Corporate Ethics and Social Responsibility
1. Know the three levels and six stages of moral development suggested by Kohlberg.
2. Describe famous corporate scandals.
3. Understand how the Sarbanes-Oxley Act of 2002 provides a check on corporate ethical behavior
in the United States.
4. Know the dimensions of corporate social performance tracked by KLD.
Stages of Moral Development
How do ethics evolve over time? Psychologist Lawrence Kohlberg suggests that there are six distinct stages
of moral development and that some individuals move further along these stages than others (Kohlberg, 1981).
Kohlberg’s six stages were grouped into three levels: (1) preconventional, (2) conventional, and (3)
postconventional (Table 10.4 “Stages of Moral Development”).
The preconventional level of moral reasoning is very egocentric in nature, and moral reasoning is tied to personal
concerns. In stage 1, individuals focus on the direct consequences that their actions will have—for example, worry
about punishment or getting caught. In stage 2, right or wrong is defined by the reward stage, where a “what’s in
it for me” mentality is seen.
In the conventional level of moral reasoning, morality is judged by comparing individuals’ actions with the
expectations of society. In stage 3, individuals are conformity driven and act with the goal of fulfilling social
roles. Parents that encourage their children to be good boys and girls use this form of moral guidance. In stage 4,
the importance of obeying laws, social conventions, or other forms of authority to aid in maintaining a functional
society is encouraged. You might witness encouragement under this stage when using a cell phone in a restaurant
or when someone is chatting too loudly in a library.
The postconventional level, or principled level, occurs when morality is more than simply following social rules
or norms. Stage 5 considers different values and opinions. Thus laws are viewed as social contracts that promote
the greatest good for the greatest number of people. Following democratic principles or voting to determine an
outcome is common when this stage of reasoning is invoked. In stage 6, moral reasoning is based on universal
ethical principles. For example, the golden rule that you should do unto others as you would have them do unto
you illustrates one such ethical principle. At this stage, laws are grounded in the idea of right and wrong. Thus
individuals follow laws because they are just and not because they will be punished if caught or shunned by
society. Consequently, with this stage there is an idea of civil disobedience that individuals have a duty to disobey
Table 10.4 Stages of Moral Development
Psychologist Lawrence Kohlberg theorized that a person’s moral reasoning (which drives ethical behavior) has
six identifiable stages spread across three levels. Each successive stage is superior to the previous stage with
regard to responding to moral dilemmas. We illustrate each stage below.
Level 1 (Preconventional Level). Here moral reasoning is closely tied to personal concerns.
Stage 1. Obedience and punishment orientation
(“How can I avoid punishment?”)
An individual’s motivation to behave ethically is driven by the fear of getting
caught and punishment.
Stage 2. Self-interest orientation (“What’s in it for
Right or wrong is a function of rewards in this stage, where a “you scratch my back
and I’ll scratch yours” mentality dominates.
Level 2 (Conventional Level). Here moral reasoning arises from comparing one’s actions with society’s
Stage 3. Interpersonal accord and harmony Individuals act with the goal of fulfilling social roles, such as student, parent, and
Stage 4. Authority and social order–maintaining
orientation The desire to maintain a functional society by obeying laws drives behaviors.
Level 1 (Preconventional Level). Here moral reasoning is closely tied to personal concerns.
Stage 5. Social contract
Laws are viewed as social contracts that promote the greatest good for the greatest number of people. Unjust
laws and policies must therefore be resisted.
Stage 6. Universal ethical
Moral reasoning is based on universal ethical principles such as the “golden rule” that you should treat others
as you would want them to treat you.
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