Ethical Decision Making

MGMT 21034: Business Ethics and Sustainability
Ethical Decision Making

Associate Professor Michael Segon

Learning Objectives

The objectives of this topic are:

  • To understand the concept of consequentialism ( including egoism, altruism and utilitarianism) and its advantages and disadvantages.
  • To understand the concept of deontology, the various theories within this category and their advantages and disadvantages
  • To understand the concept of virtue ethics and its advantages and disadvantages.
  • To synthesise the three major ethical theories into a cohesive ethical decision making framework
  • To apply the ethical ethical decision making framework as a filter for decision making

Making Ethical Decisions

This topic introduces the three major categories of ethical theories and how they can be used to inform and justify decision making.

Ethical Issue Intensity

Refers to the perceived relevance or importance of an ethical issue to the individual, work group, and/or organization

  • reflects the ethical sensitivity of the individual or work group and triggers the ethical decision process
  • positive or negative incentives can affect the perceived importance of an ethical issue
  • employees need education regarding potential problem areas

(Ferrell, Fraedrich and Ferrell, 2015, Trevino and Nelson, 2007)

Role of Opportunity

Ferrell, Fraedrich & Ferrell (2015) suggest that the opportunity relates to the situation that permits ethical or unethical behavior to occur (temptation)

rewards & punishment play a key role

relates to the employee’s immediate job context

relates to the robustness of internal controls

Such opportunities can be minimised by establishing formal codes, policies, and rules that are enforced.

Business Ethics Evaluations & Intentions

Ferrell, Fraedrich & Ferrell (2015) also suggest that ethical dilemmas involve decision rules which are often vague or in conflict

  • critical thinking plays a key role
  • a person’s intentions and the final decision as to what actions to take are the last step in the ethical decision-making process
  • if intentions & behavior are not consistent with ethical judgments, the individual may feel guilty

Resolving Ethical Dilemmas

According to Ferrell Fraedrich and Ferrell (2015) the way in which individuals in organisations resolve ethical dilemmas devolve from three factors:

  • a) Recognition of an issue as an ethical issue — an issue that requires a decision to be made between two or more competing objectives referred as “ethical issue intensity”;
  • b) The individual factors — the ethical standards of the person who is called upon to make an ethical decision; and
  • c) The corporate culture — the influences on the mind of the individual called upon to make an ethical judgment.

Engaging in Unethical Practice

Cressey (1973) analysed what motivated individuals to commit white-collar crime in US. He identified several key or necessary elements:

Pressure: the individual needed to be under some stress or duress, which they felt unable to discuss-, it could be, and often was as a result of activities such as gambling or life-style preferences.

Motivation- the need clearly had to exist to drive behaviour- this was also identified as an un-discussable need meaning individuals felt that they could not seek assistance to address the problem,

Opportunity- the individual needed to have access to or control aspects of organisation resources so as to commit the fraud or theft- usually of funds and the final condition of

Rationalization: which is the process by which individuals justify their actions to themselves and others as being acceptable

  • (Albrecht et al, 2008; Dellaportas et al. 2005; Cressey, 1973).

Ethical Theories and Approaches

There are many ways of studying and analysing management decision-making and action from an ethical perspective. What is important to keep in mind is that by introducing these perspective we are increasing the quality and scope of our decision.

Whilst there are numerous ethical theories or approaches to thinking we can summarise these into three distinct categories:

determining ethics by focusing on the outcome or consequences of a decision- utilitarianism, egoism, altruism

determining ethics by focusing on principles or processes that guide the decision, -deontology, principles, process, rights

determining an ethics by focusing on the characteristics of those making the decision- virtue ethics

How people make decisions about ethics


Outcome, either for them as an individual or for the organisation.


Following due process and / or a series of principles or duties.


What is accepted as good character.

People tend to make decisions using one or two of the following approaches


Analysing the Ethical Decision Context

  • The first step in analysing moral issues is obvious but not always easy: Get the facts.
  • Some moral issues create controversies simply because we do not bother to check the facts.
  • This first step is also among the most important and the most frequently overlooked (Velasquez, 2006).

Ethics By Outcome: Egoism, Altruism & Utilitarianism

This group of theories is perhaps the most attractive to the business community because it uses an analytical approach that parallels the cost benefit analysis used in most business decision-making. Because they focus on the outcome of a decision these approaches are often referred to as consequentialism.

The objective of this approach is to generate the greatest possible benefit for the largest number of people whilst minimising the damage or harm to others. The issue here is not how these outcomes are achieved but rather the cost or benefit that is incurred.

Key concepts include utilitarianism, egoism, altruism and common good.

(Ferrell, Fraedrich & Ferrell, 2015, Hinmann, 2010, Trevino and Nelson, 2007, Harrison, 2001, Harrison 2005, Harrison 2001, Buchholz, 1989,)

Ethics By Outcome: Egoism, Altruism & Utilitarianism

Forms of utilitarianism:

  • Act utilitarianism dictates that one ought to perform the action that will maximise utility for all persons in the situation. As situations vary, separate and time-consuming analysis must be carried out for each circumstance to determine the right, moral or correct action.
  • Rule utilitarianism would, however, establish a guiding principle, or rule, that would be used in each evaluative situation when determining the greater good, and that rule would be adhered to into the future.

(Macdonald, 2015)

Ethics By Outcome: Egoism, Altruism & Utilitarianism

According to Macdonald (2015) When a moral agent (a manager) is faced with an ethical dilemma, egoism will place him/herself as the primary recipient of any beneficial outcomes that may accrue from the decision.

Ethical egoism is embodied in the principle that an individual will promote their own self-interest. Unfairness and chaotic consequences could result in a dysfunctional society.

  • Act egoism – in which the egoism of a person aims to maximise utilities without limit.
  • Rule egotism – where a person aims to maximise utilities through constrained co-operation with others.

Ethics By Outcome: Egoism, Altruism & Utilitarianism

According to Macdonald (2015) an action is considered morally sound when the consequences lead to the greatest balance of maximum benefits and minimum harm.

Utilitarianism differs from the economic concept of cost-benefit analysis in that consideration must also be given to alternative actions, the distribution of the costs and benefits and the aggregate benefit of the outcomes within society.

Traditional utilitarianism is when an action is ethically correct, the action produces the maximum good and the minimum harm for all concerned (including the decision-maker).

Ethics By Outcome: Egoism, Altruism & Utilitarianism

To use these approaches to solve ethical dilemmas we would identify/generate a number of possible solutions to a problem and for each we would:

  • Identify the benefits and harms attributable to each
  • Identify the key stakeholders affected by the decision
  • We would select that solution that maximizes the benefits (good) and minimizes the costs (harms)

Problems with Consequentialism.

The major problem with outcome theories is that they hold that the moral or ethical worth of an action or practice is determined solely by the consequences of the practice or action and not on the intent of the action. Thus how we arrive at a decision is not considered relevant, providing the benefit is considered moral.

Two other problems can be immediately identified:

whose interests are evaluated, and

what is actually measured.

(Ferrell, Fraedrich & Ferrell, 2015, Hinmann, 2010, Trevino and Nelson, 2007, Harrison, 2001, HArrison 2005, Harrison 2001, Buchholz, 1989,)

Ethics by Process: Deontology Rights, Justice
Fairness, Due Process

  • The second branch of ethics addresses the in adequacies of consequentialism by arguing that actions and practices cannot be justified solely in terms of the consequences or outcomes but rather that the actions and practices have intrinsic moral or ethical value. e.g., some actions and practices may be morally wrong, no matter how good their outcomes might be.
  • This group of theories includes concepts related to duty and obligation (deontology), using rights as a moral guide, using principles as the basis for decision making and following rational and clear decision making process.

(Ferrell, Fraedrich & Ferrell, 2015, Hinmann, 2010, Trevino and Nelson, 2007, Harrison, 2001, Harrison 2005, Harrison 2001, Buchholz, 1989,)

Ethics by Process: Deontology Rights, Justice, Fairness & Due Process

  • Deontologists suggest that the business world is complex and characterised by uncertainty making it extremely difficult if not impossible to identify all stakeholders and the impacts our decisions would have.
  • Therefore the ethical decision should be determined by ensuring that the decision does not violate rights of individuals, is consistent with an accepted principle such as fairness and or followed a transparent and agreed decision making process.

(Ferrell, Fraedrich & Ferrell, 2015, Hinmann, 2010, Trevino and Nelson, 2007, Harrison, 2001, Harrison 2005, Harrison 2001, Buchholz, 1989,)


Ethics by Process: Deontology Rights, Justice, Fairness & Due Process

Forms of deontology

  • Act deontology – states that an individual will grasp the situation immediately and act on what ought to be done without relying on rules or guidelines.
  • Rule deontology – states that acts are right or wrong according to their conformity or non-conformity to established moral principles.
  • Monistic deontology – advocates the supremacy of one general rule, such as the Golden Rule: Do unto others as you would expect them to do unto you.
  • Pluralistic deontology – suggests that a number of rules can provide simultaneous guidance, for example, the Christian belief in the Ten Commandments.
  • (Macdonald, 2015)


Ethics by Process: Deontology Rights, Justice, Fairness & Due Process

Immanuel Kant, an 18th-century philosopher, viewed moral action to be based on one’s duties. Kant viewed duties as absolute and binding in providing moral guidance.

Kant’s principal contribution to deontology is the formulation of the categorical imperative for testing morally correct duties and actions.

An action is morally right for a person in a certain situation if, and only if, the person’s reason for carrying out the action is a reason that he or she would be willing to have every person act on, in any similar situation.

  • Categorical imperative – Kant’s first formulation
  • The first formulation of the categorical imperative possesses:
  • Universality – an act or decision may be judged to be morally correct if everyone must perform the same act, or reach the same decision, given similar circumstances.
  • Reversibility – if everyone in comparable situations acted in a similar way, does the principle become a universal law?
  • (This is very close to the Golden Rule: Do unto others as you would have others do unto you.)


Ethics by Process: Deontology Rights, Justice, Fairness & Due Process

To solve ethical dilemmas using these approaches we would ask:

  • Have I identified the relevant law, rule or code?
  • Have I identified the rights of those affected by the decision?
  • Have I identified my obligations to my employer, the community etc
  • Am I acting consistent with accepted principles
  • Am I treating all stakeholders fairly and consistently

Problems with Process Approaches.

Following laws, principles and processes without question may not necessarily result in an ethical outcome.

Consider Australian unfair dismissal laws when an employee may have committed a serious offense worth of dismissal, yet because they not taken through an approved performance management process, an industrial court may rule in favour of the employee.

Similarly one of the consequences of articulating individual rights is that when they are violated, an individual has the right to compensation or justice- this can lead to extremely litigious environment, even for frivolous matters.

  • Another potential problem is the interpretation of principles and in particular law- the concept of the spirit versus the intent of law comes to mind.

(Ferrell, Fraedrich & Ferrell, 2015, Hinmann, 2010, Trevino and Nelson, 2007, Harrison, 2001, Harrison 2005, Harrison 2001, Buchholz, 1989,)

Ethics by Virtue or Character

The third ethical perspective is that of virtue ethics which seeks to emphasise the concept of character rather than a calculus or the following of a principle.

Essentially the virtue approach argues that people should act in a manner which is consistent with the advancement of specific characteristics that we would all agree are characteristics of ethical people.

Virtues include honesty, integrity, truthfulness, courage etc. Conversely we should actively discourage characteristics or vices than are undesirable such as lying, stealing, cheating, being and licentious behaviours

Most virtue ethics approaches are based on the writings of Aristotle, although some versions incorporate elements from Plato, Aquinas, Hume and Nietzsche.

Parallels can also be found in eastern philosophical traditions: Vedantic, Confucianism and Buddhism

(Ferrell, Fraedrich & Ferrell, 2015, Hinmann, 2010, Trevino and Nelson, 2007, Harrison, 2001, Harrison 2005, Solomon, 2005, Harrison 2001, Buchholz, 1989,)

Ethics by Virtue or Character

  • The key question of virtue theory is: “How am I to Live?”
  • The answer is: By cultivating virtues, only in this way can we flourish as human beings
  • The virtue approach to ethics assumes that there are certain ideals toward which we should strive, which provide for the full development of our humanity.
  • These ideals are discovered through thoughtful reflection on what kind of people we have the potential to become.

Ethics by Virtue or Character

  • In order to use the virtue approach when dealing with an ethical problem using the virtue approach, we might ask,
  • What kind of person should I be?
  • What will promote the development of character within myself and my community?

Problems with Virtue

  • Whilst some people maintain that the virtue approach lacks a rigid paradigm, in many ways this is also its strength.
  • Whilst we may debate details of a definition of integrity, there is a general agreement as to what the general characteristics of a person with integrity would be.

(Ferrell, Fraedrich & Ferrell, 2015, Hinmann, 2010, Trevino and Nelson, 2007, Harrison, 2001, Harrison 2005, Solomon, 2005, Harrison 2001, Buchholz, 1989,)


Responsible Decision Making

  • One of the problems with integrating ethical perspectives into business decision-making is that we use some of theses principles unconsciously or in a restricted fashion.
  • Rarely do we seek to integrate the three categories of ethics as filters to our decision making, yet doing so will help improve the quality of our decisions by altering us to possible violations of individual rights or duties, ignoring key stakeholders or acting in a way others would see as unacceptable.

Responsible Decision Making

  • Velasquez (2010) puts forward a series of questions that seeks to articulate the ethical dimension of a decision or action. If it fails at any point it should alter us to possible ethical challenges and we should revisit the decision or action.
  • What benefits and what harms will each course of action produce, and which alternative will lead to the best overall consequences
  • What are the rights of those involved and does the proposal involve risk or harm to persons, animals or property?
  • Is the proposal consistent with the law?
  • Is the action consistent with professional codes of ethics?
  • Which course of action treats everyone the same, except where there is a morally justifiable reason not to, and does not show favouritism or discrimination?
  • Which course of action is and will be seen as consistent with virtues or characteristics such as integrity, honesty etc?
  • Am I prepared to have my decision and the reasons for it made public?

Responsible Decision Making

The Issue or Opportunity

Stage of Moral Development



Common Good

Social Contract













Rule & Act


Ethical Behaviour

Unethical Behaviour