What is Managerial Ethics?

by Sree Rama Rao on December 19, 2010

Ethics – the code of moral principles and values that govern the behaviors of a person or group with respect to what is right or wrong.

Ethics is difficult to define in a precise way. In a general sense, ethics is the code of moral principles and values that governs the behavior of a person or group with respect to what is right or wrong. Ethics set standards as to what is good or bad in conduct and decision making . Ethics deal with internal values that are a part of corporate culture and shapes decisions concerning social responsibility with respect to the external environment. An ethical issue is present in a situation when the actions of a person or an organization may harm or benefit others.

Ethics can be more understood when compared with behaviors governed by laws and by free choice . Exhibit illustrates that human behavior falls into three categories . The first is codified law, in which values and standards are written into the legal system and enforceable in the courts. In this area, lawmakers have ruled that people and corporations must behave in a certain way, such as obtaining license for cars or paying corporate taxes. The courts alleged that Enron executives broke the law for examples by manipulating financial results, such as using of balance sheet partnerships so improperly to create income and hide debt. The domain of free choice is at the opposite end of the scale and pertains to behavior abut which the law has no say and for which an individual or organization enjoys complete freedom. A manager’s choice of where to eat lunch or a music company’s choice of the number of CDs to release are examples of free choice.

Between these domain lies the area of ethics. This domain has no specific laws, ye it does have standards of conduct based on shared principles and values about moral conduct that guide an individual or company. Executives at Enron, for example did not break any specific laws by encouraging employees to buy more shares of stock even when they believed the company was in financial trouble and the price of the shares was likely to decline. However, this behavior was a clear violation of the executives’ ethical responsibilities to employees . These managers were acting based on their own interests rather than their duties to employees and other stakeholders. In the domain of free choice obedience is strictly to oneself. In the domain of codified law, obedience is to laws prescribed by the legal system. In the domain of ethical behavior, obedience is to unenforceable norms and standards about which the individual or company is aware. An ethically acceptable decision is both legally and morally acceptable to the larger community.

Many companies and individuals get into trouble with the simplified view that choices are governed by either law or free choice. It leads people to mistakenly assume that if it’s not illegal, it must be ethical as if there were no third domain. A better option is to recognize the domain of ethics and accept moral values as a powerful force for good that can regulate behaviors both inside and outside corporations. As principles of ethics and social responsibility are more widely recognized companies can use codes of ethics and their corporate cultures to govern behavior, thereby eliminating the need for additional laws and avoiding the problems of unfettered choice,

Ethical dilemma:

A situation that arises when all alternative choices or behaviors have been deemed undesirable because of potentially negative consequences making it difficult to distinguish right from wrong.

Source: New Era Management





  • Dr.K.Prabhakar

    Provides a good exposition of basics of ethics.Thanks for posting.

  • Ethics Sage

    Thank you for your interesting piece on “What is Managerial Ethics.” I blog about these issues all the time. Some of my thoughts about how to enhance managerial ethics follows. The tone at the top of an enterprise is a critical element in establishing an ethical culture. The members of top management and employees must believe that the organization they work for is serious about instilling this culture into decision making for it to lead to ethical actions that take into consideration how one’s actions affect the stakeholders. In the accounting frauds at companies like Enron and WorldCom, a culture was established to pursue the self-interests of top company officials and the perceived interests of the organization. This tone reverberated throughout the organization and led to a “do whatever it takes” mentality. The goal was to meet financial analysts’ earnings expectations, increase stock prices by manipulating earnings, and enhance the value of stock options. The Sarbanes-Oxley Act places more of the burden for establishing an ethical environment on the board of directors and, in particular, the audit committee that oversees financial reporting and works with both the internal and external auditors to insure the financial statements are accurate and reliable. When combined with a strong set of internal controls, we can only hope these improvements in corporate governance will take hold and lead to a more ethical corporate culture and enhanced managerial ethics.

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