Instrumental Use Of Ethics By Executive Managers example essay topic

... f information on which decisions must be based over to enormously complex computer systems' that limit the kinds of questions and 'data' that can be utilized. Moreover, because of their complexity -- anything more than two thousand lines of computer code cannot be fully debugged in advance of its use -- such systems are not able to be completely understood by those who rely on them. As a result, any such 'computing system has effectively closed many doors that were open before it was installed. ' (5) Computers, like other fundamental technologies, offer certain opportunities while blocking others, thus altering the course of history in a manner not unlike the way political change can open a new path in social development at the same time it closes off many alternatives. The difference is that while brute force is admitted to play a major role in the political realm, so that politics is regularly subjected to criticism in order to identify its irrationalities, changes brought about by science and technology are ostensibly the products of reason.

Therefore, they are much less commonly questioned concerning the consequences. Indeed, the shift from theoretical to ethical and political discussions about computers did not take hold until large-scale, relatively isolated mainframe machines were augmented by small-scale, much more widely available personal computers. Time magazine, reflecting public recognition of the importance of this augmentation, designated the personal computer 'Machine of the Year' in January 1983. And during the remainder of the 1980's computer ethics became a theme for discussion and education, especially among professions within the computer community -- a discussion that has become ever more pronounced with the expansion of computer communications on the Internet. Here one of the central issues has been that of corporate security and its flip side, personal privacy. Although extensive bureaucratic record keeping is no new activity, computerized information is vulnerable to electronic invasion and manipulation by hackers and program viruses in ways that hard-copy records never were.

Additionally, much more information is being collected than ever before, and in forms that allow the linking of medical, financial, and legal records to create integrated profiles of use to commercial as well as law-enforcement interests. To what extent such virtual 'papers and effects's would be protected from criminal trespass as well as against 'unreasonable searches and seizures' by the government, and how such protection might best be institutionalized, is an issue subject to considerable debate within the technical community and its ethics experts. Reflecting public concern especially about threats to privacy, computer professionals have formulated codes of conduct to limit opportunities for unwarranted appropriation by individuals, corporations, or the government. The code of ethics of the Association for Computing Machinery (ACM), the largest computer-professional organization, prescribes that 'an ACM member, whenever dealing with data concerning individuals, shall always consider the principle of the individual's privacy and seek the following: ' 'To minimize the data collected. To limit authorized access to the data.

To provide proper security for the data. To determine the required retention period of the data. To ensure proper disposal of the data.'s uch professional efforts to take into account ethical concerns about the right to privacy clearly constitute efforts not only to reevaluate the application of established ethical values but also to work toward a broader consensus about the role of computers in society. Advocacy efforts of the Electronic Frontier Foundation (EFF), a nonprofit organization co founded by Lotus 1-2-3 developer Mitchell Kap or and Wyoming libertarian Republican John Perry Barlow, also deserve mention in this regard.

For EFF, efforts to protect privacy must be complemented by openness in technical-design principles and a public-policy defense of electronic civil liberties. The public-policy aspect of such a position depends to some extent on the technical possibilities -- and even more on ethical understandings of those possibilities. It would nevertheless be contrary to democratic principles for the technical community alone to attempt to implement these commitments independent of public involvement and respect for concerns about the electronic availability of pornography and other morally questionable forms of information. But even when the creation of personal data is limited and protected, and civil liberties are properly protected in cyberspace, such enormous quantities of information are being produced by digital means as to constitute what has been called a problem of 'information overload. ' Added daily to the staggering amounts of scientific data being electronically produced and collected by satellites; atmospheric, geological, and oceanographic monitors; telescopes; and laboratories throughout the world are digitalized versions of documents, texts, audio recordings, videos, maps, photographs, paintings, and so forth, all of which are gushing onto the Internet.

As one commentator recently noted, the Internet resembles 'an enormous used book store with volumes stacked on shelves and tables and overflowing onto the floor, and a continuous stream of new books being added helter-skelter to the piles. ' (6) Efforts to manage this information explosion have led to the creation of computer programs to scan and sort such material. 'Smart instruments' that analyze data even as it is being created are complemented by 'search engines,' 'know bots' (i. e., knowledge robots), and 'intelligent agents'; and these virtual users are becoming the scouts of the information frontier. Right behind such electronic scouts, however, the new information frontier is being peopled with virtual settlers. When such virtual settlers use the Internet as a combination postal system and asynchronous telephone network, it creates what author and editor Howard Rheingold in 1993 called 'the virtual community. ' But what kind of community is it when people use cyberspace to log on as electronic fictions, projections of themselves in interactive multiuse r domains, or MUDs?

In these cybernetic stages for role play and reversal, men represent themselves as women and women men; the shy come on as aggressive; the unattractive describe themselves as beautiful. What is the ethics of the masquerade ball, when the party can continue indefinitely? Does such utilization of cyberspace constitute a new learning process, or is it an escape from reality? Surely these, too, are questions to be adjudicated off line as well as on, by the public as well as the cyder-citizen. From mainframe through personal computer to Internet, the electronic computer has transformed information and human communication in unanticipated ways that are giving birth to what has been variously termed cyberspace, virtual reality, or hyper reality.

To live in this new milieu, however, requires not virtual but real ethics, grounded in practical and public reflection on the new techno life world. BEYOND SPECIALIZED DOMAINS It is not necessary to argue that the ethical problems of technology are unique to admit they are crucial. Because even if they are not sui generis, modern technologies -- whether medical, those that affect the environment, or computers -- multiply, extend, and intensify the consequences of human action. By enlarging technological power to the point where it can destroy whole cities and by shrinking engineering design to levels of genetic and atomic structures, modern technology extends the spatial sweep and temporal reach of the human making and using of artifacts in ways that transmute the traditional meaning of such activities. No longer is technology simply used by human beings who remain outside it; today technology encompasses and carries humanity into new realms of experience. But it does not carry them beyond the realm of ethics.

We do not live in order to make and use technologies; we make and use technologies in order to live -- that is, to live one way rather than another. Given our medical, industrial, and computer technologies, we can seek to assess their benefits and risks and to submit them to the principles of justice, or leave them in the hands of amoral market forces. We can allow ourselves to become consumers governed by no more than material needs or income and the attraction of entertainment, or we can struggle to lead disciplined lives in the face of numerous technological temptations. We can reject nature and the traditional virtues as any guide to what is proper in human behavior, or we can seek to recover the nature that remains amid our enhanced artificiality. There is a sense, however, in which we cannot avoid being ethical in the ways we decide to use our technologies. To claim that we are turning over decisions about what technologies to have and how to use them to Adam Smith's 'invisible guiding hand' is itself to make an ethical decision.

No matter how we design and use our medical technologies, no matter how we decide to treat the environment, no matter what we decide to do with our computers, it will have an ethical, not just a technical, impact on our lives. Although many technical professionals and some professional ethicist's have recognized this truth, it is a truth that requires the kind of wider appreciation that would support public participation in the discussions to which more specialized reflection has given rise. Decisions about how to practice medicine, protect the environment, and construct the information superhighway can be made in one of three ways: 1. We can assume that the problems are so complex that they must be left to the experts, that is, to scientists, engineers, and their ethics counselors. 2.

We can insist that these problems must be handled by the public, even though the public often lacks adequate technical knowledge or sufficient reflection on the ethical issues involved, because this is what our established values require. 3. We can strive to create an informed public that works with technical professionals and their ethics counselors to reach an informed consensus. The first option is intelligent but undemocratic. The second is democratic but unintelligent. What we must do is strive for the third way, an intelligent democracy that integrates cultures of expertise into a self-reflective public.

Only this can set the stage for realizing the full promise of the applied ethics of technology. Carl Mitcham is professor of philosophy and director of the Science, Technology, and Society Program at Penn State University. His most recent book is Thinking Through Technology: The Path between Engineering and Philosophy (University of Chicago Press, 1994). In spring 1996 he is serving as the Henne bach Visiting Professor of Humanities at the Colorado School of Mines. Footnotes: 1. ' A Controlled Trial to Improve Care for Seriously Ill Hospital Patients, ' Journal of the American Medical Association 274: 20 (22 -- 29 Nov. 1995): 1,591 -- 98.2.

Charles Weimer, 'Our Bodies, Our Science,' The Sciences 35: 3 (May- -June 1995): 42.3. Caplan is quoted from Gina Kolkata, 'Transplants, Morality and Mickey, ' New York Times, 11 June 1995, E 5.4. Joseph Weizenbaum, Computer Power and Human Reason (San Francisco: Freeman, 1976), 6.5. Weizenbaum, Computer Power, 38.6. Robert Pool, 'Turning an Info-Glut into a Library,' Science 266: 5182 (7 Oct. 1994): 20. Copyright (c) 1996 News World Communications, Inc.

Carl Mitcham, Technology and ethics: From Expertise to Public Participation. Vol. 11, The World & I, 03-01-1996, pp 314. An agent morality view of business policy. (Academy of Management Review) Quinn, Dennis P. ; Jones, Thomas M. ; 01-01-1995 Two normative views are common in the business policy and management literature about what principles ought to guide management decision making. Proponents of the first view hold that, because executive- level managers are agents for shareholders, maximizing the present value of the firm is the appropriate motivating principle for management.

Proponents of the second view (e. g., normative stakeholder theory) hold that principled moral reasoning ought to motivate management decisions. These views were once regarded as antagonistic in that the policies each view recommended to managers frequently diverged: shareholder interest and ethics often led to opposing policies. In the current 'ethicize d' U.S. consumer market, however, no such policy divergence need occur. (See Business Roundtable, 1992; Sethi, 1981.) Indeed, the supporters of the wealth maximization view now usually amend their advice to take overtly into account legal, ethical, and social concerns. Scholars and business journalists now urge managers to employ ethics as a management tool when 'strategic ethics' increases the present value of the firm. (1) More generally, managers are being told that 'good ethics' is 'good business' and is, therefore, in the best interest of the firm and its shareholders (see, e. g., Blanchard & Peale, 1988; K otter & Hesketh, 1992).

We call this first view of ethics and business policy instrumental ethics. Its advocates employ the language of ethics to serve the goal of firm value maximization. Instrumentally ethical managers might do what is morally proper, but they do so to increase shareholder wealth. The second view of the firm is necessarily agnostic about whether good ethics is good business. The 'principled moral reasoning' view of business policy assumes morality is intrinsically, not instrumentally, good. That is, morality is an end in itself and cannot be justified with reference to the gain of a firm or its shareholders alone.

Wealth considerations are not precluded from the analysis, but they cannot trump moral principle when wealth and principle conflict. We call this view non instrumental ethics. We argue that both normative business policy models are problematic in current U.S. business settings, though for different reasons. Instrumental ethics is logically problematic; in consequence, instrumental ethics is not, and cannot be made, morally binding on managers. It is also difficult to carry out organizationally. The non instrumental morality approach to business policy produces policy recommendations that are morally binding on managers.

The broad and open-ended duties generated by principled moral reasoning, however, appear vague and poorly focused compared with the sharp image of the manager as the wealth-maximizing agent of shareholders. Non instrumental ethics, therefore, has been less persuasive to managers than the rigor of the analyses warrants. We offer an agent morality view of business policy, a view that extends the logic of managerial agency. We show that the moral logic of market competition and the principal-agent model of the firm require managers to recognize at least four moral principles as a higher priority than firm profits. These principles are elements of ordinary morality, but we argue that they have special force in economic and principal- agent relationships.

Managers as agents are especially bound by them: therefore, the term agent morality. Although we ground our arguments in an analysis of the moral foundations of economics and business, the principles that we show to be binding on managers are already commonly understood and agreed to by many U.S. citizens. This view might therefore prove to be persuasive in the U.S. business context. SHOULD MANAGERS MAXIMIZE SHAREHOLDER WEALTH? The Principal-Agent Model of the Firm Business academicians and writers in the business press routinely advise senior managers of publicly owned U.S. corporations to follow a principle that ought to guide management actions: carry out only those policies that increase the net present value (NPV) of the firm (see, e. g., Drucker, 1984; Jensen, 1991). These advisors assume that managers of firms are agents of shareholders, who create firms (or invest in them) so as to increase their wealth relative to that provided by other available investment opportunities: Why otherwise would shareholders bother to invest money in firms?

Creation or investment for the end of wealth implies that owners expect those who are hired to run firms will work toward achieving the end - almost always wealth - for which firms are established. From the expectation of owners of firms comes the obligation of employees and senior managers. (See Arnold, 1987, for a functionalist desert theory of profits.) The duty of an individual to honor his or her agreements provides a justification, therefore, for the moral obligation of a manager to his or her shareholders. This normative view of senior managers of firms as economic agents of the shareholders is commonly called the principal-agent model of the firm. It is a normative business policy model in that it offers a principle that managers should follow. The principal-agent model does not necessarily describe the principles most managers of most firms follow: This is not a positive model.

Advocates of management buyouts of publicly held companies believe that managers of publicly owned companies rarely put owners' interests above their own (e. g., G. Donaldson, 1984; Jensen, 1989). Managers, as do all humans, have many duties. Why should managers' obligation to shareholders to increase their wealth trump other moral duties when managers establish and carry out business policies? According to the principal-agent model of the firm, the moral primacy of shareholder wealth compared with other obligations is derived from a consequential ist moral view of the world. The argument is as follows (we adapt Sen, 1985): the morally better world is one where the best consequences pertain; best consequences comprise a condition - Pareto optimality, and Pareto optimality occurs under efficient market conditions. The analysis to this point indicates nothing about firms per se or their role.

Firms are not ends in themselves but are wealth-producing agents for their owners; as noted previously, owners would make different investment or consumption decisions if this were not true (Case, 1937). When a manager does other than optimally increase the stock price of the firm, a distortion occurs in the investment market. Under efficient markets, then, the best allocation of social resources occurs when a manager of a firm maximizes that firm's stock price. All things being equal, the best allocation of resources is morally desirable, so the managers of firms ought to maximize the NPV of the firm. (See Drucker, 1984; Jensen, 1991, for examples of this type of argument.) The justification for NPV as the motivating goal is, therefore, for the effect that targeting NPV has in a broader system of efficient markets, not by itself.

In Sen's words, the moral defense of net present value is for its 'instrumental moral relevance' (Sen, 1985: 10). Instrumental Ethics Instrumental ethics enters the picture as an addendum to the rule of wealth maximization for the manager-agent to follow. Firm profit opportunities apart from the efficient markets framework can arise from negative externalities, information asymmetries, and coordination in production problems. These problems are loosely termed market imperfections (in the first two cases) or agency problems (in the third). The profit opportunities realized from acting on negative externalities, and so forth, reduce society's wealth. Under these circumstances, the moral defense of NPV outlined previously does not hold.

Various theorists have proposed market-based mechanisms as ways of overcoming market imperfection problems. Arrow (1973) reviewed regulation, taxation, and civil liability as solutions to negative externalities and information asymmetries. Coleman (1990) and Williamson (1975) reviewed optimal contracting and other monitoring-as-policing mechanisms as solutions to a firm's coordination problems. Most radical of all is Jensen's (1989) argument that ending agency problems occasionally requires a management buyout of the corporation itself (cf. Demsetz & Lean, 1985). (See Mitnick, 1980, for a review of agency theory.) The common element to these mechanisms is that they change the economic incentives facing managers so that the interests of shareholders, managers, and society are aligned.

According to this view, if owners or regulators give managers proper incentives, optimizing the present value of the share price of the firm again will coincide with society's welfare. Another common element, however, is that these solutions are very expensive. The expenses of civil liability suits, government regulations, and so on, are well known. The costs of overcoming agency problems also are quite high (Coleman, 1990).

Economists and business theorists recognize that voluntary moral restraint is another (cheaper) way of overcoming externalities and other market imperfections (Arrow, 1973; Hardin. 1968). (For a review, see Hausman & McPherson, 1993.) That is, if we all practice moral restraint regarding externalities or agency problems, welfare gains to society will follow. Society and firms will avoid the deadweight losses of both welfare- reducing activities and the mechanisms used to prevent them.

Morality, its obvious advantages aside, is often rejected in this framework. Hardin (1968) and Arrow (1973) pointed out that, absent law or other control devices, moral agents will find themselves in a prisoner's dilemma setting when profit opportunities from exploiting market imperfections or agency problems are present. If they select morality, they pay a morality tax. Moral individuals and firms will lose over time to immoral individuals and firms. In Hardin's famous example of the cow herders and their commons, the ineluctable logic of economic competition leads each herder to contribute to the destruction of community property.

This microeconomic argument against moral restraint applies most clearly to markets that are contestable (in Baumol's language) or which lack a strong connection between social values and markets. Baumol quipped that 'perfect market forms impose vice rather than virtue' (1991: 3). Studies in socioeconomic's, however, show that social values and market outcomes are frequently connected (see Axelrod, 1984; Bowie, 1991; Coleman, 1990; Etzioni, 1988; Frank, 1992; Sethi, In press). These scholars have raised two pertinent points.

First, cultural values bound the very structure of market competition (Grano vetter, 1985). Indeed, market competition is dependent on some social values. Absent trust between and among potential market participants, how could very many market transactions take place (Hare, 1992; Hausman & McPherson, 1993)? Second, cultural values that are strongly held by market participants will inevitably be reflected in market competition (Etzioni, 1988). Using Hardin's example, I will not add another cow to the common land if my neighbors' disapproval translates into their refusing to purchase my milk or beef or to look after my cows when I am sick.

This approval or disapproval of my neighbors is an example of what economists call a reputation al good. In cases in which reputation matters for market outcomes, instead of a morality tax, we might find a 'naive economist' tax. If a study of the ethical beliefs of my neighbors allows me to forecast their reaction to the additional cow, then knowing about ethical beliefs is useful to me in a market setting. More generally, as far as managers need to forecast consumers' or regulators' reactions to company policies, a study of ethical beliefs might be useful to agents in achieving the NPV goals of the firm. Instrumental ethics, then, might enable managers to read and understand the social values that allow market competition and to avoid unintentionally violating shared norms. Instrumental ethics also might be useful to senior managers in persuading employees and managers at other levels to avoid shirking and other forms of opportunism.

In the markets in which reputation matters and industry concentration is high, a firm probably can 'nurture a corporate culture that puts high value on ethical and socially responsible behavior' as a way to 'insure long-term above-normal profitability for the enterprise' (Sethi, In press). In such a case, moral choice does not take place in a prisoner's dilemma setting. Setting corporate strategies without considering the ethical judgments of consumers or regulators might threaten a firm's profitability. Simply put, an NPV defense of ethics is now widely made in terms of an agent's obligation to promote shareholders' economic interests. For companies such as Johnson & Johnson, ethics is an invisible asset, which allows the company to solve coordination and other problems. Ethics is a strategic tool.

Therefore, instrumental ethics and shareholder wealth are not necessarily in contradiction. As Jensen noted, 'In this sense, there is no conflict between management's service to its stockholders and to other corporate stakeholders' (1991: 21). Instrumental ethics is sometimes essential for achieving the firm's NPV goals. Not every company, of course, is similar to Johnson & Johnson, which makes and sells consumer medical products and, therefore, is exceptionally sensitive to consumer reaction.

Reputation might matter more for this firm than for almost any other U.S. firm. This situation raises the important point that, for the instrumentally ethical manager, behavior is situation ally determined. In the current 'ethicize d' U.S. business environment, the long-term benefits of a reputation for ethical behavior usually outweigh any short-term gains from, for example, taking advantage of consumers or suppliers. Enlightened self-interest leads managers to 'ethical' behavior.

In those business settings, however, with either short-term time horizons (e. g., strong quarterly profit pressures) or information asymmetries (e. g., some international markets), instrumentally ethical managers might behave very differently. Here, the benefits of unethical behavior might exceed the costs, as in the contestable markets described by Baumol (1991). Instrumentally ethical managers might reasonably hope to 'get away with' unethical behavior. Are there many U.S. companies, however, whose stock prices would not currently gain from at least the perception that their managers were ethical?

Managers are now routinely urged to pay attention to ethics as, at least in the U.S. situation, good ethics often makes for good business. The Difficulties With Instrumental Ethics Instrumental ethics is problematic, nevertheless, for several reasons. First, if what is useful to managers about ethics is to be able to forecast how share prices are affected by the actions of consumers or regulators, managers should study socioeconomic's directly. Why not avoid the long journey through philosophical ethics?

Markets reflect cultural values, but these values are not only (or even usually) derived from principled moral reasoning. Consumer or regulator reactions will not necessarily reflect moral considerations. What is needed for shareholder wealth typically is the 'trust' of consumers, not managerial moral rectitude itself. The two are obviously related sometimes, but other times they are not. For example, we see many allegations that Japanese corporations practice fierce discrimination against women and other minorities in the United States and Japan. U.S. consumers, however, trust that Japanese companies will produce products that are reliable and safe.

Consumer trust and good company reputation might be the byproduct of sound ethical policies, but it might be more efficient for the managers of companies to aim directly at achieving trust. Managers' ethical obligations, of course, are not exhausted once they have achieved a good public reputation. Second, the moral logic of the principal-agent model is problematic as currently conceived. The moral defense for the primacy of the obligation of shareholder wealth maximization is that increasing stock price, now joined by ethics, can produce (under constrained circumstances) the best social outcomes.

The best social outcomes, of course, are what is morally desirable. This model begs one question: Why not do directly that which has the best social outcome? If that happens to be increasing the price of a common share of stock, do that; if not, do something else that has better social outcomes. The moral argument that helps managers choose among competing duties based upon the best consequences must inevitably oblige managers 'to do that which is best. ' Discussions about stock price movements, instrumental ethics, and shareholder wealth obscure the true moral argument. Another problem with the moral logic of the principal-agent model is that the usual moral defense of the manager's duty to maximize stock price conflates levels of analysis.

Using NPV [less than] 0 as a way of making decisions is a particular form of cost / benefit analysis in which each act is evaluated in comparison to other acts in terms of financial benefits to the firm. Most forms of ethical analysis, however, offer basic moral principles as guides for action. Few, if any, consequential ist philosophers would say that the estimated financial consequences to a firm should alone be used to evaluate moral questions. Further, the appropriate relevant units of moral analyses are the welfare or rights (or both) of members of societies, which are not at all the same as wealth.

A third problem with instrumental ethics is that it might not be possible to carry out because it negates reciprocity and, therefore, part of its advantage to the firm. If the senior managers of a firm employ ethics 'instrumentally' or with 'enlightened self-interest' or any other restrictive caveat, why will not employees at lower levels of the firm (or suppliers or customers) also employ ethics instrumentally? Can owners of firms expect ethical restraint from executive managers if the owners show interest in ethics only because ethics leads to optimum gain for owners? Can you be a 'little bit ethical' without having everyone else also be only a 'little bit ethical'?

Can executive managers really expect to 'fake' integrity if their real motivation is solely economic gain? How can instrumental ethics solve externality and agency problems if the justification for ethics is shareholder self-interest? These observations lead to a testable research proposition. Proposition 1: Ethics policies that are justified in instrumental terms are less likely to elicit support from firm employees (and other corporate constituents) than are ethics policies justified in non instrumental terms.

The compelling evidence is that instrumental ethics is hard to carry out in a corporate setting (see Jones, In press). First, ethics is hard to fake. People are adept at detecting attempts at deception (De Paulo, Zuckerman, & Rosenthal, 1980; Frank, 1988). Once people detect faking, they are likely to adopt similar behavior (Jones, In press). As employees look to executive-level managers for their moral cues (Trevino & Youngblood, 1990), the instrumental use of ethics by executive managers will lead to others using ethics instrumentally. Second, through a self-selection process, truly moral individuals, if they detect moral fakery, are more likely to leave the organization than are those for whom moral deceit is less problematic.

The risk of instrumental ethics is that it might leave the corporation, in the end, worse off. In terms of an empirical proposition: Proposition 2: Ethics policies that are justified in instrumental terms are less likely to benefit the firm economically in the long term than are ethics policies justified in non instrumental terms. A final problem with instrumental ethics follows from the analysis of Baumol (1991) and Sethi (In press). Instrumental ethics might give firms an advantage in some market circumstances, especially imperfect markets. Market circumstances, however, change frequently in this increasingly Schumpeter ian world economy, as IBM, among others, has discovered. Instrumental ethics might give a firm an advantage now, but it might not later.

We do not know what the consequences might be to a firm of disestablishing a culture that emphasizes ethics, but they are unlikely to be positive. Thus, instrumental ethics is hard to undertake, and the consequences of it being revealed as an opportunistic venture are severe. We doubt, however, that the ethics movement could have a.