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Why Ethics Matters: A Defense of Ethics in Business Organizations

Published online by Cambridge University Press:  23 January 2015

Manuel Velasquez
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Abstract

I argue that Plato was right in claiming that justice is more profitable, more rational, and more intrinsically valuable than injustice, and that this is particularly true for business organizations. The research on prisoners’ dilemmas and social dilemmas shows that ethical behavior is more profitable and more rational than unethical behavior in terms of both the negative sanctions on unethical behavior when interactions with stakeholders are iterated, and the positive rewards of habitually ethical behavior when stakeholders can identify those who are predisposed to be ethical. In addition, the psychological research on justice shows that justice is intrinsically valued, both from an outcome and from a process perspective, and so crucial for business organizations, particularly in terms of organizational effectiveness.

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Articles
Information
Business Ethics Quarterly , Volume 6 , Issue 2 , April 1996 , pp. 201 - 222
Copyright
Copyright © Society for Business Ethics 1996

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References

Notes

1. Amar, Bhide and Howard, H. Stevenson, “Why be Honest if Honesty Doesn't Pay,” HarvardBusiness Review (September-October 1990), pp. 121–29.Google Scholar

2. Plato, The Republic, Bk. II, several translations.

3. Immanuel, Kant, Groundwork of the Metaphysics of Morals, (1785),Google Scholar section two, many translations

4. Something that Kant points out in his Groundwork of the Metaphysics of Morals, section two.

5. Aristotle, Nicomachean Ethics, (date unknown, c. 350 B.C.) Book 5, ch. 1

6. See Plato, below, and, a bit more recently, Thomas Hobbes, Leviathan.

7. Plato, The Republic, book two, Jowett translation. It is worth quoting the entire passage: [Glaucon:] They say that to do injustice is, by nature, advantageous; to suffer injustice, evil; but that the evil is greater than the advantage. And so when men have both done and suffered injustice and have had experience of both, not being able to avoid the one and obtain the other, they think that they had better agree among themselves to have neither; hence there arise laws and mutual covenants; and that which is ordained by law is termed by them lawful and just. This they affirm to be the origin and nature of justice;—it is a mean or compromise, between the best of all, which is to do injustice and not be punished, and the worst of all, which is to suffer injustice without the power of retaliation; and justice, being at a middle point between the two, is tolerated not as a good, but as the lesser evil, and honored by reason of the inability of men to do injustice. For no man who is worthy to be called a man would ever submit to such an agreement if he were able to resist; he would be mad if he did. Such is the received account, Socrates, of the nature and origin of justice.”

As I note below, Plato ultimately rejects this account of the origins of justice.

8. Anatol Rapaport and Chammanah, A., Prisoner's Dilemma (Ann Arbor: University of Michigan Press, 1965).Google Scholar

9. For a non-technical and fascinating overview of the history and significance of prisoner's dilemma research, see William, Poundstone, Prisoner's Dilemma (New York: Anchor Books Doubleday, 1992).Google Scholar

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11. Robert, Axelrod, The Evolution of Cooperation (New York: Basic Books, Inc., 1984);Google Scholar an earlier and more compact summary of the computer studies Axelrod carried out is in Robert, Axelrod, “More Effective Choice in the Prisoner's Dilemma,” Journal of Conflict Resolution, vol. 24, no. 3 (September 1980), pp. 379–403.Google Scholar For a summary of more recent theoretical and empirical research on iterated Prisoner's dilemma, see Robert, Axelrod and Douglas, Dion, “The Further Evolution of Cooperation,” Science, vol. 242, (9 December 1988), pp. 1385–1390.Google Scholar

12. Although subject to multiple definitions, we can here define a stakeholder as any individual or group that can affect and be affected by the operations of a firm, and so can be said to have a “stake” in what the firm does. See Freeman, R. E., Strategic Management: A Stakeholder Approach, (Marshfield, MA: Pitman, 1984).Google Scholar As the prisoners’ dilemma analysis that follows suggests, stakeholder power to affect the operations of the firm coupled with the likelihood of repeated interactions makes it both irrational and unprofitable for the firm to behave unethically toward its stakeholders.

13. Robert, Frank, Passions Within Reason: The Strategic Role of the Emotions (W.W. Norton & Company, 1988).Google Scholar A shorter summary of Frank's ideas can be found in Robert, H. Frank, “Beyond Self-interest,” Challenge, (March-April, 1989), pp. 4–13.Google Scholar

14. As one of the characters in the Republic asserts: “Parents and tutors are always telling their sons and their wards that they are to be just; but why? not for the sake of justice itself, but for the sake of appearances and reputation; in the hope of obtaining for him who is reputed just some of those offices, marriages, and the like which [are] among the advantages accruing… from the reputation of justice.” Plato, Republic, book two, Jowett translation.

15. Robert Cialdini of Arizona State University has recently suggested a model of organizational change that would identify some of the specific organizational processes through which organizations that train, condone, or allow dishonest practices toward clients, customers, vendors, and distributors, gradually filter out ethical employee behavior and increase the levels of unethical organizational behaviors. His model, labeled the “triple tumor structure of organizational dishonesty,” suggests three organizational consequences of dishonest practices. First, in order to boost its performance, a company may initiate some dishonest practice, say, training door to door sales representatives to misrepresent their wares or to take advantage of customer gullibilities or vulnerabilities. This initial introduction of dishonesty into the operations of the firm may yield short-term profits. However, the dishonest treatment of outsiders will ultimately result in a damaged company reputation, lower levels of return business, and lower long-term profits. Secondly, the company's initial commitment to dishonest practices will then start to generate a mismatch between the values of the company and the values of honest employees. The mismatch will lead honest employees to leave the company, or to suffer stress and increased absenteeism, resulting in higher employee costs. Those employees who do not leave the company and who feel no stress, and so who do well in and for the company, will be employees whose values match the dishonest values of the company, i.e., dishonest employees. Over time the number of honest employees will decline while the number of dishonest employees will rise, leading to an increase in levels of company dishonesty. Thirdly, in order to cope with the rising levels of dishonesty, the company will begin to implement auditing systems, inventory checks, and security systems. Company use of such surveillance systems, however, will be read by employees as evidence of the company's lack of trust in them, which will in turn create an adversarial atmosphere and declining levels of voluntary employee cooperation. In addition, the use of surveillance systems will create a perception among employees that they are expected to perform well when under surveillance, but to feel justified in cheating when the surveillance systems can be tricked or escaped. And, finally, the use of surveillance systems will lead managers to believe that it is these systems that cause employees to be honest and this belief will lead them to install more and increasingly sophisticated systems. The use of ever more surveillance, however, will lead to ever declining levels of trust and ever rising attempts to cheat the systems, which in turn will motivate the use of additional surveillance. Gradually, then, the dishonesty initially introduced in a limited department of the company, tends to spread to the entire organization, pushing out the honest employees and multiplying the dishonest ones. See, Robert Cialdini, “The Triple Tumor Structure of Organizational Dishonesty,” paper presented at the “Conference on Behavioral Research and Business Ethics,” Center for the Study of Ethical Issues in Business, Kellog Graduate School of Management, Northwestern University, Chicago, July 31, 1994.

16. Plato, the Republic, book two. The entire passage reads:

Let me ask you now: —How would you arrange goods —are there not some which we welcome for their own sakes, and independently of their consequences, as, for example, harmless pleasures and enjoyments, which delight us at the time, although nothing follows from them?

I agree in thinking that there is such a class, I replied.

Is there not also a second class of goods, such as knowledge, sight, health, which are desirable not only in themselves, but also for their results?

Certainly, I said.

And would you not recognize a third class, such as gymnastic, and the care of the sick, and the physician's art; also the various ways of money-making —these do us good but we regard them as disagreeable; and no one would choose them for their own sakes, but only for the sake of some reward or result which flows from them?

There is, I said, this third class also. But why do you ask?

Because I want to know in which of the three classes you would place justice?

In the highest class, I replied, —among those goods which he who would be happy desires both for their own sake and for the sake of their results.

Then the many are of another mind; they think that justice is to be reckoned in the troublesome class, among goods which are to be pursued for the sake of rewards and of reputation, but in themselves are disagreeable and rather to be avoided.

I Know, I said.

17. Homans, G. C., Social Behavior: Its Elementary Forms (New York: Harcourt, Brace & World, 1961).Google Scholar

18. Adams, J. S., “Toward an Understanding of Inequity,” Journal of Abnormal and Social Psychology, vol. 67, (1963),CrossRefGoogle Scholar “Inequity in Social Exchange,” in Berkowitz, L. (ed.), Advances in Experimental Social Psychology, vol. 2 (New York: Academic Press, 1965), pp. 267–99;Google ScholarAdams, J. S. & Freedman, S., “Equity Theory Revisited: Comments and Annotated Bibliography,” in Berkowitz, L. & Walster, E., (eds.), Advances in Experimental Social Psychology, vol 9 (New York: Academic Press, 1976), pp. 43–90.Google Scholar

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20. Andrews, I. R., “Wage Inequity and Job Performance: An Experimental Study,” Journal of Applied Psychology, vol. 51, (1967), pp. 39–45;CrossRefGoogle ScholarAdams, J. S. & Freedman, S., “Equity Theory Revisited: Comments and Annotated Bibliography,” in Berkowitz, L. & Walster, E. (eds.), Advances in Experimental Social Psychology, vol. 9, (New York: Academic Press, 1976), pp. 43–90;CrossRefGoogle ScholarGarland, H., “The Effects of Piece-rate Underpayment and Overpayment on Job Performance: A Test of Equity Theory with a New Induction Procedure,” Journal of Applied Social Psychology, vol. 3 (1973), pp. 325–334;CrossRefGoogle ScholarGreenberg, J., “Approaching Equity and Avoiding Inequity in Groups and Organizations,” in Greenberg, J. & Cohen, R. L. (eds.), Equity and Justice in Social Behavior (New York: Academic Press, 1982), pp. 389–435;CrossRefGoogle ScholarPritchard, R.D., Dunnette, M.D., & Jorgenson, D.O., “Effects of Perceptions of Equity and Inequity on Worker Performance and Satisfaction,” Journal of Applied Psychology, vol. 56, (1972), pp. 75–94;CrossRefGoogle ScholarMowday, R. T., “Equity Theory Predictions of Behavior in Organizations,” in Steers, R. M. & Porter, L. W. (eds.), Motivation and Work Behavior, 4th ed. (New York: McGraw-Hill, 1987), pp. 89–110.Google Scholar

21. Walster, E., Berscheid, E. & Walster, G. W., “New Directions in Equity Research,” Journal of Personality and Social Psychology, vol. 25 (1973), pp. 151–176;CrossRefGoogle Scholar Elaine Walster has also written under the name Elaine Hatfield.

22. Walster, E.Walster, G. W. & Berscheid, E., Equity: Theory and Research (Boston: Allyn & Bacon, 1978), p. 6.Google Scholar

23. For a nice summary of the research on the extent to which people alter their perceptions to make the world appear to them to be more just, see Melvin, J. Lemer, The Belief in a Just World (New York: Plenum Press, 1980).Google Scholar

24. Utne, M.K. and Kidd, R.F., “Equity and Attribution,” in Gerold, Mikula (ed.), Justice and Social Interaction (New York: Hans Huber Publishers, 1980), pp. 63–94.Google Scholar

25. Schwartz, S., “Normative Influences on Altruism,” in Berkowitz, L. (ed), Advances in Experimental Social Psychology, vol. 10 (New York: Academic Press, 1977), pp. 221–79;Google ScholarAustin, W. and Hatfield, E., “Equity Theory, Power, and Social Justice,” in Mikula, G., (ed.), Justice and Social Interaction (New York: Springer-Verlag), pp. 25–61.Google Scholar

26. Deutsch, M., “Equity, Equality, and Need: What Determines Which Value Will Be Used as the Basis of Distributive Justice?” Journal of Social Issues, vol. 31 (1975), pp. 137–49;CrossRefGoogle ScholarLeventhal, G.S., “The Distribution of Rewards and Resources in Groups and Organizations,” in Berkowitz, L. & Walster, E., (eds), Advances in Experimental Social Psychology, vol. 9 (New York: Academic Press, 1976), pp. 92–131;Google ScholarSampson, E. E., “On Justice as Equality,” Journal of Social Issues, vol. 31 (1975), pp. 45–64.CrossRefGoogle Scholar

27. M. Deutsch, Ibid., T. Schwinger, “Just Allocations of Goods: Decisions Among Three Principles,” in Gerold, Mikula, ed., Justice and Social Interaction (New York: Springer-Verlag New York, Inc., 1980), pp. 95–125;Google Scholar Gerold Mikula, “On the Role of Justice in Allocation Decisions,” in ibid., pp. 127-66.

28. Deutsch, 1975; Sampson, 1975 Leventhal, 1976; Morton, Deutsch, “Egalitarianism in the Laboratory and at Work,” in Melvin, J. Lerner and Riel, Vermunt, (eds.), Social Justice In Human Relations, vol. 1 (New York: Plenum Publishing Corporation, 1991), pp. 195–209.Google Scholar

29. Sampson, E.E., “Studies of Status Congruence,” in Berkowitz, L., (ed.), Advances in Experimental Social Psychology, vol. 4 (New York: Academic Press, 1969), pp. 225–70.Google Scholar

30. Greenberg, M.S. & Shapiro, S.P., “Indebtedness: An Adverse Aspect of Asking for and Receiving Help,” Sociometry, vol. 34 (1971), pp. 290–301;CrossRefGoogle ScholarKrebs, D., “Altruism—An Examination of the Concept and a Review of the Literature,” Psychological Bulletin, vol. 73 (1970), pp. 258–302.CrossRefGoogle Scholar

31. This is a tricky issue. Equity theory is based on exchange theory, and some models hold, as I indicated earlier, that when people perceive injustice, they experience distress, and they act to remove the injustice in order to remove the source of distress. Such models imply that self-interest moves people to avoid injustice and seek justice. Other models of distributive justice hold that people seek seek distributive justice in their exchanges with others because they are trying to balance their desire for personal gain, against the risk of provoking conflict by taking too much. Again, such models imply that justice is valued only instrinsically. There is perhaps no way to definitively disprove such models since to some extent the egoist assumptions built into them are nonfalsifiable. What is possible, and what I attempt to do in what follows, is show that there is a good deal of evidence that suggests that distributive justice is not desired only for its instrumental value. This research provides evidence that is difficult to account for within the egoist models. But, with enough manipulation, it is possible to force the data to fit into the egoist models.

32. Tyler, T. & Dawes, R. M., “Fairness in Groups: Comparing the Self-interest and Social Identity Perspectives,” in Meilers, B. A. & Baron, J., (eds.), Psychological Perspectives on Justice (New York: Cambridge University Press, 1993), pp. 87–108;CrossRefGoogle ScholarLeventhal, G.S. & Lane, D. W., “Sex, Age, and Equity Behavior,” Journal of Personality and Social Psychology, vol. 15 (1970), pp. 312–16;CrossRefGoogle ScholarMikula, G. & Schwinger, T., “Intermember Relations and Reward Allocation,” in Brandstatter, H., Davis, J. H., & Schuler, H., (eds.), Dynamics of Group Decisions (Beverly Hills: Sage, 1978), pp. 229–50;Google ScholarShapiro, E. G., “The Effect of Expectations of Future Interaction in Reward Allocations in Dyads: Equity or Equality,” Journal of Personality and Social Psychology, vol. 31 (1975), pp. 873–80;CrossRefGoogle ScholarSchwinger, T., “Just Allocations of Goods: Decisions Among Three Principles,” in Gerold, Mikula, (ed.), Justice and Social Interaction (New York: Springer-Verlag, 1980), pp. 95–125Google Scholar

33. Guth, W., Schmittberger, R., and Schwarze, B., “An Experimental Analysis of Ultimatum Bargaining,” Journal of Economic Behavior in Organizations, vol. 3, pp. 367–88;CrossRefGoogle Scholar see also Daniel Kahneman, J.Knetsch, L., Thaler, R. H., “Fairness and the Assumptions of Economics,” Journal of Business, vol. 59, no. 4 (1986), pp. S284–S300.Google Scholar

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35. J., W. Minton, Justice, J.W., Satisfaction, and Loyalty: Employee Withdrawal and Voice in the Din of Inequity, unpublished doctoral dissertation, Duke University, Durham, NC, 1988.Google Scholar

36. Brockner, J., Tyler, T., & Schneider, R., “The Higher They Are, The Harder They Fall: The Effect of Prior Commitment and Procedural Injustice on Subsequent Commitment to Social Institutions,” paper presented at the annual Academy of Management meeting, Miami Beach FL (1991, August);Google ScholarKahneman, D., Knetsch, J.L., and Thaler, R., “Fairness as a Constraint on Profit Seeking: Entitlements in the Market,” American Economic Review, vol 76, (1986), pp. 728–41;Google ScholarBies, R.J., Tripp, T. M., and Neale, M. A., “Procedural Fairness and Profit Seeking: The Perceived Legitimacy of Market Exploitation,” Journal of Behavior in Decision Making.Google Scholar

37. Plato, Republic, book two, Jowett translation. Again, it is worth quoting the entire passage:

[Socrates:] And would you tell me, whether you think that a state, or an army, or a band of robbers and thieves, or any other gang of evil-doers could act at all if they injured one another?

[Thrasymachus:] No indeed…, they could not.

[Socrates:] But if they abstained from injuring one another, then they might act together better?

[Thrasymachus:] Yes.

[Socrates:] And this is because injustice creates divisions and hatreds and fighting, and justice imparts harmony and friendship; is not that true, Thrasymachus?

[Thrasymachus:] I agree, … because I do not wish to quarrel with you.

[Socrates:] How good of you,…; but I should like to know also whether injustice, having this tendency to arouse hatred, wherever existing, among slaves or among freemen, will not make them hate one another and set them at variance and render them incapable of common action?

[Thrasymachus:] Certainly.

38. Thibaut, J. & Walker, Procedural Justice: A Psychological Analysis (Hillsdale, NJ: Lawrence Erlbaum Associates, 1975);Google Scholar Thibaut and Walker's book was the seminal study in the field of research on procedural justice.

39. Robert, Folger & Konovsky, M. A., “Effects of Procedural and Distributive Justice on Reactions to Pay Raise Decisions,” Academy of Management Journal, vol. 32, (1989), pp. 115–130.Google Scholar

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42. Greenberg, J., “Organizational Performance Appraisal Procedures: What Makes Them Fair?” in Lewicki, R. J., Sheppard, B. H. & Bazerman, M. H., (eds), Research on Negotiation in Organizations, vol. 1 (Greenwich, CT: JAI Press, 1986), pp. 25–41.Google Scholar

43. Barrett-Howard, E. & Tyler, T., “Procedural Justice as a Criterion in Allocation Decisions,” Journal of Personality and Social Psychology, vol. 50, (1986), pp. 296–304;CrossRefGoogle Scholar Folger and Konovsky, “Effects of Procedural and Distributive Justice on Reactions to Pay Raise Decisions.”

44. Leventhal, G. S., “What Should be Done with Equity Theory?” in Gergen, K. J., Greenberg, M. S., and Willis, R. H., eds., Social Exchange: Advances in Theory and Research, (New York: Plenum, 1980), pp. 27–55;CrossRefGoogle Scholar and Leventhal, G. S., Karuza, J., and Fry, W. R., “Beyond Fairness: A Theory of Allocation Preferences,” in Mikula, G., ed., Justice and Social Interaction (New York: Springer-Verlag, 1980), pp. 167–218.Google Scholar

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47. Miller, C.E., Jackson, P., Mueller, J., & Schershing, C., “Some Social Psychological Effects of Group Decision Rules,” Journal of Personality and Social Psychology, vol. 52, (1987), pp. 325–32;CrossRefGoogle Scholar Tyler and Dawes, “Fairness in Groups: Comparing the Self-interest and Social Identity Perspectives.”

48. Robert, Folger and Mary, A. Konovsky, “Effects of Procedural and Distributive Justice on Reactions to Pay and Raise Decisions,” Academy of Management Journal, vol. 32, no. 1, (1989), pp. 115–30;Google ScholarTom, Tyler, Rasinski, K., and Spodick, N., “The Influence of Voice on Satisfaction with Leaders: Exploring the Meaning of Process Control,” Journal of Personality and Social Psychology, vol. 48, (1985), pp. 72–81.Google Scholar

49. Lind, E. A., Kanfer, R., Earley, P.C., “Voice, Control, and Procedural Justice: Instrumental and Noninstrumental Concerns in Fairness Judgments,” Journal of Personality and Social Psychology, (1990), vol. 59, no. 5, pp. 952–59.CrossRefGoogle Scholar

50. Lane, R. E., “Procedural Goods in a Democracy: How One is Treated Versus What One Gets,” Social Justice Research, (1988), vol. 2, pp. 177–192;CrossRefGoogle ScholarLind, E. A. and Tyler, T. R., The Social Psychology of Procedural Justice (New York: Plenum Press, 1988), pp. 230–40;CrossRefGoogle Scholar see also, Folger and Konovsky, “Effects of Procedural and Distributive Justice on Reactions to Pay and Raise Decisions.”

51. Strasser, S., Eveland, J.D., Cummings, G., Deniston, O.L., and Romani, J.H., “Conceptualizing the Goal and System Models of Organizational Effectiveness,” Journal of Management Studies (July 1981);CrossRefGoogle Scholar and Cameron, K., “Critical Questions in Assessing Organizational Effectiveness,” Organizational Dynamics, (Fall 1980).Google Scholar It should be noted, however, that the concept of organizational effectiveness has had its critics. See Campbell, J. P., “On the Nature of Organizational Effectiveness,” in Goodman, P.S. and Pennings, J. M., eds., New Perspectives on Organizational Effectiveness (San Francisco: Jossey-Bass, 1977).Google Scholar

52. Companies, for example, that have a strategic commitment to just treatment of their employees and customers seem to have these qualities. An excellent example is Lincoln Electric Company. See Arthur, D. Sharplin, “Lincoln Electric Company, 1989,” in David, W. Grigsby and Michael, J. Stahl, Strategic Management Cases (Belmont, CA: Wadsworth, Inc., 1993), pp. 226–50.Google Scholar