BUSM 3199/3115/4198 Ethics & Governance Lecture 4: Creating an Ethical Organisation

1. BUSM 3199/3115/4198 Ethics & GovernanceLecture 4: Creating an Ethical Organisation

2. Today BEHAVIOUR So what are we are saying is: B = f (P & E) ENVIRONMENT PERSON

3. Outline • The work context • Organisational culture • Ethical formal and informal cultural systems • Ethics codes • Ethical leadership • The relationship between leadership, culture, ethics codes and behaviour

4. Learning objectives for today • Know the characteristics of an ethical organization • Discuss the difference between ethics of value and ethics of compliance • Understand the ethical formal and informal cultural systems • Discuss a code of ethics • Discuss ethical leadership

5. An Ethical Organisation • Trust • Effective communication • Openness • Objectivity and fairness • Integrity • Transparency • Values

6. Theorganisation as a context • individual personality is unimportant in organisational criminal behaviour, as it results from role fulfilling rather than individual pathology (Schrager & Short 1978) • a reliable picture of moral conduct can be ascertained “not so much in direct observation of the decision maker as in a firmer grasp of the decision maker’s environment” (Frederick 1992) • Bad apples and bad barrels: Most people are the product of the context they find themselves. They look up and around… (Trevino and Brown 2004)

7. Organisationalmembership • Persons in organisations are socialised in their roles (Katz and Kahn 1978). • Through this process, people accept the organisational goal structure and the culture (Clinard & Yeager 1980). • The expected role behaviour is learned from others’ expectations and the rewards that they receive from their organisational membership.

8. Ethics of Values?orEthics of Compliance? • Values approach - is proactive and inspirational; emphasises expected behaviour, high standards • Compliance approach - is reactive and punitive; emphasises required behaviour, obeying the law

9. Organisationalculture • Organisational culture affects people in organisations • The organisational culture includes the basic assumptions concerning what is right, proper and fair (Gottlieb & Sanzgiri 1996). • Expresses shared assumptions, values and beliefs and is the social glue that holds the organization together. It’s “how we do things around here.” (Trevino & Nelson 2006)

10. Ethical formal cultural systems • Leadership: creates, maintains and changes culture. Most important aspect of an organisation’s ethical culture • Selection and reward systems • Structure - authority, responsibility and ethical culture • Policies and codes- their effectiveness depends on other formal and informal systems. Ethics must be in the blood line of the organisation. • Orientation and training programs. • Decision making processes assumptions and scripts (Trevino & Nelson 2006)

11. Rewardsystems Reward systems can encourage unethical behavior • People do what’s rewarded • Rewards don’t have to be explicit • Think about how attempts to motivate can backfire • Set goals for ethical conduct (Trevino & Nelson 2006)

12. Ethics Codes • Have been around since the early 1900s • An international movement towards business ethics codes began in 1980s • Post-Enron, stock exchanges such as NYSE and ASX encouraged the adoption of formal ethics guidelines for company officers.

13. Formulating a code of ethics • A code of ethics is, in essence, a formalisation of moral principles and responsibilities • The need for a code of ethics • Requirement by law, e.g. in U.S. • Safeguarding reputation • Improving customer service (and thus sales) • Seeking like-minded partners and suppliers • Attracting and retaining the best employees • Responding to internal and/or external pressure

14. Approaches to Ethics • General principles • Corporate mission • Code of conduct • Specific policies

15. 1. General Principles Examples: Singtel, GIC • Ensure that our employees uphold the code of ethics with integrity. • But details of the principles unavailable publicly

16. 2. Mission • Example: Marketing Institute of Singapore “Uphold the good name of Marketing Institute of Singapore and Singapore, Academic Standards and Student Welfare” http://www.mis.org.sg/about/ethics.aspx

17. 3 & 4. Code of Conduct, Specific Policies Example: FJ Benjamin • Personal responsibility of each director and employee to understand and comply with the code of conduct • On entertainment, while it is an acceptable form of business, directors or employees should turn down meals or entertainment which are excessive in nature or frequency, so as to avoid loss of objectivity when conducting the company’s business

18. Ethics codes effectiveness Code effectiveness depends on cultural values and communication • Use collaboration to create/revise the code • Discuss/debate code frequently • Use code to resolve ethical issues • Communicate ethical decisions • Reward behaviour that is consistent with the code (Stevens 2008)

19. Six Steps for Effective Implementation of a Code of Ethics • Distribute the code of ethics comprehensively to employees • Assist employees in interpreting and understanding the application and intent of the code • Specify management’s role in the implementation of the code • Inform employees of their responsibility to understand the code and provide them with the overall objective of the code • Establish grievance procedures • Provide a conclusion or closing statement, such as one from Cadbury Company: “The character of the company is collectively in our hands. Pride in what we do is important, and let us earn that pride by the way we put the beliefs set out here into action.”

20. Ethical informal cultural systems • Informal cultural systems • Informal norms • Heroes and role models • Rituals • Myths and stories • Language • Developing and changing the ethical culture (Trevino & Nelson 2006)

21. Org. Culture and Leadership Leaders affect culture through: • attention • critical incidents and crises • role modeling / teaching / coaching • criteria for scarce resources, rewards, status, recruitment, selection, promotion, retirement, excommunication • others: formal statements, structure, systems, processes, physical setting, rituals, stories, etc.

22. The responsibility of managers Managers have responsibility for ethical behaviour in organisations because they affect culture, policies and practices • Begin with clear standards • Design a plan to continually communicate your standards • Managers are role models (Trevino & Nelson 2006)

23. Reputation for Ethical Leadership Setting ethical standards, expectations etc. Having a good character Ethical leadership Moral person + moral manager = (Trevino & Brown, 2004)

24. moral person moral manager Traits Behaviours Decision making • Integrity • Trustworthiness • Honesty • Do the right thing • Concern for people • Being open • Personal morality • Hold to values • Objective/fair • Concern for society • Follow ethical decision rules Role modellingthroughvisible action Rewards anddiscipline Communicatingabout ethics and values Trevino, Hartman & Brown, 2000

25. Executive Ethical Leadership Reputation Matrix Strong Hypocritical leader Ethical leader Moral Manager Unethical leader Weak Weak Strong Moral Person Ethically silent leaders (Trevino & Brown, 2004)

26. Guidelines for effective ethics management • Understand existing ethics culture • Communicate importance of ethical standards • Focus on reward systems • Promote ethical leadership in the organisation (Trevino & Brown, 2004)

27. Conclusions • An ethical organization requires ethical leadership – people look up and around • An ethical leader is a strong moral person and strong moral manager • A code of ethics is a guideline. For it to have meaning within an organisation it has to be part of the culture.

28. Case Study Codes of Ethics Creative Technology & FJ Benjamin Read the Creative & FJ Benjamin Code of Business Conduct and Ethics and consider: a) what are the ethical principles underlying these codes? – is it a values based approach or a compliance based approach? 2. Do you think these codes would be effective? Consider Stevens (2008) - reading for Week Four. 3. Are there ways in which the codes implementation should be supported? 4. What else would you do as a manager to make an organisation ethical?

29. Review Question 1. What is the role and content of an ethics code in an organisation? 2. Explain when and why codes of ethics are ineffective and discuss the arguments presented by Stevens (2008) and Trevino and Brown (2004). 3. Outline the differences between a hypocritical and an ethically silent leader (Trevino and Brown 2004). What are the likely outcomes of having either of those leaders in an organisation? 4. What can organisations do to improve the ethical behaviour of their employees? Give examples. 5. Is unethical behaviour in business the result of ‘bad apples’? Discuss in relation to organisational culture (‘a bad barrel’).

30. References Clinard, MB, & Yeager, P. C. 1980, Corporate crime, The Free Press, New York. Frederick, NL 1992, 'Ethics and Integrity - Beyond Internal Controls', Managerial Auditing Journal, vol. 7, no. 1. Gottlieb, JZ & Sanzgiri, J 1996, 'Towards an ethical decision making in organizations', Journal of Business Ethics, vol. 15, pp. 1275-85. Katz, D, & Kahn, R. L. 1978, The social psychology of organizations, 2 edn, Wiley, New York. Schrager, L & Short, J 1978, 'Toward a Sociology of Organizational Crime', Social Problems, vol. 25, pp. 407-19. Stevens, B 2008, 'Corporate ethical codes: Effective instruments for influencing behavior', Journal of Business Ethics, vol. 78, pp. 601-9. Treviño, LK & Brown, M 2004, 'Managing to be ethical: Debunking five business ethics myths.' Academy of Management Executive, vol. 18, no. 2, pp. 69-81. Trevino, LK, Hartman, L.P., & Brown, M 2000, 'Moral person and moral manager: How executives develop a reputation for ethical leadership', California Management Review, vol. 42, no. 4, pp. 128-42. Trevino, LK, & Nelson, K. A. 2006, Managing business ethics: Straight talk about how to do it right, 4 edn, John Wiley & Sons, New York.

31. Online References Jeff Skilling – ENRON http://www.youtube.com/watch?v=XFTihsjO-og Some background to Tyco: Former CEO Denis Kozlowski http://www.youtube.com/watch?v=MYmLaVYsyHw Milgram Experiment http://www.youtube.com/watch?v=BcvSNg0HZwk Stanford Prison Experiment http://www.youtube.com/watch?v=Z0jYx8nwjFQ

32. Next Week Corporate Social Responsibility