ETHICS IN AN ORGANISATION LEARNING OUTCOMES

5. ETHICS IN AN ORGANISATION LEARNING OUTCOMES

On Completion Of This Topic The Student Should Be Able To:

 Understand the meaning of Ethics  Understand the function of businesses  Understand how ethics applies to an organisation

STUDY : Chapter 4 in

Rousseau & Van Vuuren (2010: 39 -50)

5.1 INTRODUCTION

While ethical policies and practices of governments and corporations across the globe provide the content for analysing business ethics at the macro-and meso- levels of ethical enquiry, it is often what happens within corporations that determines their ethical impact on the physical, economic and social environment. The modern business organisation is often perceived as an entity that practises amoral management. Such an entity would display little of the intrinsic ethical obligation it may have towards society (Rossouw,2008a). Corporations are, of course, free to take up whatever social and environmental responsibilities they decide to pursue (for philanthropic or strategic considerations), but might discard them again whenever they wish to do so. This is not to deny that state and society can impose social and environmental obligations upon corporations by which they simply have to abide, but then such obligations upon corporations by which they simply have to abide, but then such obligations are exactly that: imposed obligations and not intrinsic moral obligations. The third level of ethical enquiry (the first two levels were addressed in the preceding two chapters), the micro-level of enquiry, is aimed at understanding ethics in organisations. In this chapter an intra-organisational perspective is presented. It will be shown that ethics cannot be divorced from business activity.

5.2 BUSINESS WITHOUT ETHICS

Popular myths are believed by many people in society. While a myth may express a partial truth, it may also conceal some reality (De George, 1999). The Popular myths are believed by many people in society. While a myth may express a partial truth, it may also conceal some reality (De George, 1999). The

motives results in business practices that serve economic self-interest to the detriment of other human priorities and social and environmental concerns. It further creates a sentiment among members organisation that ethics and business cannot mix. This sentiment could manifest as a way of thinking and doing that is devoid of ethical concerns. Shareholder value dominance In the business environment one group of stakeholders, namely the shareholders, has, according to Mintzberg, Simons and Basu (2002:69), ‘muscled out all the others’. Despite indications that corporate governance philosophies around the world assume the consideration of the interests of all stakeholders, and not only that of owners or shareholders, the belief that shareholders ’ needs come first is still pervasive. Although (customer) service excellence appears in virtually every set of organisational values, and

employees are purportedly ‘our greatest asset’, shareholder value often remains the bottom line. Organisational decisions and actions that benefit shareholders are given priority. In fact, shareholder value has become the mantra in many boardrooms (Noam Cook, 2005). With some notable exceptions the shareholders are not partial to ‘how ethically’ their returns are generated. A shareholders-focused morality often results in a belief that ‘the business of business is businesses- and therefore not ethics. The premise of a shareholder morality is built on the notion that serving the shareholders results in what is best for all. Such a limited belief causes a neglect of the legitimate interests of non-shareholder groups. Although business decision-making and action can never be totally value-free, that is devoid of any ethical dimension, the selective morality that underpins a stakeholder-dominant sentiment, feeds the myth of moral management in business. Businesspeople act out these beliefs by being primarily concerned with profit. This type of orientation is the so-called bottom- line mentality. Businesspeople and managers that display such a singular focus are not immoral or unethical per se. Nor do they intend harm, abuse and exploitation. They merely hold the firm belief that ethical considerations are inappropriate in business (De George, 1999) and in essence view the organisation and its activities as ethically neutral. Ethical neutrality may result in thinking and doing that is based on the notion that business is amoral. This leads to a reluctance to discuss ethical issues or to engage in moral debate. A blind eye is then cast to clear ethical concerns that may arise. There is also an aversion to heed to calls to consider ethics in business decisions actions. Such organisational members may be ‘well-intentioned, but are morally casual or careless, or may even be morally unconscious ’ (Carrol& Buchholtz, 2006:191). They just do not think ethically.

Why are business ethics important?

Several factors play a role in the success of a company that are beyond the scope of financial statements alone. Organizational culture, management philosophy and ethics in business each have an impact on how well a business performs in the long term. No matter the size, industry or level of profitability of an organization, business ethics are one of the most important aspects of long-term success.

Ethics in Leadership The management team sets the tone for how the entire company runs on a day-to-day basis. When the prevailing management philosophy is based on ethical practices and behavior, leaders within an organization can direct employees by example and guide them in making decisions that are not only beneficial to them as individuals, but also to the organization as a whole. Building on a foundation of ethical behavior helps create long lasting positive effects for a company, including the ability to attract and retain highly talented individuals and building and maintaining a positive reputation within the community. Running a business in a ethical manner from the top down builds a stronger bond between individuals on the management team, further creating stability within the company.

Employee Ethics When management is leading an organization in an ethical manner, employees follow in those footsteps. Employees make better decisions in less time with business ethics as a guiding principle; this increases productivity and overall employee morale. When employees complete work in a way that is based on honesty and integrity, the whole organization benefits. Employees who work for a corporation that demands a high standard of business ethics in all facets of operations are more likely to perform their job duties at a higher level and are also more inclined to stay loyal to that organization.

Business Ethics Benefits The importance of business ethics reaches far beyond employee loyalty and morale or the strength of a management team bond. As with all business initiatives, the ethical operation of

a company is directly related to profitability in both the short and long term. The reputation of a business from the surrounding community, other businesses and individual investors is paramount in determining whether a company is a worthwhile investment. If a company's reputation is less than perfect based on the perception that it does not operate ethically, investors are less inclined to buy stock or otherwise support its operations.

With consistent ethical behavior comes increasingly positive public image, and there are few other considerations as important to potential investors and current shareholders. To retain

a positive image, businesses must be committed to operating on an ethical foundation as it a positive image, businesses must be committed to operating on an ethical foundation as it

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Ethical behaviour and corporate social responsibility can bring significant benefits to a business. For example, they may:

attract customers to the firm's products, thereby boosting sales and profits

make employees want to stay with the business, reduce labour turnover and therefore increase productivity

attract more employees wanting to work for the business, reduce recruitment costs and enable the company to get the most talented employees

attract investors and keep the company's share price high, thereby protecting the business from takeover.

Unethical behaviour or a lack of corporate social responsibility, by comparison, may damage a firm's reputation and make it less appealing to stakeholders. Profits could fall as a result.

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5.3 MOTIVES OF ETHICAL NEUTRALITY

Organisations are currently being rewarded for short-term annual (and often even quarterly) financial performance. In an attempt to maintain the illusion of perpetual short-term growth, financial performance and records are massaged to portray upward financial performance. To ensure that corporate executives align themselves to this trend of perpetual short-term growth, their compensation is increasingly linked to, and dependent on, their ability to produce perpetual short-term gain. It is no secret that short-term gain can easily collide with longer — term growth and economic, social and environment wealth. It simply easier to be concerned with facts, profits and losses, and products or services, than to spend energy on an abstract notion like business ethics and value judgements that are perceived to be part of it. It is also easier for investors, business partners and prospective employees to evaluate the success of a business in monetary terms or by the products produced. Shareholders value can also be easily and objectively measured by returns on equity valuation (Noam Cook, 2005). Goodpaster (2007) identifies a paradox that may threaten ethics in business when he states that it appears to be ‘essential, yet somehow both dangerous and perhaps even illegitimate to guide business decision making by moral values ’. Essential in the sense that business ethics is required to temper the consequences of their focus. Illegitimate because of legal and rules-based expectations that limit managerial discretion. He notes that ‘managers who appeal to ethical values, if they are not looked upon as questionably sincere are often looked upon as going beyond their authority ’ (2007:11) (author’s emphasis). Scepticism about the place of ethics in business is still widely evident, especially if it means incurring costs or foregoing opportunities for profit (Sharp Paine, 2003).

5.4 AMORAL MANAGERS

Managers, who hold an amoral belief that the business is business, are however, often decisive business leaders that display perseverance and determination. Decisiveness is, after all, a criterion that weighs heavily in decisions to appoint or promote leaders. Although they do not have an intention to deliberately cause harm to stakeholders, they do either (a) make a conscious decision to disregard ethics in their decision making, or (b) pursue goals without balance when blinkered by their pursuit of bottom-line aspirations. Their lack of balance undermines organisational wholeness or integrity and they are often unaware of ethical implications of decisions. Carroll and Buchholtz (2006) distinguish between intentional amoral management and unintentional amoral management. Intentional amoral management is practised by managers who believe that business and ethics cannot mix and that moral judgement does not apply in business. Such cynicism leads to the labelling of business ethics as an Managers, who hold an amoral belief that the business is business, are however, often decisive business leaders that display perseverance and determination. Decisiveness is, after all, a criterion that weighs heavily in decisions to appoint or promote leaders. Although they do not have an intention to deliberately cause harm to stakeholders, they do either (a) make a conscious decision to disregard ethics in their decision making, or (b) pursue goals without balance when blinkered by their pursuit of bottom-line aspirations. Their lack of balance undermines organisational wholeness or integrity and they are often unaware of ethical implications of decisions. Carroll and Buchholtz (2006) distinguish between intentional amoral management and unintentional amoral management. Intentional amoral management is practised by managers who believe that business and ethics cannot mix and that moral judgement does not apply in business. Such cynicism leads to the labelling of business ethics as an

5.5 AMORAL BELIEFS AND BUSINESS LANGUAGE

Some current amoral business beliefs make it very difficult to express ethical sentiments in the business context. The jargon used to describe certain business practices is analysed to illustrate this. The notion of strategy in business only became part of the vocabulary of business leaders about 4 years ago. Prior to that it was only used in a military sense to mean ‘that which a manager [read general, major or captain] does to offset actions or potential actions of competitors [read enemy ]’ (Steiner & Miner, 1982:18). The word strategy, from the Greek strategos, literally means ‘the art of the general’ (Steiner & Miner, 1982:18). This word, together with some favourite war-like colloquialisms used in business, for example: ‘sales tactics’, ‘we take no prisoners’, ‘we launch products ’, ‘we target consumers’ (Visser & Sunter, 2002), probably emanated

from the reading of the book by Sun Tsu (500 BC), The art of war, which is compulsory reading in many business schools. And, of course, there is the ubiquitous ‘we must be lean and mean’. Mintzberg et al. (2002:71) question the adage of lean and mean that is so prevalent in modern organisations in the following way: ‘’Lean and mean’ is a fashionable term these days, a kind of mantra for economic man. ‘Lean’ certainly sound good-better than fat. But the fact that ‘mean’ has been made into a virtue is a sad sign of the times.’ For amoralists ‘ethical language is simply not the language of business’ (De George, 1999:5). Whilst it cannot be denied that the words used in business circles provide leaders with focus and goal-oriented direction, and that no business can survive without a clear focus on the bottomline and decent returns for shareholders, the problem with excessive use of war-talk is that it leads to myopia and short-termism. This may catalyse an exclusion of other legitimate stakeholder interests.

Cases illustrative of amoral beliefs in business

Until the late 1990s, France and Germany allowed corporations doing business in developing countries to claim tax rebates for ‘facilitation fees’ they paid to foreign governments to secure business deals. Company executives were acting Until the late 1990s, France and Germany allowed corporations doing business in developing countries to claim tax rebates for ‘facilitation fees’ they paid to foreign governments to secure business deals. Company executives were acting

Marketing alcohol to teenagers

Alcohol producing companies market fruit-flavoured alcoholic drinks to a borderline teenage market segment. Although the companies ’ advertisements show young (over 18) adults, the themes of such advertisements show young people having fun induced by their products. The fact that the drinks contain alcohol, of which the levels sometimes exceed those contained in standard beer, is added as an afterthought only when required by law. These companies conduct their business within legal requirements, and probably show good financial returns, but they may be acting unethically by encouraging underage drinking.

5.6 STEREOTYPING IN ADVERTISING

Albeit very subtly, some companies ’ marketing campaigns continue to utilise female sexuality to draw male attention in advertisements. In the process, stereotypes are reinforced. A legal, yet unethical approach.

Selling arms to those who really should not have them

In many countries there are no laws to prevent armament manufactures from selling their products to governments guilty of human rights abuse. The companies offer the argument that it is not their responsibility to exert control over the use of the products. They show good returns for shareholders, within legal limits, but again, amoral thinking.

Impact on stakeholders

Being good to employees, customers, suppliers and other stakeholders on the condition that it is good for the shareholders or owners, is an approach that typically results from the belief that only shareholder value matters in business. Within such

a mindset, the interests of employees, for example, can easily be neglected if it does not have a direct impact on the creation of shareholder value. This phenomenon is not limited to periods of economic recession, but may occur at any given time as a quick fix to enhance shareholders ’ opinions of the organisation ’s balance sheets. Cutting salaries benefit related and even a mindset, the interests of employees, for example, can easily be neglected if it does not have a direct impact on the creation of shareholder value. This phenomenon is not limited to periods of economic recession, but may occur at any given time as a quick fix to enhance shareholders ’ opinions of the organisation ’s balance sheets. Cutting salaries benefit related and even

Reward for the board

A South African food supply company, with a ling and reputable history of being a god employer and business partner of its suppliers, failed to realise profit for a number of years. As a remedy, the board implemented a strategy to do asset stripping (selling off unwanted or marginally useful company assets). For the first year in many, the company showed a good profit. Without further ado the board awarded its members bonuses that totalled 57% of the profit shown. Soon thereafter it announced the retrenchment of 600 employees. Both these actions benefited the shareholders and were legal. The effects on employee morale were, however, devastating Customers are seen as sources of income for the organisation and not as persons with legitimate and ethical expectations to reliable and safe products and services. An instrumental view is held about customers. How will being good to them help us make money? Providing excellent service is a forced strategy implemented to decrease costs that may be incurred by customer complaints or migration.

Mobile phone packages

Certain mobile network companies offer very attractive monthly packages (which may include some free talk time). Their customers sign 24-month contracts on these deals. A problem arises when a caveat emptor (buyers beware) approach is adopted whereby customers are not informed or advise that they are actually losing money on their current packages and that other cheaper packages that would be much more cost-effective given the scope of the customer ’s monthly usage are available.

Providing credit to customers

Prior to the National Credit Act of 2006, many South African banks and retailers provided credit to customers that could not really afford it. A number of retailers went as far as actually mailing to some of their customers that had repaid previous debt in quite a disciplined way, a type of direct card that allowed the customers to purchase goods for large amounts which they could then pay back over a number of months. Some of the customers were relatively Prior to the National Credit Act of 2006, many South African banks and retailers provided credit to customers that could not really afford it. A number of retailers went as far as actually mailing to some of their customers that had repaid previous debt in quite a disciplined way, a type of direct card that allowed the customers to purchase goods for large amounts which they could then pay back over a number of months. Some of the customers were relatively

company ’s books as entities that can wait for their money while ‘we draw interest on our money ’ for as long as possible, or while we use ‘their money to finance new ventures

Controlling of suppliers

A retail group is notorious for the way in which it treats its suppliers. Since doing business with the retail group is potentially extremely lucrative, suppliers vie for the ‘privilege’ of doing business with the group. The suppliers are initially lured by fair prises for their goods. As time goes by the group makes deals with their suppliers to purchase more product units, but at lower prices. Eventually the group purchases, at very low profit margins for the supplier, as many of, or even all the units, the supplier can pruduce.Further demands by the group for lower prices, together with stalling tactics to pay suppliers ’ accounts, result in the suppliers having to close their businesses. The retail group views its actions as good business and shows good return on investment for its shareholders.

Should beliefs that satisfying the needs of shareholders by and large prevail in a organisation, stakeholders other than employees, customers and suppliers will also be affected. As such little consideration will be afforded to the legitimate ethical expectations of local communities, which provide employees to the organisation, and local government, which implement and maintain the infrastructure within which the organisation operates. The natural environment as a stakeholder may be considered only to the extent that the organisation complies with environmental regulations and laws, but does not take a longer term view on environmental issues and ultimately, sustainability.

The ethical dimension of the organisation

It appears as if opting for the belief that ethics is not required in business has shown enough success in the form of satisfaction to ‘make it a real option for clever, powerful individuals ... especially in the shorter term ’ (Prozesky, 2007:86). The purpose of this section is to provide a counter logic for this belief. It will be shown that ethics is an integral dimension of business organisations as well as of corporate success. Recognition of the ethical dimension of an organisation does not equate to crusades, jihads or sermons. Ethics is inherently part of business. It is not an add-on or nice-to-have when time and money permits.

The relational nature of business

There is no disputing that law and regulation are needed to prevent business from collapsing into chaos. However, a mere reliance on law and regulations can never constitute a successful business. Organisations are also social institutions that rely on people and their intrinsically human relations to collectively ensure success. Business, and life organisations, can never be solely based on cold, legalistic rule or policy requirements. An organisation consists of person. These persons form relations amongst themselves and with others outside the organisation. Relations with those outside the organisation are determined by the quality of the relations within the organisation. The default mode from which relations are created, are positive in nature. This mode excludes greed, selfishness, a lack of empathy, evil intentions and lying as the basis of relationships. On the contrary, the basic premise is that of values, beliefs and behaviour that show concern for other persons. Without concern for the other the relational nature of organisations will collapse. The basic value of human interaction-integrity, honesty, fairness, compassion and responsibility- are relatively stable convictions of what is important to maintain relations. One finds it hard to believe that the prevailing values, beliefs and behaviours in organisations excluded the building of relations based on trust and honesty for example. As such, a singular focus on the ‘truth’ that the enhancement of shareholders wealth is all that matters in business, nullifies many other truths in the relational setting of the organisation. These other ‘truths’ are, however, more real in societies and organisations than such a singular focus. When organisations are dominated by leaders who believe that ethics is not required in business, the relational dimension in business will suffer. This goes against needs and preferences that emanate from default human values, beliefs and behaviours. As human beings, we interact with other people. We operate as part of human systems. In organisations, these systems take the form of dialogue, teamwork, and other forms of organisational behaviour. Human systems contain ethical standards which are required to create harmony, mitigate conflict, ensure fairness and evoke trust (Noam Cook), 2005). Ethical standards give form and direction too human activity. The actions people take and the choices they make

reflect their values. The way people treat each other is evidence of their worldviews, values and accountability to other human beings. By the same token, ethics is a core dimension of decision making; not only decision making aimed at solving people related issues, but business decisions that could affect not just the bottom line but human being as well. System cannot function technically only. ‘Ethical values acts as ‘controls’ or ‘regulators’ that we draw on to decide what is a desirable configuration of a human system and an acceptable direction to go with it ’ (Noam Cook, 2005: 135). Surely human flourishing also depends on the ethical expectations and stability of others? Business has an integral relational dimension. Since all relationships are built upon expectations and behaviour, and because ethics determines the value- based quality of the relationship, business is also about the ethics of relationships. These relationships are created for the sake of business within and between individuals, groups and organisations. The extent to which business leaders and their organisations recognise and embrace the ethical imperative of relationships determine the trust of stakeholders. Ethics is core to all relationships. When relationships are built on integrity, honesty,faieness,compassion and responsibility, levels of fear decline, confidence rises, and effort and energy are released that bring about balanced goal attainment. Prozesky (2007) suggests that a life of inclusive concern (concern for self and others) is better equipped to yield positive longer-term experiences and stability that people desire not only for themselves, but also for those around them.

The co-operative nature of work

Working within a business means working with other people. This is true for even the smallest of businesses. It is true even of the one-person business that starts up with no outside funding. That one-person business will still find itself in a relationship with at least one supplier and/or client. Actions performed within any business. Since ethics is at the core of relations, such actions are never ethically neutral, but are always ethically laden. They can impact positively or negatively on the interests of others, this is a brutal and undeniable fact of work. Ethics is also the foundation of teamwork. There are some things that people can do as groups that they cannot achieve at all as individuals. That is why organisations have divisions, departments, sections and teams. These are designed to function specific ways. Since these functions can have a positive or negative effect on the wellbeing of people, they are open to moral evaluation whether managers believe it or not. The sustained wellbeing of multiple stakeholders cannot be achieved without harnessing the efforts of multiple contributors in the organisation (Prozesky, 2007), or creating the ‘we’. The interdependence between individuals and groups is based on the quality of the ethical dimension of the relationships, and not only on the shared goal of financial success. Groups cannot functions withouts norms. The axtent to which Working within a business means working with other people. This is true for even the smallest of businesses. It is true even of the one-person business that starts up with no outside funding. That one-person business will still find itself in a relationship with at least one supplier and/or client. Actions performed within any business. Since ethics is at the core of relations, such actions are never ethically neutral, but are always ethically laden. They can impact positively or negatively on the interests of others, this is a brutal and undeniable fact of work. Ethics is also the foundation of teamwork. There are some things that people can do as groups that they cannot achieve at all as individuals. That is why organisations have divisions, departments, sections and teams. These are designed to function specific ways. Since these functions can have a positive or negative effect on the wellbeing of people, they are open to moral evaluation whether managers believe it or not. The sustained wellbeing of multiple stakeholders cannot be achieved without harnessing the efforts of multiple contributors in the organisation (Prozesky, 2007), or creating the ‘we’. The interdependence between individuals and groups is based on the quality of the ethical dimension of the relationships, and not only on the shared goal of financial success. Groups cannot functions withouts norms. The axtent to which

a group with strong ethical norms will enhance effective socialisation of new group members by the setting of boundaries of acceptable behaviour, thus eliminating uncertainty. Where group members ’ interdependency is based on ethical norms, the outcomes of positive group dynamics, for example, social support, workload sharing, and a sense that individual contributions are valued, are greatly enhanced.

Trust

Corporate ethical dysfunction does more than just hurt stock performance (Lennick & Kiel, 2005). It impacts on others in the relational domain. Building relationships that rest on strong ethical foundations create sustained trust even when one is likely to elicit understanding ’ (Kuper, 2006:71). Ethical relationship brings about positive collaboration, so much so that a ‘we’ is created, as opposed to an ‘us versus them’ mind-set that so often exists in business. Kuper (2006 as opposed to an ‘us versus them’ mindset that so often exists in business. goes as far as suggesting that intrinsically good relationships give the ‘we’ a competitive advantage, as barriers to exit from the relationship are established. Ethical relationships go beyond profit and establish balance in interaction. The time and effort it takes to establish trust-based relationships with employees and external stakeholders enhances a stakeholder mindset built on a realisation of the ‘we’. Such mindsets are ‘more ethically comprehensive’ (Goodpaster, 2007:46), as they create room for joint decision-making on the norms that define these relationships. Goodpaster (2007) suggests that one should ‘realise the other through identifying with the other through association. This results in a somewhat adjusted take on the adage ‘the greatest good for the greatest number’, as balance is achieved through determining

‘what is best for most’.

Commitment and quality of work

For most people, work occurs within a specific organisation and business practices of that organisation affect their lives. Ethics is crucial to the job performance of individuals. The employment contract that an employee enters into with an employer might stipulate the kind and quantity of work that is expected from an employee, but it cannot, however, determine the quality of work: the loyalty, dedication, and creativity with which employees will perform

their stipulated tasks. These are determined by the ethical relation within a business. People who feel that are respected, who receive recognition for good work, and who sense that their creative contributions are appreciated, tend to work with more dedication than those who are not treated in the same way. They are much more likely to utilise their potential for the benefit of the business. The opposite is equally true: people who are humiliated, who never receive recognition for their efforts, and who sense that their own ideas are not appreciated, tend to work with less dedication and less dedication and less creativity. They do only what is expected of them. For them, their employment contract is the sum total of what they do. Ethical organisation are characterised by the respect that they show to all their stake holders. In the Peters and Waterman (1982) study, in Search of Excellence, the researchers isolated the mindset of respect for the individuals (the employee) as the most pervasive theme in the excellent companies scrutinised. A mindset of respect for the individual is of course a fundamental ethical value as Immanuel Kant already emphasised centuries ago. An organisation ’s commitment to its people arises out of respect or worth and dignity of individuals who devote their energies to the business and depend on the business for their economic wellbeing. Even in crisis situations such organisations will, minimise whatever hardships have to be impose in the form of workforce reductions.