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BUSM 3199/3115/4198 Ethics & Governance

Lecture 4: Creating an Ethical Organisation

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Today

So what are we are saying is:

B = f (P & E)

BEHAVIOUR

ENVIRONMENT PERSON

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Outline

• The work context

• Organisational culture

• Ethical formal and informal cultural systems

• Ethics codes

• Ethical leadership

• The relationship between leadership, culture, ethics codes and behaviour

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Learning objectives for today

•Know the characteristics of an ethical organization

•Discuss the difference between ethics of value and ethics of compliance

•Understand the ethical formal and informal cultural systems

•Discuss a code of ethics

•Discuss ethical leadership

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An Ethical Organisation

•Trust•Effective communication •Openness •Objectivity and fairness•Integrity•Transparency•Values

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The organisation as a context individual personality is unimportant in

organisational criminal behaviour, as it results from role fulfilling rather than individual pathology (Schrager & Short 1978)

a reliable picture of moral conduct can be ascertained “not so much in direct observation of the decision maker as in a firmer grasp of the decision maker’s environment” (Frederick 1992)

Bad apples and bad barrels: Most people are the product of the context they find themselves. They look up and around… (Trevino and Brown 2004)

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Organisational membership Persons in organisations are socialised in their

roles (Katz and Kahn 1978).

Through this process, people accept the organisational goal structure and the culture (Clinard & Yeager 1980).

The expected role behaviour is learned from others’ expectations and the rewards that they receive from their organisational membership.

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Ethics of Values? or Ethics of Compliance?

•Values approach - is proactive and inspirational; emphasises expected behaviour, high standards

•Compliance approach - is reactive and punitive; emphasises required behaviour, obeying the law

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Organisational culture

Organisational culture affects people in organisations

The organisational culture includes the basic assumptions concerning what is right, proper and fair (Gottlieb & Sanzgiri 1996).

Expresses shared assumptions, values and beliefs and is the social glue that holds the organization together. It’s “how we do things around here.” (Trevino & Nelson 2006)

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Ethical formal cultural systems Leadership: creates, maintains and changes

culture. Most important aspect of an organisation’s ethical culture

Selection and reward systems Structure - authority, responsibility and ethical

culture Policies and codes- their effectiveness

depends on other formal and informal systems. Ethics must be in the blood line of the organisation.

Orientation and training programs. Decision making processes assumptions and

scripts (Trevino & Nelson 2006)

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Reward systems

Reward systems can encourage unethical behavior People do what’s rewarded Rewards don’t have to be explicit Think about how attempts to motivate

can backfire Set goals for ethical conduct

(Trevino & Nelson 2006)

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Ethics Codes

•Have been around since the early 1900s

•An international movement towards business ethics codes began in 1980s

•Post-Enron, stock exchanges such as NYSE and ASX encouraged the adoption of formal ethics guidelines for company officers.

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Formulating a code of ethics

•A code of ethics is, in essence, a formalisation of moral principles and responsibilities

•The need for a code of ethics–Requirement by law, e.g. in U.S.–Safeguarding reputation–Improving customer service (and thus sales)–Seeking like-minded partners and suppliers–Attracting and retaining the best employees–Responding to internal and/or external pressure

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Approaches to Ethics

1. General principles

2. Corporate mission

3. Code of conduct

4. Specific policies

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1. General Principles

Examples: Singtel, GIC

• Ensure that our employees uphold the code of ethics with integrity.

• But details of the principles unavailable publicly

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2. Mission

•Example: Marketing Institute of Singapore

“Uphold the good name of Marketing Institute of Singapore and Singapore, Academic Standards and Student Welfare”

http://www.mis.org.sg/about/ethics.aspx

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3 & 4. Code of Conduct, Specific Policies

Example: FJ Benjamin

1. Personal responsibility of each director and employee to understand and comply with the code of conduct

2. On entertainment, while it is an acceptable form of business, directors or employees should turn down meals or entertainment which are excessive in nature or frequency, so as to avoid loss of objectivity when conducting the company’s business

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Ethics codes effectiveness

Code effectiveness depends on cultural values and communication

• Use collaboration to create/revise the code

• Discuss/debate code frequently

• Use code to resolve ethical issues

• Communicate ethical decisions

• Reward behaviour that is consistent with the code

(Stevens 2008)

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Six Steps for Effective Implementation of a Code of Ethics

1. Distribute the code of ethics comprehensively to employees

2. Assist employees in interpreting and understanding the application and intent of the code

3. Specify management’s role in the implementation of the code

4. Inform employees of their responsibility to understand the code and provide them with the overall objective of the code

5. Establish grievance procedures

6. Provide a conclusion or closing statement, such as one from Cadbury Company: “The character of the company is collectively in our hands. Pride in what we do is important, and let us earn that pride by the way we put the beliefs set out here into action.”

Ethical informal cultural systems

Informal cultural systemsInformal normsHeroes and role modelsRitualsMyths and storiesLanguage

Developing and changing the ethical culture

(Trevino & Nelson 2006)

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Org. Culture and Leadership

Leaders affect culture through: attention critical incidents and crises role modeling / teaching / coaching criteria for scarce resources, rewards,

status, recruitment, selection, promotion, retirement, excommunication

others: formal statements, structure, systems, processes, physical setting, rituals, stories, etc.

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The responsibility of managers

Managers have responsibility for ethical behaviour in organisations because they affect culture, policies and practices

• Begin with clear standards

• Design a plan to continually communicate your standards

• Managers are role models

(Trevino & Nelson 2006)

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moral manager Reputation forEthical

Leadership

=

Having a good character

Setting ethical standards, expectations etc.

(Trevino & Brown, 2004)

Ethical leadership

Moral person +

Traits

Behaviours

Decision making

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moral person• Integrity• Trustworthiness• Honesty

• Do the right thing• Concern for people• Being open• Personal morality

• Hold to values• Objective/fair• Concern for society• Follow ethical

decision rules

Trevino, Hartman & Brown, 2000

moral manager

Role modellingthrough

visible action

Rewards anddiscipline

Communicatingabout ethics and values

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Executive Ethical Leadership Reputation Matrix

Hypocritical leader Ethical leader

Unethical leader

Strong

Weak

Moral Manager

Weak Strong

Moral Person

Ethically silent leaders

(Trevino & Brown, 2004)

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Guidelines for effective ethics management•Understand existing ethics culture

•Communicate importance of ethical standards

•Focus on reward systems

•Promote ethical leadership in the organisation

(Trevino & Brown, 2004)

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Conclusions

•An ethical organization requires ethical leadership – people look up and around

•An ethical leader is a strong moral person and strong moral manager

•A code of ethics is a guideline. For it to have meaning within an organisation it has to be part of the culture.

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Case Study Codes of Ethics Creative Technology & FJ Benjamin

Read the Creative & FJ Benjamin Code of Business Conduct and Ethics and consider:

a) what are the ethical principles underlying these codes? – is it a values based approach or a compliance based approach?

2. Do you think these codes would be effective? Consider Stevens (2008) - reading for Week Four.

3. Are there ways in which the codes implementation should be supported?

4. What else would you do as a manager to make an organisation ethical?

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Review Question

1. What is the role and content of an ethics code in an organisation?

2. Explain when and why codes of ethics are ineffective and discuss the arguments presented by Stevens (2008) and Trevino and Brown (2004).

3. Outline the differences between a hypocritical and an ethically silent leader (Trevino and Brown 2004). What are the likely outcomes of having either of those leaders in an organisation?

4. What can organisations do to improve the ethical behaviour of their employees? Give examples.

5. Is unethical behaviour in business the result of ‘bad apples’? Discuss in relation to organisational culture (‘a bad barrel’).

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ReferencesClinard, MB, & Yeager, P. C. 1980, Corporate crime, The Free Press, New York.

Frederick, NL 1992, 'Ethics and Integrity - Beyond Internal Controls', Managerial Auditing Journal, vol. 7, no. 1.

Gottlieb, JZ & Sanzgiri, J 1996, 'Towards an ethical decision making in organizations', Journal of Business Ethics, vol. 15, pp. 1275-85.

Katz, D, & Kahn, R. L. 1978, The social psychology of organizations, 2 edn, Wiley, New York.

Schrager, L & Short, J 1978, 'Toward a Sociology of Organizational Crime', Social Problems, vol. 25, pp. 407-19.

Stevens, B 2008, 'Corporate ethical codes: Effective instruments for influencing behavior', Journal of Business Ethics, vol. 78, pp. 601-9.

Treviño, LK & Brown, M 2004, 'Managing to be ethical: Debunking five business ethics myths.' Academy of Management Executive, vol. 18, no. 2, pp. 69-81.

Trevino, LK, Hartman, L.P., & Brown, M 2000, 'Moral person and moral manager: How executives develop a reputation for ethical leadership', California Management Review, vol. 42, no. 4, pp. 128-42.

Trevino, LK, & Nelson, K. A. 2006, Managing business ethics: Straight talk about how to do it right, 4 edn, John Wiley & Sons, New York.

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Online ReferencesJeff Skilling – ENRON

http://www.youtube.com/watch?v=XFTihsjO-og

Some background to Tyco: Former CEO Denis Kozlowski

http://www.youtube.com/watch?v=MYmLaVYsyHw

Milgram Experiment

http://www.youtube.com/watch?v=BcvSNg0HZwk

Stanford Prison Experiment

http://www.youtube.com/watch?v=Z0jYx8nwjFQ

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Next Week

Corporate Social Responsibility