Ethical Business Decisions: The Framework

Since ethics is an integral part of management, it is vital for managers to become comfortable with the language of ethics, and to understand how it is inextricable from the language of business. Each business decision can break or respect rules and norms, has consequences and effects on stakeholders, and shapes and is shaped by the character of managers and their corporations.

Guides to Help Avoid Rationalizations

Rationalizations are a common pitfall in decision-making. The term refers to the process of convincing oneself that a decision is fair and defensible, when in fact it merely serves one’s own interests or offers an easy way out. In these situations, when one is pressed by others about the decision, the reasons may not seem so compelling, even to the one offering the rationalization. There are no foolproof techniques for revealing rationalizations, but the following tests and methods have been used by philosophers and ethicists for some time.

Publicity Test

Could you defend your choice if it were made public (i.e., if it appeared on the cover of The Wall Street Journal, or if you had to explain it to your mother or your children)? This test helps to make you scrutinize your reasoning by raising tough questions that might otherwise be avoided. The prospect of having to face public disclosure helps to make people more critical of their assumptions and reasoning. Using this as a hypothetical check can help sort out whether your reasoning is sound and can be justified or is biased and self-serving.

Reversibility

Could you defend your reasoning if you were on the losing end of your decision? This test helps managers make decisions that are fair and can be defended in public. It also puts you in the position of the party who will suffer the negative consequences of a decision (i.e., being fired) and asks: Could you agree with and respect the reasons for the decision? The issue is not whether the person who is being fired approves of the decision. Reversibility instead asks whether the person on the losing end could respect the reasons for the decision.

Generalizability

Could you defend using this same reasoning in similar cases? This test also raises the issue of consistency and asks whether parties are willing to make a precedent out of their decision. Is the action you are contemplating, and the rationale behind it, something you would think others should do in similar circumstances?

Building Your Ethical Framework

Frameworks help managers to understand and analyze the moral dimensions of a given situation — they help identify key themes, raise important questions, and provide a basis for making informed and defensible decisions. An ethical framework is a set of questions that managers can use to get beyond their initial moral intuitions and clarify the relevant features of the case. The questions in a framework may force one to think about the issues from other perspectives or to look at rules that may apply. A good framework helps managers avoid rationalization of their initial moral intuition by looking at disconfirming data or differing opinions. It serves as a test to guide and refine moral intuition through a variety of cases. A good framework takes the best from your moral intuition and adds the pieces that may be missing. An ethical framework works best when it is complementary to, not separate from, other modes of business analysis and decision-making (i.e., from finance, accounting or marketing).

What follows is a list of the critical questions from ethical theory that can help managers make better decisions. It is important for each manager to select four to six key questions that form the heart of his or her framework and apply them across a variety of cases. When choosing your framework questions, think carefully about what values you personally stand for as well as where your potential moral blind spots are. At a minimum, a framework should examine the relevant moral issues by including questions from the three main ethical traditions (Actions, Agents and Consequences) instead of focusing narrowly on only one.

Clarifying What You Know

  • What are the key facts in the situation?
  • Do I have this information confirmed by independent sources or by people from the other side?
  • Are there any vital pieces of information that I lack?
  • How does the situation change if I alter my biases and assumptions?
  • Which way of looking at the problem is most useful?
  • If there are conflicts between your sense of integrity and the best decision for the firm, are there ways to alter how the decision is made or implemented to lessen or avoid the conflict?
  • What are some relevant parallel cases?
  • Who are the stakeholders? Who is affected by this issue and how? What does each party have at stake?

Clarifying the Decision-Making Process

  • Is this my problem or should the decision be made by someone else?
  • Do I have the organizational backing (i.e., formal authority) and support (i.e., informal backing) to decide?
  • Whom can I reasonably include or get input from, given the circumstances?
  • Whom should I formally include? Who has a right or deserves to be involved?
  • Is there any documented organizational guidance?
  • What action best meets my primary obligations?
  • How much of a stake do I have in the decision and its aftermath?

Understanding Standards of Conduct

  • Would this particular act or practice violate relevant standards of conduct?
  • Are there ways to pursue our strategic interests without violating the standards of conduct?
  • If the public finds out about this activity, will it lead to action against the firm (e.g., lawsuits)?
  • Are the standards of conduct observed within the firm defensible and consistent with the standards of conduct of the society in which it operates?
  • Does the action violate any human rights?
  • What action best meets established moral guidelines and common sense (promise-keeping, respect for others, refraining from lying and cheating, fairness and non-maleficence)?
  • What action meets legal obligations?

Understanding Character and Virtue

  • What character traits do the firm or managers need to be successful over time?
  • To what extent do these actions reflect the character traits that the firm espouses? Are they the basis for excellent organizational performance over time?
  • To what extent is this problem a result of a poor relationship (e.g., bad communication)?
  • Could improvements in how the firm communicates with and treats employees or other stakeholders improve the long-term prospects for the firm?
  • What decision can I live with?
  • What decision will allow me to live better with others?
  • Which options are more likely to help me sleep at night six months and two years down the road?

Clarifying Consequences

  • Which purposes are most important? Are there any clear priorities among stakeholder claims?
  • Which actions best realize the key purposes of the firm?
  • Will certain stakeholders be especially harmed? Will they feel negatively toward the firm or seek to hurt the firm?
  • Are there any natural alliances among key stakeholders that can be developed?
  • Which action is likely to be effective?

Avoiding Rationalization

  • Could you defend your choice if it were made public (i.e., if it appeared on the cover of The Wall Street Journal, or if you had to explain it to your mother or your children)?
  • Could you defend your reasoning if you were on the losing end of your decision?
  • Is the action you are contemplating, and the rationale behind it, something you would think others should do in similar circumstances?

This post is excerpted from Darden Professors Jared D. Harris, Bidhan L. Parmar and Andrew C. Wicks’ technical note Moral Theory and Frameworks (Darden Business Publishing). Please see its companion piece, “Ethical Business Decisions: The Lens,” for a summary of three major strands of ethical theory.

Professor Wicks teaches in the Darden Executive Education program Servant Leadership: A Path to High-Performance, which helps leaders embody values in their behavior, deepen working relationships, and strengthen satisfaction internally and externally.

About the Faculty

Jared D. Harris

Harris is an expert on both ethics and strategic management. His research centers on the interplay between ethics and strategy, with a particular focus on the topics of corporate governance, business ethics and interorganizational trust. Harris has written extensively on the topics of executive compensation and other governance-related topics.

Harris worked... Learn More

Bidhan L. Parmar

Parmar is an authority on how to make good decisions — one of the toughest challenges in leading a business. He focuses on how managers make decisions and collaborate in uncertain and changing environments to create value for stakeholders. Parmar’s work helps executives better handle ambiguity in their decision-making. His... Learn More

Andrew C. Wicks

Wicks specializes in ethics. He is an expert in international business ethics, corporate social responsibility and ethics in public life.

Wicks’ research interests include stakeholder responsibility, stakeholder theory, trust, health care ethics, total quality management and ethics, and entrepreneurship. Wicks also specializes in religion and public life, particularly as it pertains... Learn More

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