Work Ethics & Job Satisfaction
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Ethical Dilemmas for Managers in the Workplace

How to Make Ethical Decisions When Conflicts Exist in the Workplace

Managers often face ethical dilemmas in the workplace but may not aware of it. One reason is the manager is not trained in ethics so it is difficult to know when an ethical issue exists. The first step in making ethical decisions is to be sensitive to the ethical signposts. For example, consider whether conflicting interests exist in the situation. Ask whether your decision harms one or more parties while benefitting others.

Ethical decision making requires that we consider the consequences of our actions on others – the stakeholders in the situation -- prior to making a decision. For example, members of top management should always consider how their actions affect shareholders, creditors and employees. A production manager should consider the effects of operational decisions on production workers, suppliers and the customer. A marketing manager should be sensitive to whether advertised product information is truthful and does not mislead consumers.

Once the ethical issues are identified, the next step is to identify alternative courses of action and evaluate the alternatives using ethical reasoning. This is the tricky part since most people are not trained ethicists. Still, certain basic principles can be followed. First, be sure to follow the law and company policy including code of conduct provisions. From an ethical perspective certain guidelines apply such as don’t violate anyone’s rights; be fair-minded in deciding how best to resolve the dilemma; and follow basic virtues in deciding what to do including honesty, integrity, reliability, and being responsible and accountable for one’s actions.

After evaluating the alternatives from an ethical perspective, it’s time to think back on how your potential decisions might affect the stakeholders. You do not want to sacrifice the trust placed in you and your company. When I conduct ethics seminars I ask the group to always remember that it takes a long time to build a reputation of trust but not very long to tear it down.

The final step in ethical decision-making is the most difficult one. It is to have the courage (integrity) to carry out an ethical decision with ethical action. Sometimes pressure exists in the workplace that is contrary to making ethical decisions but somehow benefits the company. For example, in a financial reporting situation the chief executive officer and/or chief financial officer might pressure the controller to go along with an accounting treatment that crosses the line between being ethical and not ethical. In other words it violates accounting standards but, at the same time, it may enable the company to meet financial analysts’ earnings expectations for the year. The result is higher bonuses and an increased stock price. Everyone is happy, right? Not so because the shareholders are misled and accounting principles have been violated. Moreover, it is wrong to manage earnings in a way that best portrays what the company wants to show rather than what is in accordance with accepted standards of accounting practice.

Oftentimes, when financial decisions are made to “manipulate” earnings in one year it has a snowball effect on future years. In a sense you are borrowing revenue from a later period to make the current period look better, a practice known accelerating revenue. The practical problem is that you now need to cover the second year’s revenue shortfall by borrowing from the next period and then the next. Before you know it, you have taken the first step down the proverbial “ethical slippery slope” and it becomes very difficult to turn around and head back up to the high ground if, all of a sudden, you “grow a conscience.” More often than not the initial action leads to a cover-up and matters eventually spin out of control.  

Returning to the accounting example, when differences exist with one’s supervisor all internal steps should be taken to reverse the treatment including going to the audit committee (board of directors). Before doing so be sure to find out the position of the internal auditors on this matter. Do they know about it and what have they done to correct the situation? If the answer is that the internal auditors have decided to go along with the accounting treatment because it has been sanctioned by top management and the board of directors, then the ultimate step to consider is whether to bring the matter to the attention of some outside authority (i.e., SEC). Legal advice should be sort at this point because external whistle-blowing violate one’s confidentiality obligation to the employer and may have legal ramifications. A good step to take at this time is to contact the external auditor, if one exists, and solicit that parties help in approaching management and/or the board. After all, external auditors rely on the honesty and diligence of the internal accountants in developing audit procedures.

In summary, the responsibilities of good managers in making ethical decisions are:

1.      Learn how to spot ethical issues

2.      Understand how potential actions and decisions affect others

3.      Clarify company policy, code of ethics provisions, and existing laws

4.      Use ethical reasoning to evaluate alternative courses of action

5.      Double-check your decision before taking action.

The last step is one that I find particularly helpful. When faced with an ethical dilemma and after going through the reasoning process I ask myself: “How would I feel if my decision made the front pages of the paper? Would I feel proud to defend it?" Oftentimes this perspective helps me to quickly focus on what is most important in making a decision.

Remember, you can contact me on an anonymous basis to get advice on how to deal with your workplace dilemmas.

Blog posted by Steven Mintz, aka Ethics Sage, on August 24, 2011

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