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Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 8

Making Ethical Decisions

in Business
This chapter sets forth a wide range of
principles and methods for making
ethical decisions.


Realtors in the Wilderness

Opening Case
1984 Client represented by realtor Tom Chapman is offered
$200 an acre by the National Park Service. Chapman forced
the park service up to $510 an acre.
1992 Chapman became an investor in TDX, bought 240
acres of inholdings, and coerced the U.S. Forest Service into
swapping TDX for land that TDX sold for a huge profit.
1999 TDX once again bullied the National Park Service into
a bad deal near Black Canyon.

The story of TDX reveals an ethically complex situation. Its

investors exercise basic property rights, but rights are not
absolute. Their methods resonate with free market values, but
markets exhibit flaws.

Principles of
Ethical Conduct
There are dozens, if not hundreds, of
ethical principles in the philosophical and
religious traditions of East and West.
The following 14 principles are fundamental
guides or rules for behavior.
These principles distill basic wisdom that
spans 2,000 years of ethical thought.


The Categorical Imperative

Origination: Immanuel Kant
Basic premise: Act only according to
that maxim by which you can at the
same time will that it should become a
universal law.
Criticism: Theory is dogmatic and


The Conventionalist Ethic

Origination: Albert Z. Carr
Basic premise: Business is like a
game with permissive ethics and any
action that does not violate the law is
Criticism: Commerce defines the life
changes of millions and is not a game
to be taken lightly.

The Disclosure Rule

Origination: Baxter Internationals Global
Business Practice Standards
Basic premise: Test an ethical decision by
asking how you would feel explaining it to a
wider audience such as newspaper readers,
television viewers, or your family.
Does not always give clear guidance for ethical
dilemmas in which strong arguments exist for
several alternatives.
An action that sounds acceptable if disclosed may
not, upon reflection, be the most ethical.

The Doctrine of the Mean

Origination: Aristotle
Basic premise: Virtue is achieved
through moderation. Avoid behavior
that is excessive or deficient of a
Criticism: The doctrine itself is


The Ends-Mean Ethic

Origination: Ancient Roman proverb, but
often associated with Niccol Machiavelli.
Basic premise: The end justifies the
In solving ethical problems, means may be as
important, or more so, that ends.
The process of ethical character development
can never be furthered by the use of expedient

The Golden Rule

Origination: Found in the great religions and
in works of philosophy.
Basic premise: Do unto others what you
would have them do unto you.
Peoples ethical values differ, and they may
mistakenly assume that their preferences
are universal.
It is primarily a perfectionist rule for
interpersonal relations.
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The Intuition Ethic

Origination: Defined by G.E. Moore in Principia
Basic premise: What is good or right is understood
by an inner moral sense based on character
development and felt as intuition.
The approach is subjective.
Self-interest may be confused with ethical
No standard of validation outside the individual
is used.
Intuition may fail to give clear answers.
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The Might-Equals-Right
Origination: Thracymachus
Basic premise: Justice is the interest
of the stronger.
Confusion of ethics with force.
Invites retaliation and censure, and is not
conducive to long-term advantage.

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The Organization Ethic

Origination: Not credited.
Basic premise: Be loyal to the
Criticism: Many employees have
such deep loyalty to an organization
that it transcends self-interest.

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The Principle of
Equal Freedom
Origination: Herbert Spencer
Basic premise: A person has the right
to freedom of action unless such
action deprives another person of a
proper freedom.
Criticism: Lacks a tie breaker for
situations in which two rights conflict.

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The Proportionality Ethic

Origination: Medieval Catholic
Basic premise: A set of rules for
making decisions having both good
and evil consequences.
Criticism: These are intricate
principles, requiring consideration of
many factors.
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The Rights Ethic

Origination: Western Europe during the
Basic premise: Each person has protections
and entitlements that others have a duty to
Rights are sometimes stretched into selfish
demands or entitlements.
Rights are not absolute and their limits may
be hard to define.
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The Theory of Justice

Originator: Contemporary, John Rawls.
Basic premise: Each person should act
fairly toward others in order to maintain the
bonds of community.
Criticism: Rawls principles are resplendent
in theory and may even inspire some
business decisions, but they are best
applied to an analysis of broad societal

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The Utilitarian Ethic

Origination: Line of English philosophers,
including Jeremy Bentham and John Stuart Mill.
Basic premise: The greatest good for the greatest
In practice it has led to self-interested
Because decisions are to be made for the
greatest good of all, utilitarian thinking has led to
decisions that permit the abridgement of
individual or minority group rights.
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Reasoning with Principles

The use of ethical principles, as opposed to the
intuitive use of ethical common sense, may
improve reasoning, especially in complex
Based on the application of utility, rights, and
justice, the managers decision in the text example
to remain silent is acceptable.
Some judgment is required in balancing rights, but
the combined weight of reasoning with all three
principles supports the mangers decision.

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Character Development
Character development is a source of
ethical behavior separate from the use of
principles reasoning.
The theory that character development is
the wellspring of ethical behavior can be
called the virtue ethic.
Aristotle believed that by their nature ethical
decisions require choice, and we build
virtue, or ethical character, by habitually
making the right choices.
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Practical Suggestions for Making

Ethical Decisions
Learn to think about ethics in rational terms using
ideas such as universalizability, reversibility, utility,
proportionality, or others.
Consider some simple decision-making tactics to
illuminate alternatives.
Sort out ethical priorities early.
Be publicly committed on ethical issues.
Set an example.
Thoughts may be translated into action, and ethical
deeds often require courage.
Cultivate sympathy and charity toward others.

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Concluding Observations
There are many paths to ethical
Not all managers appreciate the
repertoire of principles and ideas that
exist to resolve the ethical problems of
business life.

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