Value Based Decision Making

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Ethics should be distinguished from prudence
(self-interest narrowly defined),
legality(following the law in letter and
spirit) and professional guidelines and codes of
conduct. Ethics is more than that and fills the
gaps in perception and pronouncements.
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Value Based Decision Making
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Management by Values

• There are four major rationales used by
  professional managers to justify unethical
  behavior ( not paying heed to values)
• Belief that the activity is within the reasonable
  ethical and legal limits not really illegal or
  immoral
• A belief that the activity is in the individuals
  or organizations best interest
• A belief that the activity is safe and would not
  be found out or publicized
• A belief that the activity helps the organization
  and the management will condone even when
  detected.

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Organizational Traps- why we ignore ethics in
corporate decision making?

• We are social animals and our judgments are
  influenced by environment
• The judgment of some is influenced by (i) the
  desire to please others, (ii) to avoid conflict,
  to be in step with others and avoid future
  criticism
• Groupthink has a potential side effect of strong
  team identity and strives at consensus
• Problems generate undue optimism. Responses to be
  on factual basis.
• Groups decisions are generally more acceptable
  than individuals.
• The ethical value system of the members of the
  group could be at wide variance

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Smart and Ethical Decision

• Improved decisions by the employees at every
  level can have a major impact on the value of the
  business. Even small improvements make a big
  difference
• To improve decisions, adopt a rational decision
  process, train personnel to use the process and
  the tools, and improve implementation of the
  process through repeated use.
• When introducing a new decision process, start
  small and expand the process as it demonstrates
  its value. Enlist top management support, but
  localize control and responsibility
• Encourage improvement and value added judgment.

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Rationality Flowchart (Value Based)

• The problem is clear and unambiguous
  A single well defined goal All
  alternatives and consequences are known
  Preferences are clear and (value) based
  Preferences are (ethical) stable and constant
  No time or cost constraints
  Final choice will (optimize) maximize economic
  payoff
• Lead To
• Value based Rational Decision Making

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Current Management Thought
Manager Subordinates Peers / Suppliers
Profits sole criteria
Technology
Resources
Value Based Management Thought
Profits with joy
People Producers Consumers
Technology resources
Ethical action (CSR)
Value based management looks at the concept of
management differently and may be defined as a
series of ethical actions done by people,
using technology and resources, to achieve a
state of joy and happiness in the minds of both
producers and consumers.
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Organizational Types based on Ethical
Consideration
Ethics built into the decision making process
Ethics said to be important but not
institutionalized
Problem of ethics recognized after the decision
is made Ethics briefly considered but
considered irrelevant
No consideration of ethics at all
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Value has been defined as that is desired. It
has reality only in its fulfillment, and
therefore, needs to be actualized before it can
truly become value (instrumental). It is not
always the end results, but also the means to
realize it (intrinsic). Value based actions and
decisions ensure the welfare of all people
belonging of the society.A set of basic values
can help people to make decisions even in the
face of uncertainty and in new situations that he
has never encountered before. Values enhances the
quality of life of the individuals and the
society.For the last 1000 yrs, man has
attempted to establish the ethical value systems
to regulate their conduct none of them are
perfect.
Value Analysis
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The Ethical Theories

• Ethics is a normative study, that is, an
  investigation that attempts to reach normative
  conclusions. It aims to identifying good or bad
  or right or wrong.
• There are different normative perspectives and
  principles that often contradict each other. In
  organizational context we can identify some of
  the ethical theories that have an impact on the
  manner in which ethics or lack of it could be
  identified in a business organization.

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Normative Theories
Consequentialist Teleological Utilitarianism
Non consequentialist Deontological Universalism
Egoism
Kantian theories
Classification of Normative Theories
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Teleological Theories - (Utilitarianism)

• Actions are justified by the virtue of the end
  they achieve, (concept of goodness is
  fundamental in teleological theories) rather some
  features of actions themselves. Also referred to
  as Utilitarianism, our obligation or duty to
  perform in any situation will be guided by the
  result in the greatest possible balance of good
  over evil. (Ethics of welfare)
• Advantages They are in accord with our ordinary
  moral reasoning and are relatively precise and
  objective for moral decision making. (Speaking
  the truth, honoring the contract, giving away the
  food for some other person to the beggars).
• Disadvantages The concepts of rights and justice
  pose a difficult challenge (rights of free
  speech, donations to the orphanage vs the money
  to be spent on your own children)

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The Two Giants of Utilitarianism

• Jeremy Bentham version relates that the
  consequences be measured in some way (pain or
  pleasure) and arrive at a mathematical figure.
  For this he outlined a procedure called the
  hedonistic calculus. Called as pig philosophy
  as it failed to differentiate between the levels
  of pleasure (fulfillment of hunger, friendship
  aesthetic enjoyment). Stretched a little it would
  say It is better to live the life of a satisfied
  pig than that of a dissatisfied Socrates
• John Stuart Mill brought the concept of quality
  into being and claimed that human beings are
  capable of enjoying higher pleasures than those
  experienced by swine. He concluded better to be
  Socrates dissatisfied than a fool satisfied. And
  if the fool or the pig, are of a different
  opinion, it is because they know only their side
  of the question

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Problems of calculating utility

• Classical utilitarianism requires that we be able
  to determine the amount of utility (pleasure
  minus pain) both for the individual as well as
  for the whole society. A difficult job indeed.
  The methods could be used as CB analysis,
  assigning monetary values to the parameters,
  should all values be monetised, and ancillary
  considerations (requirements of the analyst).
• However, Utilitarianism is a powerful and widely
  accepted ethical theory that has special
  relevance to problems in business. Not only does
  it enable us to justify many of the obligations
  of individuals and corporations, it also provides
  strong foundation for rights and justice

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Egoism

• The view that associates morality with self
  interest is referred as egoism. They assert that
  all actions are motivated by self interest and
  there is nothing like unselfish action. To them
  even the self sacrificial acts like whistle
  blowing is either to take revenge or become a
  celebrity. The criticism are
• Egoism as an ethical theory is not really a moral
  theory at all (subjective self interest)
• Is not a sound theory in as much as it assumes
  that all actions are motivated by self interest
  (ignores the intrinsic goodness of human beings)
• Ignores blatant wrong doings (does not take clear
  stand against corruption, bribery etc)

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Deontological Theories - (Universalism)

• Two people give large sums in charity one to
  impress his friends and the other out of genuine
  concern to alleviate sufferings. Deontologists
  generally hold that the rightness of actions
  depends wholly on or part of the motives from
  which they are performed and not the consequences
  implying categorical imperatives (act according
  to the maxim which you think should become
  universal, treat humanity with respect) and not
  on hypothetical imperatives (if you want to
  improve your serve, work hard).
• All moral judgments must be universalizable (what
  is good has to be good for everybody unless under
  excruciating circumstances). This insists that we
  must be consistent in the judgments that we make.
  (Tax evasion what if everyone did that?) The
  primary difficulty with this approach is its
  inflexibility

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Kantianism

• Immanuel Kant (1724 1804) is widely
  regarded as the most pragmatic business ethician
  in modern times. He said that for an action to be
  morally worth it should reflect goodwill. By
  goodwill he meant the unique human capacity to
  act from principles, must not be sought in the
  nature of man or in the circumstances in which he
  is placed, but sought a priori solely in the
  concepts of pure reason.
• For Kant, reason is the final authority
  for morality. Blind beliefs or rituals cannot be
  foundations for morality. No matter how much good
  it might result from the act, lying is always
  wrong. The two corner stones of this theory are
• To act only in ways that one would wish others to
  act when faced with similar circumstances
• Always treat other people with dignity

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Virtue Ethics

• Aristotle described virtue as a character trait
  that manifests itself in habitual action.
  Honesty, for example, can not consist in telling
  the truth only once. It is integrally related to
  practical wisdom is the whole of what a person
  needs in order to live well as a trait of
  character that is essential for leading a
  satisfying life (amassing wealth and power
  through ruthlessness or a successful life of
  crime and lechery be considered virtuous?).
  Aristotle lists justice among the virtues. A
  virtuous person not only has a sense of fair
  treatment but can also determine what constitutes
  fairness.
• The virtues are not merely means to happiness but
  are themselves constituents of it. Happiness does
  not consist solely on what we get in life but
  also includes who we are. (joy of parenting comes
  out of parental traits)

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Virtue Ethics in Business

• The role of ethics is to enable us to lead
  successful and rewarding lives the kind of life
  we call good life. The good life in Aristotles
  sense is possible only for virtuous persons
  that is, persons who develop the traits of
  character that we call virtues.
• Virtue ethics could be applied to business
  directly by holding that the virtues of a good
  businessperson are the same as a good person.
  However, business people face situations that are
  peculiar to business and so they may need certain
  business related character traits

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A Classical Example

• In the Indian epic Mahabharata, on the eve of the
  battle that is the central episode of the epic,
  the invincible warrior, Arjuna, expresses his
  profound doubts about leading the fight which
  will result in so much killing. He is told by his
  advisor, Krishna, that he must give priority to
  his duties, that is to fight, irrespective of the
  consequences. That famous debate is often
  interpreted as one about deontology versus
  consequentialism (utilitarianism), with Krishna
  the deontologist, urging Arjuna to do his duty,
  while Arjuna, the alleged consequentialist,
  worries about the terrible consequences of war.

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Niti and Nyaya

• Niti stands for organizational propriety and
  behavioral correctness while Nyaya stands for a
  comprehensive concept of realized justice.
• A realization focused perspective highlights the
  importance of the prevention of manifest
  injustice in the world, rather than seeking the
  perfectly just.
• When people agitated for the abolition of slavery
  in the 18th and 19th centuries, they were not
  laboring under the illusion that abolition of
  slavery would make the world perfectly just. It
  was their claim, rather, that society with
  slavery was totally unjust. It was the diagnosis
  of an intolerable injustice in slavery that made
  abolition an overwhelming priority, and this did
  not require a consensus on how a perfectly just
  world would look like

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A Practical Guide Niti vs Nyaya

• In the battle of Mahabharata, Arjuna is concerned
  not only about the fact that, leading the charge
  on the side of propriety and justice, a lot of
  people, many of whom he has personal relations
  with and of the same family would get killed. His
  worries goes well beyond the process independent
  view of consequences. An appropriate
  understanding of the social realization central
  to the justice as Nyaya has to take the
  comprehensive form of a process inclusive broad
  account. It would be hard to dismiss is on
  grounds that it is narrowly consequentionalist
  and ignores the reasoning underlying
  deontological concerns.

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Some More Normative Theories Of Business
Ethics(Business Friendly Theories)

• Businessmen are neither philosophically inclined
  nor are trained philosophers. They are interested
  in solving the specific problems that confront
  them directly, rather than indulging in
  abstractions that look like road to nowhere. It
  is imperative, therefore, that business ethicist
  should produce a set of ethical principles that
  are both lucid and easy to comprehend by the
  business folks, who can place them in context of
  their day to day business and see whether they
  have any practical relevance.
• Presently there are three normative theories of
  business ethics that have evolved over a period
  of time

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Some More Normative Theories Of Business Ethics
Normative Theories Of Business Ethics
Stockholder Theory
Stakeholder Theory
Social Contract Theory
Primary and Secondary stakeholders
More or Less obsolete
1.Benefit consumers to maximize their
wants 2.Benefit employee to maximize perks and
remuneration 3.Ensure least damage to the
environment
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The Concept of Right

• Rights play an important role in business ethics,
  they can be conflicting, supportive or
  discriminatory ( debate over abortion,
  euthanasia).
• Rights can also be understood as entitlements
• Several kinds of rights can be distinguished viz
  (1) Legal and moral rights, (2) Specific and
  general rights (3) Negative and positive rights
  (4) One prominent foundation for rights focuses
  on natural rights or as now called Human
  Rights characterized by universality and
  unconditionality. Slavery, apartheid and torture
  are wrong as they violate minimal conditions for
  rational action or dignity and respect

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Types of Ethical Value System -1

• Utilitarianism This approach comes from
  Teleology, which is concerned not with the act
  itself but with the consequences as well. A
  special version of teleology is Utilitarianism,
  which aims at creating the greatest degree of
  benefits for the largest number of people (
  difficult, trade off ?) while incurring the least
  amount of harm possible. (does not provide the
  balance between the benefits to the majority and
  the sacrifice of the minority)
• Universalism It is based on the duties and
  obligations of an individual (Deontology) and
  says that the moral worth of an action of an
  individual should be judged by the intentions of
  the action, and not by the outcomes. Do unto
  others. (difficult to be implemented in the
  organizations)

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Types of Ethical Value System - 2

• The system of Distributive Justice and Social
  Contracts Justice is thought to be the most
  likely outcome of an of an ethical process of
  decision making. All laws, rules and regulations
  must, necessarily, first and foremost be just.
  Groups can either be collaborative (synergetic)
  or conflicting (the distributive system be such
  as to compensate the least fortunate members
  greater equality). The essential feature of this
  system is transparency and full participation of
  the stakeholders in the decision making
  process.(individual efforts downplayed)

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Types of Ethical Value System - 3

• Individual Freedom of Choice Individuals at
  perfect liberty to make enlightened (legal)
  choices without being curbed by other individual
  or society. Freedom should be available not only
  at the entry stage but at all levels.
• The legal System and Professional Code The value
  of action can also be determined through the
  legal systems, professional codes and value based
  norms of particular profession.
• Though apparently simplistic, suffers from
  serious limitations of interpretations. Ethics is
  more than mere rules and regulations.

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Nashs Criteria of Ethical Decision Making 1

• Have you defined the problem accurately.
• How would you define the problem if you stood on
  the other side of the fence
• How did the situation occur in the first place
• To whom and to what you give your loyalty as a
  person and as a member of the organization
• What is your intention in making the decision
• How does this intention compare with the probable
  results
• Whom could your decision or action injure
• Can you discuss the decision with the affected
  parties before you make the decision

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Nashs Criteria of Ethical Decision Making - 2

• Are you confident that your problem will be valid
  over a long period of time, as it seems now
• Could you discuss the qualms of your decision or
  action with others
• What would be the symbolic action of your
  decision, if understood / misunderstood
• Under what conditions would you allow exceptions
  to your stand
• However, the approach may be irksome to
  the managers who have not been able to clarify
  their own values or who work in an unsympathetic
  climate. A guiding criteria is is the action
  needs to be kept secret.

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Ethical Decision Making Models

• Ferrel and Gresham (1985) developed a multi
  stage contingency model with three principal
  causatives (cognitive process) of ethical
  decision making
• Individual Factors (actual cognitive map of the
  individual and his value system)
• Organizational Settings (environment which
  promotes or hinders ethical action)
• Opportunity for action (possibility of acting
  unethically)
• Four constructs which affect decision making
  process through their moderating effect on
  ethical problems
• Personal experience
• Organizational norms
• Industry norms
• Cultural norms

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Ethical Decision Making

• Effective managers are action oriented,
  resolve conflicts, tolerant to ambiguity, stress
  and change, and have strong sense of purpose for
  themselves and their organizations. However, they
  should be aware of the following dimensions of
  decision making and a process of ethical enquiry
  will help.
• In a given situation, a certain course of action
  is imminent
• Some sensitivity to the potential harm and
  benefits for others
• A systemic method for determining and annexing
  the ethical issues involved
• Adding a needed dimension of ethics to the
  deliberation involved in decision making

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The Ethical Decision Maker

• 1. Every manager wants to prove himself and
  be successful. This growth can be achieved either
  by holding to the principles and ethics or
  completely abandoning them.
• 2. Organizations need to train managers for
  their inner growth and skill development for
  effective and ethical decision making. The
  training should include conscious imbibing of
  compassion, charity, goodwill, transparency to
  get over the negative feelings of jealousy,
  pride, ego, hatred etc
• 3. A decision maker requires a calm and
  poised mind which is attained through karma,
  samskara and guna.
• 4. With the help of meditation, one acquires
  an increasing power to process ones experience
  and information into durable and
  wider-perspective decisions

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Bibliography

1. Ethical Management Satish Modh
2. Business Ethics Shyam L Kaushal
3. Values for Managers Prof S.K.Chakraborty
4. Ethics and the Conduct of Business John R
   Boatright
5. Ethical Choices in Business R.C. Sekhar