Copyright © 2008 McGraw-Hill Ryerson Ltd. 1 Chapter Six Managing the Ethics of Business Canadian...

Chapter 6 Copyright © 2008 McGraw-Hill Ryerson Ltd. 1

ChapterSix

Managing the Ethics of Business

Canadian Business and Society: Canadian Business and Society: Ethics & ResponsibilitiesEthics & Responsibilities


Outline

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


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.


Developing a Ethics Programme for An Organisation

Code of Conduct

Values Statement

Implementation/Back Office/Monitoring


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


Codes of Ethics

POLICY ISSUE RISK RATINGH/M/L

KEY POINTS TO CONSIDER

Statement on ethics and compliance

H Be proactiveEmphasize 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 statusApplies 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 employeeInsider trading M Issues also include tipping, pre-clearance, short sales, puts, and callSexual and non-sexual harassment

M/L Policy must refer to procedure for reporting problems


Codes of Ethics

Market conduct issues

Advertising & Marketing

L Sales force must be made aware of review policies for materials and claims made or altered by sales personnel

Anti-corruption - Bribery/kickbacks

M/L Cross-reference conflicts of interest

Joint venture policy H/M Establish code applicability to respective joint venture partners

International business conduct

M/L Mention OECD, and applicable limitations thereof

Conduct on behalf of/against the firm

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

Political activities/ lobbying/ contributions

L Distinguish between acceptable personal political activities and unacceptable corporate political activities.


Codes of Ethics

Gifts, favours, and entertainment

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

Financial reporting/ Record keeping

H Discuss provisions that apply to both foreign and domestic operations.Prohibit destruction or falsification of documents for which litigation is pending or are otherwise significant

Travel, time, and expense reporting

M Emphasize accountability

Firm equipment, supplies, and funds

M/L Not to be used for personal use

Intellectual property/ Copyrights

H/M Relevant issues include trade secrets and post-employment restrictions as well as non-disclosure of customer information

Proprietary information M Includes kinds of financial information, organisational information, and technical informationDiscuss restrictions on speech with non-employees, the press, and employees without a need-to-knowComputer security and password protectionPost-employment restrictions

Corporate governance and structure

H Emphasize responsibility to owners/shareholdersPrioritise responsibilities in reference to mission

Corporate due process H Discuss fairness and confidentiality of ethics processes and describe upstream communication channels


Employee issues

Employee health, 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 payReasonable 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


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 questionsCross-reference proprietary information

Protect reputation H Recognize importance to business of a good reputation

Product quality and suitability

H Responsibility to report product deficienciesExpect compliance with corporate requirements, customer specifications, and government regulatory standards

Environmental compliance

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

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


Criticisms of Codes

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


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


Conflicts of Interest

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


Ethics Audits and Consultants 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


Ethics Officers and Ethics Committees 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


Ombudsperson programs

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.


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.


Ethics Reporting Systems and Whistleblowing 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)


Whistleblowing: Issues

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?


Whistleblowing and Movies

Boiler Room (2000) A Civil Action (1998) Erin Brockovich (2000) The Insider (1999) The Rainmaker (1997)


Ethics: Who is Responsible?

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


Ethics Programs: Approaches 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


Ethics Programs: Evaluation and BenefitsCompliance-based Rules, laws Prevent criminal

conduct Lawyer-driven Employee discretion

limited Code of conduct

Integrity-based Values/ethics/principles Enable responsible

conduct Management-driven Employee discretion

increased Code of ethics


Ethics Programs and Their Evaluation

Explicit and implicit

Implicit organization’s culture reward system valued behaviour promotion policies management example general practice performance measures


Evaluation of Ethics Programs

Some criteria Visibility Ownership Fit Balance


Evaluation of Ethics Programs

Some criteria

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.


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


Arguments Against Teaching Ethics 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.


Ethics – Whose Responsibility?

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.


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.

Copyright © 2008 McGraw-Hill Ryerson Ltd. 1 Chapter Six Managing the Ethics of Business Canadian...

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