Picture the following: Liam, a manager in a large company, is considering bids for a substantial contract. The marketing director of one bidder, a golfing friend, invites him and his family for a fully paid weekend to Manchester, including tickets for a Manchester United match. Man U is his daughter's favourite team. Should Liam accept the invitation?

Harvard professor Joseph Badaracco jnr, author of Defining Moments (Harvard University Press: 1997), says the accumulation of inner dramas played out in situations such as Liam's will profoundly affect the character of the actor and his/her future actions. Thus, Prof Badaracco terms the resolution of these dilemmas, whatever the direction taken, as "defining moments".

The ethical dilemmas involved are not clear options between right and wrong. Rather, a defining moment is more challenging, where the options are not clear-cut, and all of them can be justified in some sense. They involve ethical responsibilities, personal commitments and practical pressures.

Why are defining moments so significant? Because they form, reveal and test. If Liam accepts the Manchester weekend, he has decided that avoiding a conflict of interest takes second place to personal and social commitments. This decision will cast a shadow forward to the next time a similar dilemma arises. It reveals and tests the conviction with which different basic values are held by pitting them against each other. At the defining moment, "you become who you are".

But these moments are not entirely private. They have a public expression and give signals to people in and outside the company about the individual concerned, the whole organisation or subgroups within it.

For example, in 1993, in a truly defining moment, Robert Haas, chief executive officer of Levi Strauss, countermanded an executive committee decision to expand trade and investment in China. As leader and bearer of the Haas family legacy, he defined the company as one that set such a high priority on human rights that trade with a regime which allegedly carried out gross human rights abuses was unacceptable, despite economic and even ethical arguments to the contrary.

When Mr Haas reversed the decision in 1998, it was explained within the humanitarian self-defining context of the previous decision, that is, China's human rights record had improved and trade with the country, under certain conditions, would help to improve it further.

But usually defining moments occur on a more mundane level. This is what makes them so important, an observation highlighted in Neil Gregor's book on Daimler-Benz in the Third Reich. Mr Gregor depicts management deliberations at Daimler-Benz in 1942 about the deployment of Jewish slave factory labourers and their deportation to extermination camps when they were too feeble to work. The horror is amplified by the discussion's ordinariness.

Mr Gregor concludes that the dehumanisation of these managers was the result of a series of incremental compromises made over years to accommodate the Nazi regime. In the slide towards barbarity, each defining moment validated the ones before it and shaped those to follow.

US surveys consistently show that most middle and junior managers have, under organisational performance pressures, compromised personal values to climb the corporate ladder. Management training and business priorities concentrate on economic performance and exclude ethical issues.

Standard procedures - observing the law, serving the shareholders, consulting the company mission, following philosophical principles - do not grasp the complex, politically and emotionally loaded dimensions of moral predicaments.

So, what to do? Prof Badaracco offers some advice and insights. The first step, perhaps the most uncomfortable, is self-awareness. He counsels managers to reflect on what their deeply held values are and how different courses of action affect those values, ultimately forging their individual identities and those of their organisations.

If we go back to Liam's Manchester offer, "hospitality" occurs routinely in business and most people would not turn it down. In small Irish business circles, personal and social contacts are easily intermingled with business deals. But if we stop and think about it, is there any difference between accepting generous hospitality and a brown paper bag?

Prof Badaracco's advice, however, goes further than introspection. Basically, managers must take account of who wields influence and power and how to get them on-side. Here, Prof Badaracco resorts to advice from Machiavelli. First, you need a strong, prosperous organisation behind you. Second, don't overestimate your adversaries' ethics or underestimate their power. Third, remember that you cannot dictate your role and must negotiate it.

These practicalities do not mean that managers have to compromise their deeply held principles. The answer is to work around them, to find a combination of shrewdness, imagination and boldness that finds a balance "between our hearts in all our idealism and our jobs in all their messy reality". This is more easily said than done, and although Prof Badaracco illustrates with successful examples, he recounts many failures too.

So what about Liam's Manchester offer? Perhaps he could accept but exclude himself from choosing the winning bid, leaving the decision to colleagues. While he might not get further offers, he would signal he was not for sale, and plant a marker within his own company.

Most important, perhaps, in the solution suggested, Liam could pass what Prof Badaracco calls the "sleep test". Having reflected and acted, he could sleep soundly without qualms.

The "sleep test" highlights the personal history involved in a lifetime of defining moments. The thoughtful manager should be able to project forward to the time when s/he will be looking back at the paths taken during defining moments. Will this cause shame and regret, or pride and satisfaction?

Prof Badaracco argues that defining moments have the power to engender positive and fulfilling personal growth. Perhaps his most important contribution is to highlight that a good start is to take an active and thoughtful role in shaping our moral selves. So, long after the shouting is over at Old Trafford, hopefully, Liam will slumber soundly, happy with the person he knows himself to be.

Eleanor O'Higgins is a lecturer in strategic management and in business ethics at the Graduate Business School, UCD.