INTRODUCTION AND LITERATURE REVIEW
Of recent interest is the highly debated situation of American Insurance Group (AIG) and the $165 million in executive bonuses, mostly paid to London traders who created the massive losses that resulted in government bailout money of $170 billion given to AIG. Were the AIG bonuses "legal"? In reality the bonuses were only one tenth of one percent of the total bailout amount. Additionally, AIG claimed they were contractually obligated to pay the bonuses. A government mistake was that there was no consideration of the possibility of bonus payouts in the structuring of the bailout terms by Treasury Secretary, Tim Geithner. Therefore, the AIG bonuses were contractual and legal. However, the question arises as to how ethical the bonuses were, and should there be some obligation on the part of the recipients to repay the money (Reed, 2009)?
Our laws are a starting point for ethical conduct and are implemented in order for society to avoid extreme situations. In other words, obvious unethical behavior is any behavior that is illegal or blatant (offensive) misconduct (Kullberg, 1988). The question then arises as to "Is any type of behavior 'ethical' as long as it does not violate a law or a rule of one's profession" (Whittington Pany, 2004)?
The word "ethics" is derived from the Greek word, ethos, meaning "customs", "conduct", or "character" (Northouse, 2007). For a formal definition of ethics, Webster's New World Dictionary (1995) defines the term as "the study of standards of conduct and moral judgment". Ethics are important to individuals because we are concerned with what leaders do and who they are--their conduct and character. Numerous theories exist as to how followers are motivated to follow their leader/employer. Teleological theories are those that stress the consequences of a leader's conduct, and they come from the Greek word "telos" meaning ends or purposes. When looking at consequences, two types of theories occur. The first type is Ethical Egoism and deals with an individual choosing an outcome that produces the greatest good for themselves, perhaps receiving a promotion if their division excels. The second type of teleological theory is Utilitarianism, which states that a leader will behave in a manner to create the greatest good for the greatest number of people. An example is when a part of a federal budget is allocated to preventing an illness through immunizations rather than all to a catastrophic illness. Close to Utilitarianism is Altruism, which is almost a total concern for others, such as was the case with Mother Teresa (Northouse, 2007).
These theories emphasize the consequences of the leader's behavior. In analyzing the actions of the AIG management, they acted in accordance with their self-interest, defined by Ethical Egoism, which falls under the teleological theory. The other subcategory to Teleological Theory was Utilitarianism, ultimately meaning to help the most people (Northouse, 2007). Under this method, management should have acted in a way to maximize "social benefits". In the AIG case, this did not occur as the consequences of the mismanagement of AIG were that people's jobs, investments, and security were affected by the decision making of management and traders receiving the bonus money.
As for conduct, there is a second category of theory that relates to "duty" and the actions of the persons. These theories are called Deontological Theories, which imply that the leader has a moral responsibility and obligation to do the right thing and should not infringe on the rights of others (Northouse, 2007). Clearly, the actions taken by AIG infringed on the rights of others by using taxpayer money for their personal use when it was not justified. While it is "right" to reward people for achievement and even preventing losses, it clearly "seems" wrong to reward people for incurring losses!
Various "model" business organizations gave their definition of ethics. …