Unit I — Foundations of OB
7. Ethics & Values
Values are enduring beliefs about what is desirable, and value congruence describes the alignment between an individual's values, an organization's stated values, and actual decisions made under pressure. Ethical climate is the shared perception of what constitutes ethically correct behaviour in an organization, moral awareness is recognizing that a situation has an ethical dimension, and ethical intention is the resolve to act on that recognition despite competing pressures like cost or speed.
- Personal and organizational values
- Value congruence between individual and organizational values
- Ethical climate: shared norms about right and wrong conduct
- Moral awareness: recognizing an ethical dimension exists
- Moral judgment and ethical intention: deciding and resolving to act ethically
- Supplier audit compliance rate — percentage of suppliers passing labour/safety audits, quarterly
- Cost variance from ethical sourcing — percentage cost premium of compliant versus non-compliant suppliers
- Ethics hotline usage — reports filed per 100 employees, quarterly
- Employee ethical climate survey score — perceived pressure to compromise standards, quarterly
- Incident rate at supplier sites — safety/labour violations reported per audit cycle
Kaveri Home Appliances, a mid-sized consumer durables manufacturer in Chennai with revenues of 800 crore INR, is under margin pressure after a 12% rise in input costs. The procurement manager, Divya Krishnan, must select a supplier for plastic components: Supplier X offers a price 18% lower but has a history of labour-law violations and inconsistent worker safety audits at its factory, while Supplier Y is 18% more expensive but has a strong labour compliance record and ISO certifications. Kaveri's stated corporate values emphasize 'responsible growth,' but the CFO has been pushing hard on cost targets this quarter, and Divya's own performance bonus is tied to procurement cost savings. She has one week to finalize the sourcing decision before the next production cycle.
Price gap between Supplier X and Y
18% (X cheaper)
Supplier X labour violation history
2 flagged audits in past 18 months
Supplier Y compliance record
ISO 45001 certified, zero flagged violations
Divya's bonus linkage
Tied to procurement cost savings target
Corporate stated value
"Responsible growth"
Input cost rise (company-wide)
12% year-on-year
ASelect Supplier X on cost grounds
Award the contract to the cheaper Supplier X to meet the cost-savings target and quarterly margin pressure.
BSelect Supplier Y on ethical/compliance grounds
Award the contract to the more expensive but compliant Supplier Y, absorbing the cost premium to uphold labour standards.
CNegotiate conditional sourcing from Supplier X with remediation
Award a smaller, conditional order to Supplier X contingent on passing a follow-up labour/safety audit within 60 days, while using Supplier Y for the remainder.
ASelect Supplier X on cost grounds
Strengths
- Directly meets short-term cost savings and Divya's bonus metric
- Fast, low-friction decision under time pressure
Risks
- Contradicts the stated 'responsible growth' value, risking reputational and compliance exposure
- Potential future liability if labour violations surface publicly
BSelect Supplier Y on ethical/compliance grounds
Strengths
- Aligns with stated corporate values and reduces compliance/reputational risk
- Signals to the organization that ethical climate is taken seriously
Risks
- Misses Divya's personal cost-saving bonus target this quarter
- Adds cost pressure at a time the CFO is already pushing to cut costs
CNegotiate conditional sourcing from Supplier X with remediation
Strengths
- Balances some cost savings with a path to improved compliance
- Creates leverage to push Supplier X toward better practices
Risks
- Requires additional audit resources and monitoring effort
- Risk that remediation is superficial or the timeline slips, exposing Kaveri to interim risk
Which supplier decision should Divya make, and how should she frame the trade-off between cost pressure and Kaveri's stated ethical values to the CFO?
Award the contract to the cheaper Supplier X to meet the cost-savings target and quarterly margin pressure.
Strengths: Directly meets short-term cost savings and Divya's bonus metric; Fast, low-friction decision under time pressure. Risks: Contradicts the stated 'responsible growth' value, risking reputational and compliance exposure; Potential future liability if labour violations surface publicly.
Award the contract to the more expensive but compliant Supplier Y, absorbing the cost premium to uphold labour standards.
Strengths: Aligns with stated corporate values and reduces compliance/reputational risk; Signals to the organization that ethical climate is taken seriously. Risks: Misses Divya's personal cost-saving bonus target this quarter; Adds cost pressure at a time the CFO is already pushing to cut costs.
Award a smaller, conditional order to Supplier X contingent on passing a follow-up labour/safety audit within 60 days, while using Supplier Y for the remainder.
Strengths: Balances some cost savings with a path to improved compliance; Creates leverage to push Supplier X toward better practices. Risks: Requires additional audit resources and monitoring effort; Risk that remediation is superficial or the timeline slips, exposing Kaveri to interim risk.
Set the weight of each criterion (1–5), then score every alternative (1–5). The matrix is a thinking aid, not a verdict.
| Criterion | Weight | A | B | C |
|---|---|---|---|---|
| Behavioural impact | ||||
| Employee acceptance | ||||
| Feasibility | ||||
| Cost (higher = more affordable) | ||||
| Risk containment | ||||
| Long-term sustainability |
With your current weights, alternative A scores highest. A matrix only reflects the weights you chose. Evidence, ethics, feasibility and the people affected still belong in your judgement — you decide.
Ethical decision-making models (moral awareness, moral judgment, ethical intention, and ethical behaviour) suggest that the crucial first step is Divya recognizing the ethical dimension of this decision rather than treating it purely as a cost optimization problem; value congruence theory highlights the tension between her personal bonus incentive and the firm's stated 'responsible growth' value. A strong justification should show how she would reason through this tension, referencing ethical climate (what the organization implicitly signals is acceptable) rather than assuming the cheapest option is automatically wrong or the most expensive is automatically right.
- Short-term: choosing Supplier Y costs the company more in the current quarter and affects Divya's bonus payout
- Short-term: choosing Supplier X risks an audit or media exposure of labour violations tied to Kaveri's supply chain
- Long-term: sourcing decisions like this shape the company's actual ethical climate more than any stated values statement
- Long-term: a pattern of conditional sourcing with remediation can build supplier capability without abandoning cost discipline entirely
- Reputational: any labour violation traced to a Kaveri supplier could trigger regulatory scrutiny and brand damage disproportionate to the 18% cost saved
- How does tying Divya's bonus to cost savings alone create a conflict with the company's stated values?
- What signals would tell Divya that her organization's ethical climate does not actually support 'responsible growth' in practice?
- How would you redesign incentive structures to reduce this kind of value-versus-metric conflict?
- What would you do if the CFO explicitly pressured you to choose the cheaper, non-compliant supplier?
Moral awareness in ethical decision-making refers to:
What creates the central value congruence tension in Divya's decision?
Given the time pressure and mixed cost/ethics trade-offs, which option is most defensible?