Business Ethics and Corporate Governance UNIT-3!

 

UNIT 3

Concept of Ethical Decision-Making

Ethical decision-making refers to the process of evaluating and selecting among alternatives in a manner that aligns with moral principles such as honesty, fairness, accountability, and respect.

It goes beyond mere legal compliance—just because an action is lawful doesn’t necessarily mean it is ethical. Ethical decision-making requires individuals and organizations to consider what is right and wrong, how their choices affect others, and the long-term consequences of their actions.

For instance, in Nepal, a business may face the temptation to pay bribes to expedite licensing procedures. While this may be a common practice, it undermines integrity and perpetuates corruption. Choosing to follow the legal route, despite delays, reflects a commitment to ethical principles and contributes to a more transparent business environment.

 

Framework for Ethical Decision-Making in Business

The framework includes five components that shape how decisions are made:

Ethical Issue Intensity

This refers to how serious or urgent an ethical problem feels. It depends on six key factors:

Magnitude of Consequences

This refers to how significant the impact of a decision is. The greater the potential harm, the more serious the ethical issue. For example, a poorly built bridge by a Nepali firm could endanger lives—making the consequences severe and ethically urgent.

Social Consensus

It reflects how much society agrees that an action is wrong. In Nepal, bribery is widely condemned, so decisions involving it carry strong ethical weight due to shared moral disapproval.

Probability of Effect

This is about the likelihood that harm will occur. If a food company ignores hygiene, the high chance of illness makes the ethical concern more pressing.

Temporal Immediacy

It considers how soon the impact will be felt. Immediate harm—like dumping waste into rivers—raises ethical urgency compared to delayed effects.

Proximity

Proximity measures how close the decision-maker is to those affected. A manager laying off staff in their own village feels more responsible than if the layoffs happen elsewhere.

Concentration of Effect

This looks at whether harm is focused on a few or spread across many. Firing one employee unfairly has a concentrated impact, while raising prices affects many slightly.

Individual Factors

These are personal traits that influence ethical decisions:

Personal Values & Morality

These are the internal beliefs that guide what a person sees as right or wrong. For instance, a Nepali shopkeeper raised with strong values of honesty may refuse to sell expired goods, even if it means losing profit. Such decisions reflect deeply held moral convictions.

Cognitive Moral Development

This refers to how mature a person’s ethical reasoning is. A student who once obeyed rules out of fear might now question whether those rules are fair—showing growth in moral thinking and a shift from blind obedience to principled judgment.

Locus of Control

It indicates whether someone believes they can influence outcomes. An employee with an internal locus of control feels responsible for ethical change and may report corruption, believing their actions matter. This sense of agency often drives ethical behavior.

Moral Sensitivity

This is the ability to recognize ethical issues quickly. A teacher who notices unfair grading and speaks up shows high moral sensitivity. Being alert to ethical concerns is the first step toward responsible action.

Demographics & Experience

Age, education, and professional exposure shape ethical awareness. A senior accountant with years of experience is more likely to detect financial fraud than a new intern. Experience enhances judgment and the ability to spot subtle ethical risks.

Organizational Factors

These are workplace influences that shape behavior:

Organizational Culture

This refers to the shared values, beliefs, and norms within a workplace. A cooperative in Nepal that prioritizes transparency will naturally encourage open discussions about finances and ethical concerns. When ethical values are embedded in the culture, employees are more likely to act responsibly.

Ethical Climate

The ethical climate is the general atmosphere regarding ethics in an organization. If most employees speak out against wrongdoing, it creates a supportive environment where others feel safe doing the same. A strong ethical climate fosters collective accountability and moral courage.

Leadership & Management Behavior

Leaders serve as role models for ethical conduct. A CEO who refuses to manipulate audit reports sets a powerful example for employees. Ethical leadership influences organizational behavior more deeply than written rules alone, shaping how decisions are made across all levels.

Codes of Ethics & Policies

These are formal documents that outline acceptable behavior and guide decision-making. For example, a bank in Nepal with a strict policy against insider trading provides clear boundaries for employees. Such codes help prevent misconduct and reinforce ethical standards.

Reward Systems & Pressure

Incentives and performance targets can either support or undermine ethical behavior. If salespeople are rewarded only for meeting quotas, they may feel pressured to deceive customers. However, when ethical conduct is also recognized and rewarded, it balances performance with integrity.

Opportunity

This refers to how easy it is to act ethically or unethically. Key factors include:

Training & Awareness Programs

These programs educate employees about ethical standards and rights. For example, a factory in Nepal that conducts workshops on labor laws helps workers recognize exploitation and empowers them to speak up. Awareness builds confidence and clarity in ethical decision-making.

Whistleblower Protection

Safe and anonymous reporting channels are essential for exposing misconduct. A company that installs complaint boxes or digital portals allows employees to report unethical behavior without fear. Protection encourages transparency and accountability.

Ethical Infrastructure

This includes formal systems like ethics committees or review boards. A school board in Nepal with an ethics panel ensures that complaints are handled fairly and consistently. Such structures institutionalize ethical oversight and reinforce trust.

Reinforcement Mechanisms

Positive feedback and recognition strengthen ethical behavior. When a manager praises staff for refusing unethical shortcuts, it reinforces the idea that integrity is valued. Regular reinforcement helps embed ethics into daily practice.

Simulations & Case Studies

Practice-based learning tools like role-plays and real-life scenarios prepare individuals for ethical dilemmas. A business school in Nepal using local case studies helps students develop practical reasoning skills and apply ethical frameworks in realistic contexts.

 

Business Ethics Intention, Behavior, and Evaluation

Ethical Intention

Ethical intention refers to the conscious decision or commitment to act in a morally responsible way. It’s the internal resolve to do what is right, even before any action is taken. For example, a student in Nepal may face peer pressure to cheat during an exam. Despite knowing that others are doing it, the student decides to stay honest. This decision reflects ethical intention—a personal stand based on values like integrity and fairness. Intention is shaped by one’s moral beliefs, upbringing, and awareness of consequences, and it sets the foundation for ethical behavior.

Ethical Behavior

Ethical behavior is the actual execution of the intended ethical action. It’s when a person follows through on their moral commitment, even in challenging situations. For instance, a cashier at a local store notices they’ve given a customer extra change by mistake. Instead of keeping the money, they return it promptly. This act demonstrates ethical behavior—doing the right thing when it matters. In business, ethical behavior builds trust, enhances reputation, and contributes to a culture of accountability.

Ethical Evaluation

Ethical evaluation involves reflecting on the decision and its outcomes after the action has been taken. It’s a process of assessing whether the choice upheld moral standards and what lessons can be learned. For example, a manager who rejected a bribe from a supplier later reflects on the decision and feels proud for maintaining integrity. This reflection reinforces ethical values and helps guide future decisions. Evaluation also allows individuals and organizations to identify unintended consequences and improve their ethical practices over time.

 

Ethical Decision-Making Model

This model helps individuals and organizations make thoughtful, responsible choices when facing ethical dilemmas. It ensures decisions are not just legal or profitable—but morally sound and socially responsible.

1. Recognition of an Ethical Issue

This step involves identifying whether a situation has ethical implications. It’s about asking: “Is there a question of right or wrong here?”

Example: A manager at a Nepali manufacturing firm learns that a supplier is using child labor. Recognizing this as an ethical issue is the first step.

2. Gathering and Analyzing Relevant Facts

Once the issue is identified, gather all necessary information—legal rules, company policies, stakeholder interests, and potential consequences.

Example: The manager investigates the supplier’s labor practices, checks company policy on ethical sourcing, and considers the impact on brand reputation and customer trust.

3. Evaluation of Alternatives

Explore different courses of action. Consider the pros and cons of each, and how they align with ethical principles like fairness, honesty, and respect.

valuated for impact on children, business costs, and public perception.

4. Making the Ethical Decision

Choose the option that best aligns with ethical values and stakeholder well-being. The decision should reflect integrity and long-term responsibility.

Example: The manager decides to stop working with the supplier and partner with one that follows fair labor standards—even though it’s slightly more expensive.

5. Taking Action

Put the decision into practice. Communicate clearly, involve relevant departments, and ensure the action is carried out effectively.

Example: The manager informs procurement, updates supplier contracts, and announces the change to customers as part of the company’s ethical commitment.

6. Reflection and Evaluation of the Outcome

After implementation, assess the results. Did the decision solve the problem? Were there unintended consequences? What lessons were learned?

Example: The company receives positive feedback from customers and NGOs. Sales improve due to enhanced brand image. The manager reflects on how ethical choices can lead to both moral and business success.

Normative Considerations in Ethical Decision Making

1. Utilitarianism (Consequentialism) - Utilitarianism focuses on outcomes and promotes decisions that produce the greatest good for the greatest number. In business, it’s often used when leaders must balance gains and losses. For instance, a company might lay off a small percentage of workers to prevent bankruptcy and save remaining jobs—emphasizing the overall benefit. In Nepal, a hydropower project relocating a few households to provide electricity to thousands reflects utilitarian logic. While controversial, the choice is seen as ethical if the societal gain outweighs individual sacrifice. 

2. Deontology (Duty-Based Ethics) - Deontology centers on duties, rules, and principles—regardless of consequences. An action is ethical if it follows moral obligations, even if the outcome is unfavorable. A business refusing to pay bribes, despite losing a contract, upholds this approach. In Nepal, when an auditing firm refuses to manipulate reports under client pressure because of professional codes, it reflects deontological thinking—prioritizing right conduct over profit. 

3. Virtue Ethics - Virtue ethics highlights the importance of personal character traits like honesty, empathy, and courage. Rather than focusing on rules or outcomes, it asks, “What would a good person do?” In business, this means fostering a culture of integrity. A CEO who consistently acts with fairness sets a positive example. In Nepal, a social entrepreneur who runs a cooperative to empower women—putting community before personal profit—embodies virtue ethics.