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Value Based Decision Making


Ethics should be distinguished from prudence (self-interest narrowly defined), legality (following the law in letter and spirit) and professional ... – PowerPoint PPT presentation

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Title: Value Based Decision Making

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.
Value Based Decision Making
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
  • 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

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
  • 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

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
  • 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.

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
  • Lead To
  • Value based Rational Decision Making

Current Management Thought
Manager Subordinates Peers / Suppliers
Profits sole criteria
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.
Organizational Types based on Ethical
Ethics built into the decision making process
Ethics said to be important but not
Problem of ethics recognized after the decision
is made Ethics briefly considered but
considered irrelevant
No consideration of ethics at all
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
Value Analysis
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.

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

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

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

  • 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)

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

  • 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

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
  • 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)

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

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.

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

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.

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

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
The Concept of Right
  • Rights play an important role in business ethics,
    they can be conflicting, supportive or
    discriminatory ( debate over abortion,
  • 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

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

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)

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.

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
  • Whom could your decision or action injure
  • Can you discuss the decision with the affected
    parties before you make the decision

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.

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
  • Four constructs which affect decision making
    process through their moderating effect on
    ethical problems
  • Personal experience
  • Organizational norms
  • Industry norms
  • Cultural norms

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

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

  • Ethical Management Satish Modh
  • Business Ethics Shyam L Kaushal
  • Values for Managers Prof S.K.Chakraborty
  • Ethics and the Conduct of Business John R
  • Ethical Choices in Business R.C. Sekhar