A. Scott Carson, PhD

Queen’s School of Business

Implementing Codes of Ethical Conduct: From Theory to Practice

Names for codes

Code of conductCodes of ethical conductCannons of ethical conductEthical principlesCode of business conductCode of conduct and ethicsCode of professional responsibilityGlobal business citizenship

Who establishes a code?

BusinessCompany IndustryProfessionalGlobal business

Government codes Everything!: bloggers, internet, warriors,

schools, universities, sports, administrators, ecotourism, law enforcement, health alliances, military, etc.

What codes do

Codes generally seek to provide direction to employees, management and board members about how to conduct themselves with respect to Each otherStakeholdersThe organization, profession, etc.

Codes usually contain a combination of ethical descriptions and directions, and non-ethical descriptions and procedural directives

Ethical content: Air Canada’s conflict of interest policy

“A conflict of interest may arise in any situation in which an employee's other business or personal interests impair his or her judgment to act honestly and with integrity or otherwise conflict with the interests of the Company.

Ethical Description

All such conflicts should be avoided. The Company expects that no employee will knowingly place himself or herself in a position that would have the appearance of being in conflict with the interests of the Company.”

Ethical Direction

Procedural content: Air Canada reporting

In-Person Report

Information about known or suspected violations of this Code or of any laws, rules, or regulations by any employee should be reported promptly and may be reported to the employee's immediate supervisor or the Corporate Secretary.

Anonymous Reporting

An employee may report anonymously any questionable financial reporting, or known or suspected cases of fraudulent or dishonest activities or conflicts of interest. In this regard, please consult Air Canada's Ethics Reporting Program which is available on ACaeronet under “My Work” and “Policies and Procedures”.

Non Ethical Procedures

Code formation, revision and implementation cycle

Revising the Code

Identifying values

Monitoring Performance

Writing the Code

Implementing the Code

Code formation, revision and implementation cycle

Revising the Code

Identifying values

Monitoring Performance

Writing the Code

Implementing the Code

EthicsCentre: Codes Project

Identifying values

Incorporate universal values•Trust•Respect•Responsibility•Fairness•Citizenship•Caring

Respect and incorporate the values of the country

Professionals should incorporate the valuesof their practice

Respect the autonomyof the individual

Incorporate the organization’s principles and values

CODES OF CONDUCT IN THE PRIVATE SECTOR: A REVIEW OF THE ACADEMIC LITERATURE FROM 1987 TO 2007Scott Carson, Mark Baetz, Shelley McGill

Writing the Code

Content•Fair reporting•Protection for whistle blowers•Confidentiality•Emphasis on public interest

Structure•Reflect broad socio-economic concerns•Make priorities clear•More emphasis on spirit than letter of the law•Issue general guidelines•Ensure relevance•Ensure usefulness•Country specific

Language•Simple language•Minimize the negative•Be future oriented

Process•Teamwork in creating the code•Diversity on the team•Top level support•Assigned responsibilities

Implementing the Code

Broadly acceptable

Widely publicized

International codes: Environmentaltraining•Culture •Politics•Economic environment

Implementing as•Inculcating•Re-enforcing•Measuring

Monitoring Performance

Verification

Measurement

Continuous

Revising the Code

Implementation

Revising the Code

Identifying values

Monitoring Performance

Writing the Code

Implement the Code

Typical implementation approach: Teaching rules

Teaching the content of the codeWorkshopsOn-line program

OrientationSeminarsEthics officer supportFollow-up

Implementation as Code Education: A preliminary note

Implementing a code cannot be as simple as learning rules becauseCodes in themselves do not provide adequate context to enable a full understanding of the rules themselves

The code does not provide sufficient context to develop the overarching rules and principles necessary for accessing the ethical validity of code provisions

Implementing a code should be a broader process involving stakeholders in other parts of the codes formation and implementation cycle to promote a culture of integrity

A crucial piece of code implementation is understanding the ‘regulatory regime’ of which a code is a partOverall corporate strategy which the ‘regulatory regime’ and code impacts

Following a code implies an underlying theory of ‘rationality’: Theoretical disputes

Some researchers maintain that codes are sets of rules that employees and others follow without rational reflectionRules are non rational because of rote procedures (Schwartz, 2000)

Moral conduct (hence acting in accordance with codes) is mainly acting on intuition (Sonenshein, 2007) not rational reflection

A significant part of moral conduct is acting virtuously, which by its nature is instantaneous not a matter of reflection (Solomon, 1993)

If rules are followed by rote, they are not only non rational, they violate the moral autonomy of the individual and reflect a political control mechanism by management over employees (Schwartz, 2000)

Underlying theories of ‘rationality’ in ethics: the potential irrelevancy of rules

Procedural Models

1. Deductive reasoning procedure1. Step 1: Consider the situation

2. Step 2: Generate alternatives

3. Step 3: Apply a principle or rule in making a judgment

2. Stage theory (e.g., Kohlberg, Piaget)1. Invariant stages of human moral development from simple rule

following at the beginning to application of social principles at end

2. Person-situation model -- Treviño (1986): Moral responsiveness Individual factors: Moral responsiveness: ego strength, proximity, control Organizational factors: culture, characteristics of job

Rationality models continued

Psychological Process Models

3. Issue-contingent model (Jones, 1981) Characteristics of the issue itself

Intensity: benefits/harms, social consensus, probability of consequences, time between action and consequences, feeling of nearness, concentration of affect

Intensity correlates with moral issue recognition

4. Sensemaking-Intuitionist Model (SIM) (Sonenshein, 2007)

A critical response to ‘rationalist’ models above Phase 1: Issue construction: social and personal influences Phase 2: Intuitive judgments based on experience and social pressures Phase 3: Post facto explanation and justification

Rationality models continued

Philosophical Models

5. Non-rationalist – Virtue ethics (Solomon, 1993) Business virtues: honesty, openness, integrity, collegiality Spontaneous, no thought, no deliberation Not the application of rules Not rule/principles governed because no clear universals

6. Non-classical rationality Model (Deinhart, 1995) Classical rationalist theory: necessary, universal, rule-guided Brown’s theory: defensible, reliable non rule-guided judgments

Body of background knowledge Relevant information about the case at hand

Rationality models continued

7. Classical rationality (R.M. Hare, 1952/72) Learning something (or to do something) involves learning a

generalizable rule or principle Moral learning is necessarily learning of principles/rules –

learning to do moral acts of a certain kind Could not make a moral judgment without

Subsuming it under a principle Indentifying the kind of judgment or act that it is

What is means for something to be a rational decision

1. Understand the context of the situation and why it is a moral issue

2. Understand alternatives and their consequences

3. Apply a moral rule or principle to the alternatives in order to select the best moral decision or action

Discussion and critique

The ‘deductive procedure’, ‘person-situation’ and ‘issue contingent’ models are rule-governed either because they prescribe rule-following processes or presuppose rules in making judgments

The ‘sensemaking-intuition’, virtue ethics and non-classical rationality models reject rules as necessary for ethical decision making (SIM is mixed)

Hare’s classical rationality model does not prescribe any decision making procedure or psychological process. Only necessary conditions for something to count as a rational ethical decision:

1. Context

2. alternatives/consequences

3. Principle or rule

Discussion continued

Hare’s position is compatible with rule-governed models and accommodates SIM objections to themSubjectivity and situation constructionUncertainty and equivocalityNo rigorous time sequence deliberation

SIM collapses into rule-governed modelsBecoming experienced starts with rule-governed actions/judgments

Situations with less uncertainty and equivocality can be rule-governed

SIM’s final stage is explanation/justification which is a rule-governed condition

Discussion continued

Virtue ethics and non-classical rationality are both vulnerable to claim that without some form of generalizable rule or principle, there would be no way of telling what kind of act or situation is being considered. Everything is an instance of something more generalThis is compatible with creating new rules which Dienhart/Brown contend

Rules are logically necessary to moral decision making and behavior

Codes provide at least some of the rules in organizational life

A moral challenge: Respect for persons?

Codes of conduct do not respect the moral autonomy of the person (Schwartz, 2000)No agreement by employees of ethical standing of rules: devoid of ethical content

Not an outcome of a process of ethical evaluationManagement tool of control, paternalism, indoctrination, organizational protection

Codes constrain ethical independenceCodes alienate employee from his or her own morality

Rebuttal of the moral challenge

The non-rational following of rules thesis reflects a simple misunderstanding of codes Contain some procedural rules that require little reflection but many principles in codes require in-depth reflection

Even simple rules require the application of moral principles and rules in order to establish their moral validity (following Hare’s account)

How some organizations implement codes is not necessarily how they should be implemented, especially as regards the active involvement of employees and other stakeholders in code formation, implementation and revision (more detail later)

Implementation, education and the Regulatory Regime (RR)

Guiding corporate conduct in the marketplaceLegislation: corporate, tax, workplace health and safety, bribery, securities dealing, banking, insurance

Regulations and regulatory bodies to implement legislation: securities commissions, stock exchanges

RR continued Self-regulatory bodies: investment dealers, public accountants, advertising, engineers, lawyers

Rules internal to the organization: byelaws, policies (employment, harassment, whistle blowing, safety, environmental)

Informal policies: circulated by memo, stated verbally

Principles as ‘rules’: mission, vision, values

In aggregate, all of these directives constitute the ‘regulatory regime’

Codes and the RR

Codes are imbedded in the RRThe RR guides conduct in an organization

How to behaveAs a context for the organization’s pursuit of business objectives

RR and strategy

Organizational strategies reflect a further layer of directives

The RR is both a decision making framework and catalyst for strategyFramework: Appropriateness of proposed strategies and actions

Catalyst: Suggests strategies to promote parts of the RR (e.g., CSR strategies)

Mission, Vision, Values

Regulatory Regime

Regulatory regime and strategy

Internal inter-connectedness

Codes can contain reference to policiesPrinciples and norms of the company can

be imbedded in the codeCodes sometimes restate required legal

compliance

Two approaches to ethics in business

1. Compliance culture Reactive: externally and internally Rule-guided behaviour

Legislation Regulations Company policies

Conforming to expectations Codes are compatible with a compliance

culture

Approaches continued

2. Culture of integrity: Robust ethical climate Proactive Broad principles Aspirations Codes to establish expectations Unwritten norms Stories, symbols Expectation that members of the

organization will always try to act with integrity

Implementation and the culture of integrity

Revising the Code

Identifying values

Monitoring Performance

Writing the Code

Implement the Code

Organizational Stakeholders

The culture of integrity and involving stakeholders

Direct involvement of stakeholders, especially employeesIdentifying valuesWriting the codeRevising the code, which includes revising values identification

Culture of integrity requires greater level of understanding to be effective

Good decision makers are able to draw sound conclusions from what the RR makes available

1.Alternative courses of action which the RR helps to understand

2.Ethical principles which the RR provides in the Code

3.Outcomes of decision making drawn in part from the RR

Rudimentary knowledge of the code and modestUnderstanding of the RR

Increasingly comprehensive graspof RR combined with improvingability to employ ethical principlesin judgments

Sophisticated knowledgeof the RR and relationshipto strategy. Adept at usingethical principles to make decisions.

Organizational strategy to promote integrity

Advanced Decision Making1.Extensive knowledge of RR2.Sophisticated grasp of

ethical principles3.Ability to apply principles

to knowledge of RR in decision making

Basic Decision Making1.Knowledge of code

content2.Some knowledge of

ethical principles3.Constrained ability to

apply principles indecision making

Gradations of improvementas knowledge of the RR becomesbroader and deeper.

Three tasks for ‘code education’1.Promote learning of the RR2.Reinforcing the principles in the code3.Developing ethical decision making ability

using principles and the RR

Integrity and gradations of knowledge

Implementing codes as ethics education

Education – not just in the specific provisions of the code, but in the RR in which it is imbedded

Five principles of code education

1. Highest quality of learning and development in each employee

2. Experience, educational background and role in the organization should guide depth of required understanding in the RR.

Ethics education continued

4. Education in the RR should not be confining to career advancement and new responsibilities

5. Go beyond simply learning principles and the RR. Should encourage critical assessment

6. Education should be full and complete: ongoing over time. Too much to absorb all at once