3. Organizational/Business Ethics
What is it?
If ethics deals with the choices (the morality of right vs
wrong) that individuals make in their personal and
professional lives, then…..
Organizational business ethics is the application of these
morality related choices as influenced and guided by values,
standards, rules, principles, and strategies associated with
organizational activities and business situations.
“Business ethics deals with choices about what laws should be and whether to
follow them, about economics and social issues outside the law, and about the
priority of self-interests over the company’s interests.”
Laura Nash, Ph.D.
Harvard University.
4. Organizational/Business Ethics
Why is it important?
Ethics influence and contribute to:
Employee commitment.
Investor and customer loyalty and confidence.
Legal problems and penalties.
Customer satisfaction.
The ability to build relationships with stakeholders.
Cost control.
Performance, revenue, and profits.
Reputation and image.
“One of an organization’s most prized assets is its reputation.”
S. Waddock, Ph.D.
5. Organizational/Business Ethics
The “Ethical Dilemma”
Individual morality and integrity.
Daily choices by every organizational participant.
The use of power and authority.
Interpretations of rules and standards from one
individual to the next.
Anything from inconsequential to organizationally
and socially significant scenarios.
Social influences.
Plus……..
Character.
Attitudes.
Personal Values.
Judgment.
Opportunities.
The use of
information.
Ambiguous
guidelines.
The ‘ethical dilemma’ involves all associates in an organization and a
multitude of issues:
6. Organizational/Business Ethics
The “Ethical Dilemma” (continued)
Plus!
1. Laws don’t cover everything.
2. Free market and regulated market mechanisms don’t
describe how to respond to complex issues that have far
reaching ethical consequences.
3. Complex problems often require an intuitive or learned
understanding and concern for fairness, justice, due
process to people, groups, and communities.
4. Consequences.
“To companies and employers, acting legally and ethically means saving billions
of dollars each year in lawsuits, settlements, and theft.”
David Callahan, Ph.D.
7. Organizational/Business Ethics
Thus, two things become apparent:
1. Organizational/business ethics are the responsibility of
organizational leadership; and
2. The challenge of leaders to create an ethical organization
is….difficult!
“Leaders play THE key role in developing the ethical organization as they confront
balancing operational and profit goals with corporate moral obligations to internal
and external stakeholders”.
Ethics starts at the top!
Teresa Yancey Crane
Issue Management Council
8. Organizational/Business Ethics
Key Questions for Leaders as they build the ethical organization:
What are my core values and beliefs?
What are the core values and beliefs of the organization?
Whose values, beliefs and interests are impacted by my actions and decisions?
Who will be harmed or helped by my actions and decisions and those of my organization?
How will my core values and those of my organization be affected or changed by my
actions or decisions?
How will I and my organization be affected by my actions and decisions?
Do my actions and decisions represent a consistent set of values?
From this, how will I approach the creation of an ethical organization?
“The ethics of the organization reflect the ethics and skills of leaders.”
Lee Hartman, Ph.D.
Ethics starts at the top!
9. Organizational/Business Ethics
The Role of Leaders
Develop ethical behavioral influences.
Provide sound ethics training
Instill strong organizational values
Implement plans and strategies to achieve ethical excellence
Build an integrity based organization
“Leading an organization begins by identifying and enacting purpose and ethical
values that are central to internal alignment, external market effectiveness, and
responsibility toward stakeholders.”
Joseph W. Weiss, Ph.D.
Bentley College
10. Subjective
Moral Development
Appearance of the Act
Intensity of the Choice
Ethical Climate
Culture
Management and Leadership
Organizational/Business Ethics
The Role of Leaders
Develop Ethical Behavioral Influences:
Objective
Code of Ethics
Policy Guidelines
Standards of Ethical Performance
Training
Punishment/Consequences/Discipline
Peer Reporting
“Where does freedom of behavior stop and managed (ethical) behavior start?”
James Collins, Ph.D.
11. Organizational/Business Ethics
The Role of Leaders
Provide Sound Ethics Training:
Provide rationale for ethical behavior.
Help associates make sense of abstract ethical priorities (policies,
procedures, ethical performance standards).
Provide intellectual weapons to support ethical standards.
Enable associates to recognize issues that may result in ethical dilemmas.
Sharpen sensitivity and conscientiousness of moral issues and moral
solutions.
Strengthen moral courage.
Improve the moral climate of the organization.
“Leaders define and lead the social, ethical, and competitive mission of
organizations.” N. Tichey, Ph.D.
12. Organizational/Business Ethics
The Role of Leaders
Instill Strong Organizational Values:
Strengthens the pursuit of better ways to guide employee decisions and
behavior.
Increases awareness and sensitivity to ethical differences across cultures.
Coincides with legal and social pressures.
Ensures that all organizational participants understand and are in close
touch with organizational/ethical values.
Influences the personality, reputation, and image of the organization.
“Leadership requires involvement in stakeholder relationships.”
John Kotter, Ph.D.
Harvard University
13. Organizational/Business Ethics
The Role of Leaders
Set an example.
Identify ethical weaknesses.
Look to introduce and rebuild ethical
values.
Assess compliance programs.
Get commitment of top managers.
Align ethics with organizational systems.
“The moral decisions of strategy are based and built around ethics. People are
motivated to implement strategies that they believe in, have the ability to enact,
and produce results worth pursuing.”
Ensure consistency in
implementation.
Monitor and assess.
Pursue continuous
improvement.
Design an ‘integrity based
strategy.’
Implement Plans and Strategies to Achieve Ethical Excellence:
G. Hammel, Ph.D.
14. Organizational/Business Ethics
The Role of Leaders
Build an Integrity Based Organization:
“Leaders monitor and establish the values they wish their company to embody
with stakeholders.”
Create faith in the integrity of common
purpose.
Inspire! Empower! Build trust!
Value ownership and entrepreneurship.
Respect individual creativity.
Understand socio-emotional behavior.
Develop emotional intelligence/moral
Starts at the top….leadership!
Set an example of integrity, honesty, and
consistent behavior and reinforce it with associates.
Be involved.
Pursue a culture of ethics and raise ethical
awareness.
Establish a system of rewards tied to
organizational values.
Make ethics and integrity a core value, and a ‘core
competency.’
P. Quinn and T. Jones
“Academy of Management Review”
January, 2000
consciousness.
15. Organizational/Business Ethics
The Integrity Based Strategy
Not a compliance strategy--more than a code of conduct.
Provides a firm foundation for ethical behavior.
Taps into powerful human impulses for moral thought and action.
Defines and gives life to an organization’s values that guide behavior.
Instills a sense of shared accountability.
Serves as a frame of reference for all associates.
Unifies the organization.
Defines what an organization is: its culture, its values, its integrity, its image, its reputation.
In line with a contemporary leadership styles.
Enables responsible behavior and guides self-management.
“The integrity based organization involves a culture of ethics that is not
demanded, but desired by all associates.”
Charles D. Little, Ph.D.
16. Organizational/Business Ethics
The Integrity Based Strategy
COMPLIANCE STRATEGY
Etho: Conformity with Standards
Objective: Prevent Misconduct
Leadership: Lawyer Driven
Methods: Education; Auditing; Penalties
Behavioral
Assumptions: Autonomous Beings Guided
Material Self Interest
CHARACTERISTICS OF A
INTEGRITY STRATEGY
Self Governance
Enable Responsible Conduct
Management Driven
Leadership; Accountability;
Systems Decision Processes
Social Beings Guided by Values
and Ideals
“The need to be ethical is viewed as a positive aspect of organizational life, rather
than one more unwelcomed restraint imposed by the authoritarian culture.”
Unknown
CHARACTERISTICS OF A
17. Organizational/Business Ethics
In Conclusion, High Ethics Companies…
1. are at ease interacting with internal and external stakeholders;
2. are obsessed with fairness, honesty, and integrity;
3. see actions and decisions driven by values;
4. are confident with the ethical activities of individuals and
work groups;
5. value ethical purpose; and
6. can make ethics a core competency in strategic planning.
Ethics! Important to All Stakeholders
“Ethics in business and organizations result in investor confidence and
loyalty, customer satisfaction, and high performance and profits.”
Shelley Groves, Ph.D.
19. Charles D. Little, Ph.D.
Seminars for Professional Development
Phone
817/531-4297 (Office)
817/281-1716 (Home)
817/944-9825 (Cell)
Email
clittle@txwes.edu
THANK YOU
Editor's Notes
Ethics! We hear about it every day. There is a public consciousness related to ethics that is much more prominent than it was only a few years ago. And why not? Just in the last few years, we’ve seen unethical behavior in all aspects of life, i.e. among our politicians, our court system, the government, and certainly among organizations and business leaders. The media puts everything (small, large, and in between) before the public, and immediately we form an opinion about it, and it shapes our image of the person or institution. And often, it’s not a good one. In our modern society, images, reputations, and success in business can be ruined in an instant by some unethical act, or even the appearance of it. Let’s face it, we all have an image about some thing, somebody, and some organization.
When we speak of images and reputations, take a look at some of these issues, people, institutions, and business organizations. We have heard of and/or heard something negative about all of these just in the last few years. What are your thoughts on these occurrences? What is your viewpoint of these people? What is your image of some of these institutions?
Life is about choices. We deal with choices in our personal lives everyday. Most of us are guided by such questions as, “Is this the correct thing to do? Is this the right decision to make?” We are guided by our own sense of morality, i.e. the difference between right and wrong.
Organizational business ethics work much the same way. Here, we are dealing with choices, also, about anything and everything related to organizational activities and business situations. We apply our own personal set of values, standards, rules, principles, strategies, and even knowledge of what is lawful to every decision, and these are the things that guide us. But that’s not to say we aren’t tempted. That’s not to say we don’t always go against our sense of morality (right vs wrong) at various times. That’s not to say we always make the right choices. Sometimes, we make the wrong one.
Organizational business ethics occupy a prominent role in the modern spectrum of American business. Society’s greater consciousness of ethics gives rise to how it permeates and influences every aspect or organization activity.
For example, employees have a role in ethical behavior and their commitment to the organization. They share a role in shaping the ethical image and reputation of an organization just by their actions and the way they represent the organization. Leadership and management would prefer that the actions and activities of their employees be driven by loyalty to the organization. We can only hope that management behaves ethically, because oftentimes employee behavior reflects the behavior of the leadership in the organization.
How about investors? Organizational leaders hope that investors will see the company as an upstanding organization committed to responsible behavior so that they (the investors) will be more prone to invest in the company. If they invest in the organization, they are putting their trust in the organization and its leadership. In short, investors want to be confident that their financial commitment will be used responsibly and appropriately cared for.
Likewise, we as customers need to be have a degree of confidence in the organization, too. What does the company brand represent? Are we getting fair value for our money? Do we have an adequate level of trust in the company to stand behind its products and services? If our image, as customers, is not positive from an ethical perspective (nor any other perspective, for that matter), then we are not likely to patronize that company nor their products and services.
Where does a negative ethical image of a company come from? In reality, it could from any number of sources or occur for any number of reasons. It may come from some legal problem the company had. It may come from some bad publicity. It may simply come from one customer who has had a bad experience with the company. If someone tells you that a company gouges prices or does not stand behind their products, wouldn’t you be prone to do business somewhere else?
All of this affects performance, productivity, efficiency, and profitability may all be tied to organizational ethics, as well as its reputation and image among customers, competitors, and even its standing in the industry. One of the organization’s most prized assets is it reputation.
This brings us to what is known as the “ethical dilemma.” The ethical dilemma is far-reaching. It may relate to the most simple of ethical issues. But it can involve some that are quite complex, as well. We can say that it involves every associate in an organization, and the choices they make, daily, as influenced and driven by their character, values, judgment, social influences, and, yes, the models of behavior they observe from leadership down throughout the organization. It can involve even the smallest of acts, such as the unauthorized removal of a pen or pad of paper. It may relate to a decision about some business practice in the competitive environment. It may involve the mishandling of a customer complaint or an inappropriate relationship with a client. It may even be associated with the way in which an individual interacts with peers and other associates in the organization.
Many organizations attempt to control or mandate ethical behavior through some sort of code of ethics or ethics training. There is nothing wrong with that, but such training seldom covers every specific thing? In fact, it is impossible to cover every little act of unethical behavior by means of a code of conduct and/or ethics training. Moreover, even if management attempts to do that, oftentimes people come away with different interpretations of things. In our organizational work lives, ethical choices are made that are influenced by everything from a code of conduct to our character, personal values, and judgment. Thus, the “ethical dilemma.”
Laws certainly don’t cover everything either. Sure, there are certain things that are unlawful in a business organization: such as polluting the environment; sexual harassment; unfair labor practices; inequality in hiring, firing, and promoting; misrepresentation of earnings to internal and external stakeholders, etc. And oftentimes, people are definitely influenced by the consequences of such acts. But there are many other things that are not so obvious. In fact, there are myriads of things that laws don’t cover, but they nevertheless are unfair, unjust, and improper.
Perhaps, now, you begin to get the idea of just how far reaching the ethical dilemma is.
Ethics, ethical behavior, and the culture of ethics starts with the leadership of an organization. Associates in an organization emulate the behavior of the leaders of the organization. So, if the leaders behave unethically, then, it stands to reason that subordinates will, also.
Let’s say for example that a manager or leader in an organization goes on a trip paid for by a supplier, or a contractor, or even a customer. Those that see that then begin to believe it’s acceptable behavior, and other associates down through the organization begin to accept gratuities from their clients and external associates, as well. Why wouldn’t they? They see this as acceptable behavior, because the leadership in the organization is doing it. Such gratuities may not always be big ticket items such as trips and large gifts, but it could be something as simple as tickets to a ballgame or dinners. What would be the impression of competing suppliers, contractors, or customers? They would naturally feel as though they are at a disadvantage, especially if they don’t possess the where with all in terms of resources to offer similar gifts, which we may, in actuality refer to as “bribes.”
Misuse of power and authority can be classified under the heading of unethical behavior, also. Abusive treatment of employees and unfair, unequal hiring and promotion practices are unethical. We hear of and see this kind of thing, frequently. Yes, there are laws against it, but it can be so far reaching and subtle, that laws may not cover every form of abuse and discrimination. Moreover, many employees just live with it, even though they are negatively impacted by it, out of concern for their jobs and personal welfare. This kind of thing filters down throughout the organization, also, and it can easily become an accepted part of the cultural behavior. But that does not make it right.
Once leaders realize the importance of ethics in their organizations, and they see the need to create an improved ethical culture and identity, it may be wise for leaders to start by doing a personal inventory of themselves, i.e. their own ethics, ethical standards, and behavior. This is tantamount to a personal evaluation, i.e. a look in the mirror, if you will. Sadly, this often occurs after it’s too late. For example, there may have already been some problem that has occurred, such as a law suit or some negative publicity about a client relationship. But regardless of when they do it, it needs to be done, and it is advisable to start with themselves since it is they that will initiate the changes.
The most difficult part of this self-evaluation is “honesty.” Leaders need to be honest with themselves as they answer the hard questions about their own core values and beliefs. “Would I (or have I ever accepted) a bribe or gift, especially if it was in return for something, such as more business or a renewal of a contract?” Then, if they have, the real key question is “is there anything wrong with that, or is that just the way (I see) business is done?”
Beyond that, the leader should look at the organization with the similar questions, and then determine how these core values and beliefs of him or herself and the organization impact the organization. Who has it harmed, or helped? Who might it harm or help? How does this behavior impact and affect my organization?
Good leaders in any organization have a consistent set of values. This is a part of being an effective and skillful leader. Consistency in ethics is a vital part of this. This means that leaders should treat every organizational associate, every client, every contractor and supplier, and certainly every customer equally, fairly, and consistently.
Perhaps, now you can see how ethics is much more than, and goes beyond, a code of conduct. There is so much more to it than could ever be included in a code of conduct briefing or document. Simply put, organizational/business ethics starts at the top of the organization….with leadership! Leaders have the responsibility to create a culture of ethics in their organizations, where ethics becomes a part of behavior that is desired rather than something mandated, complete with penalty provisions.
And that brings us to the question, “how do leaders create the ethical organization?” The role of leaders starts with simply setting the example for all internal and external stakeholders. In short, it starts with the behavior of leaders, themselves, as a basis for enacting and creating purposeful and ethical values.
Before we look at the steps associated with creating the ethical culture, we need to understand the difference between objective and subjective ethical behavioral influences. A code of conduct or code of ethics is something that is merely mandated and will likely cover the more obvious violations of ethics and policy guidelines. They present standards for ethical performance, many are delivered in an annual training session for all associates, and they are complete with penalty provisions. Many organizations have these, and they are important. But as we have said, they are not enough. In fact, oftentimes, this type of training results in confusion, misinterpretation, and even resentment.
The ethical culture goes beyond the traditional objective code of ethics we find in many organizations. It taps into the moral development of the employee and creates an ethical consciousness that is prevalent throughout the organization. This is what we mean when we say that ethics can become a part of the culture where people incorporate an emotional intelligence related to ethics associated with their actions. So to speak, the organization is typified by an ethical climate.
