Consider This Checklist of Guidelines When You Face Ethical Dilemmas

Let’s now look at some standards you can use for your analysis, step three. And the starting point for any analysis of ethical questions is the law. And specifically, we’re looking at that overlap between the law pillar circle and the ethics pillar circle. Because there are a number of principles of law such as fraud, unconscionability, fiduciary duty, good faith that provide you with very strong guidance when you’re faced with difficult decisions. Let’s take a look at one of these principles which, perhaps the most important, the concept of fiduciary duty. If you owe a fiduciary duty to someone, for example if you’re working for a company, you owe a fiduciary duty to the owners of the company.

Then that means you owe a high duty of trust and loyalty. It’s not like dealing with a stranger. It’s a high duty of trust and loyalty. So let’s take a look at a couple of key scenarios. Here’s one, this was a Georgia case where we have a real estate agent, we have a real estate developer who hires an agent to come up with a loan commitment. And the developer says to the agent, if you can come up with a $10 million loan for me I’ll pay you a $50,000 commission. And the agent did a good job. He’s very successful, founded a insurance company willing to make the loan, insurance company agreed to make the loan.

And the insurance company was very happy with these results too and so the insurance company paid the agent a finder’s fee. Well, having received the loan, the agent then went to the developer and said okay, time for you to write my check for $50,000 and the real estate developer said no, I’ve decided not to pay you. Now, how would you decide this case? If you were the agent would you be entitled to the $50,000 commission? Please hit pause and write down your answer. And the answer is no, you would not, because you breached your fiduciary duty. When you’re hired as an agent you owe a fiduciary duty to the developer.

And you breach the duty by getting paid by the other side, you’ve divided your loyalties in other words when you are paid by both sides. So in a business scenario, then the question arises, if you’d like to get paid by both sides, what could you do here to receive payment from both sides? Again, hit pause and write down your answer. Well, one thing you could do is to tell the developer that you’ve been offered the finder’s fee and get permission. No problem there. Another possibility would be to act as an independent contractor here where you’re not an agent of either side.

And then you would not have a fiduciary duty to either side and you could get paid by both sides. But in this case, that didn’t happen and so the agent who was unable to recover the $50,000. Let’s take a look at another example of a more complex. Let’s say you work for a mineral company that’s made a huge discovery of a certain type of mineral in a remote area. And the company wants to buy up as many mineral rights as possible and as much real estate as possible before word gets out. Because once word gets out, then the price of mineral rights and real estate will jump.

So, the company asks you to acquire some real estate and you go to a local farmer and you buy the farm, including mineral rights for a very low price, without mentioning that the company has discovered this mineral. So you buy the farm for the company, and then you also buy stock in the company for yourself. Because it looks like the company is going to do very well.

So discovery in March, you buy the farm in April for the company, you buy the stock for yourself in May, and in June, the company finally decides to disclose the discovery, and when it does, its stock price doubles.

Now, question, you’ve entered into these two contracts, contracted by the farm, contracted by the stock. Are these legal or not? Please hit pause and write down your answer.

You should’ve written down that the contract to buy the farm is legal. You were dealing at arms length with a stranger. You have no duty to disclose, there’s no fiduciary duty. However, you do owe a fiduciary duty to the owners of the company. And therefore, you had a duty before buying that stock to disclose the information that you had about the discovery. You either disclose or you don’t buy the stock. You disclose or abstain.

Because of your breach of fiduciary duty you have to pay damages. Now, around the world this breach of fiduciary duty in the stock purchase has been incorporated into laws called insider trading laws. But even without those laws this would constitute a breach of fiduciary duty, a problem with using the law as a source of ethical guidance is that sometimes the law can have a chilling effect on your ethical obligations. And let me give you an example. You may have read about AEDs. They’re automated external defibrillators, about the size of a laptop, and they can automatically restart a heart after a heart attack after a sudden cardiac arrest. So here’s some research results.

According to one physician, you can imagine in the neighborhood of 10,000 people being saved who today are dying if people used AEDs. A public-access defib program found that 74% of cardiac-arrest victims who received AED treatment survived, while only 4% survived waiting for paramedics without AED use. So given this impressive research, why do we have this headline in the Wall Street Journal? Why Hotels Resist Having Defibrillators, when they can have such a positive impact. So why don’t you answer that question, hit pause and write down why aren’t hotels installing defibs.

And the answer is the law. The law has a chilling effect on these hotels. Hotels worry, according to this Wall Street Journal article, that if they have the devices they could be sued for failing to have enough units, failing to put them in the right places. Failing to replace batteries or maintain them properly. They’re also concerned about training hotel workers. This type of exposure is known as the no good deed goes unpunished exposure, according to the American Hotel and Lodging Association. So on the one hand the law provides wonderful guidance when you’re faced with ethical obligations in the form of rules such as fiduciary duty. But on the other hand, the law can have a chilling effect.

This is one of the first things the Russian writer, Solzhenitsyn, noticed when he moved from Russia to the United States. And this is the way he put in a commencement address after his arrival. I have spent all my life under a Communist regime and I will tell you that a society without an objective legal scale is a terrible one indeed. But a society with no other scale but the legal one is not quite worthy of man either. The letter of the law is too cold and formal to have a beneficial influence on society. Whenever the tissue of life is woven of legalistic relations, there is an atmosphere of moral mediocrity, paralyzing man’s noblest impulses. As illustrated by the defib.

Maybe without the law, you would say, well, it’s the right thing to do to install these defibrillators and save lives. But the law can hold you back. In some cases does not have a beneficial influence in society, and therefore we need standards beyond the law to supplement the guidance the law it gets. Let’s take a look at what these standards are that can help you in your ethical decision making. First of all, today it’s very common for companies to have codes of conduct. So within a business setting one of the first things you would do is to check your company code of conduct. I’ll say more about these codes of conduct later.

Second there are a number of simple tests you can use such as the newspaper test, family test, gut test, gravestone test and I’ll give you some examples in a minute. Third, a mentor. Is their somebody you admire for their values? Ask yourself when you’re faced with a dilemma. What would that person do in this situation? There are religious type tasks. The golden rule is part of virtually every religion in the world. Do onto others as you would have them do onto you. The veil of ignorance test is another one. It’s not quite a religious test.

But along the same veins, for example, when you’re making a business decision, assume that you are sitting behind a veil and you don’t know how that decision will affect you. You don’t know how you fit into a business. So for example, let’s just assume your business is considering a rule of flex time, where people don’t have to come during set hours, at least everyone doesn’t have to come in during the same hours. Rather than thinking about that rule as it applies to you, think about how it might apply to a wide variety of people in your organization. In other words, you don’t know when you think about that rule, whether you’re male or female.

Whether you’re a parent or not, whether you’re healthy or unhealthy, whether you’re young or old. And make the decision on that basis. Finally, there’s a cost benefit type test. Some people refer to this as a utilitarian test. Do the costs exceed the benefits? What’s the greatest good for the greatest number? So those are a number of ethical standards that are used. Let me give you some examples. Here’s the gut test from a book called Getting To Yes. Tourist bought a beautiful Kashmir rug from a family who had worked for an entire year to make it and they offered to pay in German marks. But, he actually paid in worthless marks from the inflationary pre-World War II Weimar period.

Only when he told his story to his shocked friends back home did he begin to think about what he had done to this family. In time, the very sight of this beautiful rug turned his stomach. Like the tourist, many people find that they care about more in life than money and beating the other side. The mentor test, a company was involved with negotiations with Qualcomm and the other company accidentally sent Qualcomm a fax that laid out its negotiating strategy. The Qualcomm lawyer was thrilled and he ran into the CEO’s office with the fax, but he says here before I can even start to read it he asks, was it meant to go to us?

He told him it wasn’t he said, send it back. I left with my tail between my legs. He’s a very ethical person. If you’re working with somebody like that and you’re faced with an ethical dilemma you can what would Irwin do in this situation.

Here’s an example of a combination of a family cast and a newspaper test. At Cummins we use a simple test. Ask yourself if you would be embarrassed to have your family members learn of your actions or have them reported on the front page of the local newspaper. If so, then don’t do it, and Warren Buffett uses a similar test, the legendary investor. I want employees to ask themselves whether they are willing to have any kind of contemplated act appear the next day on the front page of their local paper to be read by their spouses, children, and friends.

So, this is the decision making process that we’ve just covered along with the menu of test that you can use when you’re faced with an ethical dilemma. And in the next segment, we’re going to take a look at operating as an ethical leader.