Chapter Six Managing the Ethics of Business

  Canadian Business and Society: Canadian Business and Society: Ethics & Responsibilities Ethics & Responsibilities Chapter Six Managing the Ethics of Business

   Ethical Propositions

   Statement of Values

   Codes of Conduct and Ethics

   Ethics Training

   Ethics Audits and Consultants

   Ethics Officers and Ethics Committees

   Ethics Reporting Systems and Whistleblowing

Chapter 6 Outline

  Ethical propositions.

   Business ethics is identified as an ‘in’ topic, yet it has been discussed for the last forty years and definitely since 1972.

   Some ethical propositions. 

  Ethical conflicts and choices are inherent in business decision making.

  

Proper ethical behaviour exists on a plane above

the law. The law merely specifies the lowest common denominator of acceptable behaviour.

  Ethical propositions 

  Individual values are the final standard, although not necessarily the determining reason for ethical behaviour.

   Consensus regarding what constitutes proper ethical

behaviour in a decision-making situation diminishes as the

level of analysis proceeds from abstract to specific.

   The moral tone of an organization is set by top management. 

  The lower the organizational level of a manager, the greater the perceived pressure to act unethically.

  

Individual managers perceive themselves as more ethical

than their colleagues.

  Ethical propositions.

  

There is no single satisfactory standard of ethical action agreeable to

everyone that a manager can use to make specific operational decisions.

  

Managers should be familiar with a wide variety of ethical standards.

   The discussion of business cases or of situation having ethical implications can make managers more ethically sensitive.

  

There are diverse and sometimes conflicting determinants of ethical action. These stem primarily from the individual, from the organization, from professional norms, and from the values of society. Ethical propositions 

  Effective codes of ethics should contain meaningful

and clearly stated provisions, along with enforced

sanctions for non-compliance.

   Employees must have a non-punitive, fail-safe mechanism for reporting ethical abuses in the organization.

   Every organization should appoint a top-level

manager or director to be responsible for acting as an ethical advocate in the organization. for An Organisation Code of Conduct Values Statement

  Implementation/ Back Office/ Monitoring

Chapter 6 Developing a Ethics Programme

  Statement of Values 

  A description of the beliefs, principles, and basic assumptions about what is desirable or worth striving for in an organization.

   Key components: 

  

Key stakeholder interests to be satisfied and balanced



  Emphasis on quality and/or excellence 

  Efficiency 

  Work climate 

  Observance of codes

  Codes of Conduct and Ethics 

  Code of conduct: explicitly states what appropriate behaviour is by identifying what is acceptable and unacceptable

   Code of ethics: a statement of principles or values that guide behaviour by describing the general value system within which a corporation attempts to operate in a given environment.

  Types of Codes 

  Corporate or business enterprise 

  Professional organizations 

  Industry and sector 

  Single issue 

  Codes from national and international bodies

  and compliance

  H Be proactive Emphasize responsibility for self and others

  Legal issues

  General compliance with laws and regulations H Organisations policies as well as applicable laws and regulations should be considered

  Employee, customer, & agent privacy H Identify policies for protecting privacy including EU regulations

  Affirmative Action/ Equal Opp./ Discrim.

  M/L No discrimination based on race, colour, gender, religion, age, national origin, disability, sexual orientation, marital status, or citizenship status Applies to decisions re: recruitment, hiring, promotions, termination, compensation, benefits, transfers, layoffs, and returns from layoffs

  Antitrust/ Fair competition/ Trade regulations

  L Relevant issues include price fixing, territorial allocation, customer allocation, appearance of impropriety, and monopolization Employment at will H Emphasize mutual responsibility of company and employee Insider trading M Issues also include tipping, pre-clearance, short sales, puts, and call Sexual and non-sexual harassment

  M/L Policy must refer to procedure for reporting problems

Chapter 6 Codes of Ethics POLICY ISSUE RISK RATING H/M/L KEY POINTS TO CONSIDER Statement on ethics

  Codes of Ethics Market conduct issues

  Advertising & L Sales force must be made aware of review policies for materials Marketing and claims made or altered by sales personnel Anti-corruption - M/L Cross-reference conflicts of interest Bribery/kickbacks Joint venture policy H/M Establish code applicability to respective joint venture partners International business M/L Mention OECD, and applicable limitations thereof conduct

  Conduct on behalf of/against the firm

  Conflicts of interest H Cross-reference bribery/kickbacks Discuss both real and apparent conflicts

  Political activities/ L Distinguish between acceptable personal political activities and lobbying/ unacceptable corporate political activities. contributions Codes of Ethics

  Gifts, favours, and M/L Emphasize that giving and receiving gifts should not unduly influence entertainment recipients or be perceived as such Explain the far stricter rules that apply to gifts that are to or from government personnel

  Financial reporting/ H Discuss provisions that apply to both foreign and domestic operations. Record keeping Prohibit destruction or falsification of documents for which litigation is pending or are otherwise significant Travel, time, and M Emphasize accountability expense reporting Firm equipment, M/L Not to be used for personal use supplies, and funds Intellectual property/ H/M Relevant issues include trade secrets and post-employment restrictions Copyrights as well as non-disclosure of customer information Proprietary information M Includes kinds of financial information, organisational information, and technical information

  Discuss restrictions on speech with non-employees, the press, and employees without a need-to-know Computer security and password protection Post-employment restrictions

  Corporate governance H Emphasize responsibility to owners/shareholders and structure Prioritise responsibilities in reference to mission Corporate due process H Discuss fairness and confidentiality of ethics processes and describe upstream communication channels safety, and welfare M/L Require employees to report accidents and potential dangers and give reporting mechanism

  Subcontractor relations M/L Stress impartiality when making procurement decisions

  Work and family M/L Mention available worklife programs Management style/workload management

  M/L Pursue ethical, communicative management style that encourages long and short term innovation and productivity Professional development

  L Emphasize human resource assets through commitment to training and development Compensation and benefits

  L Fair pay Reasonable executive compensation given marketplace

  Union relations N/A Recognize rights of union employees by law and the existing labour agreement Substance abuse L Prohibit possession, sale, distribution, use, or transportation of illegal drugs on premises Office closures/ Downsizing

  N/A Emphasize employee assistance programme, if available

  Codes of Ethics

Chapter 6 Employee issues Employee health,

  Codes of Ethics Public and social relations

  Customer relations H Stress importance of customer focus with reference to guiding principles Media relations M/L Explain who may represent the organisation to the media, and hence, who to refer questions

  Cross-reference proprietary information Protect reputation H Recognize importance to business of a good reputation Product quality and H Responsibility to report product deficiencies suitability Expect compliance with corporate requirements, customer specifications, and government regulatory standards

  Environmental M/L Relevant issues include disposing of hazardous waste, pollution, compliance environmental laws, efficient use of natural resources, and conservation

  Community service M/L Includes corporate social responsibility, community involvement, and charitable activities

   Unenforceable

   If enforced, penalties are insignificant

  

Unnecessary, as most corporations already

operate ethically

   Often idealistic

   Written in meaningless generalities

   Merely to prevent government legislation

   Mere response to public criticism

Chapter 6 Criticisms of Codes

  Ethics Training 

  Managers or outside consultants 

  Online exercises 

  Practical checklists and tests 

  Is it legal 

  Benefit/cost test 

  Categorical imperative 

  Light of day test 

  Do unto others 

  Ventilation test Source: Pagano, 1987

   Three types of conflict: (1) real; (2) apparent; (3) potential

   Examples:  self-dealing; accepting gifts or benefits; influence peddling; using employer’s property; using confidential information; outside employment or moonlighting; post-employment; personal conduct

Chapter 6 Conficts of Interest

   Systematic effort to discover actual or potential unethical behaviour in an organization.

   Preventive and remedial purpose

   Useful in conjunction with a code of ethics

   Conducted by consultants

Chapter 6 Ethics Audits and Consultants

   Ethics officers: 

  Independent manager 

  Reports to the board of directors or CEO 

  

Reviews complaints or information from anyone in the

organization or any stakeholder 

  Studies situation and recommends action 

  Responsible for the ethics program 

  Ethics committees: 

  Comprising management, employees, and outside stakeholders

Chapter 6 Ethics Oficers and Ethics Committees

  

Not many ombudsperson programs in Canadian corporations.

  Five essential characteristics for successful ombudsperson programs  competent staff

   widespread respect among and support from senior management

   ironclad confidentiality

   direct access to the CEO or president when necessary

   leaving of decisions, whenever possible, to employees once they are informed of their rights.

Chapter 6 Ombudsperson programs

  Executive Speech Making 

  ‘War’ stories 

  Inform certain stakeholders that the business enterprise and its management are

concerned about ethics and are responding

to society’s interest in the matter.

   Whistleblowing: an act of voluntary disclosure of inappropriate behaviour or decisions to persons in positions of authority in an organization.

   Reporting systems (e.g., hotlines)

Chapter 6 Ethics Reporting Systems and Whistleblowing

  

Remain silent, quit, or disclose wrongdoing?

   Does obligation to employer supersede obligation to self, profession, or industry?

   Will whistleblower be believed?

   Is whistleblower hero or snitch?

   Who should the whistleblower contact?

   What will the consequences be?

Chapter 6 Whistleblowing: Issues

  Whistleblowing and Movies 

  Boiler Room (2000) 

  A Civil Action (1998) 

  Erin Brockovich (2000) 

  The Insider (1999) 

  The Rainmaker (1997)

   Boards of directors?

   Management?

   Three models of moral management: 

  Immoral (devoid of ethical principles) 

  Amoral (without ethics, but not actively immoral) 

  Moral (conform to high standards of ethical behaviour) Source: Carroll, 2002

Chapter 6 Ethics: Who is Responsible?

   Formal approach  based on organizational norms that are written as a code of conduct

   Monological approach  allows organizational members (e.g., managers, employees) to determine for themselves what is right or wrong

   Dialogical approach 

  Emphasizes communication before decisions are made and implemented Source: Nijhof et al., 2000

Chapter 6 Ethics Programs: Approaches

  Ethics Programs: Evaluation and Benefts Compliance-based Integrity-based 

  



Rules, laws Values/ethics/principles

  



  Prevent criminal Enable responsible conduct conduct

  



  Lawyer-driven Management-driven 

  



Employee discretion Employee discretion limited increased

  



  Code of conduct Code of ethics

   Explicit and implicit

   Implicit

   organization’s culture

   reward system

   valued behaviour

   promotion policies

   management example

   general practice

   performance measures

Chapter 6 Ethics Programs and Their Evaluation

   Some criteria

   Visibility

   Ownership

   Fit

   Balance

Chapter 6 Evaluation of Ethics Programs

   Statements such as codes should be widely distributed and communicated in a variety of formats.

  

Evidence of commitment to the ethics programs, as demonstrated

by awareness and usage of the initiatives and by their integration

into the organization culture.

   Balance – ‘imposed’ and ‘self’ control.

Chapter 6 Evaluation of Ethics Programs Some criteria

  Teaching Ethics in Business Schools 

  Some argue that ethics cannot be taught.

  

Arguments for Teaching Ethics



  So many immoral or unethical events taking place that it is essential to teach ethics in an attempt to increase awareness.

   Teaching ethics sends a powerful message to

students, that is, ‘this school feels it is a priority for

students to follow generally accepted rules of business when they graduate’.

  

Businesspersons, as well as students, suffer from

ethical naivete.

  Arguments for Teaching  Ethics

  From an ethical perspective, the business environment is

changing radically and students must be made aware of this. Old

principles or standards do not work today, and what is acceptable today may not be in the future.

  

Course in business ethics focuses on the long-term perspective

and asks ‘what if’ questions – essential for planning, strategy etc.

   Provide tools for analysis.

  

Legitimize the consideration of ethical components as an integral

part of managerial decision making

   There is little need for it.

   Cannot alter the ethical behaviour of students. 

  Few Qualified Teachers 

  Not really applicable until time as executive responsibility 

  

Ethics may be seen as a separate consideration



  

Few formulas or techniques that can be taught to

solve the ethical problems confronting business.

Chapter 6 Arguments Against Teaching Ethics

  

Starts at the top of the organization – Board

of Directors.

   Two major tasks:

   collectively identify values that determine acceptable behaviour in the firm and

   to put in place a process that assures values are reflected in action.

Chapter 6 Ethics – Whose Responsibility?

  Why put it at a board level? 

  Simply good management to develop an appropriate culture, sensitive to ethics issues.

  

Board itself is involved in ethical questions,

i.e. conflicts of interest.

   Easier to make decisions if the fundamental principles or values of the corporation are known and can serve as a reference point.