ideology & goals was solely on financial growth
Focus on growth – even if products were low quality or made no
technical contribution
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Why good managers make bad ethical choices?
Chapter – Thirteen
CASE STUDIES
CASE STUDY - 1
Johnson & Johnson versus Bristol Myers
Core values – Johnson & Johnson
Emphasize is on ideals beyond profit
Founded by Robert Johnson in 1886 with the aim to alleviate pain &
disease
Business ideology placed service to customers & concern for
employees ahead of returns to shareholders.
Only when service to customers, employees & management have
been done then the stockholders should receive a FAIR return
J & J CREDO
J & J ideology was codified in the credo printed on old style
parchment
The essential ideology – Hierarchy of responsibilities descends from
Customers to Employees to Management and then to Shareholders
Emphasis on FAIR return rather than MAXIMUM return to the
company and the shareholders
Credo is the link to any Key Decisions
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Why good managers make bad ethical choices?
J & J – translating credo into Action
1982 – Tylenol crisis
Tylenol bottles distributed in Chicago laced with cyanide (not by any
employee)
Result – Death of 7 people
J & J used the credo as the basis for its response
J & J removed all Tylenol bottles from the entire US market and not
just from Chicago
Mounted an intensive communication effort to alert the Public and
deal with the problem
At a estimated cost of $100 million – above efforts
J & J portrayed itself as a company willing to do what’s right,
regardless of cost
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Why good managers make bad ethical choices?
Bristol Myers
Bristol Myers Pledge – only on paper and not on practice
No Link between their Pledge and core business practices
Focus is more on Profits and earnings and savings on cost
Faced an identical problem as faced by J & J
Excedrin tablets were found to be tampered with in DENVER area in
the state of Colorado
Bristol Myers recalled tablets only from the Colorado state and not
from the entire US
Did not launch any campaign to alert the Public
Focus was more on minimizing losses to the company
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Why good managers make bad ethical choices?
CASE STUDY - 2
MERCK & Company versus Pfizer
Merck – Ideology & Values
“We are workers in industry who are genuinely inspired by the
ideals of advancement of medical science & service to Humanity” –
George Merck II, 1935
“Our Business success MEANS victory against disease and help to
humankind” – P. Roy Vagelos, 1991
Core ideal was to preserve and improve human life
These above ideals were translated into action when manufacturing
a drug to cure River Blindness
Merck -Translating Values into Action
River Blindness – a disease that infected a million people in Africa &
Latin America with parasitic worms that caused discoloring of skin,
intense itching & painful blindness
Huge market but no revenue - Million customers who could not
afford the product
Merck still went ahead with their R & D and manufactured the drug
MECTIZAN – hoping that some government or any third parties
would purchase & distribute the products once available
But the Governments themselves did not have the finance nor did
any third parties come forward
Merck elected to give the drug away free
It also involved itself directly in its distribution efforts
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Why good managers make bad ethical choices?
Why? – Failure to go ahead with MECTIZAN would have demoralized
their scientists and would have gone against their core value of
“preserving & improving human life”
Long term benefit for the company in the form of goodwill which
“somehow always....pay off”
Merck belief – Medicine is for the patient, for the people & not for
profits.
Pfizer
Core belief – to make profit out of everything we do –John McKeen,
President
Instead of spending Cash on R & D like Merck, Pfizer went on
acquisition drive
Acquiring 14 companies & diversifying into farm products, shaving
products, etc.
Focus was on making more money regardless of line of Business
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