Ethics, leadership and culture

1. Ethics, leadership and culture ACCT19083 Corporate governance and ethics

2. Learning outcomes • Identify and discuss the ethical issues involved in an organisation's culture • Identify and discuss the ethical dimensions of leadership • Explain how an ethical culture can be constructed, maintained and reviewed

3. Corporate culture • ‘A general constellation of beliefs, mores, customs, value systems and behavioural norms, and ways of doing business that are unique to each corporation, that set a pattern for corporate activities and actions, and that describe the implicit and emergent patterns of behaviour and emotions characterizing life in the organization’ (Robin, D & Reidenbach, E, 1989: 59)

4. ARTEFACTS • The visible ‘products’ of the culture, including: • Language • Technology • Clothing • Manner of address • Myths and stories • Published lists of values • Organisational charts • Structural processes • Observable rituals and ceremonies

5. ESPOUSED BELIEFS AND VALUES • The beliefs and values embodied in strategies, goals and philosophies that work to help employees reduce uncertainty and deal with certain situations, or work to guide their behaviour

6. UNDERLYING ASSUMPTIONS • The taken-for-granted beliefs and values that are non-confrontable and non-debatable: • What we pay attention to • What things mean • Our emotional reactions • What actions to take in a given situation

7. MANAGING CORPORATE CULTURE • Corporate culture may not always condone unethical behaviour, but sometimes the norms and values of the organisation may ignore or fail to prevent it from occurring. • How do people get ahead in the company? What conduct is rewarded? • What values are being instilled in employees?

8. ETHICAL CULTURE • Ethical climate • Organisational prescriptions, proscriptions and permissions that determine what constitutes ethical conduct • Ethical culture • The organisational capacity and conditions that encourage ethical behaviours among employees

9. ETHICAL CULTURE AND BEHAVIOUR • Ethical role-modelling behaviour by managers and supervisors • Capability to behave ethically • Commitment of managers and employees to behave ethically • Openness by managers and employees to discuss ethical issues • Reinforcement of ethical behaviour

10. ETHICAL LEADERSHIP • Leadership is the process of social influence that exists between leaders and their followers. • An ethical leader, therefore, acts proactively towards influencing followers’ ethical and unethical behaviour. • It is not sufficient for leaders to claim that they are ethical; they must establish this reputation.

11. PERSONAL MORALITY • An authenticleader acts in a manner consistent with his/her true self by expressing what he/she really thinks and believes. • Leaders with integrityhave clear values which are consistently expressed through their actions. • Courage is also seen as a personal trait required of ethical leaders.

12. LEADER MORALITY • To be a moral manager, leaders must make ethics a priority. • The legitimacy of a leader’s ethical decisions is crucial for ethical leadership. • One cannot be an ethical leader if one’s own behaviour is morally questionable.

13. ETHICAL LEADERSHIP BEHAVIOUR • Being open with stakeholders shows respect and fairness. • Inclusiveness builds trust and transparency. • Role modelling must be visible in order to have an impact. • Leadersmust be sensitive to any negative signals they may send.

14. INSTITUTIONALISING ETHICS • Have a highly visible commitment to ethical behaviour from top management down. • Encourage members to take moral responsibilities seriously. • End defensiveness in the face of public criticism. • Solicit the opinion of stakeholders and conduct ethical audits of organisational policies and procedures. • Corporations should recognise the pluralistic nature of the social system of which they are a part.

15. ETHICS PROGRAMS • Ethics programs may consist of: • a code of ethics • policies outlining procedures for investigating and disciplining allegations of unethical behaviour • policies outlining incentives and rewards for ethical behaviour • an ethics compliance officer or committee.

16. ETHICS PROGRAMS (CONT.) • Ethics programs may consist of: • ethics training • an ethics helpline • monitoring systems • ethics audits, and pre-employment ethics screening of applicants.

17. CODES OF ETHICS • Should not be mere window-dressing, or so general as to be useless • Should set reasonable goals and sub-goals • Should consider the target audience in terms of its purpose, comprehensibility and relevance to context • Should convey the board’s commitment to ethical standards and be based on principles that aim to raise the ethical sensitivity and confidence of the employees it is directed towards

18. RELATED POLICIES • Complementary policies that assist the effectiveness of the code of ethics • Legislation provides some protection to whistle-blowers • In NZ, the Protected Disclosures Act 2000 • In Australia, the Corporations Act 2001 • Internal whistle-blower policy

19. ETHICS COMMITTEES • Organisational ethics committees can be found in private companies and public institutions. • The committee should: • have full authority and responsibility to communicate the ethical code and subsequent decisions to all corporate members • clarify and interpret the code when the need arises • facilitate the code’s use.

20. EMPLOYEE TRAINING • At a minimum, ethics training should include: • study of the code • review of the company’s procedures for handling ethical problems • discussion of employer and employee responsibilities and expectations.

21. REWARD SYSTEMS • Motivating behaviour through employees’ intrinsic needs, rewards and discipline are still recognised as effective tools for leaders to encourage ethical behaviour. • A reward system and discipline act as signals of required ethical behaviour to other employees, so they must be: • clear • visible • consistent.

22. ETHICS MONITORING • Research suggests that companies perform poorly in setting and measuring non-financial targets. • Internal monitoring assists with the effectiveness of codes of ethics, related policies, and programs and structures designed to enforce and embed ethical standards.

23. ETHICS MONITORING (CONT.) • A recent KPMG survey found that ‘few Australian companies appear to possess an explicit reporting framework to underpin their ethical commitments’ and that ‘boards are most likely to reflect on ethical issues following adverse media exposure, episodes of high turnover and remuneration reviews’.

24. BEYOND THE BOTTOM LINE • It is a company’s moral duty to respect the rights and dignity of its employees. • A number of companies have embraced the ethos and practice of triple-bottom-line reporting. • Profit making and ethical business are not mutually exclusive.

25. BEYOND THE BOTTOM LINE (CONT.) • Companies that invest in their employees are likely to reap the benefits of increased productivity through heightened employee morale, satisfaction and commitment. • Since employees are a key stakeholder, it is becoming increasingly important to look after their needs, not only to motivate them to comply with ethical standards, and thus embed ethics in corporate culture, but also as a general component of ethical business behaviour.

26. A FINAL THOUGHT... • Financial performance is no doubt critical to every enterprise. But to achieve that performance, organisations have to have everyone – shareholders, employees, customers and the communities in which they operate – accepting and supportive of the way in which those profits are earned.