Why do Good Managers make Bad Ethical decisions?


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Why do Good Managers make Bad Ethical decisions?

  1. 1. Morality & Profitability Why do Good Managers make Bad Ethical decisions?
  2. 2. Introduction  Incorporating values and ethics into Business decisions have become increasingly important  Business schools are ensuring that students graduate with a knowledge of ethical principles and the critical thinking skills necessary to analyze and make sound ethical decisions.
  3. 3. Business Ethics  Society generally feels that there are certain values that should be set as the minimum ethical behavior.  To meet the minimum ethical standards, a business must be honest, obey the law, and not directly infringe on the rights that our society holds as inalienable human rights.  Some of the Ethical issues involve compensation of employees, job security for employees, hiring practices, waste management issues, pollution, and conflicts of interest.
  4. 4. Morality & Profitability  Morality means Moral Discipline – Concerned with principles of right and wrong  Or conforming to standards of behavior & character aligned with the principles of right and wrong  Profitability - generally is the making of gain in business activity for the benefit of the owners of the business
  5. 5. Role of morality & profitability  We are in the business of preserving & improving human life. All of our actions must be measured by our success in achieving this goal – MERCK & COMPANY  Putting profits after people & products was magical at Ford – Don Petersen, Former CEO, Ford, 1994  Sequence of three P’s – People, products and profits – in this order – Don Petersen, CEO, Ford.
  6. 6. Ethical Profitability The balance between profits and ethics is term as “ Ethical Profitability”. Example: Enron Fallout Many investors are paying closer attention to a company's ethics, as well as their profits. These investors realize that a corporate focus on profits alone—with little regard to ethical standards, conduct and enforcement—may result in short-term revenue gain, but long-term profitability may be limited. In cases like Enron, long-term viability is limited too.
  7. 7. 5 Key Areas - Ethical Profitability Well-balanced companies not only consistently reward owners, investors and employees with profitable performance, they also genuinely focus on these five key areas: 1. Leadership by example: To manage well is to lead employees effectively, ethically and without arrogance. Company owners, executives and managers must set the highest examples of attitude and conduct for their employees. 2. Company-wide ethical awareness: Employee when not at work, practice personal ethics in areas such as caring for others, being kind and honest, and not harming others. Do these same people, when they arrive at work, maintain their personal guidelines? In-the-office ethical behavior includes demonstrating trustworthiness to managers and coworkers, respecting privacy and avoiding conflicts of interest. Ethics knows no time clock.
  8. 8. 5 Key Areas - Ethical Profitability 3. Strong management of revenue generation and reporting: Corporate temptation to stretch ethical behavior in revenue generation and reporting is universal. To overcome these temptations, revenue-related managers must establish and maintain a firm stance on ethical marketing, advertising, selling and reporting. This requires regular dissemination and enforcement of codes of conduct. 4. High level of internal trust: The level of trust within a company should reflect the level of trust the company solicits from customers. If customers are encouraged to put their complete trust in the product or service, then company teams must do the same with each other. An increase in trust is a reduction in risk and uncertainty, which in turn will keep the revenue generation process flowing smoothly. 5. Formal and active compliance program: An organizational ethics doctrine does have legal benefits. Properly written, published and disseminated ethical codes will reduce corporate risk if an employee creates a criminal or civil problem because of poor ethical behavior. The true test of ethical profitability is whether or not the company is a positive example to its employees, to its customers and even to other companies. Such companies practice the truest form of leadership- by-example. They reach for a higher bar
  9. 9. Business Ethics  Defined as written and unwritten codes of principles and values that govern decisions and actions within a company.  Business ethics can be used to describe the actions of individuals within an organization, as well as the organization as a whole.  The organization’s culture sets standards for determining the difference between good and bad decision making and behavior.
  10. 10. Importance of Ethical Business Decisions  Co. who wish to thrive long-term must adopt sound ethical decision-making practices.  Co. who behave in a socially responsible manner are much more likely to enjoy ultimate success than those whose actions are motivated solely by profits.  Co. knowing the difference between right and wrong and choosing what is right is the foundation for ethical decision making.  Doing the right thing often leads to the greatest financial, social, and personal rewards in the long run.
  11. 11. Factors Impacting Business Ethics  Corporate culture  Existence and application of a written code of ethics  Formal and informal policies and rules  Norms for acceptable behavior  Financial reward system  System for recognizing accomplishment  Company attitude toward employees  How employees are selected for promotions  Hiring practices  Applications of legal behavior  Degree to which professionalism is emphasized  The company’s decision making processes  Behaviors and attitudes of the organization’s leaders
  12. 12. 10 Qualities for Good Managers 1. To choose a field thoughtfully 2. To be a good mediocre 3. To create productive environment 4. To define success 5. To be a good communicator 6. To transfer the skills 7. To build morale 8. To solve the challenges 9. To be sound mind 10. To be a risk taker & solver at times
  13. 13. Why do managers make unethical decisions?
  14. 14. Determinants
  15. 15. Personal Ethics Generally accepted principles of right and wrong governing the conduct of individuals  Our personal ethical code exerts a profound influence on the way we behave as businesspeople  The first step to establishing a strong sense of business ethics is for a society to emphasize strong personal ethics  Expatriate managers may experience more than the usual degree of pressure to violate their personal ethics
  16. 16. Decision-Making Processes  Several studies of unethical behavior in business have concluded that businesspeople sometimes do not realize they are behaving unethically primarily because they simple fail to ask…. …. “Is this decision or action ethical?”  Often the result of applying straight-forward business calculus to a decision without considering important ethical issues
  17. 17. Organization Culture  The climate in some businesses does not encourage people to think through the ethical consequences of business decisions  Result of an organizational culture that deemphasizes business ethics, reducing all decisions to be purely economic  Corporate culture refers to any set of values, norms, rituals, formal rules, and physical artefacts that exists in a company.
  18. 18. Unrealistic Performance Expectations  Pressure from the parent company to meet unrealistic goals that can only be attained by cutting corners or acting in an unethical manner  This often results in managers will violating their own personal ethics and engage in unethical behavior  An organizational culture with values that reinforce ethical behavior is an essential ethical component
  19. 19. Co-existence of Morality & Profitability - ideology  Companies having an ideal blend of Morality & Profitability are visionary companies with strong ideology (ideals)  Ideology – set of basic precepts or beliefs or values that are subscribed to  Core Ideology exists in these companies not just as words but as a vital shaping force  Combining both – Genius of the AND – ideology AND profits  These companies do pursue profits or long term shareholder wealth but they also pursue meaningful ideals of serving humanity.
  20. 20. Managerial Teasers  You are in-charge of cash expenses – Your supervisor comes and asks you for a cheque of 3000 Rs towards expenses he incurred entertaining a client last night. At lunch your supervisors girlfriend stops by to pick him up for lunch and you overhear her telling the receptionist what a great time she had at dinner with your supervisor the night before What do you do?
  21. 21. Managerial Teasers  You are the HR manager in your company – Your company has a firm policy regarding cases of theft of company property. Used company equipment is sold in a bid each month. You see a valued employee who is 5 months away from retirement, slip an electric drill and put it in his car. What do you do?
  22. 22. Managerial Teasers  You are the buyer for a retail clothing store. Your store has a policy of not accepting gifts. However, over the years, salesmen have offered and other employees have accepted lunch, theater and sporting event tickets. You arrive home from office one evening and find a new LCD and DVD player at your doorstep with a note that says “A personal gift for long lasting friendship “The Divikar Clothing Company “ What do you do?
  23. 23. Managerial Teasers  You are a bank teller working for the bank for the past 6 months, one of the other tellers at the bank who has become a good friend tells you that her daughter is extremely ill and has to be operated at an expense of 9 lakh rupees. Some days later you ask about her daughters health and she tells you that her daughter is just fine now. She then confides in you and says she took the money from a dormant account at the bank to pay for the operation. She assures you she has started paying it back and will return the entire amount into the account in some time. What do you do?
  24. 24. Hewlett Packard & Texas Instruments
  25. 25. Hewlett Packard – ideology  David Packard – Founder Partner  “Profit is not the proper end & aim of management – but it is what makes all of the proper ends and aims possible” - Packard  Became public in 1957  Initiated an Management development programmed – central to the long term health of the organization
  26. 26. Core values – Hewlett Packard  Company is group of people coming together to exist as an institution  Purpose is to accomplish something collectively in order to make a contribution to society  Contribution – to make a product or provide service – to do something which is of value to the society  Design, develop & manufacture finest electronic equipment for advancement of science and welfare of humanity
  27. 27. Core values – Hewlett Packard  Profit was one of the important objective  But Profit was seen as means to pursue the broader aims of developing better technology for the welfare of the society  HP’s focus was to provide real satisfaction to customers and be judged by them  Bigger Growth was ONLY WITHIN the context of making a contribution
  28. 28. Texas Instruments  Texas Instruments defined itself exclusively in terms if size, growth & profitability  Focus was to grow from a ‘good little company’ to ‘good BIG company’ – Pat Haggarty, President  Corporate ideology & goals was solely on financial growth  Focus on growth – even if products were low quality or made no technical contribution
  29. 29. Johnson & Johnson versus Bristol Myers
  30. 30. Core values – Johnson & Johnson  Emphasize is on ideals beyond profit  Founded by Robert Johnson in 1886 with the aim to alleviate pain & disease  Business ideology placed service to customers & concern for employees ahead of returns to shareholders.  Only when service to customers, employees & management have been done then the stockholders should receive a FAIR return
  31. 31. J & J CREDO  J & J ideology was codified in the credo printed on old style parchment  The essential ideology – Hierarchy of responsibilities descends from Customers to Employees to Management and then to Shareholders  Emphasis on FAIR return rather then MAXIMUM return to the company and the shareholders  Credo is the link to any Key Decisions
  32. 32. J & J – translating credo into Action  1982 – Tylenol crisis  Tylenol bottles distributed in Chicago laced with cyanide (not by any employee)  Result – Death of 7 people  J & J used the credo as the basis for its response
  33. 33. J & J -Translating Credo into Action  J & J removed all Tylenol bottles from the entire US market and not just from Chicago  Mounted an intensive communication effort to alert the Public and deal with the problem  At a estimated cost of $100 million – above efforts  J & J portrayed itself as a company willing to do what’s right, regardless of cost
  34. 34. Bristol Myers  Bristol Myers Pledge – only on paper and not on practice  No Link between their Pledge and core business practices.  Focus is more on Profits and earnings and savings on cost
  35. 35. Bristol Myers  Faced an identical problem as faced by J & J  Excedrin tablets were found to be tampered with in DENVER area in the state of Colorado  Bristol Myers recalled tablets only from the Colorado state and not from the entire US.  Did not launch any campaign to alert the Public  Focus was more on minimizing losses to the company
  36. 36. Case of MERCK & Company versus Pfizer
  37. 37. Merck – Ideology & Values  “We are workers in industry who are genuinely inspired by the ideals of advancement of medical science & service to Humanity” – George Merck II, 1935  “Our Business success MEANS victory against disease and help to humankind” – P.Roy Vagelos, 1991  Core ideal was to preserve and improve human life  These above ideals were translated into action when manufacturing a drug to cure River Blindness
  38. 38. Merck -Translating Values into Action  River Blindness – a disease that infected a million people in Africa & Latin America with parasitic worms that caused discoloring of skin, intense itching & painful blindness  Huge market but no revenue - Million customers who could not afford the product.  Merck still went ahead with their R & D and manufactured the drug MECTIZAN – hoping that some government or any third parties would purchase & distribute the products once available.  But the Governments themselves did not have the finance nor did any third parties come forward
  39. 39. Merck -Translating Values into Action  Merck elected to give the drug away free.  It also involved itself directly in its distribution efforts  Why? – Failure to go ahead with MECTIZAN would have demoralized their scientists and would have gone against their core value of “preserving & improving human life”  Long term benefit for the company in the form of goodwill which “somehow always....pay off”  Merck belief – Medicine is for the patient, for the people & not for profits.
  40. 40. Pfizer  Core belief – to make profit out of everything we do –John McKeen, President  Instead of spending Cash on R & D like Merck, Pfizer went on acquisition drive  Acquiring 14 companies & diversifying into farm products, shaving products, etc.  Focus was on making more money regardless of line of Business
  41. 41. Thank You