CHAPTER THREE
ORGANIZATIONALAND MANAGERIAL
ETHICS

Introduction
• To understand the term ‘organizational ethics’, one has to
first try and understand the two terms ‘organization’ and
‘ethics’.
• An organization is a collection of individuals with a
common mission while ‘ethics’ may be described as an
attempt or endeavor by individuals, to understand what
is ‘right’ or ‘wrong’.
• Ethics is concerned with the critical analysis of
situations.
• Organizational design and follow a set of core principle or
concepts in that attempt to develop ethical corporate
behavior.

Cont.
• Organizational ethics is used to consider the issues of
morality and rationality in organizations.
• Organizational ethics is different from management ethics.
• Management ethics focuses on the ethical quality of the
decisions and actions taken by managers of an organization.
• Thus, management ethics deals with the individuals in the
organization and organizational ethics deals with all the
activities of an organization.

Cont.
• Therefore, organizational ethics is collective in scope.
 Organizational ethical issues can be handled at three levels.
 These levels are:
 Corporate mission
 Constituency relations
 Policies and practices
• Corporate mission refers to the reason for existence of the firm, directs the
objectives of an organization which are used to define its ethical responsibilities.
• Corporate mission also reflects the ambitions and expectations of the employees.
• Employees should be integrated in a good manner to achieve the corporate
mission.

Cont.
• Constituency relations define the responsibilities of the
elements of an organization.
• The elements of an organization may be employees, customers,
suppliers, shareholders and the general public.
• These responsibilities must be handled properly to manage the
ethical conduct of business.
• Organizational ethics can also be used to evaluate the policies
and practices of the organizations.
• Public commitment to ethical principles can give way to
business and administrative practices.

Cont.
• Organizational ethics also depends on the type of the organization.
• Considering their economic and ethical concerns, organizations can be
classified into four types. These are:
i. Exploitative: Organizations with low economic and ethical concerns are
called exploitative organizations.
• These organizations utilize child labor and use rivers for dumping wastes to
maximize their profits.
ii. Manipulative: Organizations with high economic performance concerns and
low ethical concerns are called manipulative organizations.
• These organizations use tax laws, labor laws and union managers to maximize
profit.

Cont.
iii. Holistic: Organizations with high ethical concerns
and low economic concerns are called holistic
organizations.
• These organizations spend their money in social and
environmental purposes.
iv. Balanced: Balanced organizations have high ethical
and economic concerns.
• These types of organizations gain profit as well as
work for social and environmental purposes.

Ethical management
 Importance of managers, as leaders, in an Organization
• A leader is an integral part of an organization, because it is the leader
who helps the organization to achieve the goals and objectives.
• The various reasons why the leaders are important for an organization are
as follows:
 A leader acts as a friend to the employees he is leading.
 A leader recognizes the potentialities of the individuals and transforms
them into realities
 A leader wins the confidence of the employees of an organization
 A leader unites the people as a team and builds up team spirit

Cont.
 A leader maintains discipline among his group and develops a sense of
responsibility among them
 A leader builds up a high morale among the employees of the
organization
 A leader motivates his group in order to achieve the goals and objectives
of an organization.
 A leader maintains the ethical standards among the employees of an
organization.
 A leader acts as a link between the work groups and the forces outside
the organization.

Cont.
• leadership is a form of management, and can be defined as
the art of getting things done by others.
• Thus, the term management divides all the employees of
the organization into two groups. These groups are:
• Managers: Managers are the individuals in the
organization who are responsible for directing the activities
of others.
• Workers: Workers are the individuals who are working
under the control of the managers or leaders.

Cont.
• Management involves planning, organizing and controlling the resources
of the organization so as to achieve the goals and objectives of the
organization.
• The managers of the organization make some rules to coordinate and
control their subordinates in the right manner.
• These rules can be determined by the environment and the culture of the
organization, which define the relationship of the managers with their
subordinates and peers.
• These rules defined by the managers of the organization are termed as
descriptive ethics because no one is forced to follow them.

Cont.
• These rules are the contextual and moral guidelines that the managers
derive from their personal moral philosophy.
• The moral awareness of the managers can be ascertained by the
organizational administration.
• Management ethics in an organization deals with the morality and
conduct of the individuals and the responsibilities of the management.
• Therefore, ethical management or ethical leadership deals with issues
relating to managerial misbehavior and the moral conduct of the
management.

Ethical Issues in Organizations
• There exist many different ethical issues in the organization or at the workplace.
 Some of them are:
• Identifying the conflict issues in the organization and trying to avoid them
• Deciding different methods to motivate employees
• Managing fairness in employee performance appraisals
• Protecting secret information of the organization
• Identifying the areas of interest of customers, employees, suppliers, owners and
the staff
• Taking action against the reports of complaints in the organization
• Handling different problems of employees
• Taking corrective action against employees

Cont.
• Ethics management programs are used by the organizations
to manage ethics in their workplace.
• According to Brain Schrag, ‘Ethics programs convey
corporate values using codes and policies to guide
decisions and behavior, and
• can include extensive training and evaluating, depending
on the organization.’
• Ethics management programs are made up of values,
policies and activities that can affect the behavior of the
organization.

Cont.
• Managing ethics as a program is advantageous to organizations in many
ways.
 Some of the advantages are that: Ethics management programs;
• can assign an independent role to each individual in the organization to
manage ethics.
• can provide the necessary operating values and behavior of organizations
• are used to align the operating values and behavior
• are used to schedule different ethical requirements
• are used to make the organizations aware of ethical issues
• provide structural mechanisms to handle ethical problems
• They also provide some guidelines to decision-making.

Guidelines for Managing Ethics in Organizations
 Some guidelines for managing the ethics in organizations are:
1. Identify ethics management as a process
• Ethics management is used to provide operating values and associated
behavior
• Ethics programs are process-oriented because the operating values are
determined by ongoing reflection
• The deliverables of the ethics programs, such as codes, policies and
procedures, budget times and meeting minutes, are not produced directly
• However, these deliverables are produced by the process of reflection
and dialogue.

Cont.
2. Use ethics programs to manage behavior in organizations:
• The ethical values provided by the ethical programs can be
used to direct behavior in the workplace
• Therefore, ethical management practices, in addition to
ethical values, should also generate deliverables.
• These deliverables can be used to transform ethical values
into behavior
3. Avoid ethical dilemma:
• The codes of ethics and the codes of conduct can be used to
minimize the occurrences of ethical dilemma

Cont.
4. Combine ethics management with other management
practices:
• Ethical management should be integrated with other
management practices.
• While developing strategic planning, ethical values of the
organization should be considered.
• While developing personnel policies, determine the ethical
values that are most effective for the environment of the
organization and then implement policies to produce these
kinds of behaviour.

Cont.
5. Develop ethics management programs using cross-functional teams:
• The employees of the organization should be included in the development
and implementation of the ethics management programs.
6. Value maintenance:
• Ethics management programs may increase the ethics of people in the
beginning because of the sensitivity of people on their occurrence.
• However, people should remain ethical on the implementation of these
ethics management programs.

Roles and Responsibilities in Ethics Management
• Each individual in the organization should be provided a
specific role in managing ethics in the organization.
• However, the role assigned to each individual depends on
the size and nature of the organization.
• The roles can also be full-time or part-time.
• The following responsibilities can be assigned in ethics
management:
 The chief executive officer of the organization must support
the ethics management program

Cont.
A committee or group should be developed in the
organization to control the development and operation
of the ethics management program
A committee or group should be developed which
should be responsible for training the employees on
the policies and procedures of the ethics management
program and should resolve any ethical dilemmas that
may arise.
This committee can contain senior officers.

Cont.
A person in the organization should be designated
as watchdog who has the responsibility of
investigating or resolving complaints from the
employees of the organization against the ethics
management program
Each person of the organization is responsible for
the implementation of the ethics management
program

Models of Management Ethics
1. Immoral Management—A style lacking of ethical
principles and active opposition to what is ethical.
2. Moral Management—Conforms to high standards of
ethical behavior.
3. Amoral Management
– Intentional - does not consider ethical factors
– Unintentional - casual or careless about ethical considerations
in business
23

Three Approaches to Management Ethics
6-18

Moral Management Models and Acceptable Stakeholder
Thinking
6-20

Developing Moral Judgment
6-22

Developing Moral Judgment
6-23

Developing Moral Judgment
External Sources of a Manager’s Values
• Religious values
• Philosophical values
• Cultural values
• Legal values
• Professional values
Internal Sources of a Manager’s Values
• Respect for the authority structure
• Loyalty
• Conformity
• Performance
• Results
28

Elements of Moral Judgment
• Moral imagination
• Moral identification and ordering
• Moral evaluation
• Tolerance of moral disagreement and ambiguity
• Integration of managerial and moral competence
• A sense of moral obligation
29

Ethical principles
• Ultimately, all our conclusions about what is right or wrong to
do derive from a limited number of basic ethical principles.
• The following are the fundamental principles of Ethics
relevant to the consideration of business issues:
• * Principle of solidarity: "We must be concerned with
promoting the well-being of all human beings, not only our
own.
• In so far as we fail to do so we undermine our own fulfillment.“
• * Principle of rationality: "One should always strive to act
intelligently."

Cont.
• * Principle of fairness or impartiality: "One should apply
the same standards in judging one's own actions, those of
people who are dear to one, and those of strangers."
• In order to check the fairness of a proposed course of action
tests such as those of universalizability, considering the
action from the viewpoint of an impartial spectator, putting
oneself in the place of the other party, and considering the
action behind a mask of ignorance, can be useful.

Cont.
• * Principle of efficiency: "In trying to promote human fulfillment good
intentions are not enough; one must endeavor to use effective means."
• * Principle of refraining from willing harm to a human being: "One
should never choose directly to harm a human being.“
• Each human being has some basic human rights which must be respected
absolutely in all situations.
• * Principle of role-responsibility: "One does not have equal
responsibility for all the aspects of the well-being of all human beings.
• One's special circumstances, capacities, roles and commitments give one
a priority responsibility for certain aspects of the well-being of certain
people."

 Ethical safeguards
• There are three categories of safeguards which help to
protect consumers:
1. Consumer Protection System
• Policies, laws, institutions and structures that form
the framework for a consumer protection system
• UN Guidelines
• Consumer Protection Agencies/Organizations
• Consumer Protection Law
• Consumer Redress

2. Consumer Protection in the Marketplace
• Various transactions that consumers enter in a market economy
• Consumer information
• Product safety and liability
• Consumer credit
• Insurance
• Electronic commerce
3. Consumer Protection and Basic Needs
– Consumer education
– The provision of utilities
– Food
– Health care delivery
– Sustainable consumption

Part I. Consumer Protection System
 Rationale for consumer protection
• Addresses disparities in consumer-supplier relationship
– Bargaining power
– Knowledge
– Resources
• State intervention promised on grounds of
– Economic efficiency
– Individual rights
– Distributive justice
• Achieving bargaining equality between consumer and producer interests
• Alleviating the problems of the particularly disadvantaged
– Poor, elderly, children

– “Consumerism, especially in the developing world, is now seen as a
fundamental part of the strategy to eradicate poverty and to bring socio-
economic justice to the underprivileged.”
– Positive communal values
– Right to development
 Consumer rights
• John F. Kennedy’s Message to Congress on March 15, 1962
• Four basic rights
– Right to safety
– Right to be informed
– Right to choose
– Right to be heard

 1982 Consumer International’s Charter of Consumer Rights
 Eight rights
– Right to basic needs
• Food, clothing, shelter, health care, education, water and sanitation
– Right to safety
– Right to information
– Right to choice
– Right to be heard
– Right to redress
– Right to education
– Right to healthy environment
• Rights further re-enforced by adoption of UN Guidelines on
Consumer Protection in 1985 and 1999

Who is the “consumer”?
• Original definition limited to purchases for “personal consumption”
• More recently includes small operators
– Applies to farmers
– Assures reasonable prices and quality of farm inputs
 Who is responsible for consumer protection?
 Government agencies
– Ministry of Commerce, Investment and Consumer Affairs
 Professional/Industry associations
 Consumer organizations
– E.g. Chamber of commerce

 U.N. Guidelines on Consumer Protection (UNGCP)
• Provide a framework for governments to develop and
strengthen consumer protection policies and legislation
• Minimum guarantee by governments that the measures will
be undertaken
 Obligations imposed on governments by the UNGCP
• 1. Physical Safety
• Assure that products are safe and conform to safety standards
• Consumers receive information on proper use of goods and risks
involved
• Measures are in place for notification and recall of unsafe goods

• 2. Consumers’ economic interests
– Consumers obtain optimum benefit from their economic resources
• Ensuring that goods meet production and performance standards
• Adequate distribution channels and after sales services
• Fair business practices are employed
• Protection against contractual abuses
• Information is adequate for consumers to make informed decisions and
exercise choice
• 3. Standards for safety and quality of goods and services
• Ensure there are national standards for safety and quality of goods/services
• Such standards conform to international standards
• Facilities to test and certify goods and services are encouraged

• 4. Distribution facilities for essential goods and services
• Especially to consumers who are disadvantaged, e.g., in rural areas
• 5. Redress
• Establish and publicize mechanisms that are fair, affordable and accessible
• Especially taking into consideration the needs of low-income consumers
• 6. Education and information programs
• Should involve consumer and business groups
• Particular attention to disadvantaged consumers in urban and rural areas
• Should be included in school curriculum
• Training programs for educators, mass media professionals and consumer
advocates

• 7. Promotion of sustainable consumption
• Should be done in conjunction with civil society
organizations and business groups
• Sustainable consumption practices within government, by
business enterprises and by consumers
• 8. Measures relating to food, water and pharmaceuticals
– Prioritizes these areas
– Should ensure quality control, adequate distribution and
standardized information

 SOCIAL RESPONSIBILITY OF BUSINESS
• Social responsibility of business involves the consideration of
general public interest by businessmen while taking business
decisions and actions.
• According to Bowen, social responsibility refers to the ‘obligations
of businessmen to pursue those policies, to make those decisions or
to follow those lines of action which are desirable in terms of the
objectives and values of our society’.
• This entails that businessmen should perform their operations with
due consideration to the aspirations of society.
• They should fulfill the demands of those who have a claim on the
operations of business.

Cont.
• They must measure the consequences of their decisions and courses of action on
the society and ascertain that no undue harm is done to the interests of the society.
• The concept of social responsibility has emerged due to several economic, social,
political and legal influences.
• These forces, which have obliged, persuaded and helped businessmen to become
aware of their responsibility to society, are as follows:
 Public opinion: Public interference with the help of the government has instilled
a fear in the heart of businessmen.
• The threat of public regulation and public ownership has compelled them to
acknowledge the fact that responsible behavior is essential on their part for
survival in the private sector.

Cont.
 Trade union movement: The recent development of socialism
that boosted the strength of labor unions has forced businessmen
to give a fair share to workers.
• Human relations and labor legislation have facilitated trade
unions to increase their influence.
 Consumerism: Consumer organizations have encouraged
awareness about consumer rights.
• Consequently, businesses have become more responsive to
consumer needs and stress the dictum of ‘consumer is the king’.
• Businessmen can no longer adopt the approach of ‘let the buyer
beware’.

Cont.
 Education: Extensive education has made businessmen conscious about
the quality of life, moral values and social standards.
• Liberal business leaders have been pressing the business community to
acknowledge its social obligations.
 Public relations: Modern businessmen are aware that a good public image
contributes to their growth.
• There is a greater alertness in their hearts that business is a construction of
society and hence, it should consider and react positively to the
expectations of society.
 Managerial revolution: Separation of ownership from control in large
corporations has resulted in professionalism in management.

Cont.
• A professional manager is fairly aware of the society’s expectations and
attempts to meet the demands of all social components, like customers,
employees, shareholders and the government, in a well adjusted manner.
• The case of social responsibility has been subject of controversy since long.
• There have been arguments both in favor and against it.
• The main points that support the assumption of social responsibility by
business enterprise are as follows:
 Long-term self-interest of business: As stated earlier, a good public image is
bound to give better returns to a business enterprise.
• Businessmen can benefit in the long run by providing for the welfare of the
society through education and better living conditions.

Cont.
• This will result in better employees in business and enlightened
customers in society who
• will benefit through their increased purchasing power.
 Ascertainment of law and order: Social responsibility on the
part of business can avoid unrest in society.
• If the society feels that it is not getting its appropriate share in
business, it is bound to create disorder by adopting anti-social
and illegal activities and rebellions.
• Pursuing the doctrine of social responsibility can help business
organizations prevent social chaos.

Cont.
 Maintenance of free enterprise: Government or public regulation can hinder the
development of business by decreasing the flexibility of decision-making and the
freedom of choice and action.
• Therefore, the voluntary assumption of social responsibilities is essential for the
growth of a business organization.
 Creation of society: Business is a part of society and survives on the demands of
the society.
• Therefore, it should be responsive to social expectations and welfare.
• The right of the business to grow goes hand in hand with its awareness of social
responsibility and welfare.
• It is the duty of the business enterprise to contribute in some way to the well-being
of its society.

Cont.
 Moral justification: Enlightened businessmen have now become more aware
about their moral duty to serve the society.
• Business has the resources and power to solve social problems.
• Therefore, its power should be balanced with social responsibility.
 Profitable environment: To ensure a profitable environment in the society in
which it operates, business needs to meet the challenges of social evils.
• Active interference on the part of businessmen in solving these challenges can
convert them to opportunities, which in turn will ascertain not just the existence,
but also the benefits of the organization.
 System interdependence: Business system and social dependence are interrelated
and thus affect each other.

Group Assignment
 Prepare a written report, not more than five pages, on
the following directions
1. Discuss the arguments against social responsibility on
the part of business enterprise
2. Discuss the concepts of corporate governance in
business
3. Describe any unethical business practices you or your
friend or your family member ever experienced in
your living areas