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Ethical
Ethical decision-making: decision-making
an integrative model
for business practice
359
J.R.C. Pimentel
Department of Psychology, University of Canterbury, Christchurch, New Zealand Received April 2008
J.R. Kuntz Revised August 2008
Accepted October 2008
Department of Philosophy, The University of Edinburgh, Edinburgh, UK, and
Detelin S. Elenkov
Department of Management and Marketing, Angelo State University,
San Angelo, Texas, USA

Abstract
Purpose – The purpose of this paper is to offer an interdisciplinary review of the existing research on
ethical behavior – informed by philosophical theories, social sciences, and applied business research –
and identifies the merits and limitations of the extant theories, including the applicability of
prescriptive frameworks and models to business practice.
Design/methodology/approach – Following the review, the paper advances a descriptive model of
ethical decision-making criteria that elucidates how individual, organizational, and environmental
variables interact to influence attitude formation across critical components of an ethical issue.
Findings – The model advanced expands upon other existing frameworks and provides a
comprehensive and simultaneous assessment of the interplay between individual-level variables
(e.g. demographic variables, position in the organisation), the structure and climate of the organisation
in which the decisions are made, and the social and political features of the business environment.
Practical implications – The proposed model can be used as a training tool and it holds several
advantages over the extant alternatives, namely versatility (it is adaptable to the specific
organizational context in which respondents are required to conceptualize the dilemma and generate
courses of action), and scope (the model allows for the simultaneous assessment of a myriad of
cross-level variables).
Originality/value – The paper offers a comprehensive decision-making model that can be used to
examine ethical decisions in business settings, to investigate potential differences in decision-making
accuracy and ethical reasoning between groups and individuals, and to examine the impact of
changing ethical climates in organizational strategy.
Keywords Decision-making, Business ethics, Business environment
Paper type Conceptual paper

Introduction
The examination of ethical behavior in organizational contexts has merited considerable
interest in the past two decades from researchers and practitioners alike. However, the
theories and frameworks proposed have failed to clearly integrate decision-making European Business Review
Vol. 22 No. 4, 2010
components and intervenients across levels of analysis, and to provide a consistently pp. 359-376
employable definition of what constitutes ethical behavior in business practice. The q Emerald Group Publishing Limited
0955-534X
inconsistency across theoretical models and subsequent empirical findings is largely DOI 10.1108/09555341011056159
EBR attributed to the fact that business ethics has been investigated under the lens of several
22,4 disciplines with different foci and methodological orientations, and few attempts at
offering an interdisciplinary approach can be encountered. Rationale for ethical
behavior and decision-making processes has been offered mainly from the perspective of
classical moral theories borrowed from the discipline of philosophy, and from applied
business theories founded on economical and sociological principles. While the
360 philosophical approach examines ethical behaviors using classical normative theories to
explain ethical choices, namely those that fall within the teleological and deontological
frameworks, the applied business perspective provides a broad array of descriptive and
prescriptive frameworks, utilizing methods that range from anecdotal evidence to
the examination of relationships among decision-makers and organizational variables.
As a result, ethical behavior research has provided integrated frameworks that, even if
theoretically sound and open to empirical cross-sectional testing, largely miss the scope
of ethical decision making in business settings. The presently available models are
insufficient for either of two reasons:
(1) they fail to find that individuals’ characteristics are integral to the identification
of ethical dilemmas; and
(2) they limit themselves to ethical evaluations that fall within the boundaries of
teleological and deontological normative theory.

The latter limitation leaves out normative evaluations that reflect ethical
characteristics such as “closeness,” “relationships,” and “moral virtue” (Slote, 2001;
Swanton, 2003; Hursthouse, 1999). Failure to integrate these essential properties of
moral decision making and other aspects of a broader array of ethical theories has led
to the construction of models that are, at best, incomplete. Note, however, the present
paper can only gesture at the limits of deontological and teleological ethical theories
and propose that future models for ethical decision making in business include these
other important and legitimate ethical perspectives.
The present paper has three main purposes. First, to offer a review of the existing
research on ethical behavior informed by philosophical theories, social sciences, and
applied business research. Second, to identify potential and limitations of the extant
theories of ethical behavior with respect to criteria selected, levels of analysis, integration
between constructs of interest, and applicability of prescriptive frameworks and models to
business practice. Third, to propose a descriptive framework of ethical decision-making
criteria that integrates the extant approaches at different levels of analysis. This approach
incorporates a number of factors that account for variation in the analysis and
interpretation of components of an ethical dilemma, including individual differences,
knowledge of organizational norms, and social and legal environment.

The individual as a moral agent

Classical moral theories
Organizational decisions are formulated under the assumption that they will generate
particular outcomes. They are, from the organizational and business perspective,
orchestrated to generate ethical actions on the part of the organization. However, not only
are decision-making systems intricate and typically bring forth secondary outcomes that
were unforeseen, but these systems are quintessentially tied to certain ethical theories,
namely those that are teleological and deontological. These have easily identifiable actions
that can be assessed as right/wrong or moral/immoral. Taking utilitarianism for an Ethical
example, empirical findings suggesting that decisions aimed at promoting long-term decision-making
benefits for the decision-maker are legitimated neither by most managers in their business
practice, nor by the organizations’ codes of conduct, which becomes problematic for some
of these approaches (Shultz and Brender-Ilan, 2004). In essence, adopting a utilitarian
perspective to ethical decision making in organizations limits the quality of the decisions
by failing to serve the interests of all parties involved, and by conflicting with regulations 361
that guide organizational functioning in a business environment. Non-consequentialist
theories provide an alternative that emphasizes the nature of the act rather than its
outcomes (Bartlett, 2003; Shultz and Brender-Ilan, 2004). For example, deontology
proposes a rights-based code of conduct for individual action (Rachels and Rachels, 2005;
Roth, 2007). In practice, deontological theories hold that principle and duty should guide
individual action. More contemporary approaches in corporate virtue theoretical
perspectives, holding that conditioning oneself to act morally is a matter of habit and it
should be developed (Hinman, 1999; Jones et al., 2007). However, the deontological
approach fails to provide a clear definition of what should be considered “right” or
“wrong” and it is polarized with respect to the criteria considered in determining the
rightness of an act. Thus, the normative nature of deontological normative evaluations is
left to relativistic perspectives of the good, or – even less attractive – to decision-maker’s
own unabated biases.
Overall, classical moral theories inform the ethical decision-making process in the
business context from two main perspectives. First, they emphasize the intersection
between individuals and the business environment by equating the decision-maker’s
orientation toward outcomes (i.e. self-interest vs maximization of positive outcomes for
all) with organizational and legal boundaries that guide or constrain this orientation.
This is important in practice and to the model proposed here since decision-makers will
acknowledge that a business issue constitutes an ethical dilemma to the extent that
they are capable of conceptualizing managerial actions. Second, the adoption of
deontological or relativist approaches to the resolution of ethical dilemmas will also
depend upon the interaction of individual characteristics with organizational codes of
conduct. The emphasis on a deontological, or a relativist perspective, will differentially
influence the degree to which decision-makers take into consideration the impact of
decision outcomes on all parties involved.
Ethical decision making explained in the light of classical moral theories provides a
reasonable attempt at connecting individual behavior with organizational normative
approaches. However, classical moral theories describe patterns of decision-making
rationale without addressing the nature of individual-level factors that account for
dissimilar moral positions across individuals. The following sections will elaborate on
individual-based approaches to moral decision-making.

Demographic variables
Moral agency, or the choice to engage in a particular course of action given an ethical
dilemma, has been presented in the extant literature as an individual-level phenomenon.
This assumption led a number of researchers to investigate the antecedents of ethical
decision making from the standpoint of individual differences. Gender, age, and work
experience are amidst the most frequently examined variables (Forte, 2004; McDevitt
et al., 2007; Valentine and Rittenburg, 2007). Despite the growing evidence suggesting
EBR a relationship between demographic variables and ethical stance, the research findings
22,4 are often conflicting. It is plausible that the inconsistent findings stem from the
employment of differing frameworks and models in the investigation of individual
differences and decision making. In practice, ethical intent and ethical behavior have
been examined based on three perspectives:
(1) a scenario-based approach that assesses intent to act in an ethical manner;
362 (2) the examination of the interaction between moral reasoning and demographic
variables in determining ethical behavior; and
(3) a dilemma-based approach that considers the interaction between the content of
the ethical dilemma and the decision-maker’s characteristics.
The scenario-based approach involves tests of individual differences based on rating
scales that provide information on the degree to which decision-makers intend to act
ethically (McDaniel et al., 2001; McDevitt et al., 2007; Terpstra et al., 1993; Valentine and
Rittenburg, 2007). Findings are unanimous with regard to the impact of gender differences
in ethical intent: women report lower intention to behave unethically than men. While
competing theories defend that organizational and societal characteristics (e.g. glass
ceiling effect) mediate this relationship, the empirical findings are consistent across
non-professional samples (McDaniel et al., 2001; Terpstra et al., 1993) and professional
samples (Valentine and Rittenburg, 2007). From a practical standpoint, it is possible that
women are more likely to recognize ethical dilemmas and to adopt a more conservative
moral stance to decision making when a dilemma is presented. Research findings also
suggest that older workers display greater intention to act ethically than younger subjects
when presented with a hypothetical dilemma (Terpstra et al., 1993; Valentine and
Rittenburg, 2007), as do individuals with more work experience. From a lifecycle
standpoint, age and work experience will be highly correlated and confound empirical
results. In practice, age and experience level will be associated with greater exposure to
and internalization of organizational norms with regard to the resolution of dilemmas,
greater likelihood of acknowledging ethical dilemmas and to provide more appropriate
solutions based on previous experience with similar situations, and broader wealth of
knowledge allowing a more thorough situational analysis with better understanding of the
decision’s impact on relevant stakeholders and organizational processes.
The second approach presented entails the investigation of the degree to which the
interaction of moral reasoning with demographic characteristics explains interpersonal
differences in ethical behavior (Gowthorpe et al., 2002; Shultz and Brender-Ilan, 2004;
Stedham et al., 2007). Despite the criticism regarding their limited applicability to
organizational settings, research has devoted considerable attention to the predominance
of particular moral approaches to decision making among individuals of specific age,
gender, and managerial groups. Contrary to the empirical findings from scenario-based
studies, research on the impact of personal moral philosophies on ethical decision making
tends to elicit conflicting results. While some researchers argue that organizational
members do not differ in their moral approaches to decision making based on age, gender,
and position in the organization (Gowthorpe et al., 2002), others contend that age is directly
associated with preference for the deontological approach in detriment of a relativist
approach (Shultz and Brender-Ilan, 2004). Researchers also appear to disagree with respect
to the propensity for a particular approach to moral reasoning according to gender,
and no consensus is found regarding women’s preference for the deontological approach
or a relativist approach to decision making (Shultz and Brender-Ilan, 2004; Stedham et al., Ethical
2007). A possible explanation for the discrepancies between the scenario-based and the decision-making
moral reasoning approaches concerns the differing models from which research questions
are generated. For instance, Gowthorpe et al.’s (2002) comprehensive framework includes
self-referential, consequentialist, deontological, and appearance-referential moral theory
dimensions, whereas Shultz and Brender-Ilan (2004) incorporated egoism, utilitarianism,
deontology, relativism, and justice perspectives in the examination of the influence of 363
interpersonal differences on ethical behavior. While there is considerable overlap between
the proposed dimensions, the existing differences bring forth different conclusions.
Moreover, there has been recent debate on the possibility that decision makers may
consider different moral positions simultaneously when faced with a dilemma (Stedham
et al., 2007). This proposition further suggests that the examination of ethical behavior
requires a dynamic and integrative framework, and calls for the deconstruction of moral
reasoning dichotomies to explain decision-making processes.
Finally, the dilemma-based approach highlights dilemma characteristics and their
moral intensity as determinants of ethical behavior. Dilemma-based research explores the
role of individual differences in determining which criteria are considered in ethical
decisions. In practice, empirical findings suggest that younger individuals are susceptible
to their peers’ input when faced with an ethical dilemma, whereas older individuals
consider perceived seriousness as a critical criterion for ethical decisions (Barnett, 2001).
These research findings propose that the nature and characteristics of an ethical dilemma
will be perceived differently and elicit different courses of action depending on the
characteristics of the decision-maker. This constitutes a promising shift from a
perspective of ethical decision-making rooted on personal moral theories and moral
development to a contingency perspective that comprises both the decision-maker’s
characteristics and the nature of the dilemma presented. Future research would benefit
from further exploration of ethical dilemmas’ characteristics that influence ethical
judgments and behavioral intent, and the moderating role of individual-level variables.
Regardless of the methodology adopted, gender, age, and level of experience have
represented the primary individual-level variables of interest in ethical decision-making
research, namely their role as moderators. With regard to gender, there has been
considerable debate on the differences between men and women regarding their ethical
stance and behaviors. One of the most widely accepted explanations for gender
differences in ethical decision making involves the role of socialization in generating
interests, expectations, and values that are unique to men or to women. Results from a
meta-analytical study examining gender differences in ethical perceptions in a business
context suggest that these differences are moderated by the nature of the dilemma and
by work experience (Franke et al., 1997). Regarding the latter, it is plausible that as men
and women are socialized into the work environment their ethical perceptions become
more associated with business-related factors and structural constraints, and less
influenced by social roles stemming from societal norms. The implications of this
meta-analytical study are twofold. First, the findings challenge the assumption that men
and women bring unchangeable values into the work context. The fluid nature of
individuals’ perspectives on values and behaviors as the socialization process in
organizations occurs may explain some of the conflicting findings presented in this
section and potentially preclude the use of stable frameworks (e.g. personal moral
philosophy approaches) to explain ethical decision-making patterns across individuals.
EBR Second, the moderating role of socialization and organizational variables on ethical
22,4 values highlights the importance of examining interactions between individual
differences (e.g. gender and work experience) and of further investigating the
relationship between organizational characteristics (i.e. formal codes of ethical conduct,
ethical leadership programs, strategic goals) and ethical decisions. The following section
will describe ethical behaviors and decision making in the context of some of the
364 predominant organization-level perspectives and frameworks.

The organization as an ethical compass

Organizational ethics: institutional, individual-based, and value-based approaches
Compliance to existing codes of conduct and emphasis on individual capacity for adequate
moral agency constitute the two prevailing paradigms of ethics management in
organizations (Maclagan, 2007). The first paradigm highlights the instrumentalization
of ethics as a method of ensuring conformity to endorsed practices and standards
(Graaf, 2006), and the second position presupposes that individuals are capable of making
autonomous and rational ethical decisions when provided with an adequate array of
options and information (Freeman and Francis, 2006). Ethical dilemmas and proposed
solutions need to be examined as context-dependent phenomena. In particular, recent
research suggests that managerial responses to ethical decisions are influenced by the
ethical stance of the organization (Jones et al., 2007). Moreover, this research underscores
the importance of integrating leadership behaviors with organizational values and vision
in order to create a consistent, coherent, and effective ethical climate, conveying an
accurate shared perception of the manner in which ethical issues are expected to be
handled in the organization (Dickson et al., 2001). This concern with an ethical leadership
that promotes value alignment between the organization and its constituents is reflected
on a third ethics management paradigm: value-based ethics. Value-based ethical
programs ensure that multiple organizational members have responsibility for making
ethical decisions based on knowledge and internalization of values (Collier and Esteban,
2007). These programs place emphasis on the positive outcomes of ethical decisions for
individuals, organization, and society, and rely on the integration of organizational
systems (e.g. training and performance appraisal) with strong ethical leadership to
promote the internalization of ethical values and enactment of desired ethical behaviors.
Leaders have a critical role in ensuring participation in decision making and
value-structuring while furthering norms that support corporate ethics. Furthermore,
positive perceptions of leaders’ ethical conduct are pivotal to the creation of an ethical
climate that represents the organization’s mission and values (Brown, 2007). In this sense,
the investigation of leaders’ characteristics and behaviors in relation to organizational
values and practices becomes essential to a better understanding of the emergence and
maintenance of an ethical climate.

The promise of ethical leadership

Reports of unethical behavior and of exemplary leadership in organizations have
engaged considerable interest in employee accountability with respect to managerial
decisions, namely the role of leaders in fostering an ethical culture. Recent research has
focused on the topic of ethical leadership and the categorization of ethical leadership
behaviors in (Brown, 2007; Brown et al., 2005). Ethical leadership can be defined as the
“demonstration of normatively appropriate conduct through personal actions and
interpersonal relationships, and the promotion of such conduct to followers through Ethical
two-way communication, reinforcement, and decision making” (Brown et al., 2005). This decision-making
definition brings forth complex empirical questions concerning the role of individual,
organizational, and contextual variables in ethical decision making and decision
outcomes. For instance, the extent to which leadership behaviors are “normatively
appropriate” will depend upon the organization’s culture, the business industry, legal
considerations, and the socio-cultural setting in which the business operates. 365
Furthermore, it is expected that individual characteristics such as personality, values
and work experience, and organizational characteristics such as communication
systems and formal ethics code will influence the manner in which managers make
ethical decisions, and the elements deemed relevant to a particular decision.
Research has credited considerable attention to the investigation of leaders’
characteristics (Turner et al., 2002; Weaver et al., 2005) and espoused practices (Brown,
2007; Burke, 1999; Fuqua and Newman, 2006) that facilitate the institution of a desirable
ethical climate. Weaver et al.’s (2005) qualitative research findings on the leadership
characteristics relevant to ethical role modeling identified a set of behaviors typically
enacted by ethical role models. These behaviors include support for others, honesty,
holding oneself accountable for outcomes and decisions, fairness to others, and ability to
articulate personal and organizational ethical standards. However, Weaver et al. suggest
that the extent to which leaders display these behaviors is highly dependent upon
organizational characteristics, namely the existence of structures that facilitate frequent
interactions with organizational members. Consequently, the characteristics of the
organization also play a significant role in practices espoused by ethical leaders and
their effectiveness. With the exception of role modeling, most areas of ethical leadership
intervention require that specific structural and functional arrangements are in place in
order to ensure their effectiveness. Examples include the systemic implementation of
ethics codes to facilitate leaders’ integration of strategic plans with organizational
principles, and the formal assignment of ethical responsibility to individuals and groups
based on established codes of conduct to enable corrective action or reward from the
leader when pertinent (Fuqua and Newman, 2006).
The examination of moral theories and of moral development constitutes a common
approach to leaders’ decision making at the individual and group levels of analysis
(McDevitt et al., 2007). Empirical findings based on unit-level examinations reveal that
leaders perceived as transformational tend to exhibit post-conventional or more advanced
stages of moral reasoning. While it would be expected for perceived transactional
leadership to be related to pre-conventional stages of moral development, this relationship
was not supported (Turner et al., 2002). Similar to the conclusions drawn regarding
demographic variables, moral development theory offers limited account for differences in
leadership behaviors, particularly with respect to the transactional style. Two explanations
are advanced. First, results of empirical studies relating leadership behavior with moral
development are conflicting (Turner et al., 2002). For instance, the examination of moral
development stages as a continuum fails to accurately reflect the influence of
external factors (e.g. nature of the dilemma) on the approach to an ethical situation.
Second, leaders perceived as transactional may be conditioned by organizational norms and
structure to enact transactional behaviors while reporting high level of moral reasoning.
In view of these findings, a careful integration of individual characteristics with the
ethical climate of the organization will likely provide sound basis for the examination
EBR of ethical behaviors and decisions among leaders. Moreover, the context-dependent
22,4 nature of ethical dilemmas requires an approach that considers the interface between
individual characteristics and formal organizational systems that guide and reinforce
its members’ behaviors.

A systems perspective of ethical decision making

366 Considering the intricate and dynamic nature of the ethical decision-making
phenomenon, it is impossible to obtain a snapshot of the factors that account for
ethical decisions in business environments. Yet, the identification of variables that foster
strong ethical climates (i.e. factors that promote a shared perception of behaviors and
courses of action that care endorsed by the organization) offers a promising avenue for
researchers and practitioners. Aggregate climate measures (Fuqua and Newman, 2006)
and discourse analysis (Graaf, 2006) represent two viable methods for examining the
extent to which individuals share perceptions of the ethical standards upheld by the
organization, the endorsed criteria and path for decision making, whether organizational
and individual values are aligned, and whether organizational members have a positive
perception of their leaders’ ethical conduct. The extant literature proposes the
integration of leadership behaviors and organizational practices in promoting strong
ethical climates. Assessing ethical climate, building ethical values into the workforce
through training and open communication, and using the reward and performance
appraisal systems to recompense and reinforce ethical behavior constitute some of the
most effective methods for building and maintaining strong ethical climates (Collier and
Esteban, 2007; Dickson et al., 2001). Hence, organizational accountability for business
decisions is ensured internally through the implementation of knowledge structures and
administrative systems that reinforce ethical behavior, a formal ethics code that
provides behavioral guidelines for ethical decisions, and responsible leadership
that ensures clear communication regarding ethical standards and fair workplace
practices.
In the last decade, corporate ethics has been emphasized as a source of competitive
advantage, ensuring the attraction and retention of a valuable workforce, reputational
capital for organizations, and subsequent achievement of organizational goals. This
emphasis has led to the acknowledgement of an organization’s ethical capability,
shifting the focus of ethical decision making from individual contributors to the
organizational system. Ethical capability incorporates the leadership characteristics
and organizational systems that enhance business practices and outcomes through
ethical behavior. The term “ethical capability” was advanced by Buller and McEvoy
(1999) and describes the organization’s ability to identify and to provide adequate
responses to ethical issues in the global business environment, creating competitive
advantage. This organizational competency entails a solid wealth of knowledge
regarding business ethics issues in a global environment, an organizational structure
and culture that foster cross-level communication, and an integrated human resources
system (i.e. selection system, training and development, compensation, and performance
appraisal system) that helps sustain and develop ethical capability. Although this
approach to ethical management is mainly focused on leadership behaviors elicited by
organizational systems, it proposes the inclusion of extra-organizational components,
namely codes and standards formulated by local and international associations that
ensure uniform procedures in a global business environment. From this standpoint,
individual decisions are a product of the interface between personal dispositions, the Ethical
organizational system and constituents, and of environmental standards. decision-making
The business environment – an external boundary perspective
The integrative social contracts theory (ISCT), presents an attempt to explain decision
making in organizations in reference to normative contracts among organizational
constituents and to the boundary conditions determined by the external environment 367
(Donaldson and Dunfee, 1994). The social contract model operates at two levels: the
microsocial contracts level that comprises the set of moral norms emerging from
consensus among individuals belonging to a particular business community, and the
macrosocial contracts level that includes norms established by the business
community with reference to hypernorms (Wempe, 2004). Hypernorms represent the
set of principles that limit the realm within which microsocial norms can be generated
(i.e. moral free space), involving values fundamental to individual existence that
provide guidelines for the evaluation of moral norms generated by the business
community (Donaldson and Dunfee, 1994). Overall, proponents of the ISCT maintain
that decision making in business communities are bounded by ethical norms developed
by its members – microsocial contracts – that require informed consent, right to exit
the community, and consistency with hypernorms. Contrary to most theories derived
from the moral philosophy literature, the ISCT suggested a contextual framework to
describe ethical decision making that is specific to business environments. Although
ISCT was presented as a normative theory, resent research has employed this theory to
prescriptive ethical decision making. The applicability of ISCT to business practice is
rooted on the notion that individuals vary in the emphasis attributed to specific norms
when making decisions, that is, individual characteristics determine the extent to
which decisions are more heavily informed by organizational norms or by moral and
environmental guidelines. In general, individuals tend to adopt a relativist or
contractarian approach to their decisions (Spicer et al., 2004). However, managers with
international business experience (i.e. expatriates) are more likely to consider
microsocial norms when these are not conflicting with hypernorms, and individuals
without exposure to international business settings are more likely to base their
decisions on hypernorms, revealing less sensitivity to microsocial contracts. From an
organizational standpoint, the national culture influences the adoption and preference
for specific dimensions of corporate codes of conduct (Hill et al., 2007). For instance, US
organizations place greater emphasis on eliminating corruption and complying with
domestic laws, whereas Japanese firms stress the importance of corporate social
responsibility, particularly environmental stewardship (Reich, 2005). These findings
highlight the importance of cross-cultural considerations in the definition of micro- and
macro-norms that guide ethical decisions, and point to several limitations of ISCT.
First, the definition of what set of universal rules constitute hypernorms is unclear.
Cross-cultural research will expectedly clarify the domain of macro-norms as global
businesses become prevalent and narrow or transform the array of industry-based
norms. However, the realm of hypernorms will likely remain undefined. Second, ISCT
does not address non-active third parties that may be affected by contractual outcomes
(e.g. environment and social communities). Failure to address environmental concerns
and the interests of the social community in which the business is established
may result in the violation of fundamental principles of corporate social responsibility.
EBR With this matter in mind, a number of international organizations have attempted to
22,4 establish standards of corporate conduct that protect the interests of third parties not
represented in business decisions but indirectly affected by them. Enforcement of
global business legislation constitutes an artificial boundary to decision-makers that
facilitates the evaluation of compatibility between micro- and macro-social contracts
by reducing the moral free space. However, these attempts at uniformization are not
368 without criticism. In practice, research findings reveal that the vague common law
mandate is less effective in inducing commitment to legal compliance than the clear
legal mandate, where standards are clearly established, and there is a direct
relationship between standards and objective situations (Di Lorenzo, 2007). While it
would be intuitive to assume that a clear legal mandate would more effectively address
the need to establish uniform guidelines for conducting global business, the vague
common law mandate is predominant in our business culture. One reason presented for
the preference for a vague common law regards the fact that the clear legal mandate
does not adequately attend to nuances inherent in particular industries, situations, and
cultures. This legal boundary issue accentuates the responsibility of individual
decision-makers and of organizations in particular for implementing systems that
effectively integrate knowledge of corporate strategy and values with global business
standards.
The present paper has provided a review of the literatures incorporated into the
three business ethics paradigms: the individual as a moral agent, the role of
organizations and leaders in determining ethical climates, and the impact of cultural
settings and legal contexts in determining the ethical stance of organizations. While
providing valuable input to inform business decisions, each of the theories described
reveal a number of limitations for ethical decision making.

Limitations to current approaches

Individual-based theories
The examination of external boundaries to corporate ethics reveals that the nature and
subsequent impact of ethical decisions differs across cultural and business populations
as a result of their disparate normative values and boundary conditions. Hence, the
limitation of classical moral theories in explaining ethical behavior concerns the reliance
on universal normative values in predicting and proposing ethical decision-making
guidelines in a business context, where a contingency perspective is more adequate.
Research based on this universalist perspective of ethical value resulted in conflicting
findings with regard to the examination of the influence of demographic and
dispositional variables on ethical intent and behavior. Moral development theory offers
a conceptually and methodologically unsound approach to explain individual
differences in ethical attitudes and behavior. In particular, it proposes sequential
stages of moral development as antecedents of moral agency but it disregards how
contextual factors that interact with individual dispositions and characteristics impact
the choice of a course of action.

Organization-based theories
Ethical capability represents the most promising theory within organization-based
research in ethical behavior. This theory comprises the integration of variables at
different levels of analysis. It acknowledges the relationship between leadership
characteristics, behaviors, and organizational effectiveness. Moreover, it advocates Ethical
organizational systems and administrative practices that create and sustain strong decision-making
ethical climates, as well as consistency between organizational practices and legal
guidelines. To date, the existing literature has failed to present empirical testing of the
proposed theory in relation to the quality of ethical decisions.

Environment-based theories 369

The ISCT proposes a normative framework that describes the relationship between
organizational norms and procedures and the boundary conditions imposed by the
business environment. Despite its undeniable contribution to the business ethics
literature, the ISCT has limited applicability to practice. Designed as a normative theory
underscoring the importance of alignment between intra- and extra-organizational
norms, the ISCT makes no claims with regard to variations of hypernorms across
business and cultural populations, and provides no direction for the integration of social
communities and other environmental units into the decision-making model.

Review of integrative models of ethical decision making

Aside from theories grounded on specific paradigms, ranging from agent-centered to
environment-based conceptualizations of ethical decision making, the extant literature
also introduces several integrative models that attempt to describe the ethical behavior
components and functional dynamics. Although multiple examples could be presented
in the present review, these authors have narrowed their selection to four seminal
models that offer comprehensive perspectives of ethical decision making in business
practice.
Ferrell and Gresham (1985) and Hunt and Vitel (1986) have proposed two distinct
contingency frameworks for the examination of ethical decision-making rooted on
marketing ethics. The first framework advances that ethical dilemmas are brought
forth by the social and cultural environment in which decision-makers are embedded,
and that the interplay of personal characteristics (e.g. attitudes and knowledge) with
organizational factors (i.e. the existence of well-established codes of conduct and of role
modeling effects of which leadership constitutes an example) will have an impact
on individual decision making, which subsequently affects the ethical behaviors
enacted (Ferrell and Gresham, 1985). The second framework, proposed by Hunt and
Vitel (1986) offers an intricate model wherein the organizational, business, and cultural
environments, along with personal characteristics, influence the perception of ethical
dilemmas, potential alternatives, and anticipated consequences. These perceived
factors will in turn determine an evaluative process that culminates with ethical
behavior, and the actual consequences of this behavior have a posterior impact on the
individual’s belief system, affecting future deliberations. Contrary to Ferrell and
Gresham’s theory assuming the impact of individual and environmental factors at the
decision and behavioral action stage of the model, Hunt and Vitel’s framework
suggests that a first step of dilemma recognition is contingent upon these individual
and environmental factors. However, the Hunt and Vitel model has it that behavioral
consequences impact future deliberations regarding ethical issues, presupposing that
the decision-maker reaches a “right” or a “wrong” decision that informs subsequent
ethical decision making. Moreover, ethical evaluations of behavior are limited to the
confines of teleological or deontological ethical theories.
EBR A third model offered by Trevino (1986) introduces an interactionist perspective of
22,4 ethical decision making in which stages of cognitive moral development, as described
by Kohlberg, interact with individual- and situational-level moderators to influence
ethical behaviors. Interactionist models typically constitute sound approaches to the
examination of organizational behaviors in general, and with regard to ethical decision
making this model allows for the magnitude of the effect of individual and situational
370 factors to vary across issues. However, Trevino’s (1986) model fails to include the
critical interplay of demographic variables that affect dilemma recognition (e.g. gender,
age, organizational status, and previous experience with the ethical dilemma
presented) with socio-cultural factors beyond the organization. For instance, gender
will likely have a more substantial impact on ethical decision making in social cultures
marked by greater gender inequality (Franke et al., 1997), even if the culture of the
organization is markedly egalitarian.
The three models described above offer comprehensive approaches to ethical
decision making in organizational settings that consider, to differing extents and foci,
individual, organizational, and environmental factors that impact the evaluation and
resolution of ethical issues. However, a later review of existing frameworks for ethical
decision-making highlighted that none of the existing models considered the
characteristics of the dilemma itself as determining factors for its recognition and
evaluation ( Jones, 1991). Jones’ issue-contingent model of ethical decision-making
introduces the notion of moral intensity of the moral issue to describe a set of measurable
characteristics that influence different steps of ethical decision making. The
introduction of this notion is of particular interest considering one of the main
limitations of Hunt and Vitel’s (1986) model: its reliance on the observed consequences of
decisions that confer the decision-maker with the necessary information to improve
upon future decisions regarding ethical dilemmas. This feedback loop implies that, if the
agent reaches a decision with satisfactory consequences, then similar dilemmas
identified, analyzed, and resolved in the same manner will produce the same satisfactory
outcome. In Jones’ (1991) framework, the characteristics of a particular moral issue will
permeate all stages of decision making, rendering the transition between stages
contingent upon particular characteristics inherent in the moral issue. In addition to a
shifting focus from individual and environmental factors to the nature of the dilemma
itself, one of the most compelling aspects of this framework concerns its stepwise
approach to decision making, where each step from issue recognition to behavioral
action is affected by individual, organizational, environmental, and issue-specific
criteria. Jones’ framework is similar to the model suggested here in this regard. However,
while the integration of what Jones terms “moral intensity” with the various components
of the decision procedure is ubiquitous, it fails to specify the nature of these variable
interactions. The model presented here attempts to buttress Jones’ suggestion in these
regards. Note that the authors find these models to be adequate as a systematic attempt
to describe ethical decision making in business environments, but suggest that further
integration of individual and environmental factors is necessary to increase their
functionality and overall applicability to the business context.

A framework of ethical behavior in business practice

The review of the existing literature on ethical behavior and decision-making
exposes a clear divide between researchers and practitioners with regard to the
conceptualization of the ethical decision-making phenomenon. While practitioners rely Ethical
on prescriptive guidelines to decision making that disregard individual biases and decision-making
external constraints, researchers provide descriptive frameworks to explain ethical
behavior and test the relationship between individual-level variables in reference to
theoretical models that can hardly be extrapolated to applied business settings.
Models derived from business practice typically present a series of steps to guide
ethical decision making. Although there is some variation across the proposed 371
guidelines, four ethical decision-making steps are consistently suggested: identification
of issue as an ethical dilemma, identification of parties/constituents affected by the
outcome of the decision, identification of organizational norms, and identification of
environmental factors (e.g. business regulations) that influence the decision process
and possible outcomes. However, these guidelines have limited utility in organizations
when individual and organizational factors that constrain the decision-making process
are not accounted for and adequately managed.
Alternatively, research frameworks are used to test relationships between
individual characteristics and business decisions. Most of the extant research is
limited for two main reasons. First, the investigation of ethical behavior determinants
is restricted to the individual level of analysis. Second, the frameworks extrapolated
from the empirical findings are often descriptive in nature and fail to offer testable
propositions.
The framework proposed in this paper (Figure I) attempts to overcome some of the
limitations identified in research and applied fields by offering testable links between
constructs of interest established in the extant literature and a four-step
decision-making path, by proposing cross-level relationships between the constructs
of interest, and by offering a model that can be tested to clarify the determinants of
ethical decision making and to enhance the quality of decisions in business practice.
As suggested by Gatewood and Carroll (1991), a framework of ethical decision making
should abide by a number of measurement criteria. Hence, the proposed framework
will address the culture, strategy, and goals of the organization, be applicable to
different levels of the organization, be applicable within and across jobs, address short-
and long-term aspects of performance, be related to both behaviors and outcomes,
and address characteristics that are under the decision-makers’ control or knowledge
(e.g. organizational norms and environmental regulations).

Identify impact of Identify relevant Identify relevant legal

Recognize and define regulations and
Ethical decision-making path dilemma and organizational
ethical dilemma environmental
decision outcomes values/norms (internal
(characteristics) characteristics (external
on stakeholders boundaries)
boundaries)

Individual differences Individual differences Individual differences Individual differences

Empirically discerned (experience, gender, (gender, experience, (experience and (experience, managerial
Variables of interest managerial level, managerial level, managerial level) level, cultural
cultural background) cultural background) background)
Ethical capability Figure 1.
Nature of the dilemma Ethical capability Ethical capability
Framework for ethical
Ethical capability Environmental behavior in applied
characteristics
(uncertainty, regulations) business
EBR Model specification
22,4 The following model proposes a series of links between individual, organizational, and
environmental variables, with each stage of a commonly used decision-making path.
The decision-making path consists of four stages:
(1) recognizing and defining the ethical dilemma;
372 (2) identifying relevant stakeholders and the impact of decisions on these
stakeholders;
(3) identifying organizational values and norms relevant to the ethical issue; and
(4) identifying legal regulations relevant to the ethical issue.

Recognizing and defining the ethical dilemma. Most organizational decisions concern
routine procedures and lead to the anticipated outcomes. These decisions are informed
by guidelines and norms particular to the organization or the business industry.
However, the fast-changing nature of the business environment presents novel
situations that require the delineation of unique courses of action. In addition, changes
in the workforce composition, organizational culture, and emphasis on social
responsibility enlarge the scope of decision options and create dilemma situations
where formerly a straightforward approach elicited the desired outcomes. Hence, the
decision-makers’ ability to recognize that a particular situation may represent an
ethical dilemma is critical to the success of organizations. Informed by extant research,
we suggest that the relationship between the nature of the dilemma, individual
differences (e.g. age, gender, managerial level, business experience, and cultural
background), organizational characteristics, and the alignment between organizational
systems, the legal environment, and other extra-organizational factors (i.e. ethical
capability) determine the extent to which decision-makers are able to recognize a
situation as an ethical dilemma.
Identify relevant stakeholders and the impact of decisions on these stakeholders.
A second step to making a sound decision with regard to an ethical dilemma involves
the decision-maker’s capability to identify relevant stakeholders and the impact of the
selected course of action on these individuals. Similar to the requirements for dilemma
identification and definition, the decision-makers ability to identify relevant
stakeholders and the differential impact of ethical decisions on different
stakeholders is highly dependent upon individual characteristics. For instance, it is
expected that the higher the managerial position occupied by the decision-maker and
the greater the level of experience, the more likely it is that this individual has formed
networks and possesses knowledge of the key stakeholders that will be impacted by
business decisions. Furthermore, the decision-maker’s cultural background and gender
will expectedly enhance awareness of the impact of administrative decisions and
internal policies on minority strata of the workforce.
The organization’s ethical capability will also determine how effectively
decision-makers anticipate the impact of business decisions and become aware of key
individuals. Organizational systems that emphasize learning and open communication
across levels facilitate information exchange regarding relevant stakeholders and
provide input with respect to the impact of particular decisions based on well-informed
risk analysis.
 Identify organizational values and norms relevant to the ethical issue. Following the Ethical
analysis of the ethical dilemma, its characteristics, relevant stakeholders, and the decision-making
impact of prospective decisions on those stakeholders, decision makers must consider
internal and external boundaries prior to proposing a course of action. Organizational
values and procedural norms represent internal boundaries that determine important
aspects of ethical conduct, namely decision latitude, the involvement of particular
organizational members, and the choice of a specific solution. We suggest that 373
individual and organizational characteristics influence the decision-maker’s capacity to
align ethical decisions with organizational values, and to adequately integrate
organizational procedures with subsequent action courses. The interaction between
individual differences (e.g. managerial position and level of experience) and ethical
capability will expectedly influence the extent to which decision-makers are able to
identify relevant organizational values and norms and use this knowledge to integrate
ethical decisions with the organization’s mission and strategic direction. In practice,
individuals with longer organizational tenure and occupying a higher position in the
organization will have privileged access to strategic information and more familiarity
with the organization’s mission and goals than individuals that are newer to the
organization or that are not as involved in strategic planning activities. In addition,
organizations with ethical capability will possess sound knowledge of business ethics
and foster open communication systems that allow for that wealth of knowledge to
disseminate across units and to adequately inform ethical decision making. Hence, the
accurate identification of organizational values and procedures relevant to ethical
decision making will be facilitated when decision-makers possess sufficient experience,
exposure, and information to permit the alignment between the organization’s
direction and the proposed ethical decisions.
Identify legal regulations and environmental characteristics relevant to the ethical
issue. The last stage of the decision-making model involves the identification of
external boundaries (i.e. legal guidelines and other environmental factors) that
influence the implementation of a particular decision. We postulate that the interaction
between individual-level variables (e.g. experience level, managerial level, and cultural
background) and the organization’s ethical capability will determine the
decision-maker’s ability to identify external boundaries and to consider them when
making decisions. In practice, the extra-organizational component of ethical capability
encompasses a thorough knowledge of local and international codes of conduct for
businesses that will more likely be accessible to individuals in top managerial
positions, or possessed by organizational members that have greater experience with
local and/or international business environments. In addition, dynamic environments
will likely imply more flexible boundaries, which will restrict the range of reliable
information a manager can gather to formulate decisions.

Concluding remarks
The present addressed some of the limitations of the extant literature and current
research in ethical decision making, and proposed a model that highlights the factors
that intervene in the interpretation of ethical dilemmas. Acknowledgment of these
factors serves to rectify common errors and biases in decision making. Taking into
account empirical evidence from the existing literature allows decision-makers to
survey their own reasons for adopting a specific ethical stance, and to identify external
EBR constraints to the accurate definition of ethical dilemmas and implementation of action
22,4 courses. The range of possible pitfalls for ethical decisions is so extensive that it is
unlikely that a single individual would be able to account for them all. In this sense, the
pervasive scope of the empirical literature leads us to suggest that ethical
organizations will benefit from forming synergistic teams for decision-making tasks.
Team members can be selected and provide input on the basis of their ability and
374 experience with particular ethical domains in a business environment. The model
presented proposes some of these domains, namely knowledge of organizational
norms, legal guidelines, and cultural considerations. Longitudinal research is needed to
test this model in an applied setting, and its implications for effective decision
outcomes. Contrary to other existing frameworks, the model presented here does not
aim at providing a stepwise description of ethical decision making from dilemma
recognition to behavioral action and analysis of consequences. Instead, the model
illustrates the individual, organizational, and environmental variables that influence
attitude formation across critical components of an ethical issue.
Models for ethical decision making, including the present one, lack the integration of
ethical foresight. That is, they fail to account for future ethical climates that will be
hostile towards organizations’ current decisions. An organization’s reputational credit
can be earned far before it is cashed-in by taking into account how current decisions
will be viewed in future ethical climates. Hence, we suggest that the refinement of the
current model should also include measures that make relevant future ethical climates
to inform present decisions.

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Corresponding author
J.R.C. Pimentel can be contacted at: joana.pimentel@canterbury.ac.nz

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