Ethical decision making and moral psychology at work

Most people who take part in corporate wrongdoing do not think of themselves as wrongdoers. Engineers who approved a launch despite doubts, traders who marked positions optimistically, managers who signed off on misleading reports: interviewed later, many say they did not see the decision as an ethical one at the time, or that they believed they had no real choice. Knowing ethical theory, the subject of lesson 2, does not by itself make people act ethically. This lesson examines how ethical decisions are actually made, why good people do bad things, and what individuals and organizations can do to close the gap between knowing and doing.

BUS-130 introduced heuristics and biases, such as overconfidence, framing, anchoring and escalation of commitment, along with group pressures such as groupthink. This lesson builds on that foundation and focuses on the psychology specific to moral choices: recognizing that a situation has an ethical dimension, the ways people disengage their moral standards, the effect of goals and incentives, and practical tools for better decisions.

Rest's four components

Psychologist James Rest proposed that ethical action requires four distinct components, and that failure can occur at any of them. Moral awareness, or sensitivity, means recognizing that a situation involves ethical issues and affects others. Moral judgement means reasoning about what the right action is. Moral motivation, or intention, means placing ethical values above competing goals such as profit, career or loyalty. Moral character, or implementation, means having the courage, persistence and skill to follow through despite obstacles.

The model is useful because each component needs a different remedy. If people do not notice ethical issues, training with realistic cases and clear language helps. If they reason poorly, frameworks and access to advice help. If they notice and reason well but other goals win, incentives and leadership must change. If they intend to act but lack courage or skill, practice in raising concerns and protection from retaliation help. Many corporate ethics programs focus only on judgement, explaining rules, while most failures occur at awareness, motivation or action.

Moral intensity

Thomas Jones argued that people are more likely to recognize and act on an ethical issue when its moral intensity is high. Moral intensity has six dimensions: magnitude of consequences (how much harm), social consensus (how widely the act is seen as wrong), probability of effect (how likely the harm), temporal immediacy (how soon), proximity (how close, socially or physically, the victims are) and concentration of effect (whether harm falls heavily on a few). Issues with diffuse, distant, delayed and uncertain harms, such as small accounting adjustments, emissions or data practices, have low moral intensity and are often not seen as ethical issues at all.

Managers can raise the moral intensity of important issues by making consequences concrete: putting a face on the people affected, quantifying harm, shortening the time horizon and making clear that the organization regards the conduct as wrong. Conversely, euphemisms and abstraction lower moral intensity, which is why the language used inside organizations matters.

Ethical fading and moral disengagement

Ann Tenbrunsel and David Messick described ethical fading: the process by which the ethical aspects of a decision fade from view, replaced by business or technical framings. A decision about whether to disclose a product defect becomes a 'communications issue'; a decision to inflate revenue becomes 'managing the quarter'. Euphemistic language, numerical targets and the routine of daily work all contribute. Once a decision is framed as purely commercial, ethical considerations simply do not enter the analysis.

Albert Bandura identified eight mechanisms of moral disengagement by which people switch off their moral standards without feeling guilty. Moral justification portrays harmful conduct as serving a worthy purpose ('we are saving jobs'). Euphemistic labelling sanitizes it ('creative accounting'). Advantageous comparison makes it seem minor relative to worse conduct ('at least we are not as bad as our competitors'). Displacement of responsibility blames authority ('I was told to'). Diffusion of responsibility spreads blame across a group ('everyone signed off'). Disregard or distortion of consequences minimizes harm ('nobody really gets hurt'). Dehumanization strips victims of human qualities ('those customers are just numbers'). Attribution of blame faults the victims ('they should have read the fine print').

The slippery slope and incrementalism

Serious misconduct often begins with small steps. A manager who accepts a slightly optimistic estimate one quarter finds it harder to refuse a larger adjustment the next, because refusing would expose the earlier step. Research by Francesca Gino and Max Bazerman found that people are more likely to accept unethical behaviour by others when it develops gradually rather than abruptly. Each step seems a small departure from the last, so the cumulative distance from the starting point goes unnoticed. Many accounting frauds, including WorldCom's, began as attempts to bridge a temporary shortfall and grew as the gap widened.

Goals, incentives and pressure

Goals focus effort and improve performance, but challenging goals can also motivate unethical behaviour. Studies by Maurice Schweitzer and colleagues found that people with specific, difficult goals were more likely to misreport performance than people asked simply to do their best, especially when they were close to the goal. Goals narrow attention, so ethical considerations outside the goal fade; they create pressure; and when tied to large rewards, they make cheating profitable. The bank sales scandal described in lesson 1 and the emissions-test cheating at a major car maker both involved demanding targets that people believed could not be met honestly.

The lesson for managers is not to abandon goals but to design them carefully: test whether a target can be met honestly, combine outcome goals with behaviour and quality measures, avoid all-or-nothing bonus thresholds, monitor how goals are achieved and not just whether, and make it safe to say a goal cannot be met. Pressure from authority adds to the problem. Stanley Milgram's obedience experiments showed how far ordinary people will go when an authority figure takes responsibility, and organizational hierarchies reproduce that dynamic.

Bounded ethicality and blind spots

Max Bazerman and Ann Tenbrunsel coined the term bounded ethicality for systematic ways in which well-meaning people fail to see the ethical implications of their own decisions. People overestimate their own ethicality, predicting that they will act well in hypothetical situations but behaving worse when the situation arises. They engage in motivated reasoning, interpreting evidence in ways that favour their interests, as when auditors paid by a client judge its accounts more favourably. Conflicts of interest bias judgement even among honest professionals, which is why disclosure alone is often not enough and independence rules matter (lesson 5). People also show bias in favour of their own group and discount harms to future people and distant strangers.

Tools for better ethical decisions

No technique guarantees good decisions, but several improve the odds. Pause and name the issue: ask explicitly whether a decision has an ethical dimension, and describe it in plain language. Identify the people affected and their interests. Generate more than two options; ethical dilemmas often look binary only because no one has searched for a creative third path. Apply the lenses from lesson 2. Use quick tests: the publicity test (would I be comfortable if this were reported on the front page?), the mirror test (could I look at myself in the mirror?), the role-model test (what would a person I admire do?) and the reversibility test (would I accept this if I were on the receiving end?). Seek counsel from someone outside the situation. Finally, plan the action, including what to say and to whom.

Giving voice to values, an approach developed by Mary Gentile, shifts the focus from deciding what is right to rehearsing how to act on it. Most people already know what they think is right; what they lack is a script and practice. Rehearsing responses to common rationalizations, finding allies, framing the concern in terms of the organization's own goals and suggesting alternatives all make it more likely that people will speak up. Lesson 10 returns to speaking up and whistleblowing.

What organizations can do

Because moral psychology is predictable, organizations can design for it. Leaders can model ethical conduct and talk about ethics in ordinary business meetings, which raises moral awareness. Plain language in policies and reports reduces ethical fading. Incentive plans can include conduct and quality measures, and targets can be stress-tested. Decision processes can include checkpoints for significant ethical risks, such as product safety or customer impact reviews. Psychological safety, explored in BUS-130, makes it easier to raise concerns. Lesson 8 shows how these ideas are built into compliance and ethics programs.