Overview Of Ethical Dimension In Decision Making Process Commerce Essay

This piece of work explores the ethical dimension in decision making process and factors that influences manager’s behavior. It also explore conditions at which managers make decisions, how they access opportunities and why the needs to maintain sensitivity and be guided by their moral compass in reaching high ethical values in all their activities. The short fall of ethical issues shall also be address. Ethical misconduct has become a major issue in recent time that has led to the collapse of hitherto successful companies. Accounting fraud, inside trading of stock and bonds information, falsifying document, bribery, deceptive advertising, defective products employee theft, non punishable gross ethical misconducts, lack of proper governance are all problems cited as evidence of the decline ethical standards. Respectable business men and women, politicians have to resign disgracefully or imprisons for ethical indiscretions. Ethics in business has now taken a new centre stage in the corporate world as Global businesses are now working closely together to establish standards of acceptable behavior. The benefit of ethics cannot be overemphasize, many organizations who uphold ethics are reaping its benefit such as employee commitment, customer satisfactions, investor loyalty and above all soaring profit.

INTRODUCTION

It is perceived that a cultural diversity in work place arises from upholding ethical values, which is linked to morals which in it self is linked to performance. One cannot talk about ethics without mentioning values, morals and principles. They are all interlinked and one explains the other. For example, Ethics- a moral principle or set of moral values held by an individual. Morals – principles of behavior in accordance with standards of right and wrong. Values – moral principles or accepted standards of a person or a group. Principles – a standard or rule of personal conduct. Thus Business ethics is a set of moral principles for arriving at a decision within the values of the organization. Ethics is very controversial because of its discretional nature of it makes it open to different interpretations and applications, for this reason it can be manipulated to suit certain situations and many employees and managers have gone unscratched. For example an employee, who produces the best sales results but continues to be racist after several warnings do you dismiss him and lose your best sales personnel? This situation does not only require honesty and courtesy. As controversial ethics may be, its importance has risen in modern times. So why is ethics so important? They are because, they are very the foundations on which a civilized society is base on and without them civilization may collapse; its purpose in business is to direct employees to abide by a code of conduct that maintains discipline and facilitates public confidence in that business. Ethics ought to be and must be taught, its values cannot be managed; it’s a personal thing and is about standards. Ethical values translated into management behaviors can make the difference between employee satisfaction and frustration.

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Making good ethical decisions requires sensitivity to ethical issues and a practiced method for exploring the ethical aspects of a decision and weighing the considerations that should impact on course of action. Having a method for ethical decision making is absolutely essential. It is only by carefully exploring a problem, aided by the insights, intuition and different perspectives, can managers make good ethical choices in pressing needs.

Minor moral behavior is usually an outcome of a decision process

Moral and ethical behaviors are used interchangeably; this is because ethical behaviors are usually base on morals. Morality is usually used to refer to a code of conduct put forward by any actual group. Ethical behavior is acting in ways that is consistent with one’ personal values and the commonly held values of the organization and society Naran (1992) .Aristotle’s view of some of the key elements of a moral character includes Courage, which allows managers to assume reasonable risks when in dilemma, its demonstrate initiative but are not foolhardy. Temperance, which allows managers to channel their drives and ambitions in creative ways without being excessive. Justice, which is associated with trying to find a balance between competing forces, and which is essential in balancing stakeholders claims in addition to honesty, integrity etc.

Managers are perceived to be morally upright whose responsibility is to make decisions that seek common good. Even though they are perceived this way, yet they have a choice to follow either their own values or the company values enshrine in CSR, which according to Institute of Business Ethics is “the core values and codes of ethical behaviors that underpin everything that the business does and how a company chooses to interact with its global and local communities in the light of its values and ethics”. It is also the area where the agency problem arises (i.e. the conflict of interest between managers and owners, where managers could forgo the interest of shareholders and work in their own self fish interest). For example Enron’s Kenneth Lay had the choice between honoring shareholders or himself and he chose the latter over the former. Albert Carr in 1968 referred a decision maker as game player who cannot be trusted to accommodate all stakeholders in his decision. Because a business should not seek to satisfy goals other than seeking profit by legal and acceptable means Friedman (1790). What is acceptable means is where ethical behaviors are traded off. For instance, will a shareholder prefer to have more profit unethically? Are they just interested in returns which most of them do or seek the good for all? E.g. Cadbury was taken over by Kraft, the shareholder knew there would be jobs losses yet because of returns, they went ahead, were they seeking good for many or themselves?). Both Carr and Friedman appear to support aggressive profit chasing style of management but differ in the approaches. Carr is of the view that, the morality of the poker player is what counts which means that, the morality of the company should be burnt to favor that game player. But the question is how moral can a manger be trusted to be? WorldCom’s Bernie Ebbers was trusted for that, occupying a reputable position in a reputable company but what did he do? This is where Friedman assertion that profit should be chased within the parameters of decency and legality is of great value in business ethics, which is the application of ethical values to business behavior and applies to any and all aspects of business conduct, from boardroom strategies to treatment of suppliers to sales techniques and accounting practices. Ethics goes beyond the legal requirements for a company and is, therefore, discretionary. Business ethics applies to the conduct of individuals and to the conduct of the organization as a whole. It is about how a company does its business, how it behaves intrinsically. Most companies seek to do business ethically in order to make profit but an ethical business, on the other hand has a much broader agenda and focuses on making a positive contribution to the community. For example a mainstream bank may take ethics seriously by taking responsibility for its negative impacts on society and the environment and seeking to minimize those impacts. An ethical bank, such as The Co-operative Bank, states that it seeks to make the world a better place by taking a different approach to banking. In the case of this type of business, ethics becomes at least as high a priority as profitability. Decision makers are constantly tested with a host of ethical issues such as bribery, conflicts of interest environmental protection, fairness, fraud, honesty in research and testing, public safety, utilitarianism etc. BAE systems recently pleaded guilty to bribery allegations. Where was their ethical code? It appears to suggest that, these companies have persuasive ethical codes but fall short of reflecting on their day to day activities and a deterrent to such unethical practices. The lack of legal enforcement of these ethical codes is belittling its impacts. Let consider the words of Kenneth Lay July 1 2000 “As officers and Enron Corp, its subsidiaries, and its affiliated companies, we are responsible for conducting the business affairs of the companies in accordance with all applicable laws and in a moral and honest manner…We want to be proud of Enron and to know that it enjoys a reputation for fairness and honesty and that it is respected. … Compliance with the law and ethical standards are conditions of employment and violations will result in disciplinary action, which may include termination…in addition to responding to the Act, we are adopting this Policy Statement to avoid even the appearance of improper conduct on the part of anyone employed by or associated with the Company…We have all worked hard over the years to establish our reputation for integrity and ethical conduct… We cannot afford to have it damaged.” Those were the words of Kenneth Lay yet he damaged and collapsed Enron and never obeyed any single word from the code of ethics he wrote. Ethical codes are increasingly becoming a norm for businesses and will soon become a white elephant except some actions be taken to address its lack of enforcement and proper oversight. The absence of punishment essentially provides an opportunity for unethical behaviors. Managers may not be taught to have good morals but can be force to follow ethical codes. Corporate governance was created as a accountability, oversight and control with accountability referring to how closely the workplace decisions are aligned with the firm’s stated strategic direction and its compliance with ethical and legal considerations and oversight as a check and balances that limit an employees and managers opportunities to deviate from policies and strategies that prevent unethical and illegal activities and control to take charge of auditing and improvement. This was a brilliant idea with the board of directors as the officers in charge. These board of directors who have legal responsibility for the firms resources and decisions, appoint executives and assume fiduciary duties have used such positions to enrich themselves according to Ferrell, (2005) most board of directors meet irregularly and spent less time to take the most complex decisions but spend more time in executive compensations. Most respondents in his survey agree that directors’ compensations are too. Unfortunately the people or the bodies who suppose to regulate, stress and point out unethical issues have become accomplices. For example Former head of Royal Bank of Scotland was accused of a host of wrong doings when he never acted alone. And most of his decisions were approved by the board of directors. As if that was not enough his successor defended feverishly the roar of the bonuses has brought huge debate in the public including a parliamentary committee. Arthur Andersen supposes to haven been the Accountants Accountant (Auditors) who suppose to have been the eyes for Enron and WorldCom shareholders, but what did they do? Were they honest and fair? Did they protect the shareholders and investors? Were they not partners in crime to immoral Kenneth lay and his allies to defraud the general public? So who can the public trust on ethical issues and utilitarianism, the very people who suppose to know better are worse off. To sum up:

Ethics is not the same as feelings. But good morals triggers intuition which needs to be trusted sometimes in complex decisions making which help to steer moral compass.

Ethics is not religion. Many people are not religious, but ethics applies to everyone. Most religions do advocate high ethical standards but sometimes do not address all the types of problems we face. Yet where ethics are tied to religious belief there has been less misconduct.

Ethics is not following the law. A good system of law does incorporate many ethical standards, but law can deviate from what is ethical. Law can become ethically corrupt, as some totalitarian regimes have made it. Law can be a function of power alone and designed to serve the interests of narrow groups. But if only ethics can be enforced most of the corrupt practices shall reduce.

Ethics is not following culturally accepted norms but where ethics becomes a way of life there has been much result.

A decision is usually a choice among alternatives (McManus, 2009). It is the study of identifying and choosing alternatives based on the values and preferences of the decision maker.

It is a cognitive process which consists of finding the best option from a feasible set. Many decision making processes, in the real world, take place in an environment of uncertainty in which managers some time rely on probabilities and gut feeling(intuition) beside rational to make decisions. Thus every decision involves certain amount of risk. Where there is no uncertainty, there is no risk and where there is certainty there is no decisions to be made. There are different types and levels of decisions with different input and outcome but whatever the decision might be the processes are the same though it differs in substance and in content. For example strategic decisions are long term heuristic control from board and top management is usually associated with high risk because of the uncertain future. Tactical decisions, medium term and qualitative with moderate risk for middle and functional management and operational which is short term, day to day quantitative activities with low risk for lower management. These levels and types of decisions usually involve 6 main steps from identification of a need or problem which involves defining the underlying problem to be solved with clearly stated desired outcome or the goal, to developing alternatives which is exploring other ways or possible solution to achieve the stated goal, to evaluating alternative which is analyzing each alternative and its includes comparing alternative, weighting, rating and ranking alternatives to find out the best feasible option then selection which could be more than one option, to implementation which is a very crucial step because all the people involved in the implementation of a solution should know about the implications of making the decisions are, this is very essential to successful results and then monitoring which is watching over to make sure it reaches the goal. But there are various obstacles to good decisions, because the manager has to rely on others to input, it can slow decisions down or tilt it wrongly such as lack of information and the too much of it, lack of technical expertise, lack of constructive criticisms, noncommittal, over confidence, prejudgment, reliance of past experience, supply of wrong information, dominance individuals etc. In all of these processes managers are expected to behave in a certain way (ethically). Because a company cannot be a moral agent but they are however held to the same standard as individuals, a manager personal morality should not be separated from business morality. As the impact of a company’s actions on society requires them to consider the whole social system in making a decision, as business doesn’t operate in a vacuum. Whether a decision is reach base on rational or probability, the intuition (gut feeling) factor will always have the final say. Most managers make decisions that reflect on their persona, thus a morally corrupt mangers like WorldCom’s Bernie Ebbers, Adelphia’s John Rigas, Tyco’s Dennis Kozlowski, Livedoor’s Takafumi Horie, Samsung Group Lee Kun-hee, Daewoo’s Kim Woo-chaas etc made decisions that reflected on their morality. Ethical managers often back down on a decision when it doesn’t feel right. Thus indeed a decision process is an outcome of moral behavior.

A business situation occurs with a variety of threats and opportunities to goals and success

Every problem or a need creates business opportunity with it associated risk. Managers ought to be sensitive to the dynamics of business environment with its rapid technological changes. Managers always scan their environment to spot opportunities, situations that they can take advantage of. They explore new ways of doing things, look to keep competitors at arm’s length, try to strengthen their competitive advantage and increase market share. They monitor their position and their products in the market place and also take advantage of a new market. Sometimes they diversify their portfolio to take a situational advantage.

For example virgin airline spotted a business opportunity for space tourism because they saw a need which they thought they could provide. That was a massive ambition with huge risks and rewards, the aim is to provide tourist with an unforgettable experience in space flight, with the objective of provide sightseeing in aerospace. When it’s succeeds the benefit are very huge but the risk /threat of massive losses could scare them from such an adventure. This is where sound managers are called into action.

First series of questions needs to be answered such as, is there a need for space tourism, what is the market size for such segment, who will be our primary targets, do we have the capacity in terms of funding and expertise, then a cost benefit analysis has to be done to ascertains the viability of it, A survey will be carried out as part of the strategies to test the market readiness for such adventure and when the space craft is ready a test flight has to carried out. In all of these, managers have to take a calculated risk not to overexpose the company. The threat of failure, being the first of its kind, safety and accidents issues will be a major concern. The target market would be the very elite the rich class. This could pave way to charging exorbitant prices that may lead to exploitation of such people, as a monopoly in the market. This is where mangers need to be guided by their moral fiber, to address the safety issues and setting fair prices to avoid exploitation.

Opportunities do not come all the time and a proactive manager creates opportunities, but not all opportunities are advantageous. For example every business has its own risk threshold beyond it will be a disaster. There are some risk that can be passed on or diversify others can not be they are called systematic and non systematic risk. Some greedy managers would want to grab every opportunity and loose sight of systematic risk that cannot be mitigated by diversification such risk could collapse businesses. In accessing opportunities both risk takers and risk averse managers’ needs to take some level of risk (a calculated risk). Most managers access opportunities in light of PEST and SWOT especially if the opportunity is in abroad as these two analysis helps to uncover any hidden threat or risk. Political factors such as the type of government and its stability, the rule of law and levels of bureaucracy and corruption, Tax policy, and trade and tariff controls, environmental and consumer-protection legislation. Economic factors such as stage of business cycle, economic growth, inflation and interest rates, unemployment , labor supply and cost, levels of disposable income and income distribution, the likely changes in the economic environment

Socio-Cultural factors such as population growth rate and age profile, level of education and social mobility, employment patterns, job market freedom and attitudes to work.

Technological Environment: Impact of emerging technologies, impact of internet, reduction in communications costs and increased remote working, research and development activity and impact of technology transfer.

The effective use of PEST Analysis ensures that the business is aligned positively with the powerful forces of change that are affecting the business world. By taking advantage of change, the company is more likely to be successful than if its activities oppose it. PEST Analysis helps to avoid taking action that is doomed to failure from the outset, for reasons beyond the control of the manager and it also useful when the opportunity is in different country or region. This analysis should be done in conjunction with SWOT analysis

STRENGHT

WEAKNESS

OPPORTUNITIES

THREAT

By access the internal factors (strength and weakness) such as the capacity expertise, funding etc some of the inherit risk or failure could be avoided before it takes off.

Opportunities and threats are external factors such as new market, new product line diversification joint venture and acquisition, and threat such as new competitor, new taxation and tariffs. At the end of such analyses the manager would have all the options available to him to inform good choice or alternative move. But some times manager needs to acts quickly and cannot wait for these analyses, on that ground he must be guided by his expertise and his intuition to take a calculated risk to cease the opportunity if suit fit.

A need to decide is recognized and alternatives must be evaluated and selected

A need precede a decision. For a quality decision to be made, an unambiguous need must be identifies and recognized in the mind of the decision maker

The decision maker has to understand the problem, the need and purpose of the decision, the criteria of the decision, subcriteria and who the stakeholders are. Quality decisions are mostly base on the quality of information available to the manager. Though more information doesn’t guarantee better result and sometimes is as bad as little. Not all information is useful therefore; the manager will need to filter out which ones are necessary for the situation at hand. Alternatives must be carefully and objectively evaluated, prioritized, weighed, rated and ranked, their factual consequences explicitly determined and combined according to some predetermined utility function a choice is finally made to maximize utility. Harrison (1987) suggested five components in the decision-making function of comparing and evaluating alternatives:

Analysis of the anticipated benefits and costs for each alternative.

Estimation of the risk and uncertainties related to the like hood that given alternative will result in an outcome.

Make closure on some one alternative i.e. eliminating or, probably some mixture of accessible alternatives

Give reason for the choice of given alternative by fixed further on its attributes for attaining the objectives

Determine and evaluate the outcomes expected to result from implementing the chosen alternative and where these are not feasible, the decision maker has to use his judgment. This is necessary because it is his responsibility to makes decision to salvage a situation or take advantage of, in all of these he must be guided by his personal values and the ethical code of the company, he will need to maintain his composure and allow his moral compass to guide him. A virtuous behavior usually extends from personal life into his business life. He will need to be sensitive to the environment and all the stakeholders. But sometimes they could be under pressure to take a stance or make a hasty move. For example President Bush went to war in Iraq when the September 11th was so fresh in the minds of Americans. The need to retaliate was so strong and the president was under enormous pressure to act and he acted under false pretence of weapons of mass destruction. Today many Americans wish they had not gone to war. Dialogue, sanctions and international pressure were options that he could have exercise, weighted ranked, instead he used his judgment which is usually base on feeling or an idea .Even though it came to light that the intelligent report on which he based his decisions on was wrong. This is how manger could make a bad decision with wrong information or little. Manager are tested every day with decision, they are being pressured all over because of the changing business environment, they have to think on their feet to make decisions with very little information, sometime they even have to gamble and hope that all goes well. This is where they have to trust their gut feeling to move forward.

Time is generally short and at a premium. At this point, it is very easy for alternatives to be offered that require marginal moral behavior. This is when sensitivity to the moral compass is most needed. This is when objectionable moral behaviors can best be exposed and discarded.

The right time is very important because businesses do not have much time to wait for a decision which is generally time consuming and uncomfortable and because of limitation in information collection and cumbersome processes, decision makers tends to settle for the first satisfactory solution which may be less than the ideal. Available time to business is determined by the gap between when a decision is to be made and when is actually made business. Between thos period profit can be made as losses. Businesses have strict times table some time and deadline must be met or never. For example, a competitive tender require specific date and time, if management are to make a bid they must meet it or loose the opportunity. Trading on the stock exchange is time bound; prices keep changing in a matter of seconds, a stock broker must make a move at the right time or loose out .

Philip Kotler a marking authority believes the right product at the right time in the right place at the right price is very crucial to a successful business. Competitors could take advantage with the slighter delay. Businesses must strike at the right time or risk failure.

Time value of money state that, money at the present time is worth more than the same amount in the future due to its potential earning capacity. Investment decision ought to be made at the right time if good returns are expected

How can they adhere to personal and ethical values and their moral compass under these decision pressures?

Strategic decisions set the tone for managerial decision making for all functional unit and individuals organization. If the decision making at the top of the organization is unproductive then the choices made at subordinate levels of management will be the similar. Likewise if top management’s strategic choices tend to be successful, it permeates positively on choices made in other parts of the organization (Harrison 1987).

According to Harrison (1987) argues that values are normative principles by which human beings are influenced by in their choices amongst alternative route of action. Values initiate principally at the level of the individual. It is also true, however, that groups have values, known as norms and organizations have values implied in their goals, objectives and their ethical codes. As a manager, decisions made should reflect the values of the whole organization

REFRENCES

Harrison E. (1987) the Managerial Decision-Making Process (3rd Edition)

McManus J.(2010) Lecture 5, Managerial Decision Modelling, available

Naran, F “Your Role in Shaping Ethics,” Executive Excellence, 9 (1992), 11 – 12

Ferrell,O.C Houghton Mifflin Company, USA 6th edition

Carr A 1968. is business bluffing ethical Harvard Business review

Friedman M. 1970 the social responsibility of business is to increase profit N.Y Time magazine

John I have run out of time