Ethical Decision Making

Chapter 5 states three learning outcomes. After reading, you should be able to summarize traditional ethical theories in business terms and explain why understanding these underlying influences matters for ethical decision making; analyze the individual and situational factors that shape ethical decision making in business; and employ an ethical decision-making framework to reason through an actual business dilemma.

1. Summarize traditional ethical theories in business terms and explain the value of understanding these underlying influences in ethical decision making.
2. Analyze factors that may influence ethical decision making in business.
3. Employ an ethical decision-making framework for making ethical decisions in business.

The chapter opens with senior managers Chris and Trey sitting through an annual ethics training led by Dr. Sherman, a philosophy professor invoking Aristotle, Kant, and John Stuart Mill. Chris pushes back: how are these theories relevant to business? Dr. Sherman's answer is the chapter's thesis — when a coworker disagrees with what looks like an obviously good decision, that person isn't necessarily being stubborn or insubordinate. They may be reasoning from a different ethical perspective: a fairness view versus a stakeholder-satisfaction view, for instance. A manager who understands basic ethical theory can recognize the difference and guide the conversation instead of arguing past the other person.

It is common for managers to avoid framing a decision in ethical terms at all (Bird & Waters, 1989). A manager in Eastern Europe describes ethics as "generally ignored" at work, carrying mostly negative associations like "ethical offense" or "ethical committee" (Csillag, 2019, p. 140). Other research finds the opposite dynamic is possible: when managers regularly use words like "ethics," "morals," and "integrity" in describing work practices, employees feel safer raising ethical issues themselves — a phenomenon the authors call moral talk contagion (Zanin et al., 2016).

Many people treat business ethics as intuitive — a "gut instinct" that produces the right answer without conscious reasoning (Faber, 1999; Haidt & Joseph, 2004). Consider a sourcing team pressured by a supplier offering extravagant trips and gifts: the team may intuitively sense something is wrong before articulating why. But intuition is shaped by deeper factors — moral philosophies, moral development, and social needs — which is why the chapter unpacks them explicitly rather than leaving ethics at the level of gut feeling.

Moral philosophies derive from foundational ethical theories — general guidelines that apply to any moral problem, used to evaluate right from wrong. Derry and Green (1989) identified over 60 such theories offering similar yet conflicting solutions to ethical dilemmas. Most individuals subscribe to a dominant theory without realizing it is shaping their choices — and some people use a moral philosophy to justify behavior that is, in fact, unacceptable in the workplace. This is why managers need to understand both ethical theory and moral development in their workforce.

The chapter's own roadmap: Section 5.1 describes ethical theories in business terms as three dimensions for judging right and wrong. Section 5.2 explores individual and situational factors — moral development, social needs, culture, issue intensity, and organizational culture. Section 5.3 assembles a five-step ethical decision-making framework that incorporates all three dimensions.

In business, ethical theories typically relate to three dimensions of ethical behavior (Wicks et al., 2010). The action dimension focuses on what a company or individual is doing. The agent dimension focuses on who — the character of the company or person. The outcome dimension focuses on the consequences of a decision. One dimension may dominate in a given situation, but a typical business decision incorporates all three (Figure 5.1).

These three dimensions map onto two traditions of moral philosophy that answer the question "What is the right thing to do?": teleological ethics and deontological ethics (de Colle & Werhane, 2008). Teleological derives from the Greek telos ("purpose" or "goal") and logos ("reason") — under teleological theories, rightness comes from being a good person (the agent) and from the results (the outcome). Deontology is the study of duty, from the Greek deon — deontological theory judges the ethics of an action by its conformity to rules or laws ("Deontological ethics," 2014).

The three dimensions are complementary, each revealing something different for diagnosing an ethical problem. Actions and outcomes focus on external aspects of a decision — actions relate to regulations imposed by authorities or industry standards, outcomes to the decision's effect on stakeholders. The agent dimension requires recognizing internal company or individual values. Understanding all three lets managers recognize their own ethical style and the differences among their employees' styles.

Actions — The Deontological, Rules-Based Approach

Deciding whether an action is acceptable is the first step in ethical decision making — people refer to standards for whether a behavior is good or bad, right or wrong. This is the deontological approach: intent and outcome are not considered. If an employee lies about being sick to cover an absence, a deontological view judges the action unethical simply because it violates a company policy or standard, regardless of motive. Other names for this approach: rules-based, principle-based, Kantian. As Chapter 4 stressed, laws and regulations set a minimum standard, but other rules and principles shape ethical decisions inside an organization.

Standards for acceptable behavior often derive from religious and cultural traditions — nearly every religion has some version of the Golden Rule, "Do unto others as you would have others do unto you" (Burton & Goldsby, 2005). Business ethics research documents the influence of the Ten Commandments of Judeo-Christian tradition (Van Buren & Greenwood, 2013), the rules for conduct in the Qur'an and Hadith of Islam (Hassan et al., 2022), and the guidance of Hindu scriptures (Richardson et al., 2013). Companies operating diverse workforces should understand these religious foundations.

Critics find rules-based ethics too rigid, too simplistic, or too reliant on vague principles (J. Smith & Dubbink, 2011; Z. Xu & Ma, 2016). The main target is Immanuel Kant's categorical imperative: "Act only according to that maxim whereby you can, at the same time, will that it should become a universal law" (Kant, 1785/1959, p. 39) — for business, decisions must be suitable for all parties facing the same dilemma. The practical challenge is giving employees the tools to interpret and apply such universal principles.

Practical sources of action-based standards include compliance with laws and regulations (the floor), a sense of duty tied to the company mission, formal codes of conduct, and industry or professional codes for specific business activities. Organizational standards augment individual moral principles to encourage ethical behavior at work.

Agents — Character, Virtue Ethics, and Ethics of Care

A second branch of ethical thought focuses on the character of the agent — the person or company making the decision. Moral character is "an individual's disposition to think, feel, and behave in an ethical versus unethical manner" (T. R. Cohen & Morse, 2014, p. 45), reflected in traits like honesty, humility, empathy, conscientiousness, and moral identity (T. R. Cohen et al., 2014). The premise has two parts: people of good character act rightly and ethically, and following rules is secondary to preserving relationships.

For Aristotle, a person of good character develops virtues — fairness, trustworthiness, honesty, empathy, humility — that, combined with practical wisdom, identify the right thing to do in any situation (de Colle & Werhane, 2008). Virtue ethics draws on diverse traditions (Aristotelian, Buddhist, Confucian) and relies intuitively on an agent's experience and character rather than a rule (Provis, 2010; White & Taft, 2004). Choosing a virtue is choosing against a vice that leads to corruption, fraud, and misconduct. Being virtuous means living in moderation — Aristotle's Golden Mean, or the Buddhist "Middle Way": every virtuous trait can be expressed too weakly or too strongly. A manager who bluntly tells an employee "your work is sloppy and terrible" is too honest (tactless); telling a low performer their work is great is dishonest. The goal is the happy medium — ask "What would an honest person do in this situation?", not just whether an act follows a rule.

Table 5.1 — The Golden Mean of Virtues

Aristotle's framework pairs each action or feeling with a deficiency ("too weak"), a golden mean, and an excess ("too strong").

Virtues also derive from religious and spiritual traditions. Dahlsgaard, Peterson, and Seligman (2005) identify six core virtues expressed across world religions: courage, justice, humanity, temperance, wisdom, and transcendence. Thomas Aquinas (1225–1274) named seven heavenly virtues (faith, hope, charity, fortitude, justice, temperance, prudence) and seven deadly sins (pride, envy, gluttony, lust, anger, greed, sloth). Confucianism prizes patience, sincerity, obedience, and knowledge; Buddhism prizes compassion, forgiveness, honesty, generosity, and equanimity.

Table 5.2 — Core Virtues and Leadership Characteristics

Crossan et al. (2017) extend the six core virtues with leadership dimensions of integrity, drive, and accountability, describing how each manifests in practice.

The ethics of care focuses on social virtues such as sympathy, compassion, and friendship (French & Weis, 2000) — how people "sustain fragile networks of relations that allow people to grow and prosper, developing trust, respect, and responsibility for each other" (Gabriel, 2009, p. 383). Its flexibility supports responsiveness to a dilemma and can ease stakeholder tension during crises such as economic downturns or the COVID-19 pandemic (Acciari, 2024; Dong et al., 2023; Linsley & Slack, 2013). Its disadvantage: adherents tend to view rules as poor deterrents, preferring an instinctive, situation-tailored method — colleagues may interpret the same character-based behavior differently. More women than men adopt this orientation, sometimes labeled a feminist ethical theory (Borgerson, 2007); a U.S. study finds women valuing leadership virtues more than men (Mohan et al., 2023), though findings on gender differences are mixed (Kracher & Marble, 2008; Radtke, 2000). Managers with a caring orientation are sensitive to a decision's effects on individuals and treat consensus as important for securing buy-in.

Studies of managers show leadership character predicts ethical decisions, including awareness of ethical issues (B. Nguyen & Crossan, 2022). Companies build character in employees by creating values-based ethics programs with clear corporate values (E. M. Hartman, 1998) — stating values attracts employees whose personal virtues align, so a company that emphasizes honesty is more likely to have employees who tell a client the truth about a delayed shipment.

Outcomes — Consequentialism, Egoism, Utilitarianism, and Distributive Justice

The third dimension is results-oriented ethics — the teleological view that a decision's rightness comes from producing the best outcome, doing no harm on balance. This is the "the ends justify the means" logic: what matters is the outcome, not the how or the who. Consequentialism is the umbrella term for philosophies holding that an action's value derives from the value of its outcomes — egoism, utilitarianism, and distributive justice all fall under it.

Ethical egoism holds an action is morally right when it maximizes one's own self-interest (Shaver, 2010) — loosely connected to Adam Smith's theory that society benefits when individuals pursue their own self-interest (James & Rassekh, 2000). Some readings of Smith wrongly strip out ethics altogether, and many ethicists treat egoism as synonymous with selfishness and greed (Burnes & By, 2012). In practice, egoism cuts two ways: employees must stay aware of self-interest so they don't take undue advantage of others (a CEO selling stock ahead of a scandal, a salesperson pressuring a client to hit quota), while properly channeled self-interest and self-preservation — combined with honesty and justice — can also deter misconduct. The chapter's example: a salesperson told to lie to a customer about product safety can reason that lying would harm the customer and, in turn, harm the salesperson's own long-term sales (Woiceshyn, 2011).

Individual self-interest can scale up to group self-interest through tribalism — a predisposition toward in-group cooperation and out-group competition (Tullberg, 2006), visible in how groups treat immigrants or LGBTQ+ members (Crepaz et al., 2014; Lindsay, 2021). Tribalism helps performance when it builds team cohesion, but harms the workplace when groups turn overly competitive with each other or develop prejudice against outsiders — think of a newcomer who can never quite become an insider in a department.

Utilitarianism broadens further: an ethical decision provides the greatest good for the greatest number. Gustafson (2013) describes it as holding "the common interests of humanity as of utmost importance when making a moral decision" (p. 326) — a cost/benefit analysis based on the greatest happiness principle, judging acts by their effect on total happiness. Classical utilitarianism traces to Jeremy Bentham (1748–1832) and John Stuart Mill (1806–1873); Bentham promoted assigning numerical values to consequences and mathematically weighing good against bad — utilitarian calculus.

David Koepsell (2010) applies a version of utilitarian calculus to scientists deciding whether to disseminate dangerous technology (e.g., research that would double a nuclear weapon's effectiveness, or a treatment-resistant virus): weigh the risk of catastrophic outcomes (R) against the likelihood others discover the technology anyway (L) plus the potential benefit of the research (P). When L + P exceeds R, a utilitarian case exists for pursuing the research. Managers in pharma and technology weigh similar trade-offs routinely — does a new product benefit more people than it could harm?

Five Criticisms of Utilitarianism

Gustafson (2013) catalogs five recurring objections to using utilitarianism in business ethics.

On the majority-bias concern specifically, Audi (2007) notes that utilitarian proponents can still favor wide distribution of outcomes: people resent unequal distributions, resentment causes pain, people accept equal distributions more readily (which reduces pain), and wide distribution is desirable given the declining marginal utility of money (p. 603).

Distributive justice concerns the fairness of outcomes — allocation of pay, sales territory, or pricing across a distribution channel (Klein, 2008; Umphress et al., 2009) — emphasizing proportionate equality: the obligation to distribute benefits and costs among all affected by an action or policy. A manager choosing between two employees who both want the same vacation week is applying distributive justice; employees are more likely to call a violation of it "unfair" than "unjust" (Dempsey, 1949). John Rawls (1974, 1999) proposed the veil of ignorance — pretending ignorance of one's own personal interests to reach fair, equitable decisions (1999, p. 17); the best moral outcome emerges when a decision maker lacks the contextual information that could bias them (Bruno et al., 2024). Studies of job interviews and insurance decisions confirm that hiding information about the parties involved tends to produce decisions benefiting the greater good (Ralston, 2000; Schildberg-Hörisch, 2010) — the same logic applies to how autonomous vehicles should be programmed to protect drivers versus pedestrians without knowing who they are (Bruno et al., 2024).

A results-oriented ethics ultimately requires a stakeholder analysis — assessing outcomes for each affected party (Audi, 2007), particularly harm to customers, suppliers, and community in marketing decisions (O. C. Ferrell & Ferrell, 2008; N. C. Smith et al., 2010). In 2014, CVS Pharmacy removed cigarettes and tobacco products from all 7,600 stores, accepting a $2 million revenue loss (Herper, 2014). After mass shootings, Walmart and Dick's Sporting Goods raised the minimum age for gun purchases (Mosendz, 2018); after the Parkland shooting, Dick's Sporting Goods stopped selling assault rifles, ammunition, and hunting gear altogether (Novy-Williams, 2020). Companies increasingly feel stakeholder pressure — from employees and customers alike — to adjust their practices in response to social concerns (Polman & Winston, 2022).

People deal with ethical issues differently: some depend on law, social norms, and relationships; some focus on self-interest for themselves or their group; some seek universal principles. Ethical decision making requires moral reasoning — the process of defining whether an action is morally right — and even with clear guidelines, acting ethically can be ambiguous. The chapter's example: a basketball referee, late in a close game, who declines to call an obvious foul because calling it would upset the crowd. Most referees would do nothing — not from a lack of rule knowledge, but from an unconscious moral decision shaped by experience and social needs.

Idealists, Pragmatists, and Opportunists

Gentile (2010a) draws on a taxonomy from Dees and Cramton (1991) to explain why good people sometimes act against their own ethical values. Dees and Cramton frame it through a "mutual trust perspective," where moral obligations rest on trusting that others will follow the same rules (p. 135) — since not everyone can be counted on to act ethically, three decision-making styles emerge.

• Idealists — people who act on their moral ideals no matter what.
• Pragmatists — people who act in the service of their own material welfare as well as their moral ideas.
• Opportunists — people driven exclusively by their own material welfare.

Idealists and opportunists sit at the extremes; most people lean toward one pole depending on the issue — a coworker might argue passionately for the ethical stance on one issue yet behave like an opportunist on another. Gentile (2010a) found business practitioners typically self-identify as pragmatists, acting on moral values only when doing so doesn't place them at a "systematic disadvantage" (p. 109) — pragmatists refrain from opportunism as long as they trust others will behave appropriately. The basketball referee who declines to make the correct call late in a close game is, by this framework, acting as a pragmatist: calling it correctly could disadvantage the referee if players, coaches, and fans object.

The full ethical decision process runs through four stages: recognizing a moral issue (awareness), making a moral judgment, establishing intent to act ethically (motivation), and engaging in moral behavior (Rest, 1986). The rest of Section 5.2 works through the individual and situational factors shaping that process: moral development, social needs, culture, issue intensity, and organizational culture (Figure 5.2).

Kohlberg's Stages of Moral Development

Moral reasoning transforms values, beliefs, and principles into action, and people develop it gradually, growing more sophisticated over time. Kohlberg's stages of moral development hold that individuals progress through definite, describable stages (Kohlberg & Hersh, 1977) — three levels (preconventional/self-centered, conventional/conformity, postconventional/principled), each containing two stages, six in total, moving from personal focus to social focus to universal, principled focus on justice and rights.

At the preconventional level, individuals recognize cultural rules of right and wrong but respond mainly to outside threats or opportunities. In Stage 1 (punishment-and-obedience orientation), employees act out of fear of punishment for violating imposed rules, codes, or commands. In Stage 2, employees act to satisfy their own needs — following, bending, or breaking rules according to self-interest.

The conventional level stresses conformity to socially defined standards and meeting the expectations of one's family, group, or nation. Employees here are loyal to their profession or organization and protect its rules. In Stage 3, they seek approval, striving to appear helpful and trustworthy to coworkers and management. In Stage 4, they respect the organization's rules and codes and expect the same of management.

The postconventional level is autonomous and principled — individuals look beyond the group to personal moral values and principles that promote broader societal well-being. In Stage 5 (social contract orientation), employees focus on stewardship, social responsibility, and just treatment, respecting other groups' moral rights and working to reduce the organization's negative social/environmental impact. In Stage 6, employees hold self-chosen ethical principles governing justice, human rights, and respect for human dignity — they are more likely to question organizational practices like child labor or inadequate waste disposal, and organizations should stay open to that critical discussion.

Research on the stages yields several consistent findings: people are generally consistent at one dominant stage, occasionally shifting one stage up or down; progression to higher stages happens quickly when exposed to an environment stimulating higher-level reasoning, such as ethical-climate organizations and ethics training (J. Weber & Green, 1991; J. Weber & Wasieleski, 2013); social structures such as investment in family and national/international systems correlate with progression (Mathes, 2021); movement is always forward (except under extreme trauma) and never skips stages; people function at their highest attained stage while still understanding the lower ones; some studies find women reach higher stages than men (Eweje & Brunton, 2010; Haski-Leventhal et al., 2017; Lasthuizen & Badar, 2023), though others find no gender difference (Kracher & Marble, 2008; Radtke, 2000); and ethical decision making and intended ethical behavior both tend to increase with higher stages of moral reasoning (J. Weber & Green, 1991).

Rules and values vary across cultures, but the developmental sequence of moral reasoning itself is universal (Kohlberg & Hersh, 1977) — useful news for companies managing culturally diverse workforces. A well-designed ethics and compliance program addresses workers at every stage, balancing rules and punishment with policies that encourage loyalty and stakeholder well-being (Trevino et al., 1999; Weaver, 2001), and companies can train employees to progress toward principle-based reasoning.

Identifying what motivates employees helps managers encourage ethical decision making. The chapter's cautionary example: James, an office manager, publicly rewards Edith with a large monetary award for reporting a coworker's theft, which led to that coworker's termination. Rather than feeling proud, Edith is crestfallen and embarrassed — James failed to see that her motivation to do the right thing conflicted with her social need to remain a team player rather than be marked publicly as a whistleblower.

Three social needs can motivate ethical decisions: achievement (motivation to exceed performance), affiliation (inclination to work well with others), and power (desire to control and influence others). Harvard's David McClelland (1961) linked these drives to workplace behaviors that can help or harm organizational success and ethics alike (Spreier et al., 2006). People high in achievement focus on results; people high in affiliation stress relationships. McClelland further distinguished personalized power (used for self-gain) from socialized power (used to help others).

Table 5.3 — Influence of Social Needs on Ethical Decision Making

The strength of these social motivations varies by national culture — people develop achievement, affiliation, and power needs through culture and life experience. Van Emmerik et al. (2010), studying 17,538 managers across 24 countries, found strong relationships between national cultural dimensions (performance orientation, human orientation, power distance) and the corresponding social needs — global employers should seek workers whose social needs fit the organization's environment; achievement-motivated employees, for instance, thrive on challenging projects and merit-based rewards.

Other research complicates the achievement picture: workers with higher achievement motivation are more likely to justify unethical behavior (C.-w. Chen et al., 2021; N. Li & Murphy, 2012). A 42-nation study of 16,464 supervisors found that workers in countries with greater government policy/resource efficiency are less likely to engage in misconduct to reach their goals (C.-w. Chen et al., 2021) — technological change, competition, and income inequality all push achievement and power needs toward unethical behavior, since new technology can create an "egoistic desires and unethical mindset" (C.-w. Chen et al., 2021, p. 174), competitive industries push supervisors toward questionable behavior, and workers who feel shut out of income and resources tend to rationalize unethical acts. Examining a workforce's social needs can help managers spot where conflict and diverse ethical reactions are likely to surface.

Some individuals resist universal ethical principles, believing more than one truth can exist for a moral issue (Tännsjö, 2007). Moral relativism holds that ethical choices vary by class, race, gender, age, religion, culture of origin, or situation — high-relativism individuals feel no claim of right or wrong can be made. At the other extreme, moral idealism expects that the right action is attainable in every situation.

Forsyth (1980) built a 20-item ethical position questionnaire to measure relativism and idealism. Idealism items include "The existence of potential harm to others is always wrong, irrespective of the benefits to be gained" and "One should never psychologically or physically harm another person." Relativism items include "What is ethical varies from one situation and society to another" and "Moral standards should be seen as being individualistic" (p. 178). Crossing high/low idealism with high/low relativism yields four ethical positions (Forsyth, 1980, 1981, 1992; Forsyth & Pope, 1984).

• Exceptionism (low relativism, low idealism) — actions should be consistent with moral rules, but pragmatism allows exceptions.
• Absolutism (low relativism, high idealism) — actions are always consistent with moral rules because such actions produce the best consequences for the most people.
• Subjectivism (high relativism, low idealism) — personal values guide moral decisions; other considerations, including universal principles, are irrelevant.
• Situationism (high relativism, high idealism) — individuals choose whatever produces the best effects for everyone concerned, regardless of rules or norms.

Table 5.4 — Dominant Ethical Position by Country

Forsyth, O'Boyle, and McDaniel (2008) analyzed 139 studies covering over 30,000 respondents across 29 countries. Most developed nations land in the exceptionist quadrant (low idealism, low relativism); Britain and parts of the U.S. sit at the opposite extreme (high idealism, high relativism); the Middle East and parts of Asia vary between highly idealistic situationism and absolutism; only Asian countries in the sample fell into the high-relativism, low-idealism subjectivist quadrant. Ireland and Ukraine straddle positions — Ireland highly relativistic but neutral on idealism, Ukraine highly idealistic but neutral on relativism. The pattern aligns with Hofstede's (1983) cultural dimensions of individualism and uncertainty avoidance.

Ethical decision making first requires awareness that a dilemma exists. Characteristics of the moral issue itself — external to individual traits — shape the decision process. Thomas Jones (1991) coined moral intensity as the "extent of issue-related moral imperative in a situation" (p. 372), broken into six components.

• Magnitude of consequences — the sum of harm/benefits to those involved.
• Social consensus — the degree of social agreement that a proposed act is evil or good.
• Probability of effect — the probability the act will actually occur and cause the predicted harm/benefit.
• Temporal immediacy — the length of time between the present and the onset of consequences.
• Proximity — the feeling of social, cultural, or physical nearness to the people involved.
• Concentration of effect — the number of people affected.

These components increase the attention given to perceiving an ethical issue, judging it, and feeling motivated to act ethically (Valentine & Hollingworth, 2012). Perception also depends on an employee's role relative to the issue — bank staff with a direct customer relationship may perceive an issue differently than support staff (Rousselet et al., 2020). Organizations in crisis can end up ignoring an issue's moral intensity altogether (Welbourne Eleazar, 2022). Managers should set clear guidelines and training so employees are more likely to recognize ethical issues when they appear.

Organizational Culture — Significant Others

Internal organizational pressures shape the ethical decision process. O. C. Ferrell and Gresham (1985) introduce significant others — individuals and groups capable of influencing a person's ethics, including top management, supervisors, and peers. Other shaping forces include the organization's rewards and sanctions, its code of conduct, and whether the broader culture actually encourages ethical behavior (Craft, 2013). Organizational culture and ethical leadership get fuller treatment in later chapters.

Taken together, ethical decision making is a genuinely complex process, incorporating ethical theories, moral development, social needs, and relativistic considerations (Craft, 2013). Cultural differences shape moral philosophies and ethical positions, raising the potential for conflict inside a global organization. Issue intensity and pressure from significant others can either intensify or suppress ethical reasoning — and many people remain unaware of the factors shaping their own moral actions, which is exactly why a structured decision process matters (Treviño, 1986; Wicks et al., 2010; Woiceshyn, 2011).

An ethical dilemma arises when a situation forces a choice among alternatives that create a values conflict among stakeholders — by definition, a dilemma is "a problem involving a difficult choice among two or more equally conclusive alternatives" ("Dilemma," 2014), and there may be no single correct answer. An ethical decision-making model is a tool that facilitates ethical analysis of an action or decision in an orderly, systematic way (Kotalik et al., 2014).

Most ethical decision-making models share a sequence: gather more information, identify alternatives, apply ethical filters, choose an optimal option, implement (Baird, 2012; L. P. Hartman & DesJardins, 2008). Models range from five or six overview steps to detailed 10- or 12-step processes (Larimer, 2009; Pekel & Wallace, 2006), and some emphasize applying moral philosophy over organizational decision making specifically (Audi, 2009; P. E. Murphy et al., 2005).

Before running a full model, the Ethics & Compliance Initiative (2022b) recommends an ethical filter to decide whether an issue even needs deeper analysis — the PLUS acronym.

A workable ethical decision-making model should let any employee analyze routine business situations, not just specialists. The chapter proposes a five-step model, illustrated throughout with a running worked example: an employee brings a manager data showing that a toy's reformulation could cause a fatal reaction in a small percentage of children with a plastic allergy.

The Five-Step Ethical Decision-Making Model

1. Identify the Issue — What are the key facts (known and unknown)? What are the personal values of the decision maker and the organization's values? What ethical principles are most relevant? What rules or laws apply?
2. Identify the Stakeholders — List the major stakeholders with a stake in the outcome. What does each value? What outcome does each want?
3. Analyze Alternatives — Brainstorm alternatives. Determine the possible consequences of each for key stakeholders. Assess each alternative on action, agent, and outcome dimensions.
4. Take Action — What decision or action best fits the organization's principles and values while producing the best outcome? What repercussions might follow?
5. Monitor Outcome — Will the recommendation stand the test of time? Is it a model of "right" behavior?

The first step clarifies the issue and its ethical nature — how the problem is framed shapes the whole scope of the analysis that follows. Workplace pressure often pushes toward quick action rather than time to examine the ethical dimensions of a decision (Akrivou et al., 2011), so this step deliberately slows down to ask about the key facts, the values at stake, and the ethical principles or legal obligations in play.

A genuinely difficult part of this step is separating what is known and proven from what is merely rumored or inexact, and identifying what information is simply missing. In the toy scenario: what is the employee's data based on? Are there other studies that corroborate the result? Is the employee presenting the data trustworthy? The manager must also watch for personal bias that might inflate or dismiss the data either way (Prentice, 2007).

Next, weigh how the situation aligns or conflicts with personal and organizational values. Would deaths from product use conflict with a personal value of respecting human life? What organizational values for product safety apply — Lego, for example, states "Only the best is good enough," with a stated focus on caring and quality for children's positive impact (Lego Group, 2024, para. 7). Identifying personal and organizational values clarifies exactly what is at stake ethically.

Which ethical principles are most relevant? Many companies provide formal codes built around three underlying perspectives — equity (treating people fairly, fair competition, just relationships), liberty (safeguarding rights), and distributive justice (fair allocation of resources) (O. C. Ferrell & Ferrell, 2008). The Daniels Fund (2021, p. 154) distills these into eight operating principles.

• Integrity — Act with honesty in all situations.
• Trust — Build trust in all stakeholder relationships.
• Accountability — Accept responsibility for all decisions.
• Transparency — Maintain open and truthful communications.
• Fairness — Engage in fair competition and create equitable and just relationships.
• Respect — Honor the rights, freedoms, views, and property of others.
• Rule of Law — Comply with the spirit and intent of laws and regulations.
• Viability — Create long-term value for all relevant stakeholders.

Finally, check for legal or regulatory concerns. In the toy scenario, the U.S. Consumer Product Safety Act (CPSA) requires a manufacturer, importer, distributor, or retailer to immediately notify the Consumer Product Safety Commission upon obtaining information that "reasonably supports the conclusion that a product distributed in commerce fails to comply with an applicable consumer product safety rule or with a voluntary consumer product safety standard" (Office of Compliance and Field Operations, 2021, p. 6). Legal requirements can be ambiguous or not squarely on point — an ethical response may mean adopting voluntary protective guidelines rather than treating "the law didn't require it" as sufficient justification.

This step draws on Chapter 2's stakeholder-identification process, applied to the specific dilemma: who can affect, or is affected by, the organization's decision about the potentially hazardous product? For each stakeholder group, ask which groups need the most attention, what each group values, what concerns each has, and what outcome each group wants.

Some dilemmas involve a small, easily identified group of stakeholders. Others require a formal stakeholder analysis to avoid missing anyone. Messick and Bazerman (1996) warn against the tendency to limit the search for stakeholders too early, illustrating with a synthetic drug prescribed for women with problem pregnancies — the company failed to recognize that the drug's harm extended beyond the visible stakeholder (the women who took it) to a devastating health impact on the women's daughters.

Table 5.5 — Sample Stakeholder Analysis (Toy Safety Scenario)

As with Step 1, the breadth and depth of this stakeholder analysis shapes the scope of everything that follows — careless scoping here risks missing a stakeholder group entirely, or misreading what a group actually values. Once stakeholders and their desired outcomes are mapped, the process moves to generating and testing alternatives against all three ethical dimensions at once.

This step identifies and assesses possible alternatives. Brainstorming works best when the decision maker stays open to new options rather than defaulting to the obvious or to past solutions. The Ethics & Compliance Initiative (2022b) recommends generating at least three alternatives, ideally more than five, specifically to avoid narrowing prematurely to two opposing choices. For the toy scenario, alternatives range from doing nothing to a full worldwide recall.

Table 5.6 restricts itself to viable alternatives — options the individual or company actually has the capability to implement (an option to "cure the allergy" itself would not be practical for a toy company, for instance). Each alternative is then assessed on all three ethical dimensions: action (are laws and standards upheld or ignored?), agent/character (what values and ethical principles are displayed?), and outcome (does it avoid harm to stakeholders and preserve financial viability?).

Table 5.6 — Sample Alternative Analysis

Listing every possible alternative often surfaces natural groupings of common or complementary actions — worth generating additional combinations beyond the table's four options. The full analysis also requires knowing the applicable legal requirements (the CPSA notification duty covered in Step 1) alongside company policy.

The table demonstrates why relying on only one ethical tradition can bias the outcome: several alternatives satisfy the legal requirement, but they differentiate sharply once character alignment and stakeholder consequences are added. An ethical analysis will not necessarily produce a solution that avoids all harm to all stakeholders — C. E. Johnson (2009) notes that even careful, well-defined analysis can lead different decision makers to different, defensible conclusions.

Narvaez and Rest (1995) define moral judgment as the process of weighing choices to decide which action to implement — deciding which options are right and which are wrong. Moral judgment is rooted in an individual's value system, but education and experience strengthen it over time.

Pekel and Wallace (2006), in their own 10-step model, give a practical test for the preferred viable option: it must (a) "prevent or minimize harm to the major stakeholders," (b) "uphold the… values and ethical principles" of the individuals and organization involved, and (c) be "a good, workable solution to the situation that can actually be implemented" (p. 9). Note the priority order — least harm to stakeholders and alignment with character come first; adherence to law and policy is necessary but not sufficient, since, as Drumwright and Murphy (2004) put it, "the law is often a 'blunt tool'—a cumbersome and often inefficient method with which to deal with ethical issues" (p. 12). Legal compliance should be the floor, not the definition, of "ethical."

Before acting, decision makers can reassess the chosen alternative with a short gut-check.

• What would a reasonable person think about this decision?
• Can you easily explain what makes the decision ethical?
• What if my decision was made public? Or appeared in the newspaper?

Pekel and Wallace (2006) also promote identifying the worst possible repercussion of the chosen action before implementing it — describing a worst-case scenario can surface modifications that eliminate unintended risks. For the toy scenario's warning-label alternative, the worst case is a child dying from exposure to the plastic because the label was missing or unseen, followed by class-action lawsuits and reputational damage. Possible modifications: etching the warning directly onto the product, adding explicit warnings in product literature, and proactively notifying day care facilities and retailers of the danger.

The final step assesses the outcome of the chosen alternative to learn from the process, using a short set of tests: Will the decision stand the test of time? Is this a model of "right" behavior? Am I proud of the decision? A negative answer to any of these means reassessing the factors that shaped the decision.

Bazerman and Tenbrunsel (2011b) warn that "cognitive biases and organizational systems blind managers to unethical behavior, whether their own or that of others" (p. 61) — people tend to overrate their own ethicality, and organizations cannot simply trust a compliance program to guarantee ethical outcomes. The chapter poses a pointed test case: if the toy manager does nothing and no allergic reactions occur, does that make "doing nothing" the ethical decision? Bazerman and Tenbrunsel's answer is no — a major source of ethical lapses is management's tendency to excuse unethical behavior whenever the outcome happens to turn out fine.

The consequences of an unethical decision are often delayed rather than immediate. General Motors came under scrutiny for failing to replace a fatally flawed ignition switch in the Chevrolet Cobalt — reportedly to save less than $1 per car (Nelson, 2014). GM ultimately recalled 2.6 million cars and paid $2.6 billion in penalties and settlements after the flaw was tied to 124 deaths over a decade (Stempel, 2020). The decision to skip the fix cost lives, created enormous financial liability, and damaged GM's reputation long after the original cost-saving decision was made.

Understanding the role of ethical theory and moral development in ethical decision making enables effective handling of workplace dilemmas. Ethical theories fall into three dimensions reflecting teleological or deontological ethics for answering "what is the right thing to do?" — action (what a company or individual is doing), agent (the character of the company or person), and outcome (the consequences of a decision). One dimension may dominate in a given situation, but a typical business decision draws on all three.

Individual factors shape ethical decision making. Three decision-making styles are idealism, pragmatism, and opportunism. Moral reasoning — transforming values, beliefs, and principles into action — develops gradually through six stages across three levels: preconventional (self-centered), conventional (conformity), and postconventional (principled). Three social needs motivate ethical decisions: achievement, affiliation, and power. High-relativism individuals believe no claim of right or wrong can be made; high-idealism individuals expect the right action is always attainable. Cultural differences shape moral philosophies and ethical positions, raising the potential for conflict inside a global organization.

An ethical decision model is a resource for working through an ethical issue when the right choice isn't obvious, giving employees a repeatable process for analyzing routine business situations. Each step involves reflection: (a) identify the issue, (b) identify the stakeholders, (c) analyze alternatives, (d) take action, and (e) monitor outcomes.

Leandra is the marketing manager of a multinational clothing brand operating apparel-manufacturing facilities in Vietnam and Bangladesh for U.S. sales. The company's marketing emphasizes that it supports local communities and economies in those regions through responsible business practices.

A few weeks ago, a news organization broke a story documenting exploitive pay and unsafe conditions at one of the company's factories, backed by internal documents showing the company knew about the problems for years without acting. Customers began advocating boycotts on social media as the story spread.

The leaked information was clearly confidential and must have come from someone at headquarters. The company's confidentiality policy states: "Employees who don't respect our confidentiality policy will face disciplinary [action] up to termination and, possibly, legal action." Leandra is mortified that her own company could behave this way — it conflicts with her personal sense of fairness. At a social function, a colleague in her department, Kevin, inadvertently admits he has been supplying information to the press. Realizing his mistake, Kevin says, "You must ignore what I have said, or I will be fired."

Questions to Consider

1. What are the issues in this scenario that create an ethical dilemma for Leandra?

Leandra faces a direct conflict between the confidentiality policy she is bound by (and Kevin's plea to protect him) and her own values around the company's labor practices and honesty toward customers and the public. Reporting Kevin protects the confidentiality policy (action dimension) but could be seen as punishing the person who exposed a genuine wrong; staying silent protects Kevin personally but leaves Leandra complicit in withholding what she now knows, and exposed if the connection surfaces later.

2. What should Leandra do with the information learned from Kevin? Assess using the five-step ethical decision framework.

Step 1 (issue): the known fact is that unsafe conditions and low pay existed and were reported to the press by an employee; unknown is exactly what disciplinary consequence Kevin would face, and whether the company has already begun corrective action. Relevant principles include transparency, accountability, and rule of law versus the company's confidentiality policy. Step 2 (stakeholders): factory workers (safety, fair pay), customers (truthful marketing claims), Kevin (job security), the company (legal/reputational exposure), and Leandra herself (integrity and her own job). Step 3 (alternatives): say nothing further to anyone; report Kevin to management per policy; advocate internally for the company to address the underlying labor conditions without naming Kevin; encourage Kevin to disclose voluntarily with protection. Step 4 (action): the alternative that best minimizes harm to the most vulnerable stakeholders (factory workers) while upholding integrity is advocating for the company to fix the underlying conditions and support transparent disclosure — not simply enforcing the confidentiality policy against the person who exposed a genuine harm. Step 5 (monitor): would this decision stand the test of time and look like a model of right behavior if made public? Prioritizing factory worker safety and honest disclosure over punishing the whistleblower holds up better under that test than reflexively enforcing confidentiality.

Every bolded or explicitly defined term in Chapter 5, plus the chapter's own end-of-chapter key terms list, in one line each.

A single table capturing the chapter's three ethical dimensions, the individual and situational factors that shape ethical reasoning, the five-step decision model, and the chapter's biggest cautionary lessons.