Ethics and business decision making

Ethics and Decision Making

With many organizations, the way to ensure ethical decision making has been to introduce a new code of conduct that reflects the present world and its business challenges. Other companies and scholars, however, are taking a different route and have decided it is better to return to the basics, basics that have been part of ethical considerations for thousands of years since the beginning of Western philosophy and thought. These business "philosophers" stipulate that "moral insight has more to do with the types of questioning and soul searching that Socrates conducted in Ancient Greece." In other words, there is not a need to reinvent the wheel and establish new codes of ethics, but rather to guide behavior "not by issuing directions, but by engaging their listeners in a collaborative process of discussion and deliberation" (Paine, 2003, p. 201) This is the Socratic method. Socrates believed that moral insight and decision making came more from stimulating communication among active and informed minds than a list of "to dos" and "not to dos."

This new interpretation of this philosopher of so long ago may appear outdated, but in light of the ethical concerns in today's business world it may mean as much now as it did thousands of years go. Philosophy school director Malpas, states "But ethics is the foundation of good decision making, so why isn't every company trying to train its staff and leaders in ethical practice?"

Adds Handy (2006, p. 133), "Anyone who has read a code of conduct or statement of business principles knows how hard such documents are to read, let alone understand and retain." They need to be connected with real life concerns in order to have meaning. What Aristotle called the concept of eudaimonia, broadly translated as "happiness," suggests that each person or organization needs to develop its own special talents and resources as much as possible to attain the optimum from life. Further, it is necessary for each person to discover one's own purpose in society and something that he or she is uniquely qualified to perform. This is the main challenge in life (Handy, 2006, p. 133).

This Socratic method is not any different for leaders in organizations or for the total organization than it is for individuals outside of the working world. Each organization needs to have is own special purpose, "which goes beyond making shareholders richer." Leaders must understand they are obligated, if accepting reason for human existence, to make sure everyone who works for and with them to find special purpose and develop their potential to achieve it (Handy, 2006, p. 133). One cannot have a law for oneself and another for the rest.

Handy (2006, p. 134) also agrees that "what is needed is not a guidebook to good ethics, but more exposure to a way of thinking about the underlying quandaries of life. That's doing philosophy." Future leaders or what he calls "guardians," will each need a Socrates to challenge their thinking and help them work out what is the basis of a good life, society and organization, and then apply this philosophy to their own life and organizations. This is the challenge of the leaders of today's leaders and those to come in the future.

Leider (2006, p.294) states that the most meaningful roles in life are ones in which people serve others or create solutions that make life better for others. Leadership has meaning if it serves others. Calling joins self and service. As Aristotle said, "Where our talent and the needs of the world cross, there lies our vocation" (as quoted in Leider).

When looking at business ethics, one is concerned with such issues, or principles, that govern conduct in certain situations that may arise. For example: when a manager considers an candidate's race or age when making a hiring decision; whether employees need to take AIDS tests; of if "playing with numbers," which many companies did in the 1990s, is justifiable because the board of directors looks the other way with such maneuvers (Shaw & Barry, 2006, p. 109). The decisions a person makes in a career and in a working life are not governed just by business rules, but also by how a professional is defined: An ideal or model relationship with clients. There is more to living a morally good life, of course, then being a good businessperson or being good at one's job, add Shaw and Barry. As Aristotle argued: It is a person's necessity to try to achieve virtue or excellence not just in some particular field of endeavor, but solely as a human being. It is not just being considered excellent in this profession, or occupation, or sport, but excellent period. Only then can happiness be achieved.

Yet aspects of organizational structure and function build barriers and make it hard to achieve this moral responsibility as noted by Aristotle. These barriers include organizational norms, group commitment, pressure to conform and differentiation of responsibility, which all make reaching integrity difficult (Shaw & Barry, 2006).

Business philosophers agree that little has been written about ethical theory as it relates to the business world. They see the goal of ethical theory is to identify and support the basic principles to serve all of morality. The apply overarching ethical practices to t specific circumstances occurring in the business world and from this determine the correct behavior. Certain strategies have been suggested to meet this goal. Milton Friedman and Becker (2008) suggests that organizations should adopt the principle of profit maximization to guide them. This principle, conducted via an establishment of a free and competitive marketplace, will lead the company to meet its social responsibility. Others have recommended that the principle be broader than profit maximization, because corporations need to be led by a more general knowledge of social goods and by recognizing the importance of bringing about such goods. In addition, there are those such as Tom Donaldson and Werhane (2007), for instance, who support a form of the social contract theory of corporate social responsibility. According to this perspective, a company institutionalizes its moral responsibility by abiding by the implicit agreement existing between itself and the greater society. Such suggestions agree that the way of achieving ethical responsibility rests with the internalization of an independently justified principle.

DesJardins (2008) sees these similar approaches as failing in the long-term for a number of reasons: 1) the ambiguity of the meaning of the principle among different people; 2) competing principles that are debated; 3) no principle applied to business is binding to all individuals; and 4) the emphasis is on action not a person's character who is to perform this action. The alternative approach, once again based on Aristotle, defines good acts as those performed by the good man. Rather than being circular in argument, this indicates that a person needs to follow someone well versed in the ways of life instead of following a pre-existing principle for everyone. The "good business" is one that is perpetuated by good people; an organization where good people are making good decisions; people who are not swayed by short-term immediate pleasures. What is important in life are things not easily or quickly attainable: having a sense of humor, fostering intellectual abilities, and, above all, possessing phronesis or practical wisdom.

As per Aristotle, because ethics is not a demonstrative science and there is no such thing as unambiguous answers in ethics, a form of reasoning that differs from scientific reasoning is a necessity for the good person. Being able to make reasonable decisions in circumstances where there is no one right answer is the point of phronesis: to possess practical wisdom. With phronesis, it is the ability to make necessary changes so overall lessons fit the specific situation and not trying to fit a pre-existing principle to the circumstance. In many respects, it is the opposite of bureaucratic reasoning. Rather, it is being capable of altering situations without losing sight of one's final goal. An organization looking to further the development of good people should encourage this development of phronesis (DesJardins, 2008).

The importance is developing a professional view of a company where work is not a means to an end, but the end itself. The professional concept stipulates that the underlying value of business is on the supplier of goods and services that contribute to the good of society: 1) Good life for humans lies in the pursuit of excellence; 2) for business, excellence is the pursuit of goods and services to advance the social good; 3)Social good is a decision to be made in the political arena; and 4) Business can institutionalize ethics by furthering the development of good people into its ranks by closely identifying positions with pursuit of business excellence, avoiding an instrumental view of employee roles and encouraging phronesis and discouraging bureaucratic formulism DesJardins, 2008).

One of the major decisions that companies must make is how to distribute scarce and valuable products in the society. From an ethical standpoint, present economic philosophers address two alternatives to his decision: The free market and the public provision. In the former approach, tradable goods, money or services are exchanged between buyers and sellers at a rate that is agreeable to all parties. This approach assumes both the buyers and sellers have enough money, services or goods to have their needs met. The latter approach, public provision, is when all is available to those on an as-needed basis.

The Pharmaceutical and Manufacturing Association warns that whenever there is government control of prices it only has a negative impact on those who are in need of being helped: 1) When funding for new medical technology, cures for diseases and research and development are diverted to more lucrative economic areas; 2) Incentives to enter the pharmaceutical industry decline; 3) More restrictions are placed on providers; 4) the quality of medical care suffers and 5) This leads to a rationing of care. Instead, the association says there has to be a healthcare reform that includes such elements as: expansion of Health Maintenance Organizations and Preferred Provider Organizations; more emphasis on preventative measures; requiring of second opinions for surgery; living wills; drug utilization review systems; encouragement of medical innovation; greater research on outcomes of alternative treatments; greater patient education; tort reform; imposition of substantial deductibles or co-payments and voluntary industry measures to limit drug price-increases (Spinello, 2007).

Spinello (2007) instead looks at the concept of the free market as the most ethical approach to drug costs. He raises the questions as to whether pharmaceutical companies are obligated to accommodate the neediest customers when establishing prices in accordance with the principles of justice. or, may they restrict only to those who can pay the full price? Secondly, if price controls are established, will they work in practice to achieve the ends of justices or bring about negative results as the Pharmaceutical and Manufacturing Association has warned? Spinello argues that the principles of distributive justice justify the implementation of price controls. The claim is often made, he states, that such high prices and resulting exorbitant resultant profits are unnecessary. For example, it is known that the price of azidothymide or AZT produced by Burrroughs-Wellcome Company can frequently cost as much as $6,500 a year, which is unattainable for many AIDS victims, especially those with inadequate insurance coverage. Burroughs-Wellcome has continued to give any information on how it came up with this price. It is believed that the company is pricing this drug the same as an expensive cancer therapy. The difficulty is knowing the cost of the product. As Clarence Walter once stated, "No other area of managerial activity is more difficult to depict accurately, assess fairly, and prescribe realistically in terms of morality than the domain of price.

Pharmaceutical companies could easily offer less costly products for numerous drugs on the market notes Spinello (2007). Every business is entitled to a reasonable profit, but is it morally wrong to charge such high prices even when the market is willing to pay that price? Is it ethical to profit at the expense of those who are suffering? Should other viewpoints be considered, such as the concerns of the sick, especially since they have so much at stake? That is, states Spinello, as with many other business decisions, there seems to be a distinct tradeoff between major financial performance vs. human caring and fairness. If companies choose to be attentive and responsible social agents, they must start to develop a broader view of social obligations and responsibility. They need to see people who have a stake in these decisions. This stakeholder model, gives organizations the ability to link strategic decisions such as pricing with social and ethical considerations. By recognizing the rights of the stakeholders, such as employees and consumers, managers will better appreciate all negative and positive consequences of their decisions. In addition, an honest understanding of the stakeholders will make them analyze the economic and human implications of those decisions and become more responsible social agents. Organizations that take this route with the aim of moral and social responsibility will adopt the moral point-of-view, which makes them strongly committed to positively view the distinct interests of others, including the variety of stakeholder groups.

Given the two diverse approaches of the pharmaceutical association and the stakeholder approach, what is the answer? The concern by the drug companies is that price constraints will make the situation even worse than it is now. However, the principles of justice that govern society as much as free enterprise necessitates that economic decisions should be made that support and protect the disadvantaged. Will the pharmaceutical companies ever recognize the morally right decision when weighing the cause of supply or demand vs. justice of people who will die without receiving their medicine because they could not afford the high prices?

This same type of dilemma occurs regularly with marketing of products. People in marketing have normally weighed the importance of practices and products based on the possibility of something being. Kang and James (2007) stress that it is also essential to look at the introduction of products and practices from a societal viewpoint. That is, "Should a product be sold?" The first idea of determining salability reflects a managerial orientation and what has to be accomplished in the sale of a product. Marketers have traditionally felt that their actions are predictably in the best interest of consumers. In this exchange process, the organization makes a reasonable profit and consumers get the product they desire and thus, in the best of all worlds, everyone is satisfied. While the basic role of marketing is to help organizations generate profits by satisfying customers marketing practices do have many other effects.

The second idea reflects a societal orientation and what will be the consequences of the product sale. Although the social marketing concept was first suggested in 1972, there has since been little written to explain it or in support. Some have seen the marketing concept as a potential social problem, or a force working toward the production and distribution of "bads" as well as "goods" (Holbrook and Hulbert, 2002). Marketers most often focus on the products and markets and ignore the social impact of their activities and recognizing the long-term affects of their decisions on individuals and society as a whole by fulfilling short-term desires.

What can companies do to identify key societal concerns and find ways to address them? Kang and James (2007) theorized a societal orientation based on a review of literature and qualitative interviews with organizational managers. Each of the managers was sent a package and asked to consider two separate topics: 1) the subject of a societal orientation in relation to their respective organizations, and 2) specific concern(s)/issue(s) related to the impact of a societal orientation. These questions were used as a means for the follow-up interviews. In addition to conceptualizing a societal orientation construct, the researchers hoped to delineate potential domain(s) comprising the societal orientation construct.

The construct was conceptualized as "attention to the long-term well-being of individuals and society at large by enhancing positive impacts from and reducing negative effects associated with production and consumption of a product." As a result, the authors suggest five domains that make up a societal orientation: physical consequences, psychological well-being, social relationships, economic contribution, and environmental consciousness..By identifying these specific domains of a societal orientation, it is easier to gain a greater understanding of the construct and offer direction for organizations on the ways to foster a societal orientation. Future research should focus on developing an measurement to analyze whether organizations do incorporate a societal orientation in their operations by looking for these parameters. There have been some scales developed to measure various elements, such as social responsibility, ethics, and environmental orientation, associated with a societal orientation (Kang and James, 2007).

Although such scales can offer a better understanding into the way of developing a means to measure an organization's societal orientation, they are theoretically and psychometrically inadequate for completely assessing the constructs proposed in this study. Further, by developing an instrument to measure whether an organization faces the five domains, it may be possible to identify the key domains an organization should address, or at the least determine which of the domains the organization should first strive to improve. By paying increased attention to the roles organizations play in society, it would help leaders to better acquaint themselves wit the definition of societal orientation is and learn how to operate with such an orientation (Kang and James, 2007).

The ultimate goal is rather than considering that such an orientation is antagonistic to an organization's financial goals, it is possible to observe that an organization seeks to ensure the well-being of buyers and the society at large.

Promoting a societal orientation does not mean that a company becomes a not-for-profit agency that is focused on providing social services. With its societal orientation in place, the organization strives to balance issues of company financial success, consumer want satisfaction, and public interest. Operating under the goals of a social orientation expands an organization's attention to pay close attention to satisfying customers' short-term interests in addition to addressing the well-being of consumers and society over the longterm. Basically, then an organization's financial and social performance becomes interdependent.

Although many companies have yet to take a philosophical look at their companies and are still relying on the traditional form of writing codes of ethics for their employees, philosophy and ethics are pushing their way onto the agenda of more open and enlightened companies as they try to become more ethical and responsible -- to become good corporate citizens (Ross, 2008). In order to proceed dow this path, it is necessaryt ot look at the moral codes and rules within an organization and encourage individual accountability and ethical behavior, especially in the decision-making process. Major firms place full-page ads and put up glossy billboards on busy highways to let everyone know how ethical they are, but most are not actually trying to alter the culture away from compliance towards an ethics-based approach. As Ross (2008) notes, it can be difficult to combine philosophical ideas and approaches to management. Ethics is involved with everyone's activities and ethical considerations impact everyone all the time. The problem is getting people to reflect on that.

John Armstron, the Melbourne, Australia, Business School's new philosopher in-residence, for example, does not know what kind of classes he is will be leading when his formal philosophy classes begin in 2009. "It's really important to recognise that this is a new area," he says. "Nobody knows right now in detail how philosophy can contribute to business - that's what we are exploring." For now this Oxford-educated author is conducting field research, such as a series of breakfast seminars countrywide with senior executives and looking at key points of philosophy and the ways they may be used for business. "One of the things that philosophy is really good at is discussing intangibles," says Armstrong. "Things that can't be answered by measurement."

In order to get the discussion going, Armstrong poses questions such as, "What is leadership?," "What is innovation?" and, "What is risk?" A course on intangibles might be an interesting way for the business shool to start their talk on ethics, because it can be such a debateable area in business. "The tough choices are not between good and bad, but right and right." When covering intangibles, there is no one "right" answer, instead varying answers and interpretations. The skill lies in the explanation of an answer and the rationale as to why it is a good response. A good answer needs to be "worked out properly in your own head," says Armstrong, rather than it being one you adopt without truly understanding it. The students in Armstrong class will not have to read the over 2,000 pages of Aristotle's Complete Works, but they will be discussing this great philospher. ome. "Every time I go back to my Aristotle, he has something else to tell me," he says.

With time, as more organizations begin to incorporate the concepts of the Socratic method into their ethics foundation, they will need guidelines as those noted above in the study by Kang and James (2007). Zadek (2005) offers five progressive steps that move upward toward greater social responsibility: