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Ethics in Organizations: The Case of Tata Steel: February 2007
Ethics in Organizations: The Case of Tata Steel: February 2007
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Executive The concern for ethical decision-making among the regulators, social groups, and managers has
substantially increased in recent years following the failure of some of the prominent business
Summary organizations owing to strong social condemnation of some of their business practices. This
paper reviews the literature to address this concern by examining and discussing significant
issues of ethical decision-making in organizations.
Literature shows that the research to examine the linkage of ethical decision-making with
other organizational construct is inadequate. This paper tries to fill this gap by developing a
comprehensive framework of organizational ethical decision-making and behaviour of indi-
viduals in organizations. The framework identifies three groups of variables: a) moral intensity,
b) intrinsic factors, c) extrinsic factors. Further, it is used to analyse the implementation of code
of conduct at Tata Steel.
Ethical problems are problems of choice owing to the conflicting nature of values. They occur
when the individual values and the social norms conflict with each other. Often, due to
conflicting interests of different stakeholders, managers in organizations face the dilemma of
identifying the righteous decision as perceived by these stakeholders. Hence, it is important to
guide managers — by articulating and communicating unambiguously — regarding what is
right and what is not. Intense socialization will be required at different levels to imbibe
organizational values and ethical practices. The socialization that leads to willing adoption of
practices is likely to lead to better implementation of ethical practices. The scope of socialization
could be extended to include the family members of employees to develop a sense of pride
among them for being ethical.
Organizations would need to undertake the following initiatives which would be useful for
implementation of ethical practices:
¾ Enhance perceived self-efficacy among the employees. This study shows that people
with high self-efficacy are more open to ethical choices in their decision-making.
¾ Initiate reward and incentive mechanisms, suitable monitoring system, and accountabil-
ity mechanisms. Internal competition-driven performance management practices in-
duce violation of ethical norms in organizations. Hence, organizations with such
practices would need extra effort in socialization, training, and monitoring to ensure
KEY WORDS ethical decision-making.
¾ Develop different mechanisms for avoidance of violation of code of ethics. For adequate
Ethical Decision-making
monitoring, ethic supervisors should ideally report to an independent unit in the
Ethical Behaviour organization, preferably at a higher level. Hence, the reporting relationships may need
Organizational Ethics alteration for implementation of ethical practices.
The study also suggests that leadership at different levels of the organization will
Individual Values
have to display strong commitment to ethics through communication and adoption of
Tata Code of Conduct role model stature.
Moral Intensity
• Magnitude of consequences
• Social consensus
• Probability of effect
• Temporal immediacy
• Proximity
• Concentration of effect
Intrinsic Factors
• Moral awareness
• Individual values
• Cognitive factors
• Individual differences
• Demographic variables
Individual Ethical Decision- Overall
making and Ethical Behaviour Organizational
Outcomes
Extrinsic Factors
• Organizational ethical climate
• Group processes
• Level of accountability
• Performance management
system
than ethics. Once ethical values have been raised to the Low High
High Self-interested Value conflict/
level of awareness, they will be a significant force in an
behaviour Identification
individual’s decision-making. Awareness is the critical Low Indifference
causal antecedent of ethical behaviour.
Hence, organizations could improve the concern for two. With the rising concern for ethics in the society, the
ethics by increasing moral awareness through interven- human resource managers will have to worry about the
tions such as circulation of code of ethics. Seminars, alignment of individual values with organizational eth-
talks, conferences, and other socialization techniques ics.
could enhance the moral awareness and thus the concern Cognitive factors: Cognition significantly determines
for ethics. human behaviour. Research has extensively studied the
Individual values: Individual values strongly influence impact of cognitive factors like cognitive moral devel-
the choices of managers. They manifest themselves as opment and perceived self-efficacy on ethical behaviour
interests and motives and thus determine one’s behav- and ethical decision-making.
iour. In an organization, problems arise when the indi- Cognitive moral development is one of the impor-
vidual values and the organization’s ethics differ and tant factors in ethical decision-making (Wimbush, 1999).
contradict each other. The intensity of the problem can He conceptualized it as a way to describe and explain
vary depending upon how strong the individual’s val- the ethical decision-making processes of individuals.
ues are and what the consequences of compliance or non- According to him, individuals proceed sequentially
compliance of the organizational standards are. In most through three levels of development—pre-conventional,
cases, individual values have greater influence on the conventional, and post-conventional or principled.
decision-making than the organization’s ethical stand- In the pre-conventional level of cognitive develop-
ards. Hence, the improved concern for ethics in decision- ment, the individual’s decisions are based purely on self-
making requires an alignment of individual values with interest without taking others into consideration. At this
organizational ethics. This could be achieved through level, the individuals often act in order to avoid pun-
an appropriate staffing and value-based selection sys- ishment and, even if they take ethical decisions, they are
tem. Organizations are likely to have increasing concern due to enlightened self-interest rather than altruistic
for individual values in the recruitment and selection motives. At the conventional level, the individuals re-
processes with increasing concern for ethics. Organiza- cognize the potential impact of their decisions on others
tions may also be required to develop mechanisms to and thus follow rules, procedures, and laws. In the post-
ensure adequate consequences of compliance and non- conventional level, the individuals have high orientation
compliance of ethics in decision-making by managers. towards morality, their moral behaviour being directed
The framework in Table 1 explains the possible by internalized principles.
consequences of the interaction between individual According to Wimbush (1999), the employees in the
values and organizational ethics. It proposes that dif- third level continue to take ethical decisions and act
ferences in the individual and the organizational value ethically independent of other influencing factors such
can result in various outcomes. Value conflict may arise as the organization’s ethical climate and the reinforce-
when both individual and organizational values are very ments from the supervisors. Apart from being highly
strong. There may also be strong identification of man- ethical in their decisions and behaviour, individuals at
agers with the organization when strong individual the third level of moral development may try to stop
values and high ethical standards of the organization are others from engaging in unethical conduct or resort to
in alignment. whistle-blowing if unethical actions occur (Trevino, 1986).
On the other hand, when both entities have weaker Self-efficacy, the other cognitive variable influenc-
value system, the consequence will not be significant ing ethical decision-making and behaviour, refers to
and there will be abundant interdependence between the confidence in one’s coping ability across a wide range
Deciding to implement the Tata code of conduct The workshops for the families were primarily
was easy for us. We had always believed in ethical restricted to the senior management levels. The ethics
practices. However, we had to ensure that every counsellor stated that implementation of the code was
one of more than 50,000 employees practised the more critical for this group of employees. “Owing to
code. larger responsibilities, they experience more tempta-
tions for violation of the code,” he explained.
To implement the code of conduct, the company Having organized the workshops, the company
created a new position of ‘ethics counsellor’ at the senior looked into the possibility of integrating ethics in the
management level. He was internally identified and performance management system. Every month, one
made to report to the Managing Director of the company ethics coordinator was rewarded on the basis of quality
for the day-to-day functioning. However, he directly of work. The employees and other stakeholders were
reported to the group headquarters. In his own words: rewarded whenever they demonstrated unique beha-
The company management encourages me to in- viour of high moral value. However, the company de-
teract directly with the group headquarters. On cided not to make it a part of performance appraisal
my part, I discuss most of the issues with the MD system as the management felt that following the code
to facilitate better voluntary implementation of was not a matter of discretion. Any proven violation of
the code of conduct by the employees. the code was viewed seriously. In fact, one of the
employees was dismissed from the company for viola-
In every department, one person was identified by
tion of the code of conduct. The news was widely
the head of the department to additionally look after the
publicized though the name of the employee was not
implementation of the code of conduct in the depart-
revealed.
ment. These ethics coordinators reported to the ethics
The outcome of these efforts was found to be en-
counsellor directly on matters related to ethics. How-
couraging. One of the executives stated, “I received an
ever, for other purposes, they continued to report to the
honorarium of Rs. 2,000 for delivering a lecture in one
heads of their respective departments. The ethics coor-
of the prestigious management institutes. I proactively
dinators in consultation with the ethics counsellor or-
asked the ethics counsellor whether I could accept such
ganized a large number of awareness programmes every
payment. I did not want to violate the code of conduct
year. Such programmes were extended to the other
even by mistake. I strongly believe in the ethics of the
stakeholders like suppliers and dealers of the company.
company.”
Having succeeded in creating awareness among the The executives were extremely happy when they
employees, the ethics counsellor organized nearly 15 realized the advantage of the code of conduct in main-
awareness programmes for the families of the execu- taining their relationships with external stakeholders.
tives. The family members were made to feel proud that The managers found it difficult to interact with govern-
one of them was part of a ‘value-based’ organization. ment officials without arranging for any favours in the
The ethics counsellor stated: early days after implementing the code of conduct.
However, the executives continued to insist on the
We realized that it was not adequate to create directives of the top management and the principles of
awareness among the employees alone. Fre- the code of conduct. Slowly, the officials realized that
quently, executives succumb to the temptation of the company would continue to follow the code hon-
accepting favours owing to the unreasonable estly. They stopped seeking gratifications from the
expectations of the family members. Further, we company. One of the managers summarized the issue
also realized that if the families of the employees in the following words:
tion of a role model stature. P2: Concern for ethics is likely to increase with the increase in
Structurally, organizations would require integrat- moral awareness.
ing ethics with the existing activities of the managers P3: Socialization in organization is likely to improve ethical decision-
at different levels. The people associated with the im- making in organizations.
plementation of ethical practices will have to be pro- P4: Accountability is likely to be positively related to ethical decision-
tected from possible risks by developing alternate re- making and behaviour among managers.
porting mechanisms for ethical issues. Hence, the exist- The following propositions based on earlier literature require
ing reporting relationship will alter for ethics-related further research as this study could not validate them:
decisions. Further, intense socialization will be required P5: Employees with higher organizational responsibilities tend to
at different levels to indoctrinate organizational values be more unethical in their decisions than employees with lower
responsibilities.
and ethical practices. The socialization that leads to a
P6: Individuals with high self-efficacy are likely to adopt more
voluntary adoption of practices is likely to lead to better
ethical choices in their decision-making.
implementation of ethical practices.
P7: High achievement orientation of managers is likely to lead to
The guidelines regarding ethical practices should
lack of ethics in decision-making by managers.
be documented and widely circulated among all the
P8: Output-oriented performance management systems are likely
stakeholders including the family members of senior
to lead to lack of ethical concerns in decision-making in
managers. The efforts that lead to a sense of pride in organizations.
adopting ethical practices among the family members P9: Thrust on processes rather than on output in performance
is likely to deliver better results. management system is likely to lead to ethical decision-making
in organizations.
The propositions in this paper are tentative. They
need to be confirmed with further studies. The suggested
framework should guide future research to extend the studies with large sample size are likely to be helpful
notion of ethics from ‘concept’ to ‘practice.’ Longitudinal in this regard.
• National interest
• Cooperation of Tata companies
• Financial reporting and records • Public representation of the company and the group
• Competition (support for open market economy) • Third party representation
• Equal-opportunities employer • Use of the Tata brand
• Gifts and donations (employees shall neither receive nor offer • Group policies
or make, directly or indirectly, any illegal payments, remuneration,
gifts, donations or comparable benefits which are intended to • Shareholders
or perceived to obtain business or uncompetitive favours for the • Ethical conduct
conduct of its business) • Regulatory compliance
• Government agencies (Not to offer or give any company funds • Concurrent employment
or property as donation to any government agencies or their
representatives….) • Conflict of interest
Acknowledgement • The authors are grateful to Mr B M P Ganesh is a research scholar in the Humanities and
Muthuraman, MD, Tata Steel, Ms Rekha Seal, Ethics Social Sciences Department at IIT, Mumbai. An M.Phil. in
Counsellor, Tata Steel, and other managers of Tata Steel for Psychology from the University of Madras, he is currently
their cooperation. working in the area of work behaviour in virtual teams. He
was earlier associated with IIM, Ahmedabad as a Trainee
Sunil Kumar Maheshwari is a Professor in the Personnel Academic Associate.
and Industrial Relations area of the Indian Institute of e-mail: mpganesh@iitb.ac.in
Management (IIM), Ahmedabad. A Fellow from IIM,
Ahmedabad, his current research interests are strategic
human resource management, turnaround management, and
management of healthcare institutions.
e-mail: sunilm@iimahd.ernet.in