Managing To Be Ethical: Debunking 5 Business Myths

1. Authors: Linda Klebe Trevino & Michael E. Brown Presented By: Reggie Rhodes Managing To Be Ethical: Debunking 5 Business Myths

2. Dr. Michael E. Brown Associate Professor of Management at Penn State Ph. D at Penn State in 2002 Research & Teaching Focus: Business Ethics & Leadership Research has appeared in a number of leading journals including the Journal of Applied Psychology, The Leadership Quarterly, Business Ethics Quarterly, Organizational Behavior and Human Decision Processes His work on ethical leadership is being used in the ethics training and leadership development programs of a number of corporations. Featured in a over 7 books & textbooks on leadership & ethics

3. Dr. Linda K. Trevino Ph.D in Management from Texas A & M in 1987 On Faculty of Penn State University since 1987 Professor of Organizational Behavior at Penn State Served as Chair of the Department of Management and Organizations Serves as theDirector of the Shoemaker Program in Business Ethics Published first article while working on Ph.D in 1986 Research & Teaching Focus: Business ethics as a management issue in organizations

4. Work published in the Academy of Management Review, Academy of Management Journal, Journal of Management, Journal of Applied Psychology, California Management Review and other top journals Co-author of book, “Managing Business Ethics; Straight Talk About How to Do it Right” & featured in many others. Received honors from Phi Beta Kappa & Beta Gamma Sigma Received the Best Paper Award in 1993, 1996, & 2000 Many more honors & professional affiliations

5. The Issue • Ethical Conflicts & Scandals in Corporate America Seem to Be Increasing

6. 5 Business Ethics Myths • It’s Easy to Be Ethical • Unethical Behavior in Business is Simply the Result of “Bad Apples” • Ethics Can Be Managed Through Formal Ethics Codes & Programs • Ethical Leadership is Mostly About Leader Integrity • People Are Less Ethical Than They Used to Be

7. 1. It’s Easy to Be Ethical • A 2002 newspaper article was entitled “Corporate ethics is simple: If something stinks, don’t do it.” • Being ethical is easy if one wants to be ethical.

8. Here’s the Problem • 1st- Ethical decisions aren’t simple. • 2nd- Moral Awareness is required. The notion that “it’s easy to be ethical” assumes that individuals automatically know that they are facing an ethical dilemma & that they should simply choose to do the right thing. • 3rd- Depends on Moral Intensity &/or Moral Language • Moral Intensity has 2 dimensions: magnitude of consequences & social consensus • Moral Language is many times ignored because of the use of “acceptable terms”

9. Ethical Decision Making is a Complex, Multi-Stage Process Moves in this pattern: Moral AwarenessMoral Judgment (Deciding that a specific action is morally justifiable) Moral MotivationMoral Character (Commitment or intention to (Following through in taking the take the moral action) the action despite challenges)

10. Lawrence Kohlberg’s Theory of Cognitive Moral Development • People develop from childhood to adulthood through a series of stages that characterize the way they think about ethical dilemmas.

11. 5 Stages Preconventional Levels • Stage 1- Individuals decide what’s right based upon punishment avoidance • Stage 2- Getting a fair deal for oneself in exchange relationships Conventional Levels • Stage 3- Individual is concerned with conforming to the expectations of significant others • Stage 4- Perspective broadens to include society’s rules & laws as a key influence Principled Level • Stage 5- Individual’s ethical decisions are guided by principles of justice and rights (Less than 20%)

12. Additional Pressures & Complexity of Organizations • Moral judgment focuses on deciding what’s right- not necessarily doingwhat’s right • Consider this ethical-dilemma situation • Now contrast that to the business world where there are many people & pressures involved

13. Some of the Factors Considered: When deciding on whether or not to report misconduct, people often think; • What will my peers think? • How will upper management react? • Would management retaliate? • Is my job at risk? • Everyone knows that “snitches” rarely fit in anywhere & are often ostracized or worse. • The 2003 National Business Ethics Survey showed that about 40% of employees said they wouldn’t report misconduct because of fear of retaliation from management & 30% said they wouldn’t because they feared retaliation from co-workers.

14. 2. Unethical Behavior in Business is Simply the Result of “Bad Apples” • Recent headline was “How to Spot Bad Apples in the Corporate Bushel”

15. Here’s the Problem • Most people are the product of the context they find themselves in. • They look outside themselves for guidance when thinking about what is right. • Ever heard statements like “Everyone else was doing it, so I thought it was okay”, “I had no choice”, “My boss told me to do it”? • Stanley Milgram- Obedience to authority experiments (probably the most famous social psychology experiments ever conducted)

16. 3. Ethics Can Be Managed Through Formal Ethics Codes & Programs • 4 Key Elements: Written standards of conduct, ethics training, ethics advice lines & offices, & systems for anonymous reporting of misconduct • Surveys show that organizations with all 4 elements have a 78% greater likelihood that employees will report observed misconduct • However, formal programs don’t guarantee effective ethics management. • Employees perceive that the company’s “ethics walk” is not consistent with the “ethics talk” • The Rise & Fall of Arthur Andersen

17. 4. Ethical Leadership is Mostly About Leader Integrity • The Wall Street Journal- Article entitled “Plain Talk: CEOs Need to Restore Character in Companies” • As Arthur Andersen demonstrated, leaders must be more than individuals of high character. They must “lead” others to behave ethically. • See Figure 1 on page 208

18. 5. People Are Less Ethical Than They Used To Be • In a poll released by the PR Newswire in 2002, 68% of those surveyed believe that senior executives are less honest & trustworthy today than they were a decade ago. • However, unethical conduct has been with us as long as human beings have been on this earth. • The Talmud- 1500 year old Jewish text with 613 direct commandments. Over 100 of these commandments concern business & economics. • Why? Because “transacting business” tests our morals and reveals our character the most.

19. Interesting Facts • Studies on student cheating show that the percentage of students who admit to cheating has not changed much during the last 30 years. Given new technologies & approaches, students have discovered new ways to cheat, but the amount of overall cheating hasn’t increased that much. • On July 16th, 2002 Alan Greenspan said “It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed have grown so enormously.”

20. So Now What??? What Can Executives Do?: Guidelines For Effective Ethics Management • 1st- Understand the Existing Ethical Culture • 2nd- Communicate the Importance of Ethical Standards • 3rd- Focus on the Reward System • 4th- Promote Ethical Leadership Throughout the Firm

21. In Summary • Being ethical isn’t easy. But with the right tools, programs, and management systems in place, you can develop an ethics culture that embodies everything that’s desired, admired, and needed in an organization.

22. Article References • St. Anthony, N. “Corporate Ethics Is Simple: If Something Stinks, Don’t Do It,” Star Tribune (Minneapolis-Saint Paul) Newspaper of the Twin Cities. 28 June 2002. • PR Newswire. “How to Spot Bad Apples in the Corporate Bushel.” 13 January 2003. Ithaca, NY. • Kansas, D. “Plain talk: CEOs need to restore character in companies,” WSJ.COM. Dow Jones and Company, Inc., 7 July 2002.

23. Q & A