Ethics Midterm Notes

Kohlberg and the Cognitive Development Approach

• Cognitive development – the thought process of someone going through moral development
• From childhood to adulthood, people follow a series of cognitive stages of how they think about ethical dilemmas

Heinz and the Drug

• Man needs drug for dying wife, cannot afford it, so he breaks into the drug store
• Male oriented theory since the stages are derived from 10 – 16 year old boys; no female

Kohlberg’s Stages of Moral Development.

• Level 1 – Preconventional: Choices made based on wants of individual; individual is self-centered, rules are externally imposed

• Stage 1: Obedience to rules; avoidance of punishment
• Stage 2: Satisfying one’s own needs

• Level 2 – Conventional: Choice of individual also takes into account other people

• Stage 3: Fairness to others
• Stage 4: Law and order

• Level 3 – Postconventional: Choice of individual also takes into account society

• Stage 5: Social contract
• Stage 6: Universal Ethical principles

Rest’s Four Component Model of Ethical Decision Making

• Individual’s behavior is related to level of moral development
• How a person first identifies an ethical dilemma and continues through to his intention and finally courage to behave ethically

Moral Sensitivity

• The ability to recognize when there is an ethical dilemma
• Be able to recognize when your actions can affect another person

Moral Judgment

• Basically, a person’s ability to figure out what SHOULD be done; which action is the “most right”

Moral Motivation

• A person’s willingness to be ethical over self-interest/personal gain

Moral Character

• Just because a person knows what the ethical thing to do is doesn’t mean he/she will act accordingly
• Person with strong moral character more likely to follow through with ethical action

Thorne

• Model relies on virtue-based characteristics

Virtue Theory

• Similar to Rest’s model

• 1st, ethical action results from rational decision making
• 2nd, both concerned with ethical decision making process
• 3rd, acknowledge critical role of cognition

Diem Thi Le & DCCA

• Diem Thi Le was senior auditor with Defense Contract Audit Agency
• Audit opinion was changed by manager
• Contractor (the firm Le was auditing) was mischarging costs to the government
• DCAA’s performance metric is productivity rate, audit hours vs. dollar examined

• Saying contractor has adequate internal controls means less audit hours → higher productivity rate
• Manager performance review based on this

Josephson – Six Pillars of Character

1. Trustworthiness

• Honesty, integrity, reliability, and loyalty

1. Fairness
2. Respect
3. Responsibility
4. Caring
5. Citizenship

Jennings – 7 Signs of Ethical Collapse

1. Pressure to maintain numbers
2. Fear of repercussion/reprisal
3. Loyalty to boss
4. Weak board of directors
5. Overlooking / ignoring conflicts of interest
6. Innovation like no other company
7. Goodness in some areas make up for evil in others

Modern Moral Philosophies

1. Teleology / Consequentialism – look at consequence

• Egoism – behavior is right or acceptable depending on consequence to the individual
• Enlightened egoism – considers the well-being of others but this is only to benefit themselves
• Utilitarianism – choose based on greatest net benefit for everyone

1. Deontology – focus on rights of individuals
2. Justice – rights, fairness, and equality
3. Virtue Ethics

Cultural Values

1. Individualism
2. Power Stance
3. Uncertainty Avoidance
4. Masculinity
5. Long-term orientation

Worldcom

• Misstated earnings ~$11bn
• Cynthia Cooper, VP of internal auditing discovered fraud and reported to KPMG to investigate
• Betty Vinson (former director of corporate reporting) said she felt pressured

Phar-Mor

• Monus crossed off losses and wrote in profit
• Increased inventory
• Auditors told Phar-mor which stores they would visit

Enron

• Company took on a large amount of debt, needed new strategy to generate addition profits / cash flow

Gas Bank

• Skilling created idea to buy gas from network of suppliers and sell to network of consumers
• Charged transaction fees

Culture Change / Performance Review Committee

• Recruited from top MBA schools; Skilling hired Andrew Fastow
• Performance measure based on profit generated
• Performance rated on scale of 1-5; 5 gets you fired

Arthur Anderson

• Most of Enron’s accounting department were ex-Arthur Anderson people

Special Purpose Entities (SPEs)