BUSINESS ETHICS

Lecture 9
Organisational Values and Culture
Learning Outcomes:

At the end of this unit, students must be

able:
 to understand how organization manages ethics.

 The role of leadership in enhancing good ethics

in the organization.
 Applying good ethics to organisational cultures.
Learning Objectives:

• Understand organisation ethics and the role of

leadership.
• Strategies of improving organisational ethical
behavior.
• Aligning ethics to organisational cultures.
Company’s Name – Tommy’s Toys

Nature of Biz : Toy industry’s manufacturer

Mission : serve a better child creativity

Improve kids skills and creativity

Good ads
Happy Happy: education

• Mission: to achieve children more clever

• Need good word to mouth among your

customer
• Need to do ads big scale and target the
market
Ethical Thought
“In fact, meaningful leadership –
leadership that in the long run counts for
something – cannot be accompanied by
moral collapse. The leader who acts
ethically will ultimately succeed. The
leader who lacks in ethical foundation will
ultimately fail.”

Willard C. Butcher, retired chairman of Chase

Manhattan Corporation
A model of the ethical decision-making
process
Individual characteristics:
•Individual differences
•Cognitive biases

Individual ethical decision-

making & behavior
Moral Ethical
Moral
judgment Behavior
awareness

Organizational characteristics:
•Group & organizational pressures
•Organizational culture
Body Shop – mission and core values

 “The business of business should not just be

about money, it should be about responsibility. It
should be about public good, not private greed.”

 5 core Values: Support Community

• Fair Trade,
• Defend Human Rights,
• Against Animal Testing,
• Activate Self-Esteem,
• Protect Our Planet.
Wakenhut’s Core Values

• Customer focus
• Partnership
• Employees
• Professionalism
• Benchmarking
• Innovation and versatility
The Role of Power and Influence in
Ethical Decisions
• Abuse of power can lead to rampant unethical
behavior, resulting in the ultimate collapse of the
organization (examples: WorldCom and Enron)
• Using power in an ethical manner:
• Power being exercised to benefit others who
have granted the decision maker the power
with the expectation that the decision maker will
serve others
• Power conforms to both the legal and accepted
cultural standards of what is considered to be
ethical behavior
The Role of Power and Influence in
Ethical Decisions

• Influence: the ability to change the viewpoint of

another person based on your verbal and
nonverbal actions.

• Manipulation: occurs when the true intentions of

the person are hidden and may only be evident
after the decision has been implemented.
The Curse of Unethical Cultures-Factors
that affect whether an employee will
commit fraud
• Financial condition of the • Personal traits and
organization characteristics of executives
• Pressure to show profits in and employees
the marketplace • Reward systems for ethical
• Internal accounting controls behavior
• The state of the economy • Organizational culture and
• Integrity level of corporate dynamics
leaders and employees • Peer pressure
• Commitment to the • The perception of detection
organization’s value system • The swiftness, certainty, and
severity of punishment
The Responsibility of Managers

• A strong ethical value system can be

translated into a competitive advantage
• Used by a firm to help differentiate the firm’s
products and services in the marketplace
• May help convince potential customers to
purchase goods and services
Addressing Ethical Decision Making from
a Global Perspective
• Egoism: refers to individuals who view decisions based
on their self interests.
• Utilitarianism: refers to making decisions that do the
greatest good for the greatest number of people.
• Formalism: focuses on ethical issues based on what
the laws and norms of society represent instead of the
actual content of the laws
Ethical Decision Making and Ethical
Leadership

Habits of strong ethical leaders:

1. Ethical leaders have strong personal character.

2. Ethical leaders have a passion to do right.

3. Ethical leaders are proactive

4. Ethical leaders consider stakeholder’s interests

5. Ethical leaders are role models for the

organisation’s value.
6. Ethical leaders are transparent and active

7. Ethical leaders are competent and holistic

in perspective.
Ethical Leadership: A Link Between
Strategic Planning and Corporate Culture

• Traits: fairly stable and predictable personal

characteristics that would remain consistent over
time
• Integrity: the quality of being honest & having
strong moral principles
• Honesty: the quality of being honest
• Trustworthiness: able to be relied on as honest
or truthful
Ethical Leadership: A Link Between
Strategic Planning and Corporate Culture

• Behaviors: must be consistent with what

the manager is saying
• Do the right thing
• Concern for people
• Being open
• Personal morality
Ethical Leadership: A Link Between
Strategic Planning and Corporate Culture

• Decision Making
• Hold on to values

• Objective/fair

• Concern for society

• Follow ethical decision rules

Ethical Leadership: A Link Between
Strategic Planning and Corporate Culture
• Moral Manager
• Transfer of moral value within the moral
manager to those he/she interacts with is
based on how the moral manager is able to
communicate the ethical values to others
• Should be a role model of ethical behavior –
actions become models for subordinates
• All supervisors are not moral persons nor are
they moral managers
Moral Persons and Moral Managers

• Unethical Leader
• Weak moral person and weak moral managers
• Drive to reward their own self-interests.
• Ethical Leader
• Should be the ultimate ethical goal of any
manager
• Ability to use grounded ethical characteristics
and transfer them to others within the
organization through the characteristics of a
moral manager
Moral Persons and Moral Managers

• Hypocritical Leader
• Manager has destroyed all three of the critical traits of
a moral person
• Inconsistent Leader
• A manager who has strong ethical traits, behaviors
and decision making of a moral person, but is not
able to transfer those values to other employees
• Inconsistent because of the contradictory strength of
the individual moral values and weak characteristics
of a moral manager
Corporate Culture

• The shared values and beliefs of

employees within any given organization
• Based on the norms and behavior patterns
• Can be used by a firm to establish
structural stability and integration of
different components within the firm
 Unethical Activities
• False/misleading promises to
customers
• Violation of workplace
health/safety rules
• Employment discrimination
• Violation of employee rights to
privacy
• Sexual harassment or hostile
work environment
• Carelessness with
confidential/proprietary
information
• Activities posing a conflict of
interest
• False/misleading information to
the public or media
• Unfair competition/antitrust
• Substance abuse
• Environmental breaches
• Offering or paying bribes to
foreign officials
• Falsifying product quality/safety
test results
• Offering improper gifts, favors,
or entertainment to influence
others
• Shipping a product that does
not meet quality/safety
standards
• Dishonesty/unfair treatment of
suppliers
• Falsification/improper
manipulation of financial data
• Embezzling funds or stealing
from the organization
• Making false/misleading
statements to government
regulators
• False/misleading information to
investors or creditors
• Trading company shares based
on insider information
• Improper political contribution
to domestic officials
Three Levels Existing with Corporate
Culture
• Artifacts: factors such as what is seen and
heard within a firm
• Shared Values: based on what groups within
the firm learn about what is acceptable or not
acceptable
• Basic Assumptions: the agreed starting point for
decision making within the firm; linchpin for the
establishment and maintenance of an ethical
culture
How Managers Can Change a
Corporate Culture

a) Primary Embedding Mechanisms

- control and measure on regular basis
- teaching and coaching
b) Secondary Articulation and
Reinforcement Mechanisms
• - organisation design and structure

• - organisational systems and processes

How to Change Ethical Values

• Three stage model – ‘cognitive redefinition’:

• Stage 1: Unfreezing of the individual’s
existing beliefs
• Stage 2: Occurs when the beliefs have been
unfrozen and the perceptions and attitudes of
the individual are allowed to move to a new
state
• Stage 3: The refreezing takes place
Changing Corporate Culture

• Management’s Responsibility:
• Verify that ethical decisions are made by all levels of
employees
• Develop an organization culture that supports the
ethical decision making process
• Formalizing a culture of ethics:
• Define your philosophy and corporate values in a
mission statement
• Develop guidelines for employees
• Establish a formal channel for employees to report
violations
Creating a Climate of Integrity

• Set an example through strong leadership

• Set realistic goals
• Provide training
• Distinguish between compliance and
ethics
Role of a Code of Ethics
• Code of ethics: a written document that
explicitly states what acceptable and
unacceptable behaviors are for all of the
employees in the organization.
• Represents the identification and interpretation of
what the firm considers acceptable behavior
• Components impacting the development of the
ethical standards of the firm:
• Social value
• Institutional factors
• Personal factors (gender,age, education and
nationality)
• Organizational factors (corporate culture, ethical
culture etc)
• Rewards (intrinsic and extrinsic rewards)
Code of Ethics and Stakeholders

• Code allows firm to declare its ethical

vision to all stakeholders
• Companies should consider four ethical
values when developing a code of ethics:
• Integrity
• Justice
• Competence
• Utility
Purpose of a Code of Ethics – achieving
internal organisational goals
• Raise ethical awareness and expectations by
establishing standards of morally acceptable behaviour
within an organisation.
• Prevent unethical behaviour by stipulating that specific
conduct will not be tolerated by the organisation.
• Promote ethical behaviour by articulating the ethical
values that should guide members of the organisation in
their actions and decisions.
• Promote organisational integration and co-ordination –
strengthen the commitment of employees and
management to the organisation.
Purpose of a Code of Ethics – satisfying
external stakeholders
• Promote the reputation of the organisations
amongst its external stakeholders.
• Pacify external stakeholders (i.e special interest
groups) who might have expressed concern
about specific aspects of an organisation’s
actions
• Deflect state interference in the internal affairs of
a business.
Format of the Code of Ethics

• Two basic formats:-

a) Aspirational Codes – a short document
that spells outs the ethical values that
should guide behaviour in an organisation.
• Benefits: concise and brief document,
discretion of people to apply appropriate
ethical values
• Weaknesses: does not provide specific
ethical guidance
Format of the Code of Ethics

a) Directional Codes – provides specific

guidelines about what is expected from
members of an organisation in specific
circumstances.
• Benefits: clear guidance, easy to enforce.
• Weaknesses: difficult to remember all
items, does not allow much discretion
Content of a Code of Ethics

Categories in codes of ethics:

• Rationale for the code

• Ethical values or standards
• Guidelines for conduct
• Sanctions
• References for resources
Code of Ethics Content Areas
• Fiduciary responsibilities
• Compliance
• Accounting
• Governance
• Member communications
and confidentiality
• Commitment to learning
and skill enhancement
• Absence of prejudice and
harassment
• Conflict of interest
• Human resources
• Cooperation with other
credit unions
• Social responsibility
Code of Ethics Content Areas
• Fiduciary responsibilities
• Compliance
• Accounting
• Governance
• Member communications
and confidentiality
• Commitment to learning
and skill enhancement
• Absence of prejudice and
harassment
• Conflict of interest
• Human resources
• Cooperation with other
credit unions
• Social responsibility
 The Ethics Audit

• Systematic evaluation of an
organization’s ethics program and
performance to determine whether it
is effective
• Regular, complete, and
documented measurements of
compliance with policies and
procedures
• Can be a precursor to
establishing an ethics program
• Helps to identify the firm’s current
ethical standards, policies, and
risk areas
The Social Audit

• Process of accessing and reporting a

business’s performance in fulfilling the
economic, legal, ethical, and philanthropic
responsibilities expected by its
stakeholders
• Broader in scope than an ethics audit

• An ethics audit might be a component

of a social audit
Benefits of an Ethics Audit

• Identify potential risks and liabilities and

improve legal compliance
• Can be key in improving organizational
performance
• Improved relationships with stakeholders
• Pressure to account for actions in areas
including corporate governance, ethics
programs, customer relationships, employee
relations, environmental policies, and
community involvement
 The Auditing Process

• Secure top management and board commitment

• Establish an ethics audit committee
• Define the scope of the audit
• Review the organizational mission, goals, and values
• Collect and analyze relevant information
• Verify the results through an outside agent
• Report the findings to
• Audit committee, managers, and stakeholders
Strategic Importance of Ethics Auditing

• Should be conducted regularly

• Provide a benchmark of overall effectiveness
of ethics initiatives
• Can be important in asset allocation and
program development
• Can demonstrate the positive impact of
ethical conduct and social responsibility
initiatives on the firm’s bottom line