Social Responsibility and Business

Ferrell/Thorne/Ferrell

CHAPTER 6

Strategic Approaches to
Improving Ethical Behavior
The Need for
Organizational Ethics Programs
• Organizations are held accountable for the conduct of
their employees.
– Without such programs, employees may not understand
acceptable behavior.
• Organizations can create unethical corporate cultures.
– Pressure to succeed
– Rewarding the wrong behavior
• Stakeholders demand greater ethical and
social responsibility.
Root Causes of Misconduct
Codes of Conduct

• Formal statements that describe what an

organization expects of its employees
– Reflect the board of directors and senior
management’s desire for organizational
compliance
– Assess key risks for the organization
Codes of Conduct (cont.)

• May address issues related to:

– Policies and procedures
– Government law and regulation
– Relationships with customers, suppliers,
and competitors
– Acceptance of gifts, travel, and entertainment
– Political contributions
– Expense reporting
– Conflicts of interest
– Business payments
Developing and
Implementing a Code of Ethics
• Consider areas of risk and state values as well as necessary
conduct.
• Identify values that specifically address current
ethical issues.
• Consider values that link the organization to a stakeholder
orientation.
• Make the code understandable by providing
examples that reflect values.
• Communicate the code frequently in language employees can
understand.
• Revise the code each year.
Texas Instruments
Ethics Quick Test
• Is the action legal?
• Does it comply with our values?
• If you do it, will you feel bad?
• How will it look in the newspaper?
• If you know it’s wrong, don’t do it!
• If you’re not sure, ask.
• Keep asking until you get an answer.
Ethics Officers

• Assess organizational needs and risks

• Develop and distribute the code of ethics
• Conduct ethics training programs
• Establish and maintain a confidential system to
respond to ethics questions
Ethics Officers (cont.)

• Make certain the company is in compliance

with government regulation
• Monitor and audit ethics conduct
• Take action when there is a code violation
• Review and update the code
Ethics Officers (cont.)

• Ethics officers are often recruited from other

positions within the organization.
• In most firms, they do not report directly to
the board of directors.
• The are responsible not only for understanding
pertinent regulations, but also for
understanding how to communicate and
reinforce values.
Ethics Training and Communication

• Educates employees about the firm’s policies,

expectations, relevant laws and regulations,
and general social standards
• Makes employees aware of available
resources, support systems, and personnel
who can assist with ethics and legal advice
• Can empower employees
Factors Crucial to Ethics Training
• Identifying the key ethical risk areas
• Relating ethical decisions to the organizations values and
culture
• Communicating company codes, policies, and procedures
regarding ethical business conduct
• Providing leadership training to model desired behavior
• Engaging in regular training events using a variety of
educational tools
• Establishing manuals, websites, and other communication to
reinforce ethics training
• Evaluating and using feedback to improve training
Training and
Communication Initiatives
• Should reflect the unique characteristics of an
organization
– Size, culture, values, management style, and employee
base
• Must operate with a strong foundation
– Code, ethical concerns procedures, line and
staff involvement, and executive support
• Are more effective if employees engage
in exercises that involve solving ethical dilemmas
that relate to their job
Establishing Systems to Monitor
and Enforce Ethical Standards
• Help or assistance lines
– Report and request assistance with ethical concerns
• Observation and feedback
– Determine level of adequacy in handling ethical issues
• Whistle-blowing
– Exposing an employer’s wrongdoing to
outsiders, such as the media or government agencies
– Protection for accurate exposures
Propensity to Report Misconduct
Questions to Ask Before
Engaging in External Whistle-blowing
• Have I exhausted internal anonymous reporting opportunities
within the organization?
• Have I examined company policies and codes that outline
acceptable behavior and violations of standards?
• Is this a personal issue that should be resolved through other
means?
• Can I manage the stress that may evolve from exposing
potential wrongdoing in the organization?
• Can I deal with the consequences of resolving an ethical or
legal conflict within the organization?
Continuous Improvement
of the Ethics Program
• Putting strategies into action
• Translating a plan of action into operational
terms and monitoring, controlling, and
improving organizational performance
Implementing
Organizational Ethics Programs
• Role of leadership
– Transformational leaders
• Communicate a sense of mission, stimulate
new ways of thinking, and enhance as well
as generate new learning experiences
• Consider employee and organizational
needs
Implementing
Organizational Ethics Programs (cont.)
• Role of leadership (cont.)
– Transactional leaders
• Make certain that the required conduct and
procedures are implemented
• Require employees to achieve a desired level of
ethical performance
Leaders influence Corporate Culture

• Organizational leaders use their power and

influence to shape corporate culture. Power
refers to the influence that leaders have over
the behavior and decisions of subordinates.
• Exerting power is one way to influence the
ethical decision-making framework.
Perceived Tone and Culture; Tone at the
Top; and Perceptions of CEOs
and Other Senior Executives

Figure 6.6 here

Five Power Bases

• There are five power bases from which one

person may influence another:
– Reward power
– Coercive power
– Legitimate power
– Expert power
– Referent power
The Role of an
Ethical Corporate Culture
• Top management provides a plan for the corporate
culture.
• If executives and CEOs do not explicitly address
issues, a culture may emerge where unethical behavior
is sanctioned and rewarded.
• To be successful, ethical standards and expected
behaviors should be integrated throughout every
organizational process from hiring, training,
compensating, and rewarding to firing.
Steps for Changing the
Ethical Culture of an Organization
Variation in Employee Conduct

• Because people are culturally diverse and

have different values, they interpret
situations differently and will vary in the
ethical decisions they make on the same
ethical issue.
Variation in Employee Conduct