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Building a Sustainable Ethical Culture in Business

Dwight Thompson

IEDC – Bled School of Management

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Building a Sustainable Ethical Culture in Business

The fall of Enron and the loss created for its employees and shareholders demonstrated the concrete consequences that result when ethics are lacking in a business. While managers are apt at increasing productivity and navigating through challenging strategic management decisions, the promotions of ethics can be the most daunting task. However, today’s business environment makes it critical for companies to emphasize this area of study. While the business world today encourages greater levels of autonomy among employees, this autonomy can only be effective if all members of an organization can be trusted to make the right choices free from supervision. Hyper-litigious environments create dire consequences for moral breaches on the part of individual employees that cross both ethical and legal boundaries. To set a sustainable ethical culture, it is critical for CEOs to utilize the tools of leadership, policy, and training to emphasize the importance of ethics at all levels of an organization.

Ethical Leadership

The CEO plays the most important role in setting the culture of an organization. Thus, it is important for the CEO to adopt an approach to ethical leadership that will permeate throughout the organization. The visionary leadership model should be adopted as a means of changing the ethical climate in an organization and establishing an ethics-centered culture. Visionary leadership is a style of leadership in which a leader utilizes emotional expressivity and relationship building as a means of fostering organizational charge (Groves, 2005). This model is compatible with the concept of ethics because the desire to place human welfare over profits is a humanistic approach to conducting business. To effectively utilize this model, CEOs must consider how their own ethical conduct appears to others. As Fred Kiel, author of Return on Character, noted from his research on ethical CEOs, there is typically a discrepancy between the self-perception of managers and the perception that others have of managers (Ethical CEOs Finish First, 2015). Taking an assessment can enable CEOs to determine their deficiencies in ethical leadership so they can set the example by taking corrective action to close those gaps. To understand the challenges that employees and shareholders make and foster ethical conduct among all members of the organization, the CEO must be more than a detached manager.

Visionary leadership also enables CEOs to set the culture of an organization through example. Verbos et al. (2007) established that leaders can set an ethical organizational identity by serving as a living code of ethics. The concept of the living code of ethics asserts that leaders must do more than simply develop a values statement that serves as an indication of its commitment to ethics. Rather, the living code of ethics concept combines authentic leadership with aligned organizational processes and organizational culture to transform the values and behaviors of all members of the organization (Verbos et al., 2007). This frame requires an egalitarian form of leadership. Rather than directing company affairs from the top, CEOs must descend from their top-level position and work alongside those in the organization to promote enthusiasm for developing processes that will promote an ethical culture (Verbos et al., 2007). CEOs must consider themselves partners in establishing an ethical organizational culture as well as leaders.

Ethical Policymaking

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A policy can be thought of as a standard set of procedures that guide the behaviors of individuals within an organization. From this conception, CEOs can shape the ethical behaviors of employees through formal guidelines that motivate all members of an organization to utilize ethical decision-making on the job. The development of a credo serves as a framework for guiding ethical policies and individual actions at all levels of the corporation. Defining the credo, Murphy (1989) established that the credo serves three main purposes: 1) to define and direct corporate values, 2) to support ethics programs and company-wide initiatives to focus on ethical issues, and 3) to provide guidance to employees in functional business areas. The credo can be conceived as a detailed policy framework that provides a detailed application of a company’s values to all functional areas of business. The credo serves to outline how ethics impact all interactions within and outside of the company. For example, the Security Pacific Corporation credo lists the values that guide its commitment to each of its stakeholders, including the customer, the employee, the communities, and the stockholder while also describing how values impact the relationships between employees and between employees and the company (Murphy, 1989). The credo ensures that all members of the organization can envision how ethics impacts their daily jobs and their interactions with coworkers, clients, supervisors, and the company.

Ethical Training

After developing a credo that enables ethical policymaking and decision-making, it is critical to develop a comprehensive ethical training program. Ethical training that enables employees to engage in simulated situations involving ethical scenarios is among the most effective methods of compelling ethical decision making on the job (Weber, 2007). A corporate ethics program is one that sponsors routine training that enables all members of the organization to continually revisit the values expressed in the credo and apply them to ethical issues that arise on the job (Murphy, 1989). An ethics program can be conceived as a control process that ensures that the leadership approaches and policymaking components of ethical governance are effective. Through the training process, appointed ethical auditors should utilize their interactions with managers and employees to assess whether they met ethical challenges, whether they felt supported by policy in making an ethical decision, and whether they selected an ethical decision that was supported by the values expressed in the company’s credo (Murphy, 1989). Training can serves as an assessment tool that enables members of an organization to consider their deficits and identify methods of addressing these deficits.

Conclusion

The CEO plays an integral role in ensuring an ethical organizational culture. However, the CEO must be proactive in ensuring that all employees and managers are empowered to make ethical choices. Establishing a credo sets a framework for policymaking that is friendly to ethic-based rather than merely financially based decisions. Further, the CEO must serve as a role model and supporter in promoting ethical business practices. Finally, routine training should be mandated to provide a control mechanism that assesses the efficacy of company leadership and policies in equipping employees with the tools to make ethical choices. Through this comprehensive approach, CEOs can foster autonomous ethical decision making at all levels of the organization.

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References

Ethical CEOs finish first. (2015). Harvard Business Review. Retrieved from https://hbr.org/2015/04/ethical-ceos-finish-first

Groves, K. S. (2006). Leader emotional expressivity, visionary leadership, and organizational change. Leadership & Organization Development Journal, 27(7), 566-583.

Murphy, P. E. (1989). Creating and encouraging ethical corporate structures. Sloan Management Review, 30(2), 81-87.

Verbos, A. K., Gerard, J. A., Forshey, P. R., Harding, C. S., & Miller, J. S. (2007). The positive ethical organization: Enacting a living code of ethics and ethical organizational identity. Journal of Business Ethics, 76, 17-33,

Weber, J. A. (2007). Business ethics training: Insights from learning theory. Journal of Business Ethics, 70, 61-85. doi:10.1007/s10551-006-9083-8