The Framework for Ethical Decision Making in Business by Ferrell et al.

(2010) is a comprehensive model that outlines the factors influencing

ethical or unethical behavior in business contexts. It provides a structured
approach to understanding how decisions are made when individuals face
ethical dilemmas. Below, I’ll explain each component in detail,
incorporating the provided text, expanding on key concepts, and
providing practical examples to illustrate their application. I’ll also
address the managerial role in developing ethical leadership programs
and the leadership styles and habits that support ethical decision-making.

Overview of the Framework

The framework consists of six key components that interact to shape
ethical decision-making:
Ethical Issue Intensity: The perceived importance of an ethical
issue.
Individual Factors: Personal characteristics and values of the
decision-maker.
Organizational Factors: The company’s culture, policies, and
leadership.
Opportunity: Conditions that enable or restrict ethical/unethical
behavior.
Business Ethics Evaluations and Intentions: The cognitive process
of assessing and intending to act.
Ethical or Unethical Behavior: The final action taken.

These components interact dynamically, with each influencing the others

to determine whether the outcome is ethical or unethical. The framework
emphasizes that ethical decisions are not made in isolation but are shaped
by personal, organizational, and situational factors.

1. Ethical Issue Intensity

Definition: Ethical issue intensity is the relevance or importance of an
ethical issue as perceived by the individual, work group, or organization.
It reflects the cognitive state of concern about the issue and the degree to
which it prompts ethical scrutiny.
Key Aspects:
Perception-Based: The intensity depends on how the decision-
maker views the issue, not necessarily on objective measures. For
example, an issue like workplace harassment may be highly intense
 for one employee but less so for another who is unaware of its
implications.
Spheres of Influence: Individuals are influenced by six spheres
when making ethical choices:
Workplace: Organizational norms and expectations.
Family: Values instilled by family members.
Religion: Moral teachings from religious beliefs.
Legal System: Laws and regulations.
Community: Social norms and expectations.
Profession: Industry standards and professional ethics. The
importance of each sphere varies depending on the issue’s
perceived intensity.
Moral Intensity: This relates to the perception of social pressure
and the harm a decision may cause. Issues with high moral
intensity (e.g., potential harm to many stakeholders) increase
awareness of ethical implications and reduce the likelihood of
unethical actions.
Role of Senior Employees: Senior employees and those with
administrative authority significantly influence intensity because
they set the organization’s ethical tone. Their stance on ethical
issues shapes how others perceive their importance.
Management’s Role: Management can increase ethical issue
intensity through:
Rewards and Punishments: Recognizing ethical behavior or
penalizing unethical actions.
Corporate Policies: Clear guidelines on ethical conduct.
Corporate Values: Communicating values that prioritize
ethics.
Risk of Low Intensity: If managers fail to educate employees about
specific ethical issues, these issues may not reach “critical
awareness,” leading to oversight or unethical behavior. Companies
must assess areas of ethical and legal risk to ensure they are
recognized as ethical issues.

Example: A manager considering whether to ignore a supplier’s unsafe

labor practices perceives high ethical issue intensity if they recognize the
harm to workers (high moral intensity) and if their organization
emphasizes ethical sourcing (workplace influence). However, if the
company downplays such issues and the manager is unaware of the harm,
the intensity may be low, reducing ethical scrutiny.

Significance: Ethical issue intensity is the starting point of the

framework. It determines whether an issue is recognized as an ethical
dilemma. Without shared concern about ethical issues across an
organization, ethical conflict may arise, as individuals prioritize different
values.

2. Individual Factors
Definition: Individual factors are the personal characteristics, values, and
experiences that shape how individuals perceive and resolve ethical
issues. These are developed through socialization and influence decision-
making in the workplace.
Key Individual Factors:
Values and Principles: Individuals base decisions on their sense of
right and wrong, learned through:
Family: Upbringing shapes core values like honesty or
fairness.
Social Groups: Peer influences reinforce or challenge
personal ethics.
Religion: Religious teachings provide moral guidelines.
Formal Education: Ethics courses or professional training
enhance ethical awareness.
Common Workplace Ethical Issues: These include:
Honesty (e.g., truthfulness in reporting).
Conflicts of interest (e.g., personal gain vs. company
interests).
Discrimination (e.g., biased hiring practices).
Nepotism (e.g., favoring relatives in promotions).
Theft of organizational resources (e.g., misusing company
funds).
Public Perception of Ethics: Professions like telemarketers, car
salespersons, and stockbrokers are often perceived as having lower
ethics due to stereotypes about their practices, influencing how
individuals in these roles approach ethical decisions.
Research-Based Factors:
Gender: Studies show women tend to be more ethical than
men in some contexts, though differences are not universal.
 Education and Work Experience: More education and
experience improve ethical decision-making. Business
professionals are often more ethical than students due to
exposure to real-world ethical dilemmas.
Nationality: Nationality influences ethical perspectives, but
its impact is complex due to globalization. Multinational
companies seek individuals who can make ethical decisions
regardless of nationality.
Age: Older employees with more experience are better
equipped to handle industry-specific ethical issues.
Locus of Control:
External Locus of Control: Individuals who believe
outcomes are due to luck, chance, or powerful others
(e.g., bosses) tend to be more ethical, as they feel less
personal responsibility for unethical actions.
Internal Locus of Control: Those who believe they
control their destiny may be less ethical, as they feel
empowered to bend rules to achieve goals.

Example: A young employee with an internal locus of control and limited

work experience might justify inflating sales figures to meet targets,
believing they control their success. In contrast, an older employee with
an external locus of control and a strong religious background might
refuse to act unethically, fearing external judgment.

Significance: Individual factors act as a lens through which ethical issues

are interpreted. They determine whether an individual recognizes an issue
as ethical and how they prioritize competing values (e.g., personal gain
vs. integrity).

3. Organizational Factors
Definition: Organizational factors are the elements of a company’s
environment that influence ethical decision-making, including its culture,
leadership, and policies.
Key Organizational Factors:
Corporate Culture: A set of shared values, norms, and practices
that define how employees solve problems. An ethical culture
reflects an “ethical conscience” and is shaped by:
Corporate Policies on Ethics: Clear guidelines on acceptable
behavior.
 Top Management’s Leadership: Leaders model ethical
conduct, setting the tone for the organization.
Influence of Co-Workers: Peers’ behavior normalizes ethical
or unethical actions.
Opportunity for Unethical Behavior: Weak controls or
rewards for unethical actions undermine ethical culture.
Obedience to Authority: Employees often follow superiors’
directives, even if they conflict with personal ethics. For example,
an employee may say, “I was just following orders,” to justify
unethical actions.
Industry and Size: Larger companies and certain industries (e.g.,
finance) have a greater potential for unethical activities due to
complexity and pressure for results.
Opportunity (Detailed Below): Conditions that limit or permit
unethical behavior are a critical organizational factor.

Example: In a company with a strong ethical culture, a manager is less

likely to approve a questionable marketing campaign because the
organization’s code of conduct emphasizes truthfulness, and leadership
rewards ethical behavior. In a company with a weak ethical culture, the
manager might feel pressured to approve the campaign to meet sales
targets.

Significance: Organizational factors create the context for ethical

decision-making. They can reinforce or undermine individual ethical
tendencies, making them critical in shaping behavior.

4. Opportunity
Definition: Opportunity refers to the conditions within an organization
that enable or restrict ethical or unethical behavior. It arises from the
presence of rewards, lack of barriers, or weak enforcement.
Key Aspects of Opportunity:
Rewards:
Internal Rewards: Feelings of personal worth from ethical
actions (e.g., pride in doing the right thing).
External Rewards: Social approval, status, or financial
incentives for unethical actions (e.g., bonuses for meeting
targets unethically).
 Lack of Barriers: Weak oversight, unclear policies, or inadequate
monitoring create opportunities for misconduct. For example, lax
expense reporting systems may tempt employees to inflate claims.
Immediate Job Context: The work environment, including:
Motivational Tools: “Carrots” (e.g., bonuses) and “sticks”
(e.g., penalties) used by superiors.
Colleagues: Peers who model unethical behavior.
Nature of Work: High-pressure roles may increase unethical
opportunities.
Knowledge and Expertise: Employees with access to sensitive
information (e.g., competitor data) have opportunities to exploit it
unethically.
Enforcement: Aggressive enforcement of codes and rules is
necessary to eliminate opportunities for unethical behavior.

Example: A salesperson might falsify sales records if the company offers

significant bonuses for top performers and lacks robust verification
systems (high opportunity). Conversely, a company with strict audits and
penalties for falsification reduces such opportunities.

Significance: Opportunity acts as a gatekeeper. Even if an individual

intends to act ethically, abundant opportunities (e.g., weak controls) can
enable unethical behavior, while strong barriers prevent it.

5. Business Ethics Evaluations and Intentions

Definition: This stage involves the cognitive process where individuals
evaluate the ethical issue, weigh alternatives, and form an intention to act.
It is the bridge between perception and action.
Key Processes:
Moral Judgment: Using ethical frameworks (e.g., utilitarianism,
deontology) to assess right and wrong. This involves considering
consequences, duties, or virtues.
Stakeholder Analysis: Evaluating the impact on stakeholders (e.g.,
employees, customers, shareholders).
Rationalization: Individuals may justify unethical actions to reduce
guilt, using excuses like:
“I need the paycheck and can’t afford to quit.”
“Everyone else is doing it.”
 “It’s not a big deal given the potential benefits.”
“Business has different rules.”
Intention Formation: The decision to pursue a specific course of
action, influenced by ethical issue intensity, individual factors,
organizational factors, and opportunity.
Guilt and Uneasiness: If intentions or actions conflict with ethical
judgment, guilt arises, prompting individuals to:
Change their behavior to align with values.
Adjust their values to justify the decision.

Example: A procurement officer evaluating a supplier with questionable

labor practices weighs cost savings against ethical concerns. If their
values prioritize fairness and the company supports ethical sourcing, they
intend to reject the supplier. If they rationalize that “business is business,”
they may intend to approve the supplier.

Significance: This stage synthesizes all prior factors to form a plan of

action. It’s where ethical awareness translates into a commitment to act,
though external constraints may prevent action.

6. Ethical or Unethical Behavior

Definition: The final outcome of the decision-making process, where
intentions are translated into actions that are either ethical (aligned with
moral and organizational standards) or unethical (violating those
standards).
Key Considerations:
Intention vs. Action: Intentions may not lead to the intended
behavior due to external constraints (e.g., lack of authority) or last-
minute changes in judgment.
Impact of Behavior:
Ethical Behavior: Builds trust, enhances reputation, and
supports long-term success.
Unethical Behavior: May yield short-term gains but risks
legal, financial, and reputational consequences.
Feedback Loop: The outcome influences future decisions by
shaping ethical issue intensity, individual learning, and
organizational practices.
Example: A manager intending to report a colleague’s misconduct
follows through by filing a report (ethical behavior). If fear of retaliation
or lack of a whistleblowing mechanism prevents action, the behavior may
not occur, or they may act unethically by staying silent.

Significance: This is the culmination of the framework, where all factors

converge to produce observable behavior.

The Managerial Role in Developing Ethical Leadership Programs

Managers play a critical role in fostering an ethical culture and supporting
ethical decision-making. The framework highlights the following
responsibilities:
Organizational Commitment: The board of directors and top
management must prioritize ethics, demonstrating commitment
through actions and resource allocation.
Resource Allocation: Provide funding and personnel for ethics
initiatives, such as training programs and compliance systems.
Risk Assessment: Identify ethical and legal risks (e.g., fraud,
discrimination) and develop contingency plans to address them.
Ethics Program Development: Create programs that address risks
and ensure compliance with ethical standards, including codes of
conduct and reporting mechanisms.
Oversight and Audits: Monitor the implementation of ethics
programs and conduct regular audits to ensure effectiveness.
Stakeholder Communication: Engage stakeholders (e.g.,
employees, customers, investors) to establish shared values and
commitment to ethical conduct.

Example: A company facing risks of supplier misconduct might develop

an ethics program that includes supplier audits, employee training on
ethical sourcing, and a whistleblowing hotline, with oversight from a
dedicated ethics officer.

Six Leadership Styles Influencing Ethical Decision-Making

Leadership styles shape the ethical climate and influence how employees
approach ethical dilemmas. The framework identifies six styles, each
with implications for ethical decision-making:
Coercive Leader:
Demands immediate obedience, focusing on achievement
and self-control.
 Effective in crises but creates a negative climate otherwise,
potentially pressuring employees into unethical actions to
meet demands.
Example: A coercive leader might push a sales team to meet
unrealistic targets, leading to falsified reports.
Authoritative Leader:
Inspires employees to follow a vision, facilitating change
and creating a positive climate.
Highly effective for ethical leadership, as it aligns
employees with ethical goals.
Example: An authoritative leader might rally a team around
a commitment to transparent marketing practices.
Affiliative Leader:
Values people and emotions, promoting flexibility and
innovation through trust.
Fosters ethical behavior by building a supportive
environment but may lack firmness in enforcing rules.
Example: An affiliative leader might encourage open
discussions about ethical dilemmas, strengthening team trust.
Democratic Leader:
Relies on participation and teamwork, creating a positive
climate through communication.
Supports ethical decision-making by involving employees in
ethical policy development.
Example: A democratic leader might involve staff in
revising a code of conduct, ensuring buy-in.
Pacesetting Leader:
Sets high standards, expecting quick results from motivated
individuals.
Can create a negative climate if standards are unrealistic,
potentially leading to unethical shortcuts.
Example: A pacesetting leader might pressure a product
team to rush a release, ignoring safety concerns.
Coaching Leader:
Develops skills for long-term success, delegating
challenging assignments.
Builds a positive climate for ethics by mentoring employees
on ethical decision-making.
 Example: A coaching leader might guide an employee
through an ethical dilemma, encouraging reflection.

Key Insight: The most effective leaders adapt their style to the situation,
using authoritative or coaching styles to build an ethical culture while
avoiding coercive or overly pacesetting approaches that may foster
unethical behavior.

Seven Habits of Strong Ethical Leaders

Ethical leaders exhibit habits that reinforce ethical decision-making and
culture:
Strong Personal Character: Integrity and honesty guide their
actions, earning trust.
Passion to Do Right: A commitment to ethical principles drives
their decisions.
Proactive: They anticipate and address ethical risks before they
escalate.
Consider Stakeholders’ Interests: They balance the needs of
employees, customers, and shareholders.
Role Models for Values: They embody the organization’s ethical
standards, setting an example.
Transparent and Involved: They openly communicate and
participate in ethical decision-making.
Competent managers: They take a holistic view of the firm’s
ethical culture, ensuring alignment with business goals.

Example: An ethical CEO might proactively implement a diversity

training program (proactive), model inclusive behavior (role model), and
transparently communicate the initiative’s goals to stakeholders
(transparent).

Interplay of Components
The framework is dynamic, with each component influencing the others:
Ethical Issue Intensity sets the stage by determining whether an
issue is recognized as ethical. Low intensity may lead to oversight.
Individual Factors shape how the issue is interpreted, but
Organizational Factors moderate these tendencies. A principled
individual may act unethically in a toxic culture.
 Opportunity enables or constrains behavior. Strong controls
prevent unethical actions, while weak controls amplify them.
Business ethics evaluations and intentions synthesize inputs to
form a plan, but the final behavior depends on whether intentions
are actionable.
Leadership styles and habits influence all components by shaping
culture, opportunity, and employee perceptions.

Practical Applications
For Businesses:
Raise Ethical Issue Intensity: Use training and
communication to highlight ethical dilemmas.
Support Individual Factors: Offer ethics education to align
personal and organizational values.
Strengthen Organizational Factors: Foster an ethical culture
through leadership, policies, and rewards.
Reduce Unethical Opportunities: Implement audits, clear
policies, and enforcement mechanisms.
Develop Ethical Leadership: Train leaders to adopt
authoritative or coaching styles and exhibit ethical habits.
For Individuals:
Reflect on personal values to guide ethical decisions.
Seek organizations with strong ethical cultures.
Advocate for policies that reduce unethical opportunities,
such as whistleblower protections.

Example Scenario
Context: A financial analyst is pressured to manipulate earnings reports to
attract investors.
Ethical Issue Intensity: High, due to potential harm (misleading
investors) and social consensus against fraud (legal system and
profession influences).
Individual Factors: The analyst, with an external locus of control
and religious values emphasizing honesty, is inclined to resist
manipulation.
Organizational Factors: The company has a weak ethical culture,
with leadership prioritizing profits and no clear code of conduct.
 Opportunity: Lax oversight and bonuses for meeting financial
targets create opportunities for manipulation.
Evaluations and Intentions: The analyst evaluates the harm to
investors and intends to report the pressure but rationalizes that “I
need the job” due to financial constraints.
Behavior: If the analyst reports the issue (ethical behavior), it
aligns with their values. If they manipulate the reports (unethical
behavior), guilt may prompt future change.
Leadership Role: An authoritative leader could foster an ethical
culture by rewarding transparency, reducing the opportunity for
manipulation.

Limitations of the Framework

Subjectivity: Ethical issue intensity and evaluations vary across
individuals and cultures.
External Factors: The framework focuses on individual and
organizational factors but may underplay external pressures (e.g.,
industry competition, economic conditions).
Complexity: Real-world dilemmas often involve multiple issues
with conflicting intensities.
Behavioral Gaps: Intentions may not translate into behavior due to
external constraints.