CHAPTER THREE

2. ORGANIZATIONAL AND MANAGERIAL ETHICS

2.1. Ethical Management

2.1.1. Introduction

Facilitative and positive leadership is linked to ethics in management, and it begins with a solid
understanding of the self. Some argue that the key elements to positive leadership are self-
awareness, self-discipline, and self-efficacy, which then leads to the servant leader, who serves
the corporation and the workers by focusing on corporate objectives and goals rather than
personal goals. Therefore, based on the above concept Ethical management defined as; Ethical
management is the knowledge of standards in both accounting and corporate governance, and
recognition of the link between ethics and organizational sustainability.

The ethics of management is tied closely to the pursuit of worker motivation, value acquisition
and learning principles. Management must serve the company. Ethical managers must never
serve themselves or their own personal agendas. To increase ethics in management, managers
can nurture and foster their teams and workers by improving performance through the use of
learning and value acquisition tools such as seminars, tuition reimbursement for outside courses
relating to work and job performance, and encouraging workers to gain transferable skills which
will benefit their careers. Ethical managers do not practice negative power and realize that
educating a workforce can only help meet the company's objectives and goals.

Every time a new business is launched anywhere in the world, whether a one-man operation or a
full blown brick-and-mortar corporate enterprise, the owners must adopt a code of ethics for the
business. For small businesses, the code is usually unwritten and sometimes not even discussed
and decided upon, but still a code exists. Larger businesses often have written codes of ethics and
employees are trained in them and required to adhere to the code.

Business owners who toss ethics aside by promising one thing and delivering another thing
entirely usually do not last long in the marketplace. A code of ethics in business is just as
important as a sound marketing plan, a solid financial strategy, and an organized business plan.

Code of ethics

A code of ethics must encapsulate the beliefs and values of the organization. Those beliefs and
values should become internalized by all employees and used regularly in all business practices,
no matter the type of business. Owners of businesses that routinely engage in unethical practices
cannot help but pass those values and principles along to the other people working in the
business. Small businesses suffer even more, because unethical behavior and actions are easier
for customers to take notice of. Once customers become aware that a business does not have high
ethical ideals, they will take their business elsewhere.

Codes of ethics vary among businesses, and also from one country to another. Some Far Eastern
companies, for example, would never think of trying to create a monopoly, force other
companies out of business, or use intimidation to acquire a dominant position in the market. But
few western organizations would create a code of ethics that intended to consciously avoid a
powerful stance in the marketplace.

Today, more than ever before, consumers pay a great deal of attention to corporate governance
and proper behavior of businesses and their owners. Because the marketplace is flooded with
numerous variations of the same businesses, promises must be fulfilled and the price and quality
of products must be equal to what is advertised, or another business will step in to deliver.
Therefore, a code of ethics—whether unarticulated or formally documented—is vital to ensuring
that a business will succeed.

A code of ethics that is both defined and acted upon is part of the business culture of every
successful business, and must become the mantra of every business owner. Growing a
flourishing business through the use of sound ethical principles will reap not only the benefits of
growth and prosperity, but also the satisfaction of being able to sleep soundly at night.

Managerial ethics

Managerial ethics illustrate a rather sensitive issue. The recent business history has proven ethics
as a rather challenging objective of larger organizations. The following topics / views may
illustrate fundamental issues in the current debate. The current competing views include
"Maximize Profit" and "society's welfare".

Maximizing profits illustrate the greatest commitment to shareholder and stakeholders. In this
particular theory, the managerial staff is only committed to maximize the bottom-line in terms of
profit: a mean to an end in order to achieve the highest possible profits. Society's welfare
illustrates a common goods approach.

In this particular approach, managerial staff attempts to achieve a balance between the bottom-
line and social welfare of the society and employees. It is of great interest to explore the
theoretical aspects of managerial issues and compare them to real practices.

Most small businesses ran by savvy business people are less concerned about ethics. Out of
extensive experience in consulting small businesses, I can confidentially state that I have never
met a small business owner that was not willing to take unethical actions in order to maximize
profits. Given the fact that this is not a scientific statement, it is important to view this statement
in terms of personal experiences, which conflicts with the academic management practices.
Moreover, there is more to the issue of ethics. Given the fact that both competing theories
consider some sort of managerial responsibility to someone or some group, illustrates a major
weakness of both theories. Both theories fail to point to the necessity of "perception". It is
hypocritical to expect only one segment of a society i.e. businesses to create value or consider
societal consequences.

2.2. Subordinate’s Ethical Issues

2.2.1. What are the best ways to ensure ethicality in the workplace?
Subordinate’s ethical issues concerned on an organization employees. In order to ensure
ethicality in the workplace, you should consider four options:
 Leading by example
 Setting ethical goals
 Setting ethical departmental standards
 Being approachable
Leading by example
When an employee begins working for an organization, he or she determines the company's
culture and ''how things are done'' based largely on the acts of his or her immediate supervisor.
Therefore, it is important to realize that the best way to ensure ethicality in the workplace is to be
a living example of ethicality.
As a manager, you need to be aware that your actions have a large impact on how your
subordinate employees behave in the workplace. Even a manager with thorough, ethical goals
and standards will struggle with ethicality amongst subordinates if he or she does not set a good
example by behaving ethically.
Setting ethical goals
Another way you can ensure ethicality is to set ethical goals. When ethical goals are established,
they serve as a proactive approach to ensuring ethicality in the workplace. Goals should be
specific, objective, and measurable.
An example of an ethical goal is requiring that all of your subordinate employees take a training
course about sexual harassment.
Setting ethical departmental standards
Setting ethical departmental standards is yet another way to ensure ethicality in the workplace.
These standards should reflect the ethical intentions of the department. By setting ethical
standards, you are taking a proactive approach to discouraging unethical behavior.
An example of an ethical departmental standard would be to use standardized forms when
evaluating and disciplining employees. Such forms will ensure that managers do not act
unethically during evaluations by using different criteria when evaluating subordinate
employees.

Being approachable
It is important for managers to be approachable. An open-door policy is one in which a manager
allows his or her subordinate employees to approach him or her with an issue. In order for your
open-door policy to be effective, you must be sure that you are both available and approachable.
Sometimes, a manager claims to have an open-door policy, but his or her subordinate employees
do not feel comfortable approaching the manager. Subordinate employees may be reluctant to
approach the manager because they feel he or she will not be receptive to the discussion.
2.2.2. Individual differences in employees’ ethical perspectives (Reading Assignment)
Individual differences among the subordinates might contribute to the difficulty of determining
the nature of the relationship between leader integrity and employees’ ethical intentions.
Individual factors may also have an impact on the manner in which situational variables
influence ethical attitudes. An individual variable that would seem likely to moderate the
influence of situational variables is the degree to which a person believes in universal moral
rules. That is, some individuals may believe that certain acts (e.g. not being truthful), are always
wrong. Other individuals may reject the notion that there are universal moral rules and assume
that what constitutes ethical behavior depends on the situation or outcome of the behavior. The
possibility that individuals differ in terms of the degree to which they believe in universal moral
rules versus the belief that ethics is relative has been incorporated into a number of theories on
ethical behavior. For example, Forsyth (1980) proposed that the beliefs of individuals varied
along a continuum ranging from a strong belief in universal moral rules to a belief that ethics is
relative. Conversely, Kohlberg’s (1969) original model viewed moral development as
progressing through a series of stages and levels.
At the highest level of moral development, the principled level, individuals are assumed to
believe in universal values or principles. It would seem logical to assume that individuals with a
strong belief in universal moral rules would not be highly influenced by the views of relevant
others, such as the leaders in the organization. According to Forsyth’s model, individuals who
adhere to a belief in universal moral rules are expected to resolve ethical dilemmas based solely
on these universal rules.
Conversely, it might be reasonable to expect individuals who do not adhere to a belief in
universal moral rules could be influenced by external factors or referent others in determining
what is ethically appropriate. In Forsyth’s framework, individuals who do not adhere to a belief
in universal moral rules are expected to evaluate ethical dilemmas based on a personal analysis
of each situation. According to Kohlberg’s model, individuals classified at the conventional level
of moral reasoning are assumed to determine what is ethically appropriate based on the
expectations of good behavior by others, such as a family, a peer group, or society in general.
Based on these theories, it might be logical to assume that the ethical intentions of individuals
who do not believe in universal moral rules could be influenced by referent others, as well as the
leaders in the organization.

2.3. Organizational ethical basis (Reading assignment)

Ways of ethical approach

When talking about ethics in organizations, one has to be aware that there are two ways of
approaching the subject--the "individualistic approach" and what might be called the
"communal approach." Each approach incorporates a different view of moral responsibility and
a different view of the kinds of ethical principles

that should be used to resolve ethical problems.

More often than not, discussions about ethics in organizations reflect only the "individualistic
approach" to moral responsibility. According to this approach, every person in an organization is
morally responsible for his or her own behavior, and any efforts to change that behavior should
focus on the individual.

But there is another way of understanding responsibility, which is reflected in the "communal
approach." Here individuals are viewed not in isolation, but as members of communities that are
partially responsible for the behavior of their members. So, to understand and change an
individual's behavior we need to understand and try to change the communities to which they
belong.

Any adequate understanding of, and effective solutions to, ethical problems arising in
organizations requires that we take both approaches into account. Recent changes in the way we
approach the "problem of the alcoholic" serve as a good example of the interdependence of
individual and communal approaches to problems. Not so long ago, many people viewed an
alcoholic as an individual with problems. Treatment focused on helping the individual deal with
his or her problem. Today, however, the alcoholic is often seen as part of a dysfunctional family
system that reinforces alcoholic behavior. In many cases, the behavior of the alcoholic requires
that we change the entire family situation.

These two approaches also lead to different ways of evaluating moral behavior. Once again, most
discussions of ethical issues in the workplace take an individualistic approach. They focus on
promoting the good of the individual: individual rights, such as the right to freedom of
expression or the right to privacy, are held paramount. The communal approach, on the other
hand, would have us focus on the common good, enjoining us to consider ways in which actions
or policies promote or prohibit social justice or ways in which they bring harm or benefits to the
entire community.
Using the two approaches to dealing with ethical problems in organizations will often result in a
greater understanding of these problems. There are times, however, when our willingness to
consider both the good of the individual and the good of the community leaves us in a dilemma,
and we are forced to choose between competing moral claims. Affirmative Action Programs, for
example, bring concerns over individual justice into conflict with concerns over social justice.
When women and minorities are given preferential treatment over white males, individuals are
not treated equally, which is unjust. On the other hand, when we consider what these programs
are trying to accomplish, a more just society, and also acknowledge that minorities and women
continue to be shut out of positions, (especially in top management), then these programs are, in
fact, indispensable for achieving social justice. Dropping preferential treatment programs might
put an end to the unfairness of treating individuals unequally, but to do so would maintain an
unjust society. In this case, many argue that a communal approach, which stresses the common
good, should take moral priority over the good of the individual.

When facing such dilemmas, the weights we assign to certain values will sometimes lead us to
choose those organizational policies or actions that will promote the common good. At other
times, our values will lead us to choose those policies or actions that will protect the interests and
rights of the individual. But perhaps the greatest challenge in discussions of ethics in
organizations is to find ways in which organizations can be designed to promote the interests of
both.

Ethical Issues in Organizational Behavior (Reading assignment)

Ethical decisions play a very important role in an organization. Ethics is the concept of good and
bad behavior. Ethical behavior is governed by state, federal, and local laws. It is important for an
organization to promote good moral choices and do everything in its power to prevent unethical
behavior from taking place in the workplace. This can be achieved through continuous training
and reinforcement of the desired behavior. Unethical behavior in the workplace can be
detrimental to an organization because it is both costly and can ruin a good relationship between
business associates.
There are several influences on ethical behavior. They can range from the diversity of the
workforce to the technology used in the organization to the quality that is now required of the
products produced by an organization. Diversity can become an issue when a manager uses
personal race related biases in organizational decisions. Technology can be an issue when proper
training is not available to the employees in an organization. The fact that the employee is not
trained properly makes them more likely to make a mistake or incapable of performing job
duties. Quality can become an issue when an organization does provide its employee with the
tools necessary to provide products within the specifications of their customers’ requirements.
An employee is then forced to make a decision on whether or not to continue in the development
of the less than required product. All of these influences to ethical behavior can be traced back to
a system breakdown.
An organization can influence the ethical behavior of employees in several ways. First the
organization can offer some kind of reward for behavior defined as ethical. This will give the
employee reason to continue making the “right” or desired organizational behavior. Continuous
training will enable the employees to efficiently perform specified job duties.
Other Factors Impacting Organizational Ethics
Many factors impact ethical decisions employees and managers make on a daily basis, including:

 Corporate culture
 Existence and application of a written code of ethics
 Formal and informal policies and rules
 Norms for acceptable behavior
 Financial reward system
 System for recognizing accomplishment
 Company attitude toward employees
 How employees are selected for promotions
 Hiring practices
 Applications of legal behavior
 Degree to which professionalism is emphasized
 The company's decision making processes
 Behaviors and attitudes of the organization's leaders

2.4. Ethical principles

Business ethics are the key to profits. If clients and customers don't trust you, and your business
ethics, they will not do business with you. Would you buy from a company you didn't trust? Of
course not!

Business ethics have become a hot-button topic. There are often ethical conflicts between
making money, and doing what is right. There can be dilemmas about doing what is best for your
employer, what's best for your own career, and what's best for the customer. Business ethics is
about negotiating these mine-fields. Here are my Top 10 Principles for Positive Business Ethics:

1. Business Ethics are built on Personal Ethics: There is no real separation between doing
what is right in business, and playing fair, telling the truth and being ethical in your personal
life.

2. Business Ethics are based on Fairness. Would a dis-interested observer agree that both sides
are being treated fairly? Are both sides negotiating in good faith? Does each transaction take
place on a "level playing field"? If so, the basic principles of ethics are being met.
3. Business Ethics require Integrity. Integrity refers to whole-ness, reliability and consistency.
Ethical businesses treat people with respect, honesty and integrity. They back up their promises,
and they keep their commitments.

4. Business Ethics require Truth-telling. The days when a business could sell a defective
product and hide behind the "buyers beware" defense are long gone. You can sell products or
services that have limitations, defects or are out-dated, but not as first-class, new merchandise.
Truth in advertising is not only the law, business ethics require it.

5. Business Ethics require Dependability. If your company is new, unstable, about to be sold,
or going out of business, ethics requires that you let clients and customers know this. Ethical
businesses can be relied upon to be available to solve problems, answer questions and provide
support.

6. Business Ethics require a Business Plan. A company's ethics are built on its image of itself
and its vision of the future and its role in the community. Business ethics do not happen in a
vacuum. The clearer the company's plan for growth, stability, profits and service, the stronger its
commitment to ethical business practices.

7. Business Ethics apply internally and externally. Ethical businesses treat both customers and
employees with respect and fairness. Ethics is about respect in the conference room, negotiating
in good faith, keeping promises and meeting obligations to staff, employers, vendors and
customers. The scope is universal.

8. Business Ethics require a Profit. Ethical businesses are well-run, well-managed, have
effective internal controls, and clear expectations of growth. Ethics is about how we live in the
present to prepare for the future, and a business without profits (or a plan to create them) is not
meeting its ethical obligations to prepare for the future well-being of the company, its employees
and customers.

9. Business Ethics are values-based. The law, and professional organizations, must produce
written standards that are inflexible and universal. While they may talk about "ethics", these
documents are usually prescriptive and refer to minimal standards. Ethics are about values, ideals
and aspirations. Ethical businesses may not always live up to their ideals, but they are clear about
their intent.

10. Business Ethics come from the Boss. Leadership sets the tone, in every area of a business.
Ethics are either central to the way a company functions, or they are not. The executives and
managers either lead the way, or they communicate that cutting corners, deception and dis-
respect are acceptable. Line staff will always rise, or sink, to the level of performance they see
modeled above them. Business ethics starts at the top. Ethics is about the quality of our lives, the
quality of our service, and ultimately, about the bottom line. Treating employees, customers,
vendors and the public in an ethical, fair and open way is not only the right thing, in the long run,
it's the only way to stay in business.

2.5. Ethical Safeguards

Definition
Ethical safeguards are defined here as deliberate measures and programs used by an organization
to prevent unethical behavior and to promote ethical practices--mechanisms, structures, or
pronouncements intended to encourage, guide, and regulate ethical behavior. While they vary in
number, type, and comprehensiveness, the ethics code is the most widely-used safeguard and
main point of reference for others.

Business safeguards and Controls

Now, herewith identified the strategies that are to be implemented in the business in the letter to
all relative; these are determined:

1. What safeguards to put in place to ensure that the goals identified can be pursued
ethically?  Policies, procedures, or mechanisms that when effectively applied serve to
reduce or eliminate risks that could result in harm or loss (e.g., personnel policy and
procedures, risk management policies, safety training, loss (theft) prevention training,
loss prevention devices (cameras, etc.).

2. What management process (controls) of monitoring an organization's performance to

ensure that it is meeting its goals (e.g., sales volume monitored, customer service
complaints monitored, monitoring inventory levels, keeping track of overtime expenses,
and monitoring expenses and budgets.

3. What ways will the business be socially responsible (e.g., acceptable labor standards,
legally accountable, environmentally responsible, ethical business practices, etc.)?

2.6. Corporate Social Responsibilities (CSR)

Corporate Social Responsibility - What does it mean?

One of the most frequently asked questions at this site - and probably for all those individuals
and organizations dealing with CSR issues is the obvious - just what does "Corporate Social
Responsibility" mean anyway?

Different organizations have framed different definitions - although there is considerable

common ground between them. One of definition is that CSR is about how companies manage
the business processes to produce an overall positive impact on society.
Take the following illustration:

Companies need to answer to two aspects of their operations.

The quality of their management - both in terms of people and processes (the inner
circle).
The nature of and quantity of their impact on society in the various areas.

Outside stakeholders are taking an increasing interest in the activity of the company. Most look
to the outer circle - what the company has actually done, good or bad, in terms of its products
and services, in terms of its impact on the environment and on local communities, or in how it
treats and develops its workforce. Out of the various stakeholders, it is financial analysts who are
predominantly focused - as well as past financial performance - on quality of management as an
indicator of likely future performance.

Other definitions developed by The World Business Council as "Corporate Social

Responsibility is the continuing commitment by business to behave ethically and contribute to
economic development while improving the quality of life of the workforce and their families
as well as of the local community and society at large"

The business benefits of corporate social responsibility

Corporate social responsibility (CSR) isn't just about doing the right thing. It means behaving
responsibly, and also dealing with suppliers who do the same. It also offers direct business
benefits.

Some basic benefits are:

 A good reputation makes it easier to recruit employees.

 Employees may stay longer, reducing the costs and disruption of recruitment and retraining.
 Employees are better motivated and more productive.
 CSR helps ensure you comply with regulatory requirements.
 Activities such as involvement with the local community are ideal opportunities to generate
positive press coverage.
 Good relationships with local authorities make doing business easier. See the page in this
guide on how to work with the local community.
 Understanding the wider impact of your business can help you develop new products and
services.
 CSR can make you more competitive and reduces the risk of sudden damage to your
reputation (and sales). Investors recognise this and are more willing to finance you.

Definitions of corporate social responsibility

Corporate social responsibility (CSR) is:

 An obligation, beyond that required by the law and economics, for a firm to pursue long
term goals that are good for society
 The continuing commitment by business to behave ethically and contribute to economic
development while improving the quality of life of the workforce and their families as
well as that of the local community and society at large
 About how a company manages its business process to produce an overall positive
impact on society

Corporate social responsibility means:

Conducting business in an ethical way and in the interests of the wider community
Responding positively to emerging societal priorities and expectations
A willingness to act ahead of regulatory confrontation
Balancing shareholder interests against the interests of the wider community
Being a good citizen in the community
There are four dimensions of corporate responsibility

1) Economic - responsibility to earn profit for owners

2) Legal - responsibility to comply with the law (society’s codification of right and wrong)
3) Ethical - not acting just for profit but doing what is right, just and fair
4) Voluntary and philanthropic - promoting human welfare and goodwill Being a good
corporate citizen contributing to the community and the quality of life
The Corporate Responsibility View
 Businesses do not have an unquestioned right to operate in society
 Those managing business should recognize that they depend on society
 Business relies on inputs from society and on socially created institutions
 There is a social contract between business and society involving mutual obligations that
society and business recognize that they have to each other.
Arguments for socially-responsible behavior
 It is the ethical thing to do
 It improves the firm’ public image
 It is necessary in order to avoid excessive regulation
 Socially responsible actions can be profitable
 Improved social environment will be beneficial to the firm
 It will be attractive to some investors
 It can increase employee motivation
 It helps to corrects social problems caused by business
CSR behavior can benefit the firm in several ways
 It aids the attraction and retention of staff
 It attracts green and ethical investment
 It attracts ethically conscious customers
 It can lead to a reduction in costs through re-cycling
 It differentiates the firm from its competitor and can be a source of competitive advantage
 It can lead to increased profitability in the long run