Topic 4 Ethical and Social Context of Management

 

Ethics can be defined as an individual’s personal beliefs about whether a behavior, action or decision is right or wrong. (Three implications)

·         Firstly ethics is defined in the context of individuals – People have ethics , organization do not. 

·         Second what constitutes ethical behavior varies from one person to another. 

·         Thirdly although ethical behavior is in the eyes of the beholder, it usually refers to behavior that conforms to generally accepted social norms. 

 

The Formation of Individual Ethics;

·         Individuals ethics are determined by family peer influence, life experiences, personal values, and moral and situational factors. 

·         Unethical behavior than is the opposite, and that is behavior that does not conform to generally accepted social norms.

Five Determinants of Individual Ethics

1.      Family Influence

2.      Peer Influences

3.      Life Experiences

4.      Personal values and Morals

5.      Situational Factors

Family Influence

·         People start to form ethical standards when they are children, in response to their perceptions of the behavior of their parents and the behavior their parents allow them to choose.

·         Children are more likely to adopt to high ethical standard if they see that other family members adhere to these high standards and if they receive rewards for conforming to them, and punishment for not conforming.

·         If family members engage in unethical behaviors and allow children to do the same, children are likely to develop low ethical standards.

Peer Influence

·         Children are also influences by peers with whom they interact everyday. If children have friends that are engage in unlawful behaviors such as shoplifting, vandalism and drug abuse, they may decide to engage in such activities also.

·         If the child’s peers have high ethical standards and reject such behaviors, the child is likely also to adopt these standards.

Life Experiences

·         Dozens of important events and morals also contributes to his or her ethical standards. These events are a normal and routine of growing up and maturing. Both positive and negative events shapes an individual

·         If a person steals and do not get caught, he or she may feel no remorse and therefore may continue to steal. If caught the person may feel guilty enough to revise his ethical standards and may not steal in the future.

Personal Values and Morals

·         A person’s values and morals also contribute to his or her ethical standards. People who place financial gain and personal advancement at the top of their list of priorities for example will adopt a personal code of ethics that promotes the pursuit of wealth.

·         In pursuit of wealth, a person may be ruthless in an effort to gain these rewards, regardless of the cost to others.

• If a person’s family is top priority, he or she will adopt different ethical standards.

Situational Factors

• Sometimes people find themselves in unexpected situations that cause them to act against their better judgment.

Example: Many people who steal money from their employers do so because of personal financial difficulties.

 

Managerial Ethics

Managerial ethics are the standards that guide individuals managers in their work behavior. Ethics can affect managerial work in any number of ways, and there are three areas of special concern for managers;

1.      How Organization treats the employee.

2.      How the employee treats the organization.

3.      How the organization treats other economic agents

 How Organization Treats The Employee

·        Among other influences, the behavior of managers defines the ethical standards that determine how the organization treats its employees. This relationship covers areas such as recruitment, selection, wages and working conditions.

Example: Many people might consider it unethical for a manager to recruit a family member or other close relatives.

·         Indeed recruiting or dismissing anyone for reasons that are not strictly job related, seen in much western society as representing questionable ethical practices .

Wages and conditions of employment, while tightly regulated are also areas for potential controversy.

Example: Managers who pays an employee less than the rate stipulated by an industrial agreement simple because he or she knows the employee is unlikely to complain and risk losing the job might be considered guilty of unethical conduct.

Similarly, most people would agree that an organization is obliged to protect the privacy of its employees.

·         A manager’s careless disclosure that an employee has HIV-AIDS, or is in financial difficulties, would generally be seen as an unethical breach of privacy.

·         A manager who reads all incoming mail, even that in envelopes marked “private and confidential” before distributing it to its rightful recipients would also be guilty of an unethical breach of privacy.

·         Numerous ethical issues also relate to how employees treat the organization, especially in regard to conflict of interest, secrecy and honesty in keeping expense account.

·         A conflict of interest occurs when a workplace decision potentially benefits the individual to the possible detriment of the organization.

Example: If a manager in charge of selecting a new supplier accepts gifts from one of the suppliers, he might award the contract to that supplier even though another one might have offered the firm a better deals.

·         In a Westminster system of government, the Prime Minister is also a manager and accountable to the people of a country therefore ethical considerations is of paramount importance to any decision he or his cabinet make.

Example: Investments in corporation or contractual decisions made has to be done independently with no conflict on interest in those decisions.

·         In addition to conflict of interest, divulging company secrets is also unethical. Employees who works for businesses in highly competitive industries – electronics, software and fashion apparel, for example might be tempted to sell information about company plans to competitors.

Example: In 1994, an executive at Eastman Kodak in the US wrote a confidential memo to other managers pointing out that profit projections were not being met and that severe cost control measures would be implemented. Someone leaked the confidential memo to the press. Within two days the firm’s market capitalization plunge by $1.1 billion.

 

·         A third area of concern for some organization is expense accounts or budgets that organizations provide to their managers for travel, entertainment and other expenses related to doing business.

 

·         Some managers have been found to routinely inflate meal and accommodation expenses, service charges and car mileages so as to increase their expense accounts thereby unethically supplementing their income.

 

·         In 1998 several Australian came under heavy criticism for claiming accommodation allowances for staying overnight in Canberra or away from home in their electorates while in reality, they were spending the nights in their homes.

 

·         Managerial ethics also come into play in the relationship of the firm to other economic agents – customers, suppliers, shareholders, competitors, dealers and unions.

 

·         Normal business ethics in customer relations suggest that products and services be safe, be accompanied by information about product features, uses and limitations and be appropriately priced.

 

·         The behavior of managers towards competitors is also dictated by ethical standards. Unfair business practices such as pricing your products very low so as to drive a competitor of business or denigrating publicly a competitor or his product or service are examples of unethical treatments of competitors. 

·         Example: In 1998, the US and the attorneys-general of 20 states filed an anti-trust action against Microsoft, accusing it of illegally preserving and extending its monopoly on desktop operating systems. 

·         Similarly, ethical standards also require that directors be truthful with shareholders. It is both unethical and criminal to alter financial records to make the company’s performance appear better then it really is. 

·         Manager should be fair and honest with suppliers, dealers and unions.

·         Corrupt business analysts and questionable accounting practices have been linked to spectacular corporate collapses in recent years. 

·         It is important to remember that what is legal is not necessarily ethical. 

·         Ethics and law are related, but often not closely, and they are never synonymous. 

·         If a manager chooses to operate within the letter of  the law, it does not automatically mean that his or her behavior will be ethical, or judge as such.

 

Ethics In Organization Context

The starting point in understanding the ethical context of management is the individual’s own ethical standards.

Example: Some people, will risk personal embarrassment or lose their job before they would do something they considered  unethical. Other people are much more easily swayed by the unethical behavior they see around them and other situational factors and they may be willing to commit major crimes to further their own careers or to secure financial gain.

·         Organization practices may strongly influence the  ethical standards of employees. 

·         Some organization openly permit unethical business practices as long as they are in the best interest of the firm. 

·         If a manager becomes aware of an unethical practice and allows it to continue, he or she has contributed to the organizational culture that says such activity is permitted.

• The Organization’s environment also contributes to the context of ethical behavior.
• In a highly competitive or regulated industry, managers may feel pressure from more senior management or the Board of Directors and even shareholders to achieve high performances. In such cases, managers takes unethical shortcuts in decision-making (such as risky investments) to produce impressive short-term returns at the expense of vital long-term security.

Principled Organizational Dissent

Whistle Blowers - Employees who reports the unethical or illegal actions of their employees or others in the workplace to external or internal authorities are often referred to as whistleblowers.

Their behavior has been studied under the organizational categorization of principled organizational dissent: the efforts by individuals in the workplace to protest about and or change the organizational status quo because of their conscientious objection to current policy or practice.

Cases usually involve scandal, danger, malpractice or corruption and may relate to bribery, theft, fraud, negligence, wastages or misrepresentation or violations of safety requirements.

• The intent of the whistleblower is sometimes to put right an ethical wrong or to force an organization to remedy a situation for fear of its misdeeds being publicly exposed.
• The external whistleblowing often occurs only after the person has sought unsuccessfully to convince the organization’s managers of the ethical unacceptability of the situation, and to have it rectified.
• In detail, whistleblowing is the deliberate, voluntary disclosure of individual or organizational malpractice by a person who has or had privileged access to data, vents or information about an actual, suspected or anticipated wrongdoing within or by an organization that is within its ability to control.
• Employees who in good faith do report to authorities are often treated very badly by management or even the fellow employees.

·         Workplace reprisals are experienced by about two thirds of those who formally report malpractice. Transfer to other duties, low performance rating, denial of pay increases or termination of employment are common outcome.

There are cases of whistleblowers being blackballed, harassed, denied promotion or terminated. The ethics of whistleblowing may seem clear enough, but the process and consequences are usually extremely complex and often painful for all concerned, and especially for the individual and his or her department therefore caution is required. 

Organization Responsibilities to Whistleblowers 

There is now a widely accepted responsibility on managers to put in place mechanisms that allow for whistleblowing with minimum costs to the whistleblower.  A number of states in the US have passed whistleblower protection legislations and several Australian states have similar legislations. However, research indicates that the legal approach is inadequate to encourage whistleblowing.

• Example: Sherron Watkins (Vice President for Corporate Development at Enron). She blew the whistle on her bosses when she sense something was rotten with the financial reporting at the company. Her bosses hid billions of dollars of debts and operating losses from investors and employees.
• In 2002, President George Bush signed the Corporate and Criminal Fraud Accountability (Sarbanes-Oxley) Act, which contains historic protections for corporate whistle blowers. The  Sarbanes-Oxley Act now protects whistle blowers like Watkins from any company retaliation.

 

Many authors are recommending that organizations;

1. Deals with the matter proactively
2. Officially regard whistleblowers as an hero by engendering a culture within the organization of honest reporting of malpractices when the concern is ethical.
3. Establishing mechanisms to investigate alleged malpractice immediately
4. Showing employees that complaints are taken seriously by publicizing the outcome of the investigations whenever, possible.
5. If the matter can be dealt with effectively and appropriately internally, the probability of external disclosure and undesirable publicity and damages will be minimized.
6. In an internal alert has been met by an appropriate response from management, public disclosure may appear as the only option
7. Organizations need to recognize that in some circumstances it may be appropriate  and even inevitable for a whistleblower to approach the media.  

Managing Ethical Behaviour

Managing ethical behaviour must start with top management itself. Top management needs to model ethical behaviour and to encourage all staff to behave ethically at all times.

1.      Unfair business practices, behaving in a legal but malicious manner towards competitors or customers or other form of unethical behaviour will give staffs the message that such behaviour is acceptable.

2. Managing ethical behaviour must start with top management itself. Top management needs to model ethical behaviour and to encourage all staff to behave ethically at all times.
3. Unfair business practices, behaving in a legal but malicious manner towards competitors or customers or other form of unethical behaviour will give staffs the message that such behaviour is acceptable. Using company’s resources (motor vehicles and photocopiers) for unauthorized personal use are in similar category.

4.      Some companies use a formal Code of Ethics to enhance the ethical consciousness and behaviour of their employees.

CODE OF ETHICS are formal written statements of the values and ethical standards that guide a firm’s actions.

1. One of the consequences of having a code of ethics is a cultural shift towards compliance by employees.
2. Another consequences is that at some time, employees’ behaviour will fall short of the standard required by the organization. 
3. With code of ethics established by organizations it places an onus on the organization to establish a fair and equitable grievance procedure by which complaints about unethical behaviour can be investigated and penalties established.
4. Thus a code of ethics can have the desirable effect of regulating excesses of behaviour for the sake of the organization, its clients, its business partners and the society it serves.
5. The main purpose of the code must always be to support and enhance the ethical behaviour of members of the organization.
6. Fiona Ritchie, on detailing how to develop a code of ethic believes that a Code of Ethics can give an organization;
1. Competitive advantage
2. Increased profitability,
3. Stable management team
4. Improved staff morale. 

CODE OF CONDUCT – Is a Statement of obligations imposed by an organization on its employees or officials, in addition to those specific duties imposed by legislation

1. In the public sector, employers are providing induction training to its employees on code of conducts and the procedures and processes within which public servants are expected to perform.

2.      With code of conduct in the public sector, such principles as respect for the law and system of government, respect for persons, integrity, diligence and economy and efficiency are looked at through induction training and development programs. 

3.      Some social scientists have argued that there should be cautions when proceeding with the construction of Code of Conduct. 

4.      Reasons being the rate and scope of social changes that are taking place today. The community at large are confused and unsettled by these changes and are now seeking refuge in areas where they see stability and predictability.

In summary, a Code of Ethics might include provisions such as;

Our actions should be based on a recognition of the essential dignity of each and every person. We should have an active concern for the well being of the community and the environment

1. Thus companies are well advised to consult widely in their efforts to develop codes of ethics to guide their behaviour.
2. Company directors in particular, have special expectations placed on how they perform their duties.
3. The have fiduciary responsibilities to act in the best interests of the shareholders, but they are not entitled to ignore ethically suspect practices that benefit shareholders.

4.      We should provide a challenging and safe workplace in which people can flourish.

5. Directors must not allow conflicting interests or personal advantages to override the interest of the company.
6. To do otherwise opens the director to on-the spot fines (imposed by ASIC – Australia) or to a possible criminal conviction.
7. Directors must not allow conflicting interests or personal advantages to override the interest of the company.
8. To do otherwise opens the director to on-the spot fines (imposed by ASIC – Australia) or to a possible criminal conviction.

Code of Conduct – Australian Institute of Company Directors 1998

1.      A director must act honestly, in good faith and in the best interest of the company as a whole

2.      A director has a duty to use due care and diligence in fulfilling the functions of office and exercising the power attached to that office

3.      A director must use the powers of office for a proper purpose, in the best interests of the company as a whole

4.      A director must recognize that the primary responsibility is to the company’s shareholders as a whole but should, where appropriate, have regard for the interests of all stakeholders of the company.

5.      A director must not make improper use of information acquired as a director

6.      A director must not take improper advantage of the position of director

7.      A director must not allow personal interests, or the interests of any associated person, to conflict with the interests of the company.

8.      A director has an obligation to be independent in judgment and actions and to take all reasonable steps to be satisfied as to the soundness of all decisions taken by the board of directors.

9.      Confidential information received by a director in the course of the exercise of directional duties remains the property of the company from which it was obtained and it is improper to disclose it or allow it to be disclosed unless that disclosure has been authorized by that company, or the person from whom the information is provided, or is required by law.

10.  A director should not engage in conduct likely to bring discredit upon the company

11.  A director has an obligation, at all times, to comply with the spirit, as well as the letter, of the law and with the principles of this code.

As we have seen, ethics relates to individuals. Organizations themselves do not have ethics, but organizations do relate to their environment in ways that often involve ethical dilemmas and decisions.

Social responsibility is the set of obligations an organization has to protect and enhance the society in which it functions.

SOURCE:

The Environmental Context of Management, Kohler

Crane, Matten, (2007) Business Ethics; Managing Corporate Citizenship and Sustainability in the Age of Globalization. Oxford.