THE ETHICS OF MANAGEMENT
Fifth Edition
LARUE TONE HOSMER
Professor Emeritus of Corporate Strategy and Managerial Ethics
School of Business Administration University of Michigan
McGraw-Hill 2006
PART II
Chapter 1: Moral Problems in Business Management
Chapter 2: Moral Analysis and Economic Outcomes
Chapter 3: Moral Analysis and Legal Requirements
Chapter 4: Moral Analysis and Ethical Duties
Chapter 5: Why Should a Business Manager be Moral?
- We have looked at the economic outcomes (Chapter 2), legal requirements (Chapter 3), and ethical duties (Chapter 4) as a means of resolving the moral problems of management, and have found none are completely satisfactory.
- None of these analytical methods can give an answer that we can say with absolute certainty is ‘right’ and ‘just’ and ‘fair’ when attempting to find the proper balance between the financial; outputs and the social impacts of a business firm.
- And none of those analytical methods can give us a means of truly convincing the other people who have been affected by those outputs and impacts that our decision was indeed the ‘most right,’ the ‘most just,’ and the ‘most fair’ in attempting to reach that balance.
- Why should a manager attempt to be moral in his or her decisions and actions? And, particularly, why should a manager attempt to convince other people that he or she has reached the ‘most right, ‘most just,’ and ‘most fair’ decision among all of the available alternatives?
- The answer at one level is that if we want others to worry about whether their treatment of us is ‘right’ and ‘just’ and ‘fair,’ then we have to worry about our treatment of them. Reciprocity is the most logical reason for morality.
- But the world is filled with people who are not logical in the sense of recognizing reciprocity and the need to be consistent. Do we simply cede to them the first place in financial benefits and managerial positions? That is not a very satisfactory solution for most of us.
- Beyond reciprocity, however, as the reason for our moral actions toward others is – or perhaps ought to be – our concern for the quality of our lives.
- If we are concerned about the sort of profession we have entered, the sort of organization we have joined, the sort of society we are constructing, and the sort of person we are becoming, then we have to start thinking about our duties and responsibilities to others. How do we reach a balance among all those duties and responsibilities?
- In 399 BC, Socrates was put on trial in Athens for having corrupted the youth of the city. He argued in his defense that all he had done was to ask the young people who attended his classes to consider the goals and standards of their lives. “The unexamined life is not worth living.”
- Perhaps he is saying that everyone should examine their duties and obligations to their professions, their organizations, their communities, and themselves. If so, it is necessary to get down to basics.
- The most basic question in ethics is: ‘Do you have an obligation to leave the world a little better than you found it, or can you simply take what you want now, and let other people worry about making up the shortfall later on?’
- Many people do recognize an obligation to other people, but have never thought deeply about their specific responsibilities. Others choose to ignore this injunction.
- Once again do we cede to those people the first place in financial rewards and managerial positions and hope that later they will become concerned with the quality of their lives and their obligations to others?
- Perhaps we need something more than reciprocity of treatment and quality of life as the reason to be moral.
Trust, commitment, and cooperative effort
- Beyond reciprocity of treatment and quality of life, the third argument in favor of moral action in management is that of cooperative effort.
- Organizations are composed of individuals and groups who have to cooperate to be successful. In business firms we call those individuals and groups stakeholders.
- Stakeholders include the factory and office workers, functional and technical managers, senior executives, scientists and engineers, suppliers, distributors, customers, creditors, owners, and local residents.
- All must contribute their efforts through cooperation and innovation if that future is to be successful and secure.
- Why should stakeholders contribute their best efforts for an organization that appears not to care about them?
- You are a worker on the assembly line and I am the manager. The argument of this chapter is that you probably will not tell me about your idea to greatly increase efficiency and reduce cost in my factory, because you do not trust me.
- You would think that I would take credit for the idea, ask for and receive a large bonus from the owners for having invented it, and fire a few more of your friends because they were no longer needed.
- Perhaps earlier I should have established an attitude that everyone within the company could expect to be treated in ways that could rationally be explained to be right and just and fair. Perhaps I should have been moral.
- Maybe the basic answer to the ‘Why be moral?’ question is the need for a manager to build trust, commitment, and effort among all of the individuals and groups associated with the organization.
- Maybe trust is the essential first step, and perhaps we can’t get commitment and effort without that trust.
- And maybe trust is built upon our making and explaining our decisions and actions in a way that most people can agree to be right and just and fair.
- This is the first basic argument of this chapter, that trust requires a recognition of moral responsibility, an application of moral reasoning, and a possession of moral character or courage.
Extended organizations
Cooperation, innovation, and unification
Unify and guide
A new method of management
Case 5-1: Johnson & Johnson and the worldwide recall of Tylenol
Case 5-2: Herman Miller and the protection of the environment
Case 5-3: Merck Corporation and the cure for River Blindness
Class Assignment
Chapter 6: How Can a Business Be Made Moral?
- The first basic argument of the previous chapter was that people throughout the firm – employees, suppliers, distributors, customers, creditors, and owners – react positively when they believe they have been treated in ways that they consider to be right and just and fair.
- This positive reaction consists of increased trust, greater commitment, and higher effort.
- The second basic argument of the last chapter was that it is not enough for senior executives to balance economic outcomes, legal requirements, and ethical duties in ways that they believe to be right and just and fair and then stop.
- They have to be able to convincingly explain to others why their balance is right and just and fair and to infuse that new philosophy of management or sense of integrity throughout the full firm in order to solidly establish the trust, commitment, and effort that is needed.
- I should like to illustrate the steps needed to infuse your philosophy throughout the firm with the wreck of the Exxon Valdez.
- This was a moral disaster that harmed in very substantial ways the Exxon Corporation and almost all of the individuals and groups associated with that firm.
- It was an accident that didn’t have to happen and one that could easily have been remedied far more quickly and completely than actually happened.
- It was a disastrous accident that occurred and a recovery process that was botched because no one cared and because no one trusted the management, evidenced any commitment or effort for the firm.
Example of a moral disaster
At 9.30 pm on Thursday, the 22nd of March, the oil tanker Exxon Valdez left the oil terminal at Valdez, Alaska loaded with 1.26 million barrels of oil. The Valdez was the largest tanker owned by Exxon. It was nearly 1,000 feet long and weighed, fully loaded, 280,000 tons…..
Management of a moral company
The oil spill from the Exxon Valdez coated 750 miles of Alaska coastline. It severely impacted the livelihood of commercial fisherman, almost destroyed the food sources of native Indians, and resulted in the death of 40% of bald eagles in Alaska, killed 80% of sea otters in prince William Sound, and eliminated 200,000 birds along the coast. It nearly ruined the reputation of the Exxon Corporation, and resulted in a $2.4 billion fine by the federal government and a $2.8 billion penalty in a civil trial. Senior executives truly wish that the careless accident and delayed cleanup had never happened. The causes and consequences of that careless accident and delayed cleanup are summarized in figure 6.2 …
Philosophy of management
If the total focus of corporate management is placed on financial benefits for the stockholders, with little or no attention paid to the well being and/or rights of the other stakeholders, the result – according to this text – will be a lack of trust, commitment, and effort among those stakeholders.
This is clearly what happened at Exxon Corporation. At the time of the wreck, Exxon was being managed with sole attention to the financial well-being of the stockholders. Lawrence Rawl boasted that he was “bottom line” oriented, that he planned to fire employees and cut expenses to increase profits, with no concern for those to be fired in the company or to those to be harmed in the community. Under economic outcomes, the company did not recognize the external costs that were imposed upon the commercial fishers, the native Indians, and the active environmentalists. Under government requirements, the company did not obey the law, in the form of the spill response contract with the state of Alaska. Under ethical duties, the company was not open, honest, and truthful about their actions and did not select the greatest net benefit for society or act in a way they would be willing to have all others act. The result was a clear lack of committed effort by employees on the tanker; no one was willing to report the frequent drunken behavior by the captain or to object to the continual violations of sailing rules that jointly led to the tragic accident. The result was also a complete lack of committed effort by employees at the terminal: no one made an attempt to correct the shortage of equipment and the absence of training that led to the slow response. That lack of trust, commitment, and effort brought about, eventually, a huge cost to the company and a heavy charge to society.
Corporate values
Organizational goals
Mission statement
Financial supports
Performance measures
Incentive payments
Prohibited procedures
Leadership actions
Conclusion
Case 6-1: Electrolux Corporation and the possibility of renewal
Case 6-2: Two companies in need of redirection
Case 6-3: Enron Corporation and the need for complete revision