Most people want to be ethical — and consider themselves to be.
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Business Ethics
Case (20 Marks)
Most people want to be ethical — and
consider themselves to be. But incidents ranging from stolen library books to
rogue trading illustrate that many people do not act as ethically as they want
to, or as they think they do. “With all the evidence to support rational, good
choices in the workplace or the marketplace, why don’t we all behave that way?”
said Ann Skeet, director of leadership ethics at the Markkula Center for
Applied Ethics at Santa Clara University. Skeet gave an introduction to a May
11 forum called, “The Behavioral Movement: What Business Professionals Should
Know About Human Nature,” sponsored by the Business Ethics Partnership of the
Markkula Center. Two speakers addressed what we know about why people behave
unethically – and how the conditions that contribute to this behavior may be
particularly acute in high-pressure environments like Silicon Valley. “The
culture of Silicon Valley is different than in most other places,” said Hersh
Shefrin, the Mario L. Belotti Professor of Finance at Santa Clara University’s
Leavey School of Business and a pioneer in the field of behavioral finance.
“This is a risk-taking culture and a culture where goals are set very high.”
This can make Silicon Valley workers especially vulnerable to the pressures
that can lead to unethical decisions. For example, the increasing use of global
teams, which can require phone calls early in the morning and late at night as well
as regular hours in the office, may contribute to fatigue – a risk factor for
poor decision-making. Still, Shefrin said, “we’re not as unique as we think we
are – just more so.” Workers in Silicon Valley are subject to the same
psychological issues as workers anywhere else. For example, all workers have
blind spots, said Ann E. Tenbrunsel, professor in the College of Business Administration
at the University of Notre Dame and the Rex and Alice A. Martin Research
Director of the Institute for Ethical Business Worldwide. She addressed the
psychology of ethical decision making, or “why people behave unethically
despite the best intentions.” There have been significant efforts to improve
ethics: at the regulatory level; at the organizational level, with millions spent
on training; and at the educational level, with ethics being infused into the
curriculum at many universities, Tenbrunsel said. Still, the headlines
announcing bad behavior keep coming. “We haven’t taken the psychology of the
decision maker into account,” Tenbrunsel said. She listed four ethical blind
spots that contribute to poor decision making — ethical illusions, ethical
fading, dangerous reward systems and motivated blindness — and elaborated on
the first two. Ethical illusions are based on “illusions of our own
ethicality,” Tenbrunsel said. She cited studies showing that library books on
ethics – presumably checked out by people who think about ethics – are stolen more
often than non-ethics books. And when people are asked to rate how honest they
are, a majority of people rate themselves above average, which is statistically
not possible. “We really seem to engage in hyperinflation about things related
to morality and ethicality,” Tenbrunsel said. “If everyone thinks their
companies are ethical, we don’t do a good job of really trying to find the
problems.” It helps to think of three stages of the decision-making process,
Tenbrunsel said: prediction, action and recollection. Before making a decision,
people generally predict that they will act in accordance with their values.
When it comes to taking action, that is not always what happens. But after the
fact, “we remember that we did better than we did,” Tenbrunsel said. Why don’t
people behave as they predict they will? One reason, said Tenbrunsel, is that
prediction involves high-level ideals, whereas the action phase is more about
the details and what is feasible at that particular moment. Forces such as
hunger, fatigue and fear come into play, for example, and may overwhelm
idealistic plans. “The body and mind’s goal is to mitigate it,” Tenbrunsel
said. Ethical fading, the second blind spot Tenbrunsel discussed, happens when
a person making a decision doesn’t view the decision as one that involves
ethics. People use financial criteria to make financial decisions and legal
criteria to make legal decisions, for example. So if a decision can be
categorized as something other than an ethical one, it makes it easy to not consider
ethics. Language plays a role in this area, as well: For example, a decision
about “runoff” may be viewed differently than one about “pollution.” Shefrin
continued the conversation by examining rogue trading, an example of how
“finance and psychology and ethics all interconnect.” Because trading involves
taking risks, it is useful to understand the psychology behind risk-taking. For
example, most people will choose a sure gain over a smaller chance to win a
larger amount. But they will choose the risk of a large loss over a sure loss.
“Three of the most important emotions associated with what happens when you
face a risk are fear, hope and aspiration,” Shefrin said. “People who are
excessively fearful tend not to take risks that are worth taking in an
actuarial sense, and people who are excessively hopeful tend to shoot for the
stars when it’s not appropriate. In a situation like the rogue trading cases,
traders find themselves in a situation where the pressures to succeed are so
great that they take imprudent risks.” In addition to the psychology of the
individuals involved, the strength of corporate processes and the way corporate
culture encourages or discourages risk-taking play a role. “Strong corporate
cultures that include an ethical dimension can help deal with the
vulnerabilities,” Shefrin said. “The tone always starts at the top.”
Answer
the following question.
Q1.
Why imprudent risks are to be taken for great success. Explain
Q2.
Debate the three stages of the decision-making process.
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