A Stakeholder-Based Approach to Ethical Decision Making

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  • 0:04 Ethical Decisions
  • 1:56 Stakeholders
  • 3:15 Decision Making Approach
  • 5:50 Lesson Summary
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Lesson Transcript
Instructor: Linda McCoy

Linda is an engineer and project manager with a Master's degree in Human Centered Design and Engineering and has taught at the college level for 20 years.

Good managers make ethical decisions that balance the impacts they may have on other parties. In this lesson, you will learn about identifying stakeholders and considering their interests in the ethical decision making process.

Ethical Decisions

As CEO of the Tower Developments construction company, Susan Hammer is responsible for making many decisions every day. With the support of her team, Susan must decide where to build houses, from whom to buy the materials needed to build the houses, and even how much to pay her construction managers.

To build the right quality of houses (not too cheap; not too expensive), to attract the right buyers, to keep her employees happy and challenged, and to continue to make a profit, Susan must make more good decisions than bad. Making the right decision is an important function of management that requires both a good understanding of the issues and balanced judgment. But even more than making good business decisions, we as a society expect, or hope, that Susan will make decisions that are ethical. That is, she makes choices that are as fair as possible and that represent our collective social morals. Ethical decisions garner trust and respect and establish the decision maker as a good corporate citizen.

For example, Tower Developments must decide on what paint to purchase in bulk to paint the exterior of their houses in a new development. In addition to quality and price, there may be additional ethical issues to be considered:

  • Can the paint be obtained from reputable and responsible suppliers through honest and fair business agreements?
  • Might it harm the environment?
  • Could it harm the eventual residents of the house?
  • Is the paint manufactured in a facility where employees are safe and are treated fairly?

Susan is proud of the work that her Tower Development team has done. She has always managed the company in an honest, open, and ethical manner. When faced with a decision that could have wide-ranging effects, Susan makes sure that she understands all of the issues and carefully considers all the options and their possible consequences on other groups. Susan believes in a stakeholder-based approach to decision making.


Stakeholders are people or groups who are affected by or who can affect the operations and decisions of an organization. In other words, these people have a 'stake' in the decisions of the organization. Tower Development's stakeholders certainly include their employees, customers, suppliers, business partners, and shareholders. Stakeholders might also be government permitting departments, neighbors, financial lenders, or municipal utility providers.

In an effort to ensure that all of her decisions are ethical, Susan has made a conscious decision to consider the interests of all stakeholders. It is up to Susan to identify and determine the relevance of the stakeholders for a given decision. Susan's ultimate decision must balance the interests, sometimes conflicting, of all affected parties while remembering that the relevance of all stakeholders may not be equal.

Some stakeholders may have more interest in the operations of Tower Development than others, while other stakeholders may have more influence. Relevant stakeholders may vary from decision to decision. While suppliers might be affected by a change in purchasing regulations, for example, the local municipal utility would not likely be considered a stakeholder in such a decision. Identifying the stakeholders to be considered is a crucial step in making a stakeholder-based decision.

Decision Making Approach

The stakeholder-based approach to ethical decision making provides a framework for evaluating the options or alternatives available. This approach also requires understanding the potential impact on each of the stakeholders before choosing a direction. There are several steps that must be considered in reaching an ethical decision:

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