Simone de Colle University of Virginia sd7ua@virginia . edu

1. Bounded Business Ethics Pedavena, 12 Giugno 2010 Managerial Decisions orOrganizational Ethical Failures? SustainabilityAdvisory Services Simone de ColleUniversity of Virginiasd7ua@virginia.edu

2. My Research Approach • What are the sources of unethical behavior within business organizations? • What is “unethical”? • What are the (organizational/societal) consequences of (individual) ethical failures? (btw: not only negative…) • What is a “Bounded Business Ethics” approach to investigate these problems? • What can this approach tell us more about the Heineken-Pedavena case? 2

3. Sources of unethical behavior Bounded Business Ethics • Kant/Mill/Aristotle • Gauthier (1982) • Rest (1986) Moral Motivation /Intent(weak/lack of) FAILURE OF MOTIVATION Moral Awareness(lack of) • Issue-related (Jones, 1991) • Context-based (Trevino 1986; Buttlefield, Trevino & Weaver, 2000) AWARENESS FAILURE Moral Imagination(paucity of) • Werhane (1999) • Rorty (2007) FAILURE OF IMAGINATION 3 of 6: FOCUS OF MY RESEARCH Organizational Ethical Failures • Freeman (1994) • Harris and Freeman (2008) Separation Thesis(perpetuation of) SEPARATION BIASES • Kets De Vries (1980, 1984, 1991) • Messick and Bazerman (1996); Messick (1999) • Reynolds (2006) • Milgram (1974) • Tenbrunsel & Smith Crowe ‘08 Neurosis and other psycho-logical traps(influence of) PSYCHOLOGICAL FAILURES • Simon (1947) • Dunfee & Donaldson (1994) • Chugh, Bazerman, Banaji (2005) BoundedRationality & Ethicality FAILURE OF BOUNDED RATIONALITY/ETHICALITY

4. What is “ethical”? • In their Academy of Management Annals review of 30 years of research on ethical decision-making, Tenbrunsel and Smith-Crowe (2008: 547) states: “In our review, it became readily apparent that one notable void in the field was a definition of the fundamental concept of “ethical”………without a universal understanding of the core dependent variable, research will remain inconsistent, incoherent and atheoretical”.

5. Organizational Ethical Failures Unethical Conduct Decisions that generate behavior that is “illegal or morally unacceptable to the larger community” (Jones, 1991) or violate “accepted moral norms of behavior” (Trevino et al. 2006 From “unethical behavior” to Organizational Ethical Failures • My tentative definition:OEFs are decisions within business organizations that: • Involve unethicalconduct in the decision-making process; and/or • 2) Fail to continuously equilibrate in a fair and efficient way stakeholder interests. Stakeholder EquilibrationFailures + = Decisions that fail to balance stakeholder competing claims in a fair and efficient way (Venkataraman, 2002). 5

6. Organizational Ethical Failures Unethical Conduct More on OEFs + = Traditional Business Ethics research • Type I: Unethicalconduct is necessarily an ethical failure in the process of decision making, but not necessarily an ethical failure in the outcomes; • Type II: Stakeholder equilibration failures are necessarily ethical failures in terms of the outcomes of the decision making process; • Not every organizational failure is an ethical failure; • On the other hand, every Type II OEF will generate, over time, a loss of value for some stakeholders. • Traditional Business Ethics research is focussing on “Type I OEFs”(“Unethical Conduct”). Stakeholder EquilibrationFailures 6

7. From Traditional Business Ethics… CLEAR ETHICALLY JUSTIFIABLE DECISIONS CLEAR UNETHICAL CONDUCT GRAY ZONE: IS THIS ETHICAL? Separation Thesis “Business decisions” (as “Amoral Decisions”) Heineken/Pedavena BOUNDED BUSINESS ETHICS: ITS EXPLANATORY DOMAIN …To Bounded Business Ethics CLEAR ETHICALLY JUSTIFIABLE DECISIONS CLEAR UNETHICAL CONDUCT GRAY ZONE: IS THIS ETHICAL? Organizational Ethical Failures Heineken/Pedavena ?

8. Start of the decision making process Ethical Conduct UnethicalConduct (fair & efficient)Stakeholder Equilibration Stakeholder Equilibration Failure (fair & efficient)Stakeholder Equilibration Stakeholder Equilibration Failure Good Organiza-tional performance Organiza-tional Failure (poor perf.) Type II OEF (outcomes) Type III OEF (Process + outcomes) Type I OEF(process) Decision-Makingand OrganizationalEthical Failures A MODEL INTEGRATING OEFs There is no “amoral” decision: business and ethics are entangled

9. Bounded Business Ethics The case of Heineken-Pedavena (1/2) On September 22nd 2004 Heineken Italy decided to close down the brewery of Pedavena, a small town in the Italian Dolomites, by the 31st of December 2004, and redistribute all beer production to the other 4 breweries owned by the Group in Italy. In the press release, Heineken’s Board explained its decision by pointing out that: “…the strong competition by the other groups operating in Italy and other companies exporting in this country, require that Heineken strives for adequate levels of efficiency in production, which the Pedavena brewery is not able to provide because of its objectivelimitations, despite the important contribution, commitment and professionalism proven by the people of the Pedavena factory”. 9

10. Bounded Business Ethics The case of Heineken-Pedavena (2/2) From the perspective of traditional business ethics it does not seem to be a clear case of “unethical conduct”: no ethical principle or moral standard seems to be violated. However, if we look at it from the perspective of Bounded Business Ethics, the following question becomes relevant: Is Heineken’s Italy decision to dismiss its brewery in Pedavena an Organizational Ethical Failure? • Research questions • Why did Heineken managers (initially) decide to close the Pedavena brewery? • Why did the Pedavena workers reject the very generous redundancy package? • Why did the civil society of Pedavena (and other volunteers) decide to mobilize themselves to “save the brewery”? 10

11. Bounded Business Ethics Qualche anno dopo…. Spazio ai protagonisti…. 11